Corporate governance refers to the relationships and principles that determine a company's direction and performance. Effective corporate governance manages the relationships between shareholders, board members, managers, employees, customers, creditors, and the community. Key principles include sustainable development for stakeholders, effective wealth distribution, social responsibility, best practices, and compliance with laws and ethics. Corporate governance provides benefits like better access to financing, improved performance and valuation, and reduced risk of scandals. In India, organizations like CII and SEBI have worked to develop corporate governance codes and regulations to protect investors after economic reforms in the 1990s liberalized markets.

1. CORPORATE
GOVERNANCE
Dr. Ravinarayana K.S.

2. Corporate Governance
⚫Corporate Governance is the application of
best management practices, compliance of
law in true letter and spirit and adherence to
ethical standards for effective management
and distribution of wealth and discharge of
social responsibility for sustainable
development of all stakeholders.
⚫Conduct of in accordance with
shareholders
business
desires (maximising wealth)
while confirming to the basic rules of the
society embodied in the Law and Local
Customs

3. Corporate Governance
⚫Relationships among various participants in
determining the direction and performance of
a corporation.
⚫Effective management of relationships among
– Shareholders
– Managers
– Board of directors
– employees
– Customers
– Creditors
– Suppliers
– community

4. Why Corporate Governance?
⚫Better access to external finance
⚫Lower costs of capital – interest rates on
loans
⚫Improved company performance –
sustainability
⚫Higher firm valuation and share performance
⚫Reduced risk of corporate crisis and scandals

5. 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
⚫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

6. ⚫ 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 excellence in functioning of enterprise and
optimum creation of wealth on sustainable basis
⚫ 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

7. Four Pillars of Corporate Governance
⚫Accountability
⚫Fairness
⚫Transparency
⚫Independence

8. Accountability
⚫Ensure that management is accountable to the
Board
⚫Ensure that the Board is accountable to
shareholders

9. Fairness
⚫Protect Shareholders rights
⚫Treat all shareholders including
minorities, equitably
⚫Provide effective redress for violations

10. Transparency
Ensure timely, accurate disclosure on all
material matters, including the financial
situation, performance, ownership and
corporate governance

11. Independence
⚫Procedures and structures are in place so as
to minimise, or avoid completely conflicts of
interest
⚫Independent Directors and Advisers i.e. free
from the influence of others

12. Elements of Corporate Governance
⚫Good Board practices
⚫Control Environment
⚫Transparent disclosure
⚫Well-defined shareholder rights
⚫Board commitment

13. Good Board Practices
⚫Clearly defined roles and authorities
⚫Duties and responsibilities of Directors
understood
⚫Board is well structured
⚫Appropriate composition and mix of skills

14. Good Board procedures
⚫Appropriate Board procedures
⚫Director Remuneration in line with best
practice
⚫Board self-evaluation and training conducted

15. Control Environment
⚫Internal control procedures
⚫Risk management framework present
⚫Disaster recovery systems in place
⚫Media management techniques in use

16. Control Environment
⚫Business continuity procedures in place
⚫Independent external auditor conducts audits
⚫Independent audit committee established

17. Control Environment
⚫Internal Audit Function
⚫Management Information systems established
⚫Compliance Function established

18. Transparent Disclosure
⚫Financial Information disclosed
⚫Non-Financial Information disclosed
⚫Financials prepared according to International
Financial Reporting Standards (IFRS)

19. Transparent Disclosure
⚫Companies Registry filings up to date
⚫High-Quality annual report published
⚫Web-based disclosure

20. Well-Defined Shareholder Rights
⚫Minority shareholder rights formalised
⚫Well-organised shareholder meetings
conducted
⚫Policy on related party transactions

21. Well-Defined Shareholder Rights
⚫Policy on extraordinary transactions
⚫Clearly defined and explicit dividend policy

22. Board Commitment
⚫The Board discusses corporate governance
issues and has created a corporate
governance committee
⚫The company has a corporate governance
champion
⚫A corporate governance improvement plan
has been created
⚫Appropriate resources are committed to
corporate governance initiatives

