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It is a broad concept and has been defined and understood differently by different groups and at different points of time .
The Cadbury committee report defines it as “the system by which companies are directed and controlled”.
It is generally understood as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations”
Brief history of corporate governance in India Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse The initiative in India was initially driven by an industry association, the Confederation of Indian Industry In December 1995, CII set up a task force to design a voluntary code of corporate governance. The final draft of this code was widely circulated in 1997. In April 1998, the code was released. It was called Desirable Corporate Governance: A Code. Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddy’s Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others
Brief history of corporate governance in India Following CII’s initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan: 2000-01: All Group A companies of the BSE or those in the S&P CNX Nifty index… 80% of market cap. 2001-02: All companies with paid-up capital of Rs.100 million or more or net worth of Rs.250 million or more. 2002-03: All companies with paid-up capital of Rs.30 million or more
Brief history of corporate governance in India Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees. In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were: Disclosure of related party transactions. Disclosure of segment income: revenues, profits and capital employed. Deferred tax liabilities or assets. Consolidation of accounts. Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors’ independence.
Corporate Governance Fairness Accountability Transparency Responsibility Fundamental Pillars of Corporate Governance
Accountability Clarifying governance roles & responsibilities, and supporting voluntary efforts to ensure the alignment of managerial and shareholder interests and monitoring by the board of directors capable of objectivity and sound judgment. Transparency Requiring timely disclosure of adequate information concerning corporate financial performance
Responsibility Ensuring that corporations comply with relevant laws and regulations that reflect the society’s values Fairness Ensuring the protection of shareholders’ rights and the enforceability of contracts with service/resource providers
Corporate Governance Investors are Willing to Pay More For a Company With Good Board Governance Practices 83 81 89 Companies are willing to pay 18 % to 28% more for better governance.
ICSI National Award for Excellence in Corporate Governance Best Governed Companies