This document provides an overview of corporate governance. It discusses key topics like the meaning of corporate governance, its scope, composition of boards of directors, the Cadbury committee recommendations, various governance committees, and reports. Corporate governance refers to the systems and processes used to direct and manage companies. It aims to balance the interests of shareholders, boards, and management while ensuring accountability, fairness, transparency, and independence. The Cadbury committee in the 1990s made influential recommendations on separating the CEO and chairman roles, having independent directors, and establishing remuneration and audit committees.

1. UNIT 5
CORPORATE GOVERNANCE
PREPARED & PRESENTED BY:
MS. HIMANI R.

2. LAYOUT OF THE PRESENTATION
 Meaning,
 Scope
 Composition of BoD’s
 Cadbury committee
 Various committees
 Reports on corporate governance
 Scope of corporate governance
 Benefits and limitations of corporate governance with
living examples 2
PREPARED BY: MS. HIMANI R.

3. WHAT IS CORPORATE GOVERNANCE?
 If management is about running the
business, corporate governance is about
seeing that it is run properly.
 A set of systems, processes, principles
which ensure that a company is governed
in the best interest of all stakeholders.
 Good corporate governance=good
business
PREPARED BY: MS. HIMANI R. 3

4. MEANING OF CORPORATE GOVERNANCE
 Refers to the formally established guidelines that
determine how a company is run.
 The company’s BODs approves and periodically
reviews the guidelines, which must align with the
company’s direction, performance and regulatory
practices.
PREPARED BY: MS. HIMANI R. 4

5. CONTINUED
 Shareholders:
 Those that own the company
 BODs:
 Guardians of the company’s
assets for the shareholders
 Management:
 Who uses company’s assets
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6. CORPORATE GOVERNANCE
 It specifies the rights and responsibilities of
company’s shareholders, with particular
emphasis on three groups:
Shareholders BODs
Management
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7. CORPORATE GOVERNANCE
 A key function of corporate governance
is to determine how POWER is
distributed among:
Shareholders BODs
Management PREPARED BY: MS. HIMANI R.
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8. CONTINUED
 It may also specify the rights of other stakeholders
such as:
 Employees
 Customers
 Creditors
 Suppliers
 Corporate governance became a very important
issue in 2002, due to collapse of several major
companies, due to accounting fraud such as
Enron and WorldCom.
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9. PREPARED BY: MS. HIMANI R. 9

10.  Accountability
 Ensure that management is accountable to the
Board
 Ensure that the Board is accountable to
shareholders
PREPARED BY: MS. HIMANI R. 10

11.  Fairness
 Protect Shareholders rights
 Treat all shareholders including minorities,
equally
 Provide effective redressal for violations
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12.  Transparency
 Ensure timely, accurate disclosure on all
material matters, including the financial
situation, performance, ownership and
corporate governance
PREPARED BY: MS. HIMANI R. 12

13.  Independence
 Procedures and structures are in place so as
to minimise, or avoid conflicts of interest
 Independent Directors and Advisers i.e. free
from the influence of others
PREPARED BY: MS. HIMANI R. 13

14. COMPOSITION OF BODS
 The governing body
 Bods are elected by sharholders
 A public company must have atleast 2 bods
 Types of board
 Full-time directors
 Part time directors
 A mixture of both
 The chairman
 Must provide positive leadership
 Takes the chair at the meetings
PREPARED BY: MS. HIMANI
R.
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15. CONTINUED
 Duties of the board
 In-line with the objectives, policies and long range
planning
 Must be kept informed about the happenings
 Boardroom procedure
 Everything must be documented
 MD has an important role to play
 Minutes of the meeting should be translated into
executive action
PREPARED BY: MS. HIMANI R.
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16. THE CADBURY COMMITTEE
 The Cadbury Committee was set-up in May 1991 by the
Financial Reporting Council of the London Stock Exchange.
 The committee published its report in December 1992.
 Adrian Cadbury the chairman of the Cadbury committee.
 The code of best practices has been divided into 4 sections:
 Role of Board of Directors, duties of the board and its
compositions.
 Role of Non-Executive Directors.
 Dealing with their Remunerations.
 Addressing questions of financial reporting and financial
controls.
PREPARED BY: MS. HIMANI R. 16

17. CONTINUED
 Role of Board of Directors, duties of the board and its
compositions.
 The board should meet regularly, retain full and effective
control over the company and monitor the executive
management.
 Role of Non-Executive Directors.
 Non-executive directors should bring an independent
judgment to bear on issues of strategy, performance,
resources, including key appointments, and standards of
conduct.
 Non-executive directors should be appointed for specified
terms and reappointment should not be automatic.
PREPARED BY: MS. HIMANI R. 17

18. CONTINUED
 Dealing with their Remunerations.
 Shareholders require that the remuneration of directors should be
both fair and competitive.
 Addressing questions of financial reporting and financial
controls.
 It is the board’s duty to present a balanced and understandable
assessment of the company’s position.
 The board should ensure that an objective and professional
relationship is maintained with the auditors.
 The board should establish an audit committee of at least three
non-executive directors with written terms of reference which deal
clearly with its authority and duties.
PREPARED BY: MS. HIMANI R. 18

19. MAJOR RECOMMENDATIONS OF CADBURY
 A single person should not be vested with the decision
making power. i.e., the role of chairman and CEO should be
separated.
 A majority of directors should be independent non- executive
directors, i.e., they should not have any financial interests in
the co.
 The term of the Directors can be extended beyond three
years only after the prior approval of the shareholders.
 A remuneration committee with majority of non- executive
directors should decide on the pay of the executive directors.
 The information regarding the audit fee should be made
public & there should be regular rotation of the auditors.PREPARED BY: MS. HIMANI R.19

20. VARIOUS COMMITTEES
 Kumar Mangalam Birla Committee.
 In early 1999, Securities and Exchange Board of India
(SEBI) had set up a committee under Shri Kumar
Mangalam Birla, member SEBI Board, to promote and
raise the standards of good corporate governance.
 The report submitted by the committee is the first formal
and comprehensive attempt to evolve a ‘Code of
Corporate Governance, in the context of prevailing
conditions of governance in Indian companies, as well as
the state of capital markets.
PREPARED BY: MS. HIMANI R. 20

21. MANDATORY RECOMMENDATIONS
 Applies To Listed Companies With Paid Up Capital Of Rs.
3 Crore And Above.
 Composition Of Board Of Directors – Optimum
Combination Of Executive & Non-Executive Directors .
 Audit Committee – With 3 Independent Directors With
One Having Financial And Accounting Knowledge.
 Remuneration Committee.
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22. NON-MANDATORY RECOMMENDATIONS
 Role Of Chairman
 Remuneration Committee Of Board
 Shareholders Right For Receiving Half Yearly Financial
Performance Postal Ballot Covering Critical Matters Like
Alteration In Memorandum Etc
 Sale Of Whole Or Substantial Part Of The Undertaking
 Corporate Restructuring
 Further Issue Of Capital
 Venturing Into New Businesses
PREPARED BY: MS. HIMANI R. 22

23. BENEFITS & LIMITATIONS OF CORPORATE
GOVERNANCE
 Benefits:
 Industrial economy country’s economy
 Confidence of investors-foreign and domestic
 Retaining the best human capital
 Stable sources of financing
 Stability and growth to the enterprise
 Fairness with stakeholders
 Increases operational performance of A company
 Strategic thinking
 Monitoring of risk factors
 Limiting liabilities
 Integrity of financial reports
 Limitations:
 Beyond the realm of law
 Need for evolution of new systems of corporate governance PREPARED BY: MS.
HIMANI R.
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