Corporate governance genesis and international developments
Jayashree Sadri and Sorab SadriCORPORATE GOVERNANCEGenesis and International DevelopmentsProfessor Jayashree SadriAndDr Sorab Sadri
Jayashree Sadri and Sorab SadriBasis This presentation is largely based on theSadri, Jayashree and Ajgaokar work of 2002as well as the Jayashree, Sadri and Dastoorwork of 2008. Inputs from Dr S N Tara, Dr Bindi Mehta andProf. J. Oke are acknowledged. This has all culminated in the Sadri andJayashree work of 2009.
Jayashree Sadri and Sorab SadriWhat is Corporate Governance ? Concept originated with the separation ofownership and management Corporatist business and increasing scales ofoperation Origin can be traced back to “Agency Theory”propounded by Berle and Means
Jayashree Sadri and Sorab SadriA Suggested Definition …… Systems, procedures and institutionsthat ensure that management acts in the bestinterests of the owners (shareholders) Ongoing debate about whether it should beshareholders’ interest or all stakeholders’interest (including employees, customersenvironment and community at large) that themanagement should serve
Jayashree Sadri and Sorab SadriCorporate Governance FurtherDefined Shareholder Versus Stakeholder debatecontinues………. Moot point is the timeframe Interests of both / all are bound to convergein the long run In the long run, sustainability of the enterpriseis important
Jayashree Sadri and Sorab SadriCorporate Governance Systems CG systems and structure differ in historical andlocal condition specific contexts - Forms of Organizations in enterprises Entrepreneurial form Banking dominated form Managerial form Institutional form Democratic corporate form
Jayashree Sadri and Sorab SadriCorporate Governance Tripod Three key players or pillars of CG are: Shareholders or owners Board of Directors Management Interests may not coincide and balancingdivergent and conflicting interests becomescrucial. A responsible role of the Fourth Estate canand does work wonders.
Jayashree Sadri and Sorab SadriWhy is CG Imperative for India ? Immediate Factors Closely on the heels of corporatedebacles Vanishing companies Corporate frauds Ratings downgrades
Jayashree Sadri and Sorab SadriCG…. Why is it an Imperative forIndia ? Structural Factors: Globalization of markets Indian companies are tapping globalmarkets for resources Stock markets are getting institutionalized These factors are fast forwarding the Indiancompanies into adopting internationalstandards and best practices
Jayashree Sadri and Sorab SadriCG….. Developments in U.K. Cadbury Committee Report 1992 A baseline consensus in UK’s financialcommunity Primarily focusing on accountability aspects Improved information to shareholders Strengthening auditor’s independence
Jayashree Sadri and Sorab SadriCG…… Developments in UK Greenbury Committee Report 1995Focuses on Executives &Directors’ Role & Compensation Myner Committee Report 1995 Winning partnerships between owners andmanagement Role of institutional investors
Jayashree Sadri and Sorab SadriCG…….. Developments in USA California Public Employees Retirement Systems(CalPERS) - Largest public pension plan in the USA,World’s 3rd largest CG through shareholder activism “Global Governance Principles” Accountability,Transparency, Equity, Voting method improvementsand Long term vision
Jayashree Sadri and Sorab SadriCG……. German Model A Unique System of Two Tier Boards Supervisory Board Managerial Board No official codes, but many provisionsin company legislation Of late, demand for professionalisingsupervisory boards and importance toindividual shareholders
Jayashree Sadri and Sorab SadriCG…. Developments in Japan CG Forum of Japan (consisting ofcorporations, institutional investors &academia) Short / medium term suggested measuresare - Size of Japanese boards to be reduced Truly independent auditors Reduction in cross shareholding
Jayashree Sadri and Sorab SadriCG………. OECD Principles Organization of Economic Co-operation andDevelopment (OECD) Principles Intended to assist member governments inevaluating their legal, institutional andregulatory framework Shareholders’ Rights Board Responsibilities Disclosures & Transparency
Jayashree Sadri and Sorab SadriCG…… ImplementationModalities Available Options are - Through general legislation Through stock exchanges Through independent & well publicized ratings Through institutional activism & nomineedirectors Through Self Regulation
Jayashree Sadri and Sorab SadriImplementation Choices Most experts are averse to generallyapplicable standards & legal intervention Internationally, self- regulation, linked toopenness and accountability, seems togenerate the maximum support Self - regulation may not work in India in theforeseeable future - A judicious mix of all thefour approaches (UK, USA, German andJapanese) may be required
Jayashree Sadri and Sorab SadriTherefore The judicious mix has to be indigenous andfounded on business ethics. It has to evolve over a period of time. The inputs of People Management expertsand Business Strategists must combine withthose of Company Secretaries and CharteredAccountants to generate this mix. Must have the implicit and explicit support oftop management.