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Value addition to enterpise through corporate governance 29-06-2008

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Value addition to enterpise through corporate governance 29-06-2008

  1. 1. VALUE ADDITION TO ENTERPISE THROUGH CORPORATE GOVERNANCE Pavan Kumar Vijay Managing Director 29/06/2008
  2. 2. What is Corporate Governance???
  3. 3. <ul><li>Corporate Governance rests with the Vision and Perception of the Leadership </li></ul>
  4. 4. <ul><li>and </li></ul><ul><li>A Leader need to adopt a </li></ul><ul><li>Vision for Corporate Governance </li></ul>
  5. 5. Corporate Governance Framework Output – Input = Wealth Created ? Sustainability Happiness and Prosperity of all Stakeholders Reinvestment Distribu- tion <ul><li>Research and </li></ul><ul><li>Development </li></ul><ul><li>HR Development </li></ul><ul><li>Infrastructure </li></ul><ul><li>Risk Management </li></ul><ul><li>SUPPLIERS </li></ul><ul><li>Adequate Returns </li></ul><ul><li>HUMAN ASSETS </li></ul><ul><li>Adequate </li></ul><ul><li>Remuneration </li></ul><ul><li>CUSTOMERS </li></ul><ul><li>Affordable Prices </li></ul><ul><li>PUBLIC </li></ul><ul><li>Payment of Taxes and Partnership in National Development Projects </li></ul>Wealth Creation Wealth Management Wealth Sharing Enhanced Capabilities Best Management Practices are Vital Here Law and Ethics are Vital Here
  6. 6. Principles of Corporate Excellence Fairness to all stakeholders Mutual Trust, Transparency and Togetherness Unrestricted Communication and Continuous Feedback Sharing Knowledge, Success Stories and Experience Sharing Happiness and Concerns Helping Each Other – Round the Clock Fairness to all stakeholders Mutual Trust, Transparency and Togetherness Unrestricted Communication and Continuous Feedback Sharing Knowledge, Success Stories and Experience
  7. 7. Infact, these principles are the foundation of Best Governed Organizations' irrespective of their form and size
  8. 8. <ul><li>Commitment to well-being and progress of all stakeholders is our age old mantra </li></ul>
  9. 9. Satyam Vada Dharmam Chara - Taittariya Upanishad
  10. 10. <ul><li>“ Forever speak the truth and follow the dharma ” </li></ul>
  11. 11. <ul><li>Truth : Disclosure of Actual State of Affairs (Transparency in operations and transactions) </li></ul>
  12. 12. <ul><li>Dharma : “Dharma is for the stability of society, the maintenance of social order and the general well-being and progress of humankind .” </li></ul><ul><li>- Karna Parva of the Mahabharata. Verse-58 in Chapter 69 </li></ul>
  13. 13. <ul><li>Corporates are also expected to use their </li></ul>Capacity, Knowledge and Resources Maximisation of stakeholders’ value and well-being and progress of humankind TOWARDS THROUGH Transparency, accountability and truthful disclosure of state of affairs Dharma Truth
  14. 14. <ul><li>This is our own age old mantra of </li></ul><ul><li>Good Governance </li></ul>
  15. 15. <ul><li>Companies that have followed these </li></ul><ul><li>principles of </li></ul><ul><li>Corporate Governance </li></ul><ul><li>have </li></ul>
  16. 16. <ul><li>Consistently earned high returns, </li></ul><ul><li>increased their net worth and </li></ul><ul><li>enhanced their shareholders wealth </li></ul>
  17. 17. <ul><li>Invested significantly in proactive research and development </li></ul>
  18. 18. <ul><li>Developed people into ‘ achievers ’ than just ‘ performers’ </li></ul>
  19. 19. <ul><li>Dealt ethically with customers, government and business partners </li></ul>
  20. 20. <ul><li>Maintained and updated their professional management culture, system and processes </li></ul>
  21. 21. <ul><li>..and accomplished </li></ul>
  22. 22. WINNING EMPLOYEES XCELLENCE GROWING INVESTORS DELIGHTED CUSTOMERS TRUSTED SUPPLIERS SATISFIED GOVERNMENT AND REGULATORS HAPPY SOCIETY
  23. 23. The Institute of Company Secretaries of India ” Corporate Governance is the adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility application of best management practices, compliance of law in letter and spirit and for sustainable development of all stakeholders”
  24. 24. <ul><li>Advantages of applying </li></ul><ul><li>Best Corporate Governance Practices </li></ul>
  25. 25. <ul><li>Growth </li></ul>Growing Revenues Growing Profits Growing Market Value
  26. 26. <ul><li>Widespread Goodwill and Brand Reputation </li></ul>Access to Global Markets Better Access to Human Capital Ready Market for New Products Widening Customer Base
  27. 27. <ul><li>Enhanced Trust and Confidence of all Stakeholders </li></ul>EMPLOYEES INVESTORS CUSTOMERS SUPPLIERS GOVERNMENT AND REGULATORS SOCIETY
  28. 28. <ul><li>Leading to… </li></ul>
  29. 29. Environment Civil Society Business Society SUSTAINABLE DEVELOPMENT
  30. 30. Corporate Value without Corporate Governance – The Past <ul><li>COMPANY </li></ul><ul><li>Loss of reputation in International Market </li></ul><ul><li>Loss of Moral Fibre of Corporataions. </li></ul>
