Managing for sustainability

2. Code of Corporate Governance
 Code of Corporate Governance was announced on
28th march 2002 by the Securities & Exchange
Commission.
 Code is comprises into three mainly parts
a) Management
b) Accounts/Financial setups
c) Audit

3. BOARD OF DIRECTORS
 Section 174 to 197–A of company ordinance 1984
pertains to directors of the companies
i. The Board of Directors of each listed company
includes at least one independent Director
representing institutional equity interest of a banking
company, Development Financial Institution, Non-
Banking Financial Institution mutual fund or
insurance company.

4. Code of Corporate Governance (I)
Comments:
Board issues
 Separation of the positions of chairman and CEO,
especially for the relationship-based family-
controlled Asian companies
 Background and qualification of the
independent directors
 Code specifies that executive directors, i.e. working
or whole time directors, are not more than 75% of
the elected directors including the Chief Executive.

5. Code of Corporate Governance (II)
Comments:
Board issues
 Election: participation of the institutional investors
and public shareholders in any form, e.g. email/ letter
 The directors of listed companies shall, at the time of
filing their consent to act as such,
 give a declaration in such consent that they are aware of
their duties and powers under the relevant law(s) and
the listed companies’ Memorandum and Articles of
Association and the listing regulations of stock
exchanges.

6. Code of Corporate Governance (III)
Comments: Board remuneration
 Disclose remuneration of each director in the annual
report
 Disclose details of options granted/ sold to directors
 Provide of executive remuneration policy
 a) QUALIFICATION AND ELIGIBILITY TO ACT AS A DIRECTOR
– No listed company shall have as a director person who is
serving as a director of ten other listed companies.
– No person shall be elected or nominated as a director of a
listed company if:
 He is not a Tax Payer, non-resident excluded.
 he has been convicted by a court of competent jurisdiction.
 as a defaulter in payment of any loan to a banking company,
a Development Financial Institution.

7. Code of Corporate Governance (IV)
Comments:
 Financial reporting, transparency and audit
 Set up audit committee
 Strengthen risk management
 Independence of internal auditor/ accountant
 Inform the authority once discovering the
misconduct of the board
 a) QUALIFICATION AND ELIGIBILITY TO ACT AS A DIRECTOR
 Code also mention that no person is elected or
 nominated as a director if he or his spouse is
engaged in the business of stock brokerage.

8. Code of Corporate Governance (V)
Comments:
 Stakeholders
 Strengthen their protection
 Adequate information disclosure
 Credit rating system
 TENURE OF OFFICE OF DIRECTORS
 – The tenure of Directorship is provided in section
180 of the ordinance, code requires fulfillment of
vacancy with in 30 days.

9. CREDIT RATING
 As of now, there are six credit rating agencies
registered under SEBI namely, CRISIL, ICRA, CARE,
SMERA, Fitch India and Brickwork Ratings. Ratings
provided by these agencies determine the nature and
integrals of the loan. Higher the credit rating, lower is
the rate of interest offered to the organisation.

10. Duties and responsibilities of the Board (I)
 Maximize investors’ wealth in the long run
 Achieve the corporate goal
 Determine the strategy and policy for the firm
 Point out the potential risk factors
 RESPONSIBILITIES, POWERS AND FUNCTIONS
OF BOARD OF DIRECTORS
 The directors of listed companies shall exercise their
powers and duties with a sense of objective judgment
and independence in the best interests of the listed
company.

11. Duties and responsibilities of the Board (II)
 Comply with the rules and regulations, together with the
codes of best practice
 Facilitate the effective communication channel with its
institutional investors, stockholders and stakeholders.
 – Every listed company shall ensure that:
(a) ‘Statement of Ethics and Business Practices’ is prepared
and circulated annually by its Board of Directors .
(b) the Board of Directors adopt a vision/ mission
statement and overall corporate strategy for the listed
company.

12. Duties and responsibilities of the Board (III)
 Evaluate the performance and effectiveness of the Board
 Appoint the senior management
 Delegate the power and authority properly, fairly and
openly
 Every listed company shall ensure that:
 (c) the Board of Directors establish a system of sound
internal control
 (d) appointment, remuneration and terms and conditions
of employment of the Chief Executive Officer (CEO) and
other executive directors of the listed company are
determined and approved by the Board of Directors.

