This document provides an overview of corporate governance. It discusses the genesis of governance debates originating from the separation of ownership and management. It outlines the corporate governance tripod of board of directors, management, and shareholders. It also discusses ongoing debates around defining governance and balancing shareholder vs stakeholder interests. The document then covers international governance developments like the Cadbury Committee and Sarbanes-Oxley Act. It outlines governance provisions in India like Clause 49 of the listing agreement covering board structure, procedures, and disclosures. It concludes by discussing unresolved governance issues and the road ahead toward national governance standards.

1. Corporate Governance

2. References for Corp. Governance
Securities & Exchange Board of India,
www.sebi.org
Harvard Business Review, ‘Readings on
Corporate Governance’
Academy of Corporate Governance
www.academyofcg.org

3. Genesis of Governance Debate
Concept originated with separation of ownership
& management
Corporatisation of business and increasing scales
of production
Origin can be traced back to ‘Agency Theory’
propounded by Berle & Means

4. Corporate Governance Tripod
Board of Directors
Environment
Customers
Employees
Suppliers
Shareholders
Society
Management
Government

5. Defining Corporate Governance
……. Systems, procedures and institutions
that ensure that management acts in the best
interests of the owners or shareholders
On going debate about whether it should be
‘shareholders’ interest or all ‘stakeholders’
interest that the management should serve

6. Shareholder v/s Stakeholder
Debate
Debate ongoing with strong proponents on
either side
Moot point is the timeframe
In the long run, interests of all are likely to
converge & need to be balanced
Sustainability of the enterprise is of
paramount importance

7. Theoratical Underpinnings
What is a Corporation?
Agency Theory
Stewardship Theory
Stakeholder Theory
Sociological Theory

8. Governance Systems
Systems and structures differ in historical
and local condition specific context
Entrepreneurial Form
Banking Dominated Form
Managerial Form
Institutional Form
Democratic Corporate Form

9. Revisiting Corporate Excellence
Profitability
Growth
Top line
Bottom line
Increasing Market Share
Satisfied Stakeholders

10. InSearch of Excellence
Bias for Action
Closeness to Consumers
Hands on, Value Driven
Productivity through People
Autonomy & Intrapreneurship
Stick to Knitting

11. Built to Last
Remarkable resilience
Profit maximization not the only / primary
objective
Do not brutalize themselves with the
tyranny of “OR”, instead embrace genius of
“AND”.

12. Why good governance is an
imperative ?
Immediate Factors
Corporate debacles
Vanishing companies
Corporate frauds
Rating downgrades
Pending investors’ complains

13. Why good governance is an
imperative ?
Structural Factors
Globalisation of markets
Indian companies tapping international
markets for resources
Institutionalisation of securities markets

14. CG…. International
Developments
Cadbury Committee, UK
1992
Baseline consensus in UK’s financial markets
Focuses on accountability & Transparency
Greenbury Committee
1995
Executive’s & director’s role and compensation
Myner Committee, UK
Role of institutional investors
1995

15. CG…. International
Developments
California Public Employees Retirement
System, USA
Global governance principles
New York Stock Exchange proposals
NASDAQ proposals

16. CG…. International
Developments
Surbanes Oxley Act,
2002
Post ENRON development
Most comprehensive piece of legislation in last
70 years
Quality Review Board ( Auditor’s
Independence)
Independent Directors
Whistle Blower Policy

17. CG…. International
Developments
German Model
Banking dominated organisational form
Conservative & risk averse boards
A unique system of 2–tier boards
No official codes, but provisions in the
company legislation
Of late, demand for professionalising
supervisory boards

18. CG…. International
Developments
King Committee, South Africa
1994
Bosch Report, Australia
1995
Toronto Stock Exchange guidelines 1994
Malayasian Code
1999

19. OECD Principles
Recognises multiplicity of economic
environments
Only recommendatory in nature
Intended to assist member governments in
evaluating their legal, institutional and
regulatory framework

20. Implementation Modalities
Available options are Thru General Legislation
Through Stock Exchanges
Through independent and well publicised
ratings
Through institutional activism and nominee
directors
Through self regulation

21. Implementation Choices
Most experts are averse to generally
applicable standards and legal intervention
Internationally, self regulation linked to
openness and accountability, seems to
generate maximum support
Self regulation may not work in India, at
least in the foreseeable future – A judicious
mix of all the approaches may be required

22. CG…. Developments in India
CII’s Desirable Code of
Corporate Governance
1998
SEBI Committee I
(Chair: Kumar Mangalam Birla)
2000
SEBI Committee II
(Chair: N R Narayan Murthy)
2002

23. Clause 49 of Listing Agreement
Board Structure
 At least 50 % of Directors to be non-executive
 Minimum independent directors
33 % with non-executive chairman
50 % with executive chairman
Board Procedures
 A minimum of 4 board meetings in a year, with a gap
not exceeding four months
 Resume of directors seeking appointment / reappointment

24. Clause 49 of Listing Agreement
Mandatory Board Committees
Audit committee
Investor’s grievance Committee
Mandatory Disclosures
Director’s remuneration
Related Party Transactions
Penalties & Strictures

25. Clause 49 of Listing Agreement
Information to Shareholders
Date, time & venue of AGM
Market price data
Listing on exchanges & security code
Number of complaints, of which pending
Un-audited quarterly results & half yearly results
Demat status
Postal ballot

26. SEBI Committee II & Revised
Clause 49
Enhance role for Audit committee
Age ceiling for directors
Maximum of 3 terms (3yrs each) for
independent directors
Code of conduct & whistle blower policy
mandatory
Definition of ‘Independent directors’ – so
far not defined

27. CG…. Developments in India
Naresh Chandra Committee
2002
Draws heavily on Sarbanes-Oxley Act of US
Independent directors – tighter definition - exemption
from criminal liabilities
Auditors – barred from taking up non-audit services –
audit partner rotation – cooling off period of 2 years
Professional bodies – Umbrella quality review board Disciplinary powers with a prosecution directorate -

28. Unresolved Issues
Is good governance related to better
competitive / financial performance ?
Should board performance be evaluated ? If
so by whom ?
Do independent directors need to be
trained ?
How should independent directors be
compensated ?

29. Corporate Governance…. a recap
Divorce of ownership & management
Shareholder v/s stakeholder debate
Implementation choices
Clause 49 of the listing agreement
Board structure & procedures
Board committees
Disclosures
Shareholder information

30. CG - Road ahead
Need to graduate from compliance in letter to
compliance in spirit
Co-opt softer issues on the agenda
Apply principles of good governance and
accountability across sectors
Work towards national governance