Value addition to enterpise through corporate governance 19-1-2010Presentation Transcript
VALUE ADDITION TO ENTERPISE THROUGH CORPORATE GOVERNANCE Pavan Kumar Vijay Managing Director1/17/2012
What is Corporate Governance???
Corporate Governance rests with the Vision and Perception of the Leadership
and A Leader need to adopt aVision for Corporate Governance
Corporate Governance Framework Wealth Creation Wealth Management Wealth Sharing ? Distribu- tion Happiness and Output – Input Prosperity of all = Wealth Created Stakeholders SUPPLIERS Adequate Returns Reinvestment HUMAN ASSETSEnhancedCapabilities Adequate Remuneration CUSTOMERS Sustainability Affordable Prices PUBLIC Payment of Taxes and Research and Partnership in National Development Development Projects HR Development Infrastructure Risk Management Best Management Practices are Vital Here Law and Ethics are Vital Here
Principles of Corporate Excellence Fairness to all stakeholders Fairness to all stakeholders Mutual Trust, Transparencyand Togetherness Mutual Trust, Transparency and TogethernessUnrestricted Communication and Continuous Feedback Unrestricted Communication and Continuous Feedback Sharing Knowledge, SuccessStories and Experience Sharing Knowledge, Success Stories and Experience Sharing Happiness and Concerns Helping Each Other – Round the Clock
Infact, these principles are the foundation of Best Governed Organizations irrespective of their form and size
Commitment to well-being and progress of all stakeholders is our age old mantra
Satyam Vada Dharmam Chara - Taittariya Upanishad
“Forever speak the truth and follow the dharma”
Truth : Disclosure of Actual State of Affairs(Transparency in operations and transactions)
Dharma : “Dharma is for the stability of society,the maintenance of social order and the generalwell-being and progress of humankind.” - Karna Parva of the Mahabharata. Verse-58 in Chapter 69
Corporates are also expected to use their Capacity, Knowledge and Resources TOWARDS DharmaMaximisation of stakeholders‟ value and well- being and progress of humankind THROUGH Truth Transparency, accountability and truthful disclosure of state of affairs
This is our own age old mantra of Good Governance
Companies that have followed these principles of Corporate Governance have
Consistently earned high returns, increased their net worth andenhanced their shareholders wealth
Invested significantly in proactive research and development
Developed people into „achievers‟ than just „performers‟
Dealt ethically with customers, government and business partners
Maintained and updated their professionalmanagement culture, system and processes
WINNING GROWINGEMPLOYEES INVESTORSDELIGHTED HAPPYCUSTOMERS SOCIETY SATISFIED TRUSTED GOVERNMENT AND SUPPLIERS REGULATORS
“ Corporate Governance is the application of bestmanagement practices, compliance of law in trueletter and spirit and adherence to ethical standardsfor effective management and distribution of wealthand discharge of social responsibility for sustainabledevelopment of all stakeholders.” - The Institute of Companies Secretaries of India-
Value Addition to Enterprise through Corporate Governance
Growing GrowingRevenues Profits Growth Growing Market Value
Widening Ready Market forCustomer Base New ProductsWidespread Goodwill and Brand ReputationAccess to Global Better Access to Markets Human Capital
CUSTOMERS INVESTORS EMPLOYEES Enhanced Trust and Confidence of all Stakeholders GOVERNMENT AND REGULATORS SOCIETYSUPPLIERS
Environment SUSTAINABLE DEVELOPMENT Business SocietyCivil Society
Corporate Value withoutCorporate Governance – The Past COMPANY • Loss of reputation in International Market • Loss of Moral Fibre of Corporataions.
Corporate Value withoutCorporate Governance – The Past STAKEHOLDERS • Auditors - Independence compromised to obtain lucrative consulting assignments • Employees - Large disparity between the highest and lowest paid employee • Analysts - Ever-greening of Corporate & Stock reports.
Corporate Value withoutCorporate Governance – The Past STOCKHOLDERS: • Loss of Investors Confidence. • Difficulty in further raising of capital. • Investor Complaints
Corporate Value withoutCorporate Governance – The Past PRACTICES: • Aggressive accounting practices. • Incompetence of board members and overriding of audit committees . • Dividend linked to short-term revenue growth, EPS and stock price.
Upshots in Legal Framework Clause 49 of Listing Agreement. Section 192A, 292A etc. in the Companies Act
Legal Norms of CG Concept of Independent Directors & Audit Committees Stricter independence standards for Audit Committees Board Professionalism Whistle Blower Policy Certifications and disclosures Real time disclosure & Shortened deadlines
ARE SHAREHOLDERS THE ONLY STAKEHOLDERS ?
Corporate Governance Value ChainInvestors Lenders Customers Suppliers Employees Government Regulator “Corporate Governance is not related to investors only, though they are most important Beneficiary.”
Stakeholders in Value Chain ROLE OF STAKEHOLDERS Supply Funds, Value Addition and Give Opportunity to Co. Materials and Services Management of to Satisfy their Needs Resources SUPPLIERS HUMAN CUSTOMERS RESOURCE Adequate Returns for Adequate Salary and Best Quality Products Funds, Material and Security for leading a and Customer Care at Services Supplied Happy Life Minimum Prices EXPECTATIONS OF STAKEHOLDERSPotential Suppliers, Human Biological, Economic andResources and Customers PUBLIC Cultural Environment PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
Stakeholders‟ Stake in CorporateGovernance Value Chain Lenders 2/3rd Investment 2:1 Debt – Equity Investors 1/3rd Investment Ratio Customers 100% Earnings 2:1 Suppliers ½ of Working Capital Current Ratio Employees 100% Value Generation Basic Infrastructure & Government Facilities Regulator Dispute Resolution
What CG Brings… Process People Performan ce Purpose
Value Addition through CG CORPORATE GOVERNANCE Govt./ INVESTORS LENDERS CUSTOMER SUPPLIER EMPLOYEE Regulator •Better •Tax•Confidence •Safety of •Value •Value quality of •Compliance•Security of interest & Creation Creation HR •EmploymentFunds principal. •Better •Favorable •Better •Social •Better & quality of terms of Commitment Favorable Products/ supplier Salary Credit Services agreements •Benefits Terms •Cheaper •Stability prices
Measurement of Value Addition • Return on Capital Employed Investors • EPS / DPS • Dividend Pay-out Ratio • Debt-Equity Ratio Lenders • Debt Coverage Ratio • Interest Coverage Ratio • Market Share Customers • Stock Turnover Ratio • Credit Period Suppliers • Credit Rate Employees • Employee Turnover Ratio • Subsidies Government • Basic Infrastructure Amenities Regulators • No hasty Actions
Benefits As To CorporateGovernance Investors • Increase in Goodwill • Increase in Investment Lenders • Better credit terms • Fund security Customers • Better quality goods • increase in Goodwill Suppliers • More credit • Increase in creditworthiness Employees •Reduction in Employee Turnover Government • Relaxation of norms Regulators •Increase in Goodwill •Relaxation of Norms
Corporate Governance Enhances Brand Value Quality in Board Structure Better Board Management and Practices Contribution of Independent Directors Successful Strategies Adequacy of Controls Independence of Auditors
History is Witness D Outstanding Performance, IS Higher Profits, SU Expanded Market Reach and the like AC FAILS SE to protect a company TS which has put good governance & ethics ES at the back burner…. R
Secret behind building foundations ..…Only the culture ofstrict adherence to good compliance can keep a companyahead on sustainable basis , bring in larger profits…
Present Status of CG Practices –The CRISIL ExperiencePractice StatusEquitable Treatment of ModerateShareholdersTransparency and Disclosure strongRelativelyComposition of Board Scope for improvementFunctioning of Board Moderate
Value Addition - The CRISILExperienceStakeholders StatusShare Holders HighDebt Holders HighestEmployees ModerateCustomers HighSuppliers Scope for improvementSociety Scope for improvement
Thus, Although a lot has been done, but a lot needs to be done.
CORPORATES SHOULD ACTLIKE HONEY BEE WHICH SUCK THE NECTAROF THE FLOWER WITHOUT EFFECTING THE FRAGRANCEAND PRODUCE HONEY FOR THE WELL-BEING OFSOCIETY.