CORPORATE GOVERNANCE FOR BANKS

By NARAYANA MURTHY, B. HEADHEAD-TRAINING,EIBFS.

19th April to 22nd April2009.

A HEARTY WELCOME
PROGRAM OBJECTIVES:
To give the participants an insight into the best practices followed by Global banks in Code of Ethics and Corporate Governance and to highlight the importance of enhancing all the stakeholders value in Banks, and to explain how the three pillars of Basel II attempts to ensure compliance on Governance in Banks.

PROGRAM TRAINING METHOD THE TRAINING PROGRAM BLENDS CONCEPTS, EXERCISES, HAND OUTS AND CASE STUDIES.

Broad Overview of Contents

            

Corporate Governance Explanation Corporate Governance International Perspectives 8 Principles of Corporate Governance A Case Study-Barings Bank Bankruptcy. StudyCriteria for Corporate Governance-Fundamental Assumptions GovernanceCriteria for Corporate Governance-Stakeholder relationships GovernanceCriteria for Corporate Governance-Management Capability GovernanceGovernance practices and process indicators An idealistic corporate governance practice 360 degree corporate Governance Evaluation The Role of Management in Corporate Governance in Banks Promoting an environment supportive for Corporate Governance in Banks. Handouts and case studies on Banks Corporate Governance.

What is Corporate Governance?

Corporate Governance is concerned with holding the balance between economic and social goals and between individual and community goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to allign as nearly as possible the interests of individuals, corporations and society - Sir Adrian Cadbury

What is corporate governance? (Continued)

The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to bringing a high level of satisfaction to five constituencies -- customers, employees, investors, vendors and the society-at-large.

SOUND CORPORATE GOVERNANCE PRINCIPLES

PRINCIPLE NO. 1

Board members should be qualified for their positions, have a clear understanding of their role in Corporate Governance and be able to exercise sound judgement about the affairs of the Bank.

SOUND CORPORATE GOVERNANCE PRINCIPLES(Cond) PRINCIPLE 2. The Board of Directors should approve and oversee the banks strategic objectives and corporate values that are communicated throughout the Banking organisation.

SOUND CORPORATE GOVERNANCE PRINCIPLES (Cond)

Principle 3. The Board of Directors should set and enforce clear lines of responsibility and accountability throughout the organisation. Principle 4. The Board should ensure that there is appropriate oversight by senior management consistent with Board policy.

SOUND CORPORATE GOVERNANCE PRINCIPLES (Cond)

Principle 5: The Board and senior management should effectively utilise the work conducted by the internal audit function, external auditors and internal control function. Principle 6: The Board should ensure that compensation policies and practices are consistent with the Banks corporate culture, long term objectives, strategy and control environment.

SOUND CORPORATE GOVERNANCE PRINCIPLES (Cond) Principle 7: The Bank should be governed in a transparent manner. Principle 8: The Board and the senior Management should understand the Banks operational structure, i.e., Know- your-Structure. Know- your-

Criteria Fundamental assumptions



Stakeholder relationships are strengthened by giving stakeholders what they value. Thus, stakeholder relationships are measured by :  Determining what a particular stakeholder values  Benchmarking the extent to which the company has been able to deliver such value to that stakeholder Fairness of Wealth distribution across shareholder classes to be determined holistically to assess sustainability of business model and of systems and processes

Criteria Stakeholder relationships



Shareholders


Return on invested capital compared to weighted average cost of capital, payout ratio etc. High debt protection measures credit rating; upgrades in ratings etc. Market Share; Assessment of Customer satisfaction; Cost savings passed on to customers etc.

Debt Holders


Customers


Criteria Stakeholder relationships (Cond)



Employees  Absolute Salary levels, adjusted growth in average annual salaries; ESOPs; Attrition rates; Intangibles etc. Suppliers  Relative change in credit terms;Support/Intangibles to suppliers; supplier attrition rates;etc. Society  Total direct taxes paid; Employment generated; Expenditure on social infrastructure; Environmental/Social impact cost; Fair practices followed etc.

Criteria Management Capability

Reputation  Experience of management etc.  Process Quality  Consistency of past performance  Success of past strategies  Track record on innovation
 Management

Governance Practice and Processes Indicators



Equitable Treatment of Shareholders  Disclosure of shareholding pattern  Ownership concentration and equitable treatment  Disclosure of disproportionate control provisions  Anti insider trading mechanism Ownership rights of shareholders  Articulation and documentation of basic ownership rights  Impediments to market forces to corporate control  Ease and effectiveness of shareholder participation at meetings

Governance Practice and Processes Indicators(Cond)



Functioning of Board
 

Articulation of roles of board and committees Adequate discharge of role by the board and committee Contribution of independent directors

Governance Practice and Processes Indicators (Cond)



Transparency & disclosure financial and operational  Adequacy of audit procedures and independence of auditors  Extent and quality of disclosures to all stakeholders  Timeliness and ease of access to information to all stakeholders. Composition of Board  Selection process; nominations committee, succession policies  Relevant competencies at the board/ board compensation  Independence of board / adequate representation of all shareholders

An idealistic Corporate Governance practice

     

Looks at why corporate governance.to create wealth for all shareholders. A globally unique framework each stakeholder relationship recognised as contributing to wealth creation Aims at benchmarking a companys wealth creation capabilities due importance to wealth creation record for all stakeholders. An opinion on sustainable wealth creation Appropriate balance of qualitative & quantitative parameters; past performance & future expectation Will monitor governance practices on an on-going basis on-

Corporate Governance A 3600 Evaluation

Board Society 3600 Corporate Governance Analytical Perspective Customers Creditors Minority Shareholders Employees

Suppliers

Majority Shareholders

What are Work Ethics

  

Ethics are the values and behaviors which people feel are moral. In other words, ethics is the name we give to our values or good behavior. So a positive work ethic is the collection of all the values and actions that people feel are appropriate in the work place. A moderately competent employee who has a positive attitude, who works well with others, and shows up to work will almost always be chosen over someone else who does not possess these qualities.

How to ensure proper Ethics at the work place

         

Act Honestly and behave with integrity. Be accountable for actions. Treat everyone with respect and courtesy, and without harassment and discrimination. Disclose and take reasonable steps to avoid any conflict of interest in connection with their employment. Maintain confidentiality and privacy during and after their employment. Use resources efficiently and effectively and keep appropriate records. Understand any laws and regulations relevant to the work and follow lawful and reasonable instructions, policies and procedures. Report and instance of suspected corrupt conduct, maladministration or serious and substantial waste. Tell the manager if you feel unable to follow any part of this guide or follow any policies, instructions or procedures. Follow highest level of Corporate Governance.

Work Ethics 20 BE s
                     

Be on time to work. Be at work every day. Be interested in your job and Bank Be enthusiastic, have a positive mental attitude. Be ready to give 100% effort - do your best. Be honest and trustworthy. Be willing and wanting to learn. Be willing to ask questions. Be drug free, low risk, safety aware and health conscious Be a positive leader. Be loyal. Be willing to make suggestions (put your mind to work) to make the Bank better. Be responsible for your assigned work. Be ready to work with the team (individual performance is important but you must also work with others to reach agreed upon goals). Be Quality minded and work toward continuous improvement. Be willing to understand that profit is good. Banks are founded and operate as profit centre. Make your Bank profitable. Be ready to do things right the first time. Be willing to learn from other people and follow the things that work. Be responsible for making good choices for yourself and your teammates. Be a balanced person and evaluate yourself.

The 10 Traits-Work Ethics

 Attendance  Character  Teamwork  Appearance  Attitude  Productivity  Organizational Skills  Communication  Cooperation  Respect