13. Importance of the board in corporate
governance (I)
 Legal framework
 Under-developed
 Severe corruption
 Corporate governance
 Self regulation
 Inculcate morals and ethics
 Hold managements accountable

14. Importance of the board in corporate
governance (II)
Separation of the positions of
chairman of board and chief executive officer
 Monitor vs. the monitored
 Dual roles are common in Asian countries
 Problems:
 Conflict of interests
 Directors’ remuneration is not related to the
firm’s performance

15. Importance of the board in corporate
governance (III)
Independent directors
 Monitor the performance of the managements
 Avoid over-investment in non-productive
and speculative activities
 Avoid over-borrowing
 Reduce corruption

16. Importance of the board in corporate
governance (IV)
Independent directors
 Act in the best interest of the shareholders/
represent the shareholders
 Strengthen minority shareholder protection
 More transparent operations

17. CORPORATE AND FINANCIAL
REPORTING FRAMEWORK
 AUDITORS NOT TO HOLD SHARES
 All listed companies shall ensure that the firm of
external auditors or any partner in the firm of external
auditors do not at any time hold, purchase, sell or take
any position in shares of the listed company or any of
its associated companies or undertakings

18. CORPORATE OWNERSHIP STRUCTURE
 Every company which is proposed to be listed shall at
the time of public offering, offer not less then Rs. 100
Million or 20% of the share capital of company.

19. 5.AUDIT COMMITTEE
 COMPOSITION
 – The Board of Directors of every listed company shall
establish an Audit Committee, which shall comprise
not less than three members, including the chairman.

21. International joint ventures
 International joint venture is the type of equity-
based cross-border alliance
 A joint venture is a contractual business
undertaking between two or more parties. It is
similar to a business partnership, with one key
difference: a partnership generally involves an
ongoing, long-term business relationship,
whereas a joint venture is based on a single
business transaction.
 Individuals or companies choose to enter joint
ventures in order to share strengths, minimize
risks, and increase competitive advantages in the
marketplace

22. International joint ventures and the
rational behind their formation
Various theories and models have mentioned that
 International joint ventures offers unique benefits of cross –cultural
meshing each organisation ’s complementary skill, assure or speed up
market access Trans-nationally, leap-frog the host nation’s
technological gaps, and strategically respond to increasingly intense
national and global competition
 IJV’s have proliferated because individual companies recognize that
expansion Into new markets can be resource –intensive and risky.
 Glaister and buckley identify five major perspectives:
 1)Mainstream economics orientation ~ extension of the firm by alliance as a
means to obtain economies of scale
 2)The transaction cost approach ~reduction in cost
 3)Resource dependence ~to extend the firm’s domain of control through
vertical links and risk sharing
 4)Organizational learning ~ transfer of technology and exchange of patent
motives
 5)Strategic positioning ~ suggest that alliances are formed by desire to shape
 competition and consolidate the firm’s market position

23. Joint ventures and national culture
Home country :
 Freedom of movement of capital across borders and off-shore
ownership is major influencing factor regarding the decision to
enter in alliances with foreign firms Operating outside one’s own
country
 In most liberal-trade nations portfolio and other forms of share-
ownership in firms operating abroad are not hindered by the
state, but in protectionist economies the flow of capital from the
domestic market to foreign lands and either severely restricted
or not Permissible at all
 Taxation policies makes home country to engage in joint
ventures
 Acc to Beamish tax advantage in the home country result because
in some countries the monitory ownership is treated as an
investment whereas wholly-owned subsidiaries and majority-
owned joint ventures are not.

24. Host country:
 host country forms the immediate external environment of IJV’s with
which it has Interact & to whose pressure and expectations it has to
respond.
 Company undertaking expansion through IJV’s need to understand the
significant elements of local country culture, especially in terms of
initial negotiation and partner selection
 IJV’s here mainly falls in to 6 broad categories
 1)Legal system
 2)Political culture
 3)Industrial relation culture
 4)Level of economic advancement
 5)Membership of global & regional agreement
 6)National culture as a whole
 Foreign partners in IJV’s voluntary give up some of their managerial
prerogative in HRM area because of local complications

25. Effects of national culture on
international joint venture operation
 International joint ventures bring together two or more sets of
employees whose national culture gives fundamental difference in
views on what constitutes a desirable management style or approach.
 Schoenberg and his colleagues studied major Anglo –French joint
ventures from chemical and engineering sectors which formed
between 1986 & 1989.
 They compared the two nations on Hofstede’s dimension, power
distance & uncertainty avoidance.
 In comparison the French management style was widely perceived as
being more autocratic with decision making, authority clearly
concentrated at top management levels. Where British executives
were accustomed to leave more discretion to middle management
levels --The two mgt style were failed in decision making discretion at
same organizational levels
 These kind of cultural clashes show the extent to which we all take
our home grown assumption for granted and expect others to know
them and behave accordingly
Thank You