Business Ethics, Corporate Governance & CSR session 2Frame work for corporate Governance MCT-O64 Prof. S.K.Palhan firstname.lastname@example.org
Session-2 Framework of Corporate Governance• Framework• The key players & their role• Elements of good corporate governance• Major issues in corporate governance• Mechanisms for control – Internal – External• Good practices in corporate governance
Framework of corporate governance• The major stakeholders are the promoters & the investors in the corporate• Other stakeholders who take part include management ,suppliers, employees, creditors, customers and the community at large.• A board of directors often plays a key role in corporate governance. It is their responsibility to ensure accountability of the organization to its owners and authorities.
Corporate management structure• The control of management is in the hands of share holders who appoint the Board of Directors. They delegate greater part of their power to the Board of Directors.• The Board of directors pass substantial part of their powers to the CEO .• The CEO further delegate the powers to departmental heads in charge of the operations
Corporate management structure• . shareholders Elect Board of Forms directors Appoint Executive committee Chief executive & senior executives
Role of Board in dynamics of corporate governance• .m relationship Depositors Shareholders Borrowers customers• Board of directors Policy compliance Top management Employees All other stakeholders
Role of Board in dynamics of corporate governance• .m market forces Depositors• Shareholders relationship Borrowers customers• accountability customer services Board of directors• empowerment• Regulatory compliance Policy compliance compliance of• business ethics• Organization welfare Top management• Job satisfaction transparency& fairness Employees All other• social responsibility stakeholders
Framework of corporate governance• The major actors in corporate governance are • The CEO • The Board of Directors • The Company Secretary • Management and • Shareholders • Auditors
CEO• The appointees of the Board are called chief executive officers (CEO ), CEO may be also called Managing Director or by other names• CEO is the link between Board of directors & the operating organization• All day to day operations are carried by the CEO as per the direction given by the Board of directors & he has the major responsibility for the implementation of the decisions of the Board.
THE Board of Directors• The corporate act through the Board of Directors.• It is mandatory for public limited companies to have directors• Director is a person having control over the direction, conduct , management or superintendence of the affairs of the company
THE Board of Directors• Kinds of directors – Executive directors-full time working – Non-executive directors- to ensure corporate governance • Nominee directors • Independent directors
THE Board of Directors• Duties of directors – Fiduciary- honesty towards the company – Care ,skill & diligence – To attend board meetings – Stakeholder management
The company secretary• Company secretary plays important part in organizing the board meetings, making the minutes of the meeting & certify / state the action taken by the company .• Most of the statutory reports to the regulator bodies is submitted by the company secretary under the guidance of the CEO/ Board of directors
Management• Role of the top management is to implement the direction & decisions of the CEO• Implementation of corporate governance is also done at this level e.g. – Customer service – Legal compliance – Employee’s welfare – CSR activities
Share holders• All major decisions are ratified by the share holders in general body meeting, therefore the share holders have important role in ensuring corporate governance.
Issues in corporate governance• Internal controls and internal auditors• The independence of the entitys external auditors and the quality of their audits• Oversight and management of risk• Oversight of the preparation of the entitys financial statements• Inside trading
Issues in corporate governance• Review of the compensation arrangements for the chief executive officer and other senior executives• The resources made available to directors in carrying out their duties• The way in which individuals are nominated for positions on the board• Dividend policy
Mechanisms and controls• Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazards and adverse selection.• For example, to monitor managers behaviour, 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.
Types of controls for corporate governance• Internal• external
Internal corporate governance controls• Monitoring by the board of directors• Internal control procedures and internal auditors• Balance of power through independent / non executive directors• Remuneration
External corporate governance controls• External corporate governance controls encompass the controls the external stakeholders exercise over the organization. Examples include:• competition• debt covenants• demand for and assessment of performance information (especially financial statements )
External corporate governance controls• Government regulations• External auditors• Managerial labour market• Media pressure• Takeovers
Auditors• Auditors have an important role in implementation of corporate governance• Type of auditors – Internal – Independent / external auditors – Government auditors• Types of audit – Financial statement audit – Compliance audit – Operational audit
Auditors• Responsibilities of auditors – Forming & expressing their opinion on financial statements – Reliability & sufficiency of information – Evaluation of accounting systems followed – Disclosure of relevant information in statements
Good practices in corporate disclosures• The internationally agreed benchmark consists of more than fifty distinct disclosure items across five broad categories:• Auditing• Board and management structure and process• Corporate responsibility and compliance• Financial transparency and information disclosure• Ownership structure and exercise of control rights
Commonly accepted principles of corporate governance• Rights and equitable treatment of shareholders• Interests of other stakeholders• Role and responsibilities of the board• Integrity and ethical behaviour• Disclosure and transparency:
Framework of corporate governance• Key elements of good corporate governance principles include – Honesty, – Trust and integrity, – Openness, – Performance orientation, – Responsibility and accountability, – Mutual respect, and – Commitment to the organization.