Corporate governance -global models

CORPORATE
GOVERNANCE
GLOBAL MODELS
Dr. Varadraj Bapat
Indian Institute of Technology, Mumbai
varadraj@som.iitb.ac.in
9869083118/ 9892413119

2
SHARE IN % OF WORLD GDP BASED ON
PPP--
Emerging & developing economies (like China and India) are raising
while G-7 (like USA, Europe) is falling. Hence the world is more
interested in China and India.

4 MODELS.
 ANGLO-US Model.
 Japanese German model.
 China Model.
 Indian Model.
10/17/2016
3
Dr.VaradrajBapat,IITMumbai

ANGLO-US MODEL
 The chief executive plays an important role.
 Capital markets are quite active.
 Short-term action pervasive.
 There exists a fairly active marker for corporate to
takeover and control.
 If the company is poorly managed it is exposed to
takeover threats.
2-4

ANGLO-US MODEL AND AGENCY PROBLEM
 Agency theory is the study of how to align the
interest between shareholders and management.
Solutions to agency problem:
 A big pay check, and other perks.
 Stock options
 Mobilize the manager
 The market for takeover
2-5

JAPANESE GERMAN MODEL
 Capital markets are not quite as active.
 Long-term goals are pursued in preference to short-
term goals.
 Stakeholders’ primacy is foundation of good
corporate governance practice.
 The scope to mergers and market based takeovers
is somewhat limited.
 It places restrictions on non-bank finance
2-6

CHINA MODEL
 In the case of China, the focus of industrial policy
reform is deregulating the state owned enterprises.
 Partly privatised companies are trading in the stock
market. And the standards of corporate governance
have started emerging.
 In China, we have evidence of the practice of two-
tier boards. It’s truly an insider dominated system.
 Also primarily, it is the domination of the state and
the partly be the enterprises. There is an issue of
minority shareholders still being unprotected.
2-7

CORPORATE GOVERNANCE IN INDIA
 In the third century B.C. Kautilya (Chanakya) wrote
his celebrated treatise on Statecraft – Arthashastra
or Law of Economics.
 History records Pataliputra, the Capital of Mauryan
Empire as a city "astonishingly well organized and
administered according to best principles of
Governance.“
2-8

CORPORATE GOVERNANCE IN INDIA
Kautilya further elaborates on fourfold
dharmas (duties) of a King as: -
1. Raksha – Protection
2. Vriddhi – Enhancement
3. Palana – Maintenance
4. Yogakshema – Safeguard
2-9

SALIENT IDEAS AND THOUGHTS ON PRINCIPALS OF
GOVERNANCE AS REVEALED BY OUR ANCIENT
SCRIPTURES
 Atmano Mokshartham, Jagat hitaya cha (आत्मनो मोक्षार्थं जगद्हिताय च)
: One's actions should lead to the unravelling of one's latent Divinity and at
the same time benefit the society. All work is an opportunity for doing
good to the world and thus gaining materially and spiritually in our lives
 Atmana Vindyate Viryam: Strength and inspiration for excelling in work
comes from the Divine, God within, through prayer, spiritual readings and
unselfish work.
 Tesham sukhm tesham shanti shaswati: Infinite happiness and infinite
peace come to them who see the Divine in all beings.
 Yogah karmashu Kaushalam, Samatvam yoga uchyate: He who works
with calm and even mind achieves the most.
 Yadishi bhavana yasya siddhi bhavati tadrishi: As we think, so we
succeed, so we become. Attention to means ensures the end.
 Parasparam bhavayantah shreyah param bhavapsyathah: By mutual
cooperation, respect and fellow feeling, all of us enjoy the highest good
both material and spiritual.
2-10

