'Corporate Governance'

Unit : IV
What is 'Corporate Governance'
• Corporate governance is the system of rules, practices and processes
by which a firm is directed and controlled.
• Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, management,
customers, suppliers, financiers, government and the community.
 Objectives : 'Corporate Governance'
• A properly structured Board proficient of taking independent and
objective decisions is in place at the control of affairs.

• The Board is balanced as regards the representation of suitable number

of non-executive and independent directors who will take care of the
interests and well-being of all the stakeholders.

• The Board accepts transparent procedures and practices and arrives at

decisions on the strength of adequate information.
 Objectives : 'Corporate Governance'
• The Board has an effective mechanism to understand the concerns of
stakeholders.

• The Board keeps the shareholders informed of relevant developments

impacting the company.

• The Board effectively and regularly monitors the functioning of the

management team.

• The Board remains in effective control of the affairs of the company at all
times.
 Issues : 'Corporate Governance'

• Value based corporate culture • Innovation

• Holistic view
• Compliance with laws
• Disclosure, transparency, &
accountability
• Corporate governance and
human resource management
• Necessity of judicial reforms
• Globalization helping Indian
companies to become global
giants based on good corporate
governance.
• Lessons from Corporate failure
 Importance : 'Corporate Governance'
• Shareholder recognition
• Stakeholder interests 
• Board responsibilities must be clearly outlined 
• Ethical behaviour
• Business transparency
• Risk Mitigation
/Principles
/Principles
 Code of 'Corporate Governance'
• The effectiveness of a board is its regular meeting, full control over
the company and check over the executive management.
• The Chairman should be strong and independent rather than Yes
Man. The responsibilities should be divided clearly.
• Non-executive Directors should play a significant role in the board's
decisions. They should act as eyes and ears of the board. Therefore,
the number of non-executive directors depends upon their caliber.
 Code of 'Corporate Governance'
• The Board should have a formal schedule of matters for decisions to
ensure that the direction and control of the company is firmly in its
hands.
• If directors need advice for their duties then there should be a
procedure of professional help, at the company's expense.
 Cadbury Report
• The main duty of the Board is· to assess and present company's actual
position.
• The Board and Auditors should maintain a good professional relationship.
• The Board should establish an Audit Committee of atleast 3 Non-executive
Directors with written terms of reference, which deal clearly with its
authority and duties.
• The directors should explain their responsibilities for preparing the accounts
next to a statement by the Auditors about their reporting responsibilities.
• The effectiveness of the company's system of internal control should be
report by the directors.
 The CII (Confederation of Indian Industry) Cod
• "No single person should hold directorships in more than 10 listed
companies."
• "To secure better effort from non-executive directors, companies
should:
• Pay a commission over and above the sitting fees for the use of the
professional inputs.
• Consider offering stock options, so as to relate rewards to
performance."
 OECD (Organization of Economic Cooperation and
Development) Principle

• Ensuring the basis of an effective corporate governance framework

• The rights of shareholders and key ownership functions
• The equitable treatment of shareholders
• The role of stakeholders in corporate governance
• Disclosure and transparency
• The responsibilities of the board