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Corporate Governance

The term Corporate Governance refers to the relationship among the three groups in determining the direction and performance of the corporation.
Top Managers

Shareholders

BOD

3 Constituents of Corporate Governance

Corporate Governance Defined •CORPORATE GOVERNANCE is the system by which companies are directed and controlled by the management in the best interest of the shareholders and others ensuring greater transparency and better and timely financial reporting. It should lead to increasing customer satisfaction.” . rules. shareholder value and wealth. regulations.” • “CORPORATE GOVERNANCE is needed to create a corporate culture of consciousness. It refers to combination of laws. The Board of Directors are responsible for governance of their companies. transparency and openness. procedures and voluntary practices to enable the companies to maximize the shareholders long-term value.

G is the application of the best management practices. . • Purpose of Corporate Governance is to have a demonstrable impact on a corporation’s financial performance. (The institute of company Secretaries in India).Corporate Governance Defined • C. compliance of law in true spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.

. Hiring and firing the CEO and top management. mission and vision. Controlling. Caring for shareholder interests. Reviewing and approving the use of resources.Responsibilities of the Board • Laws and standards defining the BOD vary from country to country. • There is nevertheless. overall direction. a developing worldwide consensus concerning the major responsibilities of the board. monitoring or supervising the top management. Setting Corporate strategy. • Interviews with 200 directors from 8 countries revealed strong agreement on the following 5 BOD responsibilities.

1956 enlists the general powers of the board. a board can keep abreast of developments inside and outside the Corporations. and outline alternatives. Role of the board in Strategic Management Monitor.. bringing to management’s attention developments it might have over looked. agree or disagree with them. give advice and offer suggestions. In India. Initiate and determine: A Board can delineate a corporation’s mission and specific strategic options to its management. section 291 of the Indian Companies Act.By acting through its committees. decisions and actions. In a legal sense. .Responsibilities of the Board Contd. Evaluate and Influence: A board can examine management’s proposals. the Board is required to direct the affairs of the Corporation but not to manage them.

Performs fiscal and management audits High (Active) Catalyst Takes the leading role in establishing and modifying mission. It has a very active strategy committee. and makes final decisions on mission. Has active board committees. objectives. policies and objectives. strategy.LOW (Passive) Board of Directors Continuum Active Participation Approves questions. Minimal review Phantom Rubber stamp Formally reviews selected issues that officers bring to its attention Nominal partici pation Involved to limited degree in the performanc e or review of selected key decisions No degree Permits of officers to involvemen make all t decisions . policies and strategies.

. • As Corporations become more global. • Boards are getting smaller.Trends in Corporate governance • Boards are getting more involved not only in reviewing and evaluating company strategy but also in shaping it. partially because of the reduction of the number of insiders but also because boards desire new directors to have specialized knowledge and expertise instead of general experience. they are increasingly looking for international experience in their board members.

It includes issues as the composition of board. remuneration of directors. board procedures. In 1997 voluntary code framed by the CII. shareholder’s rights. and the compliance level of Corporate Governance in annual report. disclosure of director’s interest. . This was followed by the recommendations of the Kumar Mangalam Birla Committee set up by SEBI in 1999.History of Corporate Governance in India In India the real history of Corporate Governance dates back to 1997. appointment and structure of audit committees. additional information regarding management.

.2002 Drastic amendments to the law involving the auditor.Corporate Governance Committees in India • Naresh Chandra Committee. 2005 Suggestions to reform & update the basic corporate legal framework essential for sustainable economic reform.Client relationships and the role of independent directors by the Deptt. 2003 • Dr. Of Company affairs in the Ministry of Finance and Company affairs. J.J Irani Committee Report on Company Law. • Narayana Murthy Committee.

executive directors Independent Directors Nominee Directors .Type of Directors Board Executive Directors Non.

. or has been during the past five years.Independent Director" means a director who is a person who: • has not been employed by the Company or its Related Parties in the past five years. investor or lender. employed by the Company or its Related Parties as an executive officer. • is not affiliated with a non-profit organization that receives significant funding from the Company or its Related Parties. • is not a member of the immediate family of an individual who is. on behalf of another person or firm such as an bank. • is not. Independent directors Nominee Directors • who acts as a non-executive director on the BOD of a firm. • is not affiliated with a significant customer or supplier of the Company or its Related Parties. and is not affiliated with a company that is an advisor or consultant to the Company or its Related Parties.

Info.What is good Corporate Governance Obligation to Society National Interest Political Non alignment Legal Compliances Honest and Ethical Conduct Corporate Social responsibility Fair Competition Environment Friendliness Obligation to Investors Towards Shareholders: co. . Should be disclosed to shareholders about all aspects of the business. should put in all possible efforts to enhance shareholders value& comply with the laws that govern shareholder’s rights.

Obligation to Employees Fair Employment Practices Equal Opportunities Employer Encouraging Whistle Blowing Humane Treatment Participation Empowerment Inclusiveness . Transparency: All decisions must be taken in open manner . Financial reporting and Records: Company should maintain accounts of its business affairs fairly & accurately in accordance with the accounting and financial reporting standards. information should be disclosed to those who are affected by the decisions.Informed shareholder Participation: Greater levels of informed attendance & meaningful participation by shareholders in matters relating to their companies.