Corporate governance


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Corporate governance

  1. 1. Corporate Governance Prof. R N Swain, School of Management, KIIT University
  2. 2. Governance To steer an organisation in the desired direction The responsibility to steer lies with the Board of Directors/Governing Board
  3. 3. Corporate Governance : Def Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherance to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders
  4. 4. Governance is concerned with: The intrinsic nature of an organisation Purpose of an organisation Integrity of an organisation Identity of an organisation Relevance of an organisation Continuity of an organisation Fiduciary aspects of an organisation
  5. 5. Kautilya’s Arthasastra: For good governance all administrators including the King are considered servants of the people Their duty:  Raksha – protection (risk management)  Vridhi –(stakeholders value enhancement)  Palana-(compliance to the law in spirit)  Yogakhema (social security system–CSR)
  6. 6. Six enemies of goodgovernance: Lust Anger Greed Conceit Arrogance Foolhardiness(Personal ethics of Corporate Leaders)
  7. 7.  Good governance results in stability There will be stability if leaders are responsive, accountable and removable
  8. 8. Definitions of Corporate Governance Conduct of business in accordance with shareholders desires (maximising wealth) while confirming to the basic rules of the society embodied in the Law and Local Customs Relationships among various participants in determining the direction and performance of a corporation
  9. 9. Corporate Governance: Def: Effective management of relationships among  Shareholders  Managers  Board of directors  employees  Customers  Creditors  Suppliers  community
  10. 10. Corporate Governance: Def: Corporate Governance requires the formation of the value framework, the ethical framework and the moral framework which will guide the decision making process
  11. 11. Corporate Governance: Def:President of World Bank-Wolfensohn Corporate governance is about promoting corporate fairness, transparency and accountability The way a company is organised and managed to ensure that all financial stakeholders (shareholders and creditors) receive their fair share of a company’s earnings and assets
  12. 12. Corporate Governance: Def:OECD Corporate governance is a system by which business corporations are directed and controlled
  13. 13.  Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders and spells out the rules and procedures for corporate decision making.
  14. 14.  Corporate Governance provides the structure through which company’s objectives are set along with the means of attaining these objectives as well as monitoring performance
  15. 15. Corporate Governance-Def: CadburyCommittee It is a system of structuring, operating and controlling a company with the following specific aims:-  Fulfilling long-term strategic goals of owners  Taking care of the interests of employees  A consideration for the environment and local community  Maintaining excellent relations with customers and suppliers  Proper compliance with all the applicable legal and regulatory requirements
  16. 16. Corporate Governance-Def:By CII  Corporate governance deals with laws, procedures, practices and implicit rules that determine a company’s ability to take informed managerial decisions vis-à-vis its claimants-in particular, its stakeholders, creditors, customers, the state and employees
  17. 17. Kumar Mangalam Birla Committee: Strong corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection It is the blood that fills the veins of transparent corporate disclosures and high quality accounting practices It is the muscle that moves a viable and accessible financial reporting structure
  18. 18. Narayan Murthy Committee Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company
  19. 19. Principles of Corporate Governance Sustainable development of all stake holders- to ensure growth of all individuals associated with or effected by the enterprise on sustainable basis
  20. 20.  Effective management and distribution of wealth – to ensue that enterprise creates maximum wealth and judiciously uses the wealth so created for providing maximum benefits to all stake holders and enhancing its wealth creation capabilities to maintain sustainability
  21. 21.  Discharge of social responsibility- to ensure that enterprise is acceptable to the society in which it is functioning Application of best management practices- to ensure execellance in functioning of enterprise and optimum creation of wealth on sustainable basis
  22. 22.  Compliance of law in letter & spirit- to ensure value enhancement for all stakeholders guaranteed by the law for maintaining socio-economic balance Adherence to ethical standards- to ensure integrity, transparency, independence and accountability in dealings with all stakeholders
  23. 23. Shareholders expectations vrs.Other stakeholders expectations Shareholders are key stakeholders and they expect management to use their hard earned money responsibly to the productive use and enhancement of value for their money.
  24. 24.  The stakeholders on whom the company depends heavily, partner with the company to make it a successful venture. Hence they also have certain expectations:  Employees expect adequate remuneration for their services and security so that they can lead a better life
  25. 25.  Customers expect best quality products at minimum price so that they can achieve various ends with their scarce means Vendors expect fair and timely return on goods and services supplied by them. Lenders expect timely repayment of loan and interest thereon
  26. 26.  Government expects management to be partner in nation building by paying accurate taxes or directly incurring expenditure on national development project Society has a larger stake and thus larger expectations. It owns the resources that move through value chain. Sustainability of business mainly depends on sustainability of these scarce resources.