BASIC VALUES OF INDIAN PRINCIPALS
OF GOVERNANCE
 Human being has immense potential, energy and talents
for perfection.
 Holistic approach indicating unity between the individual
self and the universe.
 Subtle, intangible subject and gross tangible objects are
equally important. One must develop one’s Third Eye,
Jnana Chaksu, the Eye of Wisdom, Vision, Insight and
Foresight. Inner resources are much more powerful than
outer resources. Divine virtues are inner resources.
Capital, materials and plant & machinery are outer
resources.
 Co-operation is a powerful instrument for team work and
success in any enterprise involving collective work. 2-11

STRENGTHS
OF INDIA
The magic mantra of ‘Demographic Dividend’

13
Strengths
Saving Mindset
Family Values
Social Capital
Integral approach
Sustainable thinking
Democratic Values
Diversity
Language skills
Long history of Higher Education
Entrepreneurship
Bharatiya Sanskruti

14
Strength: Bharatiya Sanskruti

15
Strengths
Saving Mindset
Bharatiya Sanskruti

GOLD
 Investment: beneficial or harmful ?
 Gold accumulation by Indian families
16

17
GOLD: CONSUMER DEMAND 1995-2011
Countries 1995 2000 2005 2008 2009 2010 2011
India 477 855 722 713 579 1006 933
China 427 329 293 432 472 667 811
Indonesia 119 107 81 59 35 48 51
Middle East 365 498 388 346 246 234 200
USA 315 396 377 267 265 235 195
U.K 46 65 59* 37* 32 27 23
Total
Incl.others
2864 3288 3092 3048 2503 3217 3450
Gold price
($/oz)
384.1 279.1 444.5 872 972.3 1224.
5
1571.
5
Note: 1 Tonne=32,151 troy oz of fine gold; * Jewellary only
Source: World Gold Council—Gold Demand Trends various issues

18
Strengths
Family Values
Social Capital
Bharatiya Sanskruti

19
FAMILY VALUES
SOCIAL CAPITAL
Strong family ties
Low rate of crimes
Rapes are 30 times more in US
than in Bharat

 REMITTANCES from abroad ?
20

10/17/2016Dr.VaradrajBapat,IITMumbai
21
REMITTANCES
21
Top recipient countries of remittances
(in billions of US Dollar)
Country 2008 2009 2010 2011
India 50 49 53 64
China 23 23 33 40
Mexico 26 22 22 24
Philippines 19 20 21 23
Nigeria 19 18 20 21
http://en.wikipedia.org/wiki/Remittance

22
Strengths
Integral approach
Sustainable thinking
Bharatiya Sanskruti

 What is world economic history ?
23

24
SHARE OF WORLD GDP FROM 0 TO 1998
Yea
r
0 100
0
150
0
160
0
170
0
182
0
187
0
191
3
195
0
197
3
199
8
W.
Eur
10.
8
8.7 17.9 19.9 22.5 23.6 33.6 33.5 26.3 25.7 20.6
US
A
0 0 0.3 0.2 0.1 1.8 8.9 19.1 27.3 22.0 21.9
Chin
a
26.
2
22.7 25.0 29.2 22.3 32.9 17.2 8.9 4.5 4.6 11.5
Indi
a
32.
9
28.9 24.5 22.6 24.4 16.0 12.2 7.6 4.2 3.1 5.0
Wor
ld
100 100 100 100 100 100 100 100 100 100 100
Source: Table-B-20 Appendix B; pp263; The World Economy: A millennial Perspective—Angus Maddison OECD Development Centre Studies --2007

GDP DURING 2,000 YEARS
SOURCE: ANGUS MADDISON. 2001. THE WORLD ECONOMY: A MILLENNIAL PERSPECTIVE. OECD, PARIS
Share of Global GDP (%): Year 0-1998
0
5
10
15
20
25
30
35
40
0
1000
1500
1600
1700
1820
1870
1913
1950
1973
1998
Western Europe
United States
Japan
China
India

 India is not a story from Rags to Riches.
 It’s an economic empire re-establishing itself
 Western economies have to loot others to sustain
26