23. Board Commitment
⚫Policies and procedures have been formalised
and distributed to relevant staff
⚫A corporate governance code has been
developed
⚫A code of ethics has been developed
⚫The company is recognised as a corporate
governance leader

24. Other Entities
⚫Corporate Governance applies to all types of
organisations not just companies in the
private sector but also in the not for profit and
public sectors
⚫Examples are
NGOs, schools, hospitals, pension
funds, state-owned enterprises

25. Corporate governance in India
 The Indian corporate scenario was more or less
stagnant till the early 90s.
 The position and goals of the Indian corporate
sector has changed a lot after the liberalisation
of 90s.
 India’s economic reform programme made a
steady progress in 1994.
 India with its 20 million shareholders, is one of
the largest emerging markets in terms of the
market capitalization.

26. Corporate governance of India has undergone a
paradigm shift
 In 1996, Confederation of Indian Industry
(CII), took a special initiative on Corporate
Governance.
 The objective was to develop and promote a
code for corporate governance to be adopted
and followed by Indian companies, be these in
the Private Sector, the Public Sector, Banks or
Financial Institutions, all of which are corporate
entities.
 This initiative by CII flowed from public concerns
regarding the protection of investor
interest, especially the small investor, the
promotion of transparency within business and
industry

27. Securities and Exchange Board of India
 The Government of India's securities watchdog, the
Securities Board of India, announced strict corporate
governance norms for publicly listed companies in
India.
 The Indian Economy was liberalised in 1991. In
order to achieve the full potential of liberalisation and
enable the Indian Stock Market to attract huge
investments from foreign institutional investors (FIIs),
it was necessary to introduce a series of stock
market reforms.
 SEBI, established in 1988 and became a fully
autonomous body by the year 1992 with defined

28. SEBI
 On April 12, 1988, the Securities and Exchange
Board of India (SEBI)was established with a dual
objective of protecting the rights of small investors
and regulating and developing the stock markets in
India.
 In 1992, the ‘BSE’ ,the leading stock exchange in
India, witnessed the first major scam masterminded
by Harshad Mehta.
 Analysts felt that if more powers had been given to
SEBI,the scam would not have happened.
 •As a result the ‘GoI’ brought in a separate legislation
by the name of ‘SEBI Act 1992’and conferred
statutory powers to it.
 Since then, SEBI had introduced several stock

29. SEBI and Clause 49
 SEBI asked Indian firms above a certain size
to implement Clause 49, a regulation that
strengthens the role of independent directors
serving on corporate boards.
 On August 26, 2003, SEBI announced an
amended Clause 49 of the listing agreement
which every public company listed on an
Indian stock exchange is required to sign.
The amended clauses come into immediate
effect for companies seeking a new listing.

30. The major changes to Clause 49…
⚫Independent Directors:- 1/3 to ½depending
whether the chairman of the board is a non-
executive or executive position.
⚫Non-Executive Directors:- The total term of office
of non-executive directors is now limited to three
terms of three years each.
⚫Board of Directors:- The board is required to
frame a code of conduct for all board members
and senior management and each of them have
to annually affirm compliance with the code.

31. ⚫ Audit Committee:- Financial statements and the draft
audit report of management discussion and analysis of…
• Financial condition
• Result of operations of compliance with laws
• Risk management letters
• Letters of weaknesses in internal controls issued by
statutory
• Internal auditors
• Removal and terms of remuneration of the chief
internal auditor
⚫ Whistleblower Policy :- This policy has to be
communicated to all employees and whistleblowers
should be protected from unfair treatment and
termination.
⚫ Subsidiary Companies:- 50% non-executive directors &
1/3 & ½independent directors depending on whether the
chairman is non-executive or executive.

32. Conclusion
⚫As Indian companies compete globally for access
to capital markets, many are finding that the
ability to benchmark against world-class
organizations is essential.
⚫ For a long time, India was a managed, protected
economy with the corporate sector operating in
an insular fashion.
⚫ But as restrictions have eased, Indian
corporations are emerging on the world stage and
discovering that the old ways of doing business
are no longer sufficient in such a fast-paced
global environment.

33. Thank You