Corporate governance


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Corporate governance

  1. 1. CORPORATE GOVERNANCE a synthesis of the theory
  2. 2. AGENDA• Evolution• Introduction• Principles• Governance issues• Codes of best practice
  3. 3. EVOLUTIONPataliputra, the capital of the Mauryan Empire, is a city “astonishingly well organized andadministered according to the best principles of governance”.Writing about the ideal conduct of the King, Kautilya, an official says an ideal king is onefor whom-“In the happiness & well being of the subjects, is the well being of the King”(English translation from the Sanskrit version of Arthasastra)Kautilya’s fourfold duty of a king,1. Raksha – Protection - Shareholders Wealth2. Vriddhi – Enhancement - Wealth through proper utilization of Assets3. Patna – Maintenance - Of that wealth4. Yogakshema – Safeguard - Interest of Shareholders
  4. 4. INTRODUCTIONWhat is Corporate Governance?It means governing a company in a value based manner.ObjectiveEnhancement of shareholders value keeping in view the interests of otherstakeholders.Key Constituents• Shareholders• Board of Directors• Management
  5. 5. IMPORTANCE OF CG• “The ultimate measure of success is the creation of wealth for our shareholders”. - Georgia-Pacific leading manufacturer• “The proper governance of companies will become as crucial to the world economy as the proper governing of countries”. - James Wolfensohn president of WB,1999
  6. 6. PRINCIPLES• Right and equitable treatment of shareholders• Interest of stakeholders• Disclosure and transparency• Integrity and ethical behavior• Responsibilities of the board
  7. 7. DIFFERENT TYPES OF GOVERNANCE• The American corporate governance system is a market based system.• The German system is a bank-based system, often referred to as a universal banking system.• The Japanese system is one of cross-ownership of firms and interlocking relationships called keiretsu.
  8. 8. GOVERNANCE ISSUESCrucial issues to achieve the objectives are:• Distinguishing the roles of board and management• Separation of the roles of the CEO and chairperson.• Protection of shareholder right and their expectations.• Director’s and executive’s remuneration.• Should the board have committee.
  9. 9. BENEFITS OF CORPORATE GOVERNANCE• Creation and enhancement of a corporation’s competitive advantage• Enabling a corporation performs efficiently by preventing fraud and mal practices.• Providing protection to shareholders’ interest• Enhancing the valuation of an enterprise• Ensure compliance of laws and regulations.
  10. 10. OTHER ADVANTAGES OF CG• Increases access to external financing leading to larger investment, high growth & creation of more jobs• Better allocation of resources• Better management creating wealth• Reduces the risk of financial crisis• Better relationship with all stakeholders
  11. 11. CONCLUSIONIf a country doesnt have a reputation for strong corporategovernance practice, or If investors are not confident with the levelof disclosure capital will flow else where.Corporate governance is known to be one of the criteria thatforeign institutional investors are increasingly depending on whendeciding on which companies to invest in. It is also known to havea positive influence on the share price of the company. Having aclean image on the corporate governance front could also make iteasier for companies to source capital at more reasonable costs.
  12. 12. REFERENCES• "OECD Principles of Corporate Governance, 2004". OECD. Retrieved 2011-07-20.• “A Blueprint for Corporate Governance” by Fred R. Kaen.• “Corporate Governance: A Synthesis of Theory, Research, and Practice” by H. Kent Baker and Ronald Anderson.• “Corporate Governance (3rd Edition)” by Kenneth Kim, John R. Nofsinger and Derek J Mohr
  13. 13. QUESTIONS