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1. EvolutionofCorporateGovernance
Prof Shital Jhunjhunwala, Delhi School of Economics
Copyright Dr. Shital Jhununjhunwala
Theories & Principles

2. Theories Property Rights
Ownership and
Control
Conflict
Agency Theory
Managerial
Hegemony
Principal Cost
Transaction Cost
Economies
Harmonic
Contracts
Stewardship
Resource
Dependency
Institutional
Shareholder
Stakeholder
Nation System of
Governance
Broad Theories Sub Theories
Copyright Dr. Shital Jhununjhunwala

3. Copyright Dr. Shital Jhununjhunwala

4. Conflict
Control
Ownership
Ownership
Dispersed
Managerial
Principal-
Agent
Working
Principal -
Principal
Concentrated
Majority
Principal -
Principal

5. Principal-
Principal
Conflict
Agent-Agent
Conflict
Principal
Agent
Conflict
Copyright Dr. Shital Jhununjhunwala

6. Directors
Agents
Shareholders
Principal
Copyright Dr. Shital Jhununjhunwala
Contract
Exercise
Control
Owners
Knowledge
and
Resources
Widely,
Dispersed
Agency Cost

7. Copyright Dr. Shital Jhununjhunwala
Agency
Cost
Monitoring
Cost
Residual
Loss
Bonding
Cost

8. Copyright Dr. Shital Jhununjhunwala
 Directors in some companies see themselves as
an elite group, dominating both the company
organisation and external linkage
 Appointments ensure that
newcomers fit into that elite
and sustain its image
 Executive directors with their
sense of superiority, access
to inside information and
financial control exercise
dominance over others.

9. Principal Costs
Agent Cost
Conflict Costs
Copyright Dr. Shital Jhununjhunwala

10. Copyright Dr. Shital Jhununjhunwala
Transaction Cost of
Appointing Directors
Selection of
Directors
Negotiating
Contract
Enforcing
Contract
TCE focuses on the cost of choice of governance structures

11. Principal Costs Competency Cost- Strategy,
Objectives, Manager selection,
monitoring inefficiency
Agent Costs Competency Cost
Transaction Cost
Overconfidence Cost
Principal Agent
Costs
Monitoring Cost
Bonding Cost
Agent -Agent Costs Board Competency
Inter-personal relations
Over dominance
Principal-Principal
Costs
Divergent expectation of returns
Free Rider problem
Differential voting rights
Majority/Family interest

12. Copyright Dr. Shital Jhununjhunwala

13. Directors act as the link between Environment and Company

14. Copyright Dr. Shital Jhununjhunwala

15. Copyright Dr. Shital Jhununjhunwala
Shareholder
Primacy
Stakeholder
Balancing
Interest
NSG
Universal
Applicability -
Country
Internal Pressure External Pressure Isomorphic Pressure

16. Copyright Dr. Shital Jhununjhunwala
Primary
•Shareholders or
owners
•Board of
Directors
•Employees
•Key Managerial
Personnel
Secondary
•Lenders
•Suppliers
•Customers
•Auditors
Tertiary
•Goverment
•Regulators
•Financial
Markets
•Stock Markets
•Society
•People
•Planet
•Ecomomy
Internal External

17. Regulatory
Legislative
Cognitive
Normative
Concepts
& Theories
Values &
Expectations
Based on Scott’s Pillars of Institution

18. Copyright Dr. Shital Jhununjhunwala

19. Corporate excellence is achieved through good
governance
Good Governance ensures long term
profitability and sustainability
Copyright Dr. Shital Jhununjhunwala

20. Copyright Dr. Shital Jhununjhunwala
Effective Framework: Promoting transparent and efficient markets
- a sound legal, regulatory and institutional framework that
supports effective supervision and enforcement.
Market and Intermediaries: Stock markets to enable fair price
discovery, fiduciary role of Institutional investors and maintaining
the integrity of proxy advisors, analysts, brokers, rating agencies.
Shareholders: Protecting and facilitating the exercise of rights and
equitable treatment of all shareholders and effective redressal
Stakeholders: Recognizing the rights of stakeholders –cooperation
for creating wealth, jobs, and the sustainability of financially sound
enterprises.
Disclosure and Transparency: Ensuring that timely and accurate
disclosure is made on all material matters -financial situation,
performance, ownership, and governance
Board Responsibility: Ensuring strategic guidance of the company,
effective monitoring of management and accountability to the
company and the shareholders.

21.  The method of electing the board
 The composition of the board
 The incentives offered
 Board Committees
 The standard of financial reporting and
corporate disclosure
 The system of checks & balances instituted
over managerial behaviour
Copyright Dr. Shital Jhununjhunwala

22. Framework is based on principles
 Codes and Guidelines – Voluntary (guidelines
by MoCA)
 Rules and Regulations – comply or explain,
Mandatory (LODR)
 Laws – Mandatory ( Companies Act 2013)
Copyright Dr. Shital Jhununjhunwala

23.  System by which companies are directed and
controlled
 Rules and procedures for making decisions
 Distribution of rights and responsibilities
among different participants in the
corporation - the board, managers,
employees, shareholders and other
stakeholders
Copyright Dr. Shital Jhununjhunwala