Session 11

Corporate Governance:
An Overview
Group Presentation – Part 2
Section - 1
Corporate Governance Structure of Tata Steel – REFER to ANNUAL REPORT
(Corporate Governance Chapter)
• Internal & External Corporate Governance Structure
• Internal CG Structure –
• Tata Code of Conduct (‘TCoC’) for Executive Directors (‘EDs’), Senior Management Personnel and other
Executives and Employees,
• Board of Directors - Executive Directors (‘EDs’), Non-Executive, Non-Independent Directors (‘NEDs’)
and Independent Directors (‘IDs’
• External CG Structure –
• Regulation 17 to 27 read with Schedule V and Regulation 46(2)(b)(i) of Securities and Exchange Board
of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’)
• Board of Directors -
• Corporate Governance Issues
Group Presentation – Part 2
• Section – 2
• PRINCIPAL – AGENT –
• Principals – Shareholders – (Investor Section in Annual Report – Discuss the ownership
structure – (Concentrated? Distributed?)
• Agents – TMTs (Top Management Teams/ CXOs) (Insider CEO/ Outsider CEO, Owner CEO)
(Annual Reports – Top Mangement Details)
• How to reduce Agency Cost (due to opportunistic behavior of Principals & Agents)
using Corporate Governance measures?
• Reward/ Punishment – Salary & other benefits of CXOs, Firing of CXOs (annual Report)
(Annual Reports – Salary benefits to top managers)
• Monitoring/ Control – Board Meetings, Committees of the Board of Directors (Annual
Report  Corporate Governance Section  Board Meetings & Board Committee Meetings)
Group Presentation – Part 2
• Section 3
• One Corporate Governance Example (Google News if available in public
domain)
• Firing of CEO/ CFO
• Actions of Board
 Case

Growth Phase Struggling Phase Decline Phase

• 1984 – LDDS • 1995 – Worldcom
• Ebber – strategy of • 1996 to 1999 – Trying to
rapid growth through survive - strategy of rapid
acquisition growth through
acquisition – MCI – largest
• 1993 – Fourth largest takeover in US history
company
• 1999- tried to acquire
Sprint
• Unethical practices to survive – False
entries in accounting books
• Internal Audit dept did not have the
access to check – Cooper investigated
herself using personal contact &
maintain confidentiality
• A & A – did not investigate
• 2002 - SEC – requested for
information
• Cooper (Head of Internal Audit) 
Audit Committee of BoD
• BoD  Actions  Proposed
resignation of CFO/ Controller, Fired.

• Changes in Industry – Internet & Data • Merger is not allowed by

Fibre Optics  Technology disruption Justice Department
• Policy – The Telecommunication Act,
1996 – Increase in competition
• Corporate misgovernance in India

• Reasons for corporate misgovernance

Indian corporations were insulated. A closed economy, a
sheltered market, limited need and access to global
business/trade, lack of competition, lack of adequate
regulatory framework were all the causes. Besides,
promoter families ruled the roost. As a result, there were
a series of scams.
• Increasing awareness
• Global concerns
• What is corporate governance?
 Definitions of Corporate Governance:

From the Academic Point of View

“Corporate governance addresses problems that result
from the separation of ownership and control.”

From the Angle of Developed Versus Developing Countries

John D. Sullivan: “In developing economies, one must
look to supporting institutions – for example, shoring up
weak judicial and legal systems in order to better enforce
contracts and protect property rights.”

Narrow Versus Broad Perceptions of Corporate Governance

Corporate Governance… is defined narrowly as the
relationship of a company to its shareholders or, more
broadly, as a relationship to society.
(An article in Financial Times)
“Corporate governance is not just corporate management; it
is a much broader concept and includes a fair, efficient and
transparent administration to meet certain well-defined
objectives. It is a system of structuring, operating and
controlling a company with a view to achieving long-term
strategic goals to satisfy shareholders, creditors, employees,
customers and suppliers and complying with the legal and
regulatory requirements, apart from meeting environmental
and local community needs. When it is practised under a
well-laid out system, it leads to the building of a legal,
commercial and institutional framework and demarcate the
boundaries within which these functions are performed.”

(A. C. Fernando. “Corporate Governance – The Time for a

Metamorphosis”, The Hindu Businessline, July 9, 1997.)
Different Perceptions
in Definitions

• Governance is more than just board processes and

procedures

The Rights of Shareholders

The Equitable Treatment of Shareholders
The Role of Stakeholders in Corporate Governance
Disclosure and Transparency
The Responsibilities of the Board
• A Historical Perspective of Corporate Governance

From a Narrow to a Broader Vision

(Shareholder to Stakeholder perspective)
The Growth of Modern Ideas of Corporate Governance from the
USA
England Catches Up With US
The Cadbury Committee
The Aftermath of Cadbury Report
Corporate Governance in the Banking Sector
Revival of Corporate Governance Issues in the New Millennium
• Issues in Corporate Governance

 Distinguishing the roles of the board and the

management
 Composition of the board and related issues
 Separation of the roles of the CEO and the chairperson
 Should the board have committees
 Appointments to the board and directors’ re-election
 Directors’ and executives’ remuneration
 Disclosure and audit
 protection of shareholder rights and their expectations
 Dialogue with institutional shareholders
 Should investors have a say in making a company
socially responsible corporate citizen
Relevance of Corporate Governance
Managements usually have an information advantage over others.
Good corporate governance will ensure all stakeholders interests
are protected, while their requirements are fulfilled.

Need for and Importance of Corporate Governance

To maximize long-term shareholder value

Governance and Corporate Performance

These are very closely inter-related

Investors’ Preference for Good Governance

Shareholders are prepared to pay a premium for a company with
good corporate governance practices.
Strategies and techniques basic to sound corporate governance

Corporate values, codes, internal control systems etc. are useful to

ensure flow of capital for combating corruption, stakeholder
protection, ensuring industrialization and economic development.

Benefits of good corporate governance to a corporation culture

within the organization and industry improves shareholder
confidence improves

Companies that are seen as well governed get a premium for their
stocks

Creation and enhancement of a corporation’s competitive

advantage
Enabling a corporation perform efficiently by preventing fraud
and malpractices

Providing protection to shareholders’ interest

Creates additional shareholder value over time

Enhancing the valuation of an enterprise

Ensuring compliance of laws and regulations