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corporate governance


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corporate governance

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corporate governance

  1. 1. Corporat e Governance
  2. 2. Meaning And Definition Corporategovernanceistheset of processes, customs, policies, laws, and institutionsaffecting theway acorporation (or company) isdirected, administered or controlled. Corporate governancealso includestherelationshipsamong themany stakeholdersinvolved and thegoalsfor which thecorporation isgoverned. Definition: According to Cadbury Committee “Corporategovernanceisdefined asthesystem by which companiesaredirected and controlled”.
  3. 3. Importance • Changing ownership structure • Important of social responsibility • Growing number of scams • Indifferenceon thepart of shareholders • Globalization • Takeover and mergers
  4. 4. Historical perspective In termsof corporatelawsand financial system, therefore, Indiaemerged far better endowed than most other colonies. The1956 CompaniesAct built on thisfoundation, asdid other lawsgoverning thefunctioning of joint- stock companiesand protection of investors’ rights.
  5. 5. Historical perspective (Cont…) Although Indiahasbeen fortunatein not having to go through thepainsof massivecorporatefailures such asEnron and WorldCom, it hasnot been found wanting in itsdesireto further improvecorporate governancestandards.  On 21 August 2002, the Department of Company Affairs(DCA) under the Ministry of Financeand Company Affairsappointed thisCommitteeto examinevariouscorporate governanceissues.
  6. 6. Two models of Corporate Governance The two models of corporate governance I. Market model or outsidersmodel. II. Control model or insider model.
  7. 7. The outsider model • A priority to market regulation • theownersof firmstend to haveatransitory interest in thefirm • Theabsenceof closerelationshipsbetween shareholdersand management • theexistenceof an active`market for corporate control´ - takeovers, particularly hostileones • theprimacy of shareholder rightsover thoseof other organisational groups
  8. 8. The insider model • Thepriority to stakeholderscontrol • Theownersof firmstend to havean enduring interest in thecompany • They often hold positionson theboard of directorsor other senior managerial positions • Therelationshipsbetween management and shareholdersarecloseand stable • Thereislittleby way of amarket for corporate control • theexistenceof formal rightsfor employeesto influencekey managerial decisions
  9. 9. OECD On corporate governance OECD: Organization forEconomic Co- operation and development • Rightsand equitabletreatment of shareholders • Interestsof other stakeholders • Roleand responsibilitiesof theboard • Integrity and ethical behavior • Disclosureand transparency
  10. 10. Relevance of corporate governance Thefour aspectsemphasizetherelevance of corporategovernance • Issueof integrity • Bonusculture • Regulatory framework • Directorstraining
  11. 11. Issues of corporate governance • Dutiesof directors • Compensation and balanceof theboard • Remuneration and reward of directors • Reliability of financial reporting and external auditors • Shareholdersrightsand responsibilities • Corporatesocial responsibilities
  12. 12. References • corporate-governance/ • n/The+Relevance+of+Corporate+Governance+in+the+National+Economy +Indian+Experience •