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Thapas Sir Presentation ppt =priyanka rai -ICBM-SBE HYDERABAD

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  • 1. Corporate GovernanceGROUP - E
  • 2. What is corporate governance?
    • Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals.
    • 3. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.
    • 4. The aim is to align as nearly as possible the interests of individuals, corporations and society
  • Cont…..
    The primary purpose of corporate governance 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.
    The raison d'être of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year.
    - N R Narayana Murthy
  • 5. History of Corp Gov 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
    Also, unlike most OECD countries, 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
  • 6. History of Corp Gov 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
  • 7. History of Corp Gov 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
  • 8. Issues in Corporate Governance
    Asymmetry of power
    Asymmetry of information
    Interests of shareholders as residual owners
    Role of owner management
    Theory of separation of powers
    Division of corporate pie among stakeholders
  • 9. Corporate Governance Mechanisms
    Internal Governance Mechanisms
    Board of director
    Managerial incentive compensation
    Ownership concentration
    External Governance Mechanisms
    Market for Corporate Control
  • 10. Mechanism of control
    Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behavior, an independent third party (the external auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability
    1. Internal corporate governance control .
    2. External corporate governance control .
  • 11. Internal corporate governance control
    Organizationally based mechanism
    Monitoring by the board of directors.
    Internal control procedures and internal auditors.
    Balance of power.
    Remuneration
  • 12. External corporate governance control
    It encompasses the control of external stake holders exercise over the organization.
    Competition
    Debt covenants
    Demand for assessment of performance (especially financial statements.)
    Government regulations
    Media pressure
    Take over
  • 13. Regulation
    Rules versus principles
    Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behavior
    In practice rules can be more complex than principles.
    They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle.
    Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.
  • 14. Cont………
    Enforcement
    Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking
    • There are various integrated governance, risk and compliance solutions available to capture information in order to evaluate risk and to identify gaps in the organization’s principles and processes.
    This type of software is based on project management style methodologies such as the ABACUS methodology which attempts to unify the management of these areas, rather than treat them as separate entities.
  • 15. Cont….
    Action Beyond Obligation
    Enlightened boards regard their mission as helping management lead the company.
    They are more likely to be supportive of the senior management team.
    Enlightened directors recognize that it is not their role to be involved in the day-to-day operations of the corporation.
    They lead by example. Overall, what most distinguishes enlightened directors from traditional and standard directors is the passionate obligation they feel to engage in the day-to-day challenges and strategizing of the company. Enlightened boards can be found in very large, complex companies, as well as smaller companies
  • 16. Corporate governance & firm performance
    • Corporate governance represents the relationship among stakeholders that is used to determine & control the strategic direction & performance of the organization.
    • 17. Corporate governance involves oversight in areas where owners, managers & members of board director may have conflicts of interest.
  • Board of composition Remuneration/compensation
    Researchers have found support for the relationship between frequency of meetings and profitability.
    Others have found a negative relationship between the proportion of external directors and profitability, while others found no relationship between external board membership and profitability.
    Compensation is used to motivate the CEOs to act in the best interest of the firm.
    Pay is linked to performance of the firm.
    CEOs receive excessive compensation when the corporate
  • 18. Parties to Corporate Governance
    Chief Executive officer
    Responsibilities.
    International Use.
    Structure.
    In the Media.
    CEO Search Firms.
  • 19. Board of Directors
    Use of corporate property.
    Transaction with Company.
    Conflict of duties and interest.
    Proper purpose.
    Classification
  • 20. Management
    Basic function of management.
    Formation of the business policy.
    How to implement policies and strategy.
    Where policies and strategies fit in the planning process.
    Areas and categories and implementation of management.
    Multi divisional management hierarchy.
  • 21. Share holders
    The right to propose shareholder resolution.
    The right to share in distributions of the company's income.
    The right to purchase new shares issued by the company.
    The right to a company's assets during, a liquidation of the company.
  • 22. &
  • 23. THE INFOSYS MODEL
    A formal code of business conduct and ethics.
    To be signed and adhered to by employees.
    Action against any employee for violation is taken seriously
  • 24. THE INFOSYS MODEL -Contents
    General standards of conduct
    Management of conflicts of interest
    Protection of company’s confidential information
    Obligations under securities laws
    Use of assets
    An entire section on responsibilities to customers and stakeholders.