 Bharatiya approach is integral and sustainable
27

THE INTEGRAL APPROACH
0 Individual
1 Family
2 Society
3 Nation
4 Nature
5 Parameshti
29

32
Strengths
Entrepreneurship
Bharatiya Sanskruti

@Prof R.Vaidyanathan,IIMB,2012
 Global entrepreneurship monitor shows that
…………. % of India Population is engaged in
various entrepreneurial activities.
 Also Guess for US, Eurpoe and China

 Global entrepreneurship monitor shows that
…………. % of India Population is engaged in
various entrepreneurial activities.
 18 %
 US 11 %
 Europe 5 %
 China 3 %

 Rise of Bharat, is unique – without high FDI, high
export and mostly domestic forces-led, unlike that of
China. Also the Global Entrepreneur Monitor [GEM]
study 2003 showed that Indian economy was
entrepreneur-led, unlike China which is investment
and state-led.

THE PERFORMING INDIA
 UNIDO study in 1997 identified 370 clusters in India
 2600 rural and artisan clusters.
 Of these only 13 Govt.sponsored
 Contribute 70% of Industrial out-put and 66% of direct
exports
 Panipat – 75% of blankets produced in the country
 Tirupur – 80% of cotton knitwear
 Agra – 75% of leather exports
 Ludhiana – 95% of woollen knitwear,85% of sewing
machines,60% of Bi-cycles and spares
 Surat – 85% of diamond polishing and 60% of synthetic
textiles
 High technology easily absorbed and improvised

DOMESTIC CONSUMPTION DRIVES GROWTH
 The economist Stephen Roach of Morgan Stanley puts it,
"India's domestic consumption-led approach to growth is
better balanced than resource-mobilization & export driven
model of China."

38
Strengths
Democratic Values
Diversity
Bharatiya Sanskruti

39
Strengths
Language skills –
multiple language capacity of Indians
Sanskrit
Long history of Higher Education
“Beautiful Tree” Dharma Pal ji
Bharatiya Sanskruti

DESPAIR …?
 We continue to look to at West for our own
solution.

INDIA ON THE MOVE…?
Towards Superpower ?
or
 Towards Jagat Guru ?

FROM DAVOS TO DEVGIRI !
Reasons to rejoice:
 Transition from Exploited Subdued India to
Enlightened Self-confident Bharat

Economics that hurt the moral
well-being of an individual or a
nation are immoral and therefore
sinful.
MM-263
That economics is untrue which
ignores or disregards moral
values.
XXV-475

Our object in framing the
Constitution is rally two-fold: (1) To
lay down the form of political
democracy, and (2) To lay down that
our ideal is economic democracy
and also to prescribe that every
Government whatever is in power
shall strive to bring about economic
democracy. The directive principles
have a great value, for they lay
down that our ideal is economic
democracy.

Deendayal Upadhyay “I visualize for
India a decentralized polity and self-reliant
economy with the village as the base. We
cannot rely upon superficial Western
concepts like individualism, socialism,
communism, capitalism and need to be
rooted in the timeless traditions of our
ancient culture. He was of the view that
the Indian intellect was getting suffocated
by Western theories and ideologies and
consequently there was a big roadblock
on the growth and expansion of original
Bharatiya thought.

Maharishi Aurobindo said:
“India shall arise upon the ruins
of the west” He said by the
year 2011 the western
countries will fall and India will
rise.

INDIA HAS TO GET INTO ACT
The Question is are we
getting ready to create a
new world order?

REFERENCES
1 Indian Models of Economy, Business and
Management Models- K Kanagasabapathi
2 India Unincoporated- L Vaidyanathan
3 Indian Business and Financial Models course by S
Gurumurthy conducted at IITB.

FURTHER READINGS
1 Too big to fail- Andrew Ross Sorkin
2 The Inside Job- A Documentary on how the global
economic crisis happened.

Corporate governance -global models

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