  31. 31. Corporate Value without Corporate Governance – The Past <ul><li>STAKEHOLDERS </li></ul><ul><li>Auditors - Independence compromised to obtain lucrative consulting assignments </li></ul><ul><li>Employees - Large disparity between the highest and lowest paid employee </li></ul><ul><li>Analysts - Ever-greening of Corporate & Stock reports. </li></ul>
  32. 32. Corporate Value without Corporate Governance – The Past <ul><li>STOCKHOLDERS: </li></ul><ul><li>Loss of Investors Confidence. </li></ul><ul><li>Difficulty in further raising of capital. </li></ul><ul><li>Investor Complaints </li></ul>
  33. 33. Corporate Value without Corporate Governance – The Past <ul><li>PRACTICES: </li></ul><ul><li>Aggressive accounting practices. </li></ul><ul><li>Incompetence of board members and overriding of audit committees . </li></ul><ul><li>Dividend linked to short-term revenue growth, EPS and stock price. </li></ul>
  34. 34. Vs.
  35. 35. Reactions in Legal Framework <ul><ul><li>Clause 49 of Listing Agreement. </li></ul></ul><ul><ul><li>Section 192A, 292A etc. in the Companies Act </li></ul></ul>
  36. 36. Legal Norms of CG <ul><li>Concept of Independent Directors & Audit Committees </li></ul><ul><li>Stricter independence standards for Audit Committees </li></ul><ul><li>Board Professionalism </li></ul><ul><li>Whistle Blower Policy </li></ul><ul><li>Certifications and disclosures </li></ul><ul><li>Real time disclosure & Shortened deadlines </li></ul>
  37. 37. <ul><li>ARE </li></ul><ul><li>SHAREHOLDERS THE </li></ul><ul><li>ONLY </li></ul><ul><li>STAKEHOLDERS ? </li></ul>
  38. 38. Stakeholders in Value Chain SUPPLIERS CUSTOMERS HUMAN RESOURCE Supply Funds, Materials and Services Value Addition and Management of Resources Give Opportunity to Co. to Satisfy their Needs Adequate Returns for Funds, Material and Services Supplied Adequate Salary and Security for leading a Happy Life Best Quality Products and Customer Care at Minimum Prices ROLE OF STAKEHOLDERS EXPECTATIONS OF STAKEHOLDERS Potential Suppliers, Human Resources and Customers Biological, Economic and Cultural Environment PUBLIC PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
  39. 39. Corporate Governance Value Chain “ Corporate Governance is not related to investors only, though they are most important Beneficiary.”
  40. 40. Stakeholders’ Stake in Corporate Governance Value Chain 2 : 1 Debt – Equity Ratio 2 : 1 Current Ratio
  41. 41. What CG Brings…
  42. 42. Value Addition through CG CORPORATE GOVERNANCE INVESTORS LENDERS CUSTOMER EMPLOYEE SUPPLIER <ul><li>Confidence </li></ul><ul><li>Security of Funds </li></ul><ul><li>Safety of interest & principal. </li></ul><ul><li>Better & Favorable Credit Terms </li></ul><ul><li>Value Creation </li></ul><ul><li>Better quality of Products/ Services </li></ul><ul><li>Cheaper prices </li></ul><ul><li>Value Creation </li></ul><ul><li>Favorable terms of supplier agreements </li></ul><ul><li>Better quality of HR </li></ul><ul><li>Better Salary </li></ul><ul><li>Benefits </li></ul><ul><li>Stability </li></ul>Govt./ Regulator <ul><li>Tax </li></ul><ul><li>Compliance </li></ul><ul><li>Employment </li></ul><ul><li>Social Commitment </li></ul>
  43. 43. Measurement of Value Addition
  44. 44. Benefits As To Value Addition
  45. 45. Corporate Governance Enhances Brand Value <ul><li>Quality in Board Structure </li></ul><ul><li>Better Board Management and Practices </li></ul><ul><li>Contribution of Independent Directors </li></ul><ul><li>Successful Strategies </li></ul><ul><li>Adequacy of Controls </li></ul><ul><li>Independence of Auditors </li></ul>
  46. 46. Outstanding Performance, Higher Profits, Expanded Market Reach and the like FAILS to protect a company which has put good governance & ethics at the back burner…. History is Witness S U C E S S D I S A S T E R
  47. 47. Secret behind building foundations ..…Only the culture of strict adherence to good compliance can keep a company ahead on sustainable basis , bring in larger profits…
  48. 48. Present Status of CG Practices – The CRISIL Experience Practice Status Equitable Treatment of Shareholders Moderate Transparency and Disclosure Relatively strong Composition of Board Scope for improvement Functioning of Board Moderate
  49. 49. Value Addition - The CRISIL Experience Stakeholders Status Share Holders High Debt Holders Highest Employees Moderate Customers High Suppliers Scope for improvement Society Scope for improvement
  50. 50. <ul><li>Thus, Although a lot has been done , but a lot needs to be done . </li></ul>
  51. 51. <ul><li>CORPORATES SHOULD ACT LIKE HONEY BEE WHICH SUCK THE NECTAR OF THE FLOWER </li></ul><ul><li>WITHOUT EFFECTING ITS FRAGRANCE AND PRODUCE HONEY FOR THE WELL –BEING OF SOCIETY . </li></ul>
  52. 52. <ul><li>THANK YOU </li></ul>

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