  • 25. Infosys Technologies: The Best among Indian Corporate
    As per the Credit Lyonnais Securities Analysis (CLSA), the corporate governance ratings of the Software firms are higher than those of other Indian firms.
    Infosys, based in Bangalore, is a publicly held, ISO 9001 certified company offering information technology consulting & software services.
    The software offered include application development, E-Commerce & Internet Consulting, Software Maintenance.
    Respected across the country, with very strong systems, high ethical values & a nurturing working atmosphere.
    • Net income of US 1,155 million and revenue of US 4,176 million.
    At present having US 20.4 billion market capitalization
  • 26. Achievements
    Voted as the Best Managed Company in Asia.
    Biggest exporters of Software.
    First to follow the US Generally Accepted Accounting Principles before going for Nasdaq listing in 1991.
    Championed Corporate Governance in India
  • 27. Narayana Murthy’s Global Strategy
    Global Delivery Model – Producing where it is most cost effective to produce & selling where it is most profitable to sell.
    Moving up the Value Chain – Getting involved in a software development project at the earliest stage of its life cycle.
    PSPD Model – Predictability of Revenues, Sustainability of Revenues, Profitability, De-making and risk taking
  • 28. ICSI National Award for Excellence in Corporate GovernanceBest Governed Companies
  • 29. Current status on corporate governance
    Insistence on forms and structures
    Overarching regulations
    Regulatory overkill
    Lack of adequate number of strong, independent directors
    Large liabilities for companies and officers
    Has the pendulum swung too far?
    For the first time in the decade-long history of the Index of Economic Freedom, the U.S. is no longer among the top ten “most free” countries
    Wall Street Journal and the Heritage Foundation “Index of Economic Freedom”
  • 30. Benefits of Good Corporate Governance
    Having better access to external finance.
    Lower costs of capital.
    Improved company performance.
    Higher firm valuation and share performance.
    Reduced risk of corporate crises and scandals
  • 31. Factor influence the corporate governance
    1. The ownership structure
    2. The structure of company boards
    3. The financial structure
    4. The institutional environment
    problems of corporate governance
    Demand for information
    Monitoring costs
    Supply of accounting information
  • 32. Problem of corporate governance
    We lay structures over the corporate business, and fail to organize the business
    Corporate Performance Management reports against overlaid structures
    Accounting accounts for only part of the business cycle and against the wrong entities
    We govern the corporation by rules and regulations, because we cannot manage the actual business
  • 33. ETHICS-definitions
    The word ethics is derived from the Greek word ethos meaning character and latin word mores meaning customs
    To better understand ethics let us understand and contrast the definition of ethics and law
    Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society.
    Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society
  • 34. What are ethics
    The principle of conduct – professional ethics
    A system or philosophy of conduct
    A discipline dealing with what is good and bad- moral duty and obligation
    A set of moral principles or values
  • 35. ETHICS AND CORPORATE GOVERNANCE
    Deals with determination what is ‘right'," fair, prior and just" in decisions and actions made that affect stake holders.
    It focuses on the business relationship with employees, customers, stockholders, creditors, suppliers and member of the society in which it operates.
    Corporate ethics , is a matter of leadership.
    Adhere to corporate credos-code of conduct.
    Development of IQ,EQ and SQ culture.
  • 36. Purpose of ethics
    Ethics are the guiding principles.
    Where the proposed business activity/ operation of the company borders on the unknown, the company needs to apply the ethics principle to decide on the project.
    Ethics help make relationships mutually pleasant and productive- imbibes a sense of community among members- a sense of belongingness to society.
  • 37. laws
    Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society.
  • 38. Relation between ethics and law
  • 39. Concluding remarks
    By and large, Indian listed companies have been legally mandated to follow fairly strict standards of corporate governance and disclosure
    Comparisons will show that the standards are far stronger than all Asian countries, and in general stronger than most OECD countries
    Indian corporate sector regulators and companies have been quick to incorporate some of the best international corporate governance and disclosure practices
    The need of the day is more training… of directors, audit committee members and senior executives of companies
    The challenge is to design and sustain a system that imbibes the spirit of corporate governance… and not merely the letter of the law
  • 40. THANK YOU

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