corporate governance and role in strategic management

CORPORATE GOVERNANCE AND ROLE IN STRATEGIC MANAGEMENT

Submitted By:•Vikram(96)•Vishal(97)•Vivek(98)•Yogesh(99)•Zeba(100)

What is Corporate Governance?

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

Conduct of business in accordance with shareholders desires (maximizing wealth) while confirming to the basic rules of the society embodied in the Law and Local Customs.Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

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.

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.

Pillars of Corporate Governance

The four pillars of corporate governance are:AccountabilityFairnessTransparencyIndependence

Accountability

Ensure that management is accountable to the Board

Ensure that the Board is accountable to shareholders

Fairness

Protect Shareholders rights

Treat all shareholders including minorities, equitably

Provide effective redress for violations

Transparency