  27. 27. Public perception aboutCorporate world Corporate leadership is fraught with greed & excess
  28. 28. Business institution Created by society to meet the purpose of the society A citizen of the country Secondarily a business organisation
  29. 29.  interdependency of the World market
  30. 30. Modern Corporate Model A system of trust & confidence Assumptions:  Shareholders entrust directors to provide oversight of the executives who professionally deploy crores rupees worth of company’s assets for its long term sustainability & shareholder value
  31. 31. System of corporate stewardship It becomes effective when shareholders have a high level of confidence that their representatives are managing the affairs of the company in its best interest
  32. 32.  To achieve this level of investor confidence, the corporate leaders need -  a set of tools that provide:  greater visibility into their organizations &  strengthen corporate governance &  corporate performance management
  33. 33. Corporate Governance Model Keep the house clean, transparent & accountable Report the same in a time bound manner Management to look beyond their systems & procedures
  34. 34. How to go about it Model charter for the Audit Committee Model Whistle Blower Policy Model code of Ethics for principal executives and senior financial officers Model policies & guidelines relating to HR Succession planning Diversity in employment, environment & acceptance of gifts Model policy on Ombudsman for companies
  35. 35. Are these mandatory under law? Yes. SEBI requires listed companies to report on Corporate Governance in their Annual Reports:  Disclosures on mandatory requirements  Disclosures on non-mandatory requirements  Management Discussion & Analysis Report
  36. 36. Disclosures about mandatoryrequirements Brief statement on company’s philosophy on Code of Governance Composition of Board of Directors Remuneration of directors & Board’s procedure & code of conduct Disclosure of non-executive directors’ pecuniary relationship or transactions
  37. 37.  Audit committee, its constitution, role, & power Management as a body Investors’ grievance mechanism Report on Corporate governance
  38. 38. Disclosures about Non mandatoryrequirements The Board, its procedures & its Committees Mechanism for evaluating non- executive board members Training of board members Remuneration committee Nomination committee
  39. 39.  Investors’ grievance committee Means of communication of company’s results of performances Shareholders’ rights Audit qualifications Whistle blower policy
  40. 40. How corporate rise high-A review Bajaj Auto Ltd.  Vision  By challenging the given  By exploring the unknown & thereby stretching ourselves towards tomorrow, today  Mission  Bajaj strives to inspire confidence through excitement engineering  Blending together youthful creativity & competitive technology to exceed the spoken & the implicit expectations of our customers
  41. 41. Godrej consumer products Ltd. Vision  We are dedicated to deliver superior stake holder value by providing solutions to existing & emerging consumer needs in the house hold & personal care business  We will achieve this thru enduring trust & relentless innovations delivered with passion & entrepreneurial sprit
  42. 42. Mission We shall operate in existing & new businesses which capitalize on the Godrej brand & our corporate image of reliability & integrity Our objective is t delight our customers both in India & abroad We shall achieve this objective thru continuous improvement in quality, cost & consumer service We shall strive for excellence by nurturing, developing & empowering our employees & suppliers
  43. 43. Hero Honda Motors Ltd. Vision  World class manufacturer  Market leader  Highest level of customer satisfaction  Excellence thru team work  Enduring relationship with stake holders
  44. 44. Mission We at Hero Honda, are continuously striving for synergy between technology, systems & human resources to provide products & services that meet quality, performance & price aspirations of our customers. While doing so, we maintain the highest standards of ethics & societal responsibilities, constantly innovate products & processes, & develop teams that keep the momentum going to take the company to excellence in the new millennium
  45. 45. Infosys Technologies Ltd. Vision/Mission  To be a globally respected corporation that provides best of breed business solutions, leveraging technology, delivered by best in class people
  46. 46. Larsen & Toubro Ltd. Vision  L&T shall be a professionally managed Indian multinational, committed to total customer satisfaction & enhancing shareholder value  L&T-ites shall be an innovative, entrepreneurial & empowered team constantly creating value & attaining global bench marks  L&T shall foster a culture of caring, trust & continuous learning while meeting expectations of employees, stakeholders & society
  47. 47. Siemens Ltd. Mission/Vision  To set the benchmark by being the best in class’ in our fields & to create value for our customers, wealth for our stakeholders & a future for our employees, while giving back graciously to society, a piece of our success
  48. 48. Assignment Read at least 20 articles on corporate governance.