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Corporate governance
- 1. Role of corporate governance in value enhancement of corporates Presented by :- Abhinav Khanna CMBA5
- 2. Introduction to corporate Governance System by which management of business entity directs & controls the activities in the best interest of stake holders. Corporate Governance bears following policies Trusteeship Transparency Empowerment & Accountability Control Ethical Corporate Behaviour Corporate Governance is generally understood as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations.
- 3. Definitions of corporate governance “Corporate Governance is about promoting corporate fairness, transparency and accountability”. James D. Wolfensohn (Ninth President World Bank) “(It is) the system by which companies are directed and controlled”. Cadbury Committee, U.K “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.” Report of N.R. Narayana Murthy Committee on Corporate Governance constituted by SEBI (2003) “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.” Institute of Company Secretaries of India
- 4. Corporate Governance & Corporate Management Governance is different from management. Company is run by management but run through governance. Governance can be used in any area NGO/NPO Central/state Government Partnership firm Society, etc.
- 5. Historical Perspective of Corporate Governance Principals of governance given by chankya (known as mahatama, equivalent to PM). Principals are :- Raksha (Protection) Vriddhi (Enhancement) Palana (Maintenance) Yogakshema (Safeguard)
- 8. List of few of Corporate Scandals Scandals What Happened How they did it Waste management (1998) Reported $1.7 billion in fake earnings. The company falsely increased the depreciation time length of property, plant and equipment in balance sheet. Enron Scandal (2001) Shareholders lost $74 billion, thousands of employees lost their retirement accounts and jobs. Kept huge debts out of debt. Worldcom Scandal(2002) Inflated Assets by as much as $11 billion leading to $180 billion in losses to investors. Underreported line cost by capitalizing rather than expensing and inflating revenues. Tyco scandal (2002) CEO & CFO stole $150 billion and inflated income by $500 million. Siphoned money through unapproved loans and fraudulent stock sales. Satyam Scandal (2009) Falsely boosted revenue by $1.5 billion. Falsified revenue , margins and cash balance.
- 9. Need for Corporate Governance Corporate Performance Enhanced Investor Trust Combating Corruption Easy Finance From Institutions Enhancing Enterprise Valuation Reduced Risk of Corporate Crisis and Scandals Accountability
- 10. Fundamental principles of corporate governance Ethical and disciplined corporate behaviour Independent and considered judgment Parity between accountability and responsibility Transparency and effective and adequate disclosures.
- 11. Outline Of Good corporate Governance Supervisory Board/ Governing Board/ Board of Governance Special Purpose Board Committees Internal Control system and Risk Management Framework Strong Internal Audit system Whistle Blower Mechanism Code of Conduct for all employees Disclosure of Information
- 12. Development of Corporate Governance in USA(Extract) Years & Various Act/Reports Developments 1977 The Foreign Corrupt Practices Act Provides for specific provisions regarding establishment, maintenance and review of systems of internal control. 1979 US Securities Exchange Commission Prescribed mandatory reporting on internal financial controls 1985 Treadway commission Emphasised the need of putting in place a proper control environment, desirability of constituting independent boards and its committees and objective internal audit function. 1992 COSO issued Internal Control – Integrated Framework. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued Internal Control – Integrated Framework. It is a framework "to help businesses and other entities assess and enhance their internal control systems” 2002 Sarbanes – Oxley Act The Act made fundamental changes in virtually every aspect of corporate governance in general and auditor independence, conflict of interests, corporate responsibility, enhanced financial disclosures and severe penalties for wilful default by managers and auditors, in particular.
- 13. Development of Corporate Governance in UK(Extract) Years & Various Act/Reports Developments 1992, The Financial Aspects on Corporate Governance To focus on the control and reporting functions of boards, and on the role of auditors. 1995 Greenbury Report To make recommendations on Directors’ Remuneration 1998 Hampel Report The Hampel Committee was established to review and revise the earlier recommendations of the Cadbury and Greenbury Committees. An important development was in the area of accountability and audit. 2008 Combined Code on Corporate Governance The Combined Code on Corporate Governance sets out standards of good practice in relation to issues such as board composition and development, remuneration, accountability and audit and relations with shareholders. 2009 Walker Review of Corporate Governance of UK Banking Industry The principal focus of this Review has been on banks, but many of the issues arising, and associated conclusions and recommendations, are relevant – if in a lesser degree – for other major financial institutions such as life assurance companies.
- 14. Development of Corporate Governance in India (Extract) Years & Various Act/Reports Developments 1998, Desirable Corporate Governance : A code Confederation of Indian Industry (CII) the first institution initiative in Indian Industry. The objective was to develop and promote a code for Corporate Governance to be adopted and followed by Indian companies, whether in the Private Sector, the Public Sector, Banks or Financial Institutions, all of which are corporate entities. 2000, Kumar Mangalam Birla Committee Set up by SEBI under chairmanship of kumar Mangalam Birla to build and raise corporate governance , led to inclusion of Clause 49 in listing agreement on Audit Committee 2002 Naresh Chandra Committee Report Naresh Chandra Committee was appointed to examine and recommend inter alia amendments to the law involving the auditor-client relationships and the role of independent directors 2003, N.R. Narayana Murthy Committee SEBI felt requirement need to bring Amendments in Clause 49 in listing agreement, SEBI therefore constituted a Committee under the Chairmanship of Shri N.R. Narayana Murthy, for reviewing implementation of the corporate governance code by listed companies and for issue of revised clause 49 based on its recommendations.
- 15. Findings of Various Acts/Reports on Corporate Governance The Kumar Mangalam Birla Committee – Important instrument to protect investor intereset N.R. Narayana Murthy Committee – Shareholders as true owners and role of management as trustees Cadburry Committee – Review on Board performance Sarbanes – Oxley Act, 2002 – Auditor independence, conflict of interests, financial disclosures, severe penalties for willful default by managers and auditors in particular. The Institute of Company Secretary Of India – Best management practice to ethical practice, distribution of wealth, discharge of social responsibility towards stakeholders.