Value addition to enterpise through corporate governance   19-1-2010
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  • 1. VALUE ADDITION TO ENTERPISE THROUGH CORPORATE GOVERNANCE Pavan Kumar Vijay Managing Director1/17/2012
  • 2. What is Corporate Governance???
  • 3. Corporate Governance rests with the Vision and Perception of the Leadership
  • 4. and A Leader need to adopt aVision for Corporate Governance
  • 5. 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
  • 6. 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
  • 7. Infact, these principles are the foundation of Best Governed Organizations irrespective of their form and size
  • 8. Commitment to well-being and progress of all stakeholders is our age old mantra
  • 9. Satyam Vada Dharmam Chara - Taittariya Upanishad
  • 10. “Forever speak the truth and follow the dharma”
  • 11. Truth : Disclosure of Actual State of Affairs(Transparency in operations and transactions)
  • 12. 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
  • 13. 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
  • 14. This is our own age old mantra of Good Governance
  • 15. Companies that have followed these principles of Corporate Governance have
  • 16. Consistently earned high returns, increased their net worth andenhanced their shareholders wealth
  • 17. Invested significantly in proactive research and development
  • 18. Developed people into „achievers‟ than just „performers‟
  • 19. Dealt ethically with customers, government and business partners
  • 20. Maintained and updated their professionalmanagement culture, system and processes
  • 21. ..and accomplished
  • 22. WINNING GROWINGEMPLOYEES INVESTORSDELIGHTED HAPPYCUSTOMERS SOCIETY SATISFIED TRUSTED GOVERNMENT AND SUPPLIERS REGULATORS
  • 23. “ 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-
  • 24. Value Addition to Enterprise through Corporate Governance
  • 25. Growing GrowingRevenues Profits Growth Growing Market Value
  • 26. Widening Ready Market forCustomer Base New ProductsWidespread Goodwill and Brand ReputationAccess to Global Better Access to Markets Human Capital
  • 27. CUSTOMERS INVESTORS EMPLOYEES Enhanced Trust and Confidence of all Stakeholders GOVERNMENT AND REGULATORS SOCIETYSUPPLIERS
  • 28. Leading to…
  • 29. Environment SUSTAINABLE DEVELOPMENT Business SocietyCivil Society
  • 30. Corporate Value withoutCorporate Governance – The Past  COMPANY • Loss of reputation in International Market • Loss of Moral Fibre of Corporataions.
  • 31. 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.
  • 32. Corporate Value withoutCorporate Governance – The Past  STOCKHOLDERS: • Loss of Investors Confidence. • Difficulty in further raising of capital. • Investor Complaints
  • 33. 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.
  • 34. Upshots in Legal Framework  Clause 49 of Listing Agreement.  Section 192A, 292A etc. in the Companies Act
  • 35. 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
  • 36.  ARE SHAREHOLDERS THE ONLY STAKEHOLDERS ?
  • 37. Corporate Governance Value ChainInvestors Lenders Customers Suppliers Employees Government Regulator “Corporate Governance is not related to investors only, though they are most important Beneficiary.”
  • 38. 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
  • 39. 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
  • 40. What CG Brings… Process People Performan ce Purpose
  • 41. 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
  • 42. 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
  • 43. 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
  • 44. 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
  • 45. 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
  • 46. Secret behind building foundations ..…Only the culture ofstrict adherence to good compliance can keep a companyahead on sustainable basis , bring in larger profits…
  • 47. Present Status of CG Practices –The CRISIL ExperiencePractice StatusEquitable Treatment of ModerateShareholdersTransparency and Disclosure strongRelativelyComposition of Board Scope for improvementFunctioning of Board Moderate
  • 48. Value Addition - The CRISILExperienceStakeholders StatusShare Holders HighDebt Holders HighestEmployees ModerateCustomers HighSuppliers Scope for improvementSociety Scope for improvement
  • 49. Thus, Although a lot has been done, but a lot needs to be done.
  • 50. CORPORATES SHOULD ACTLIKE HONEY BEE WHICH SUCK THE NECTAROF THE FLOWER WITHOUT EFFECTING THE FRAGRANCEAND PRODUCE HONEY FOR THE WELL-BEING OFSOCIETY.
  • 51. THANK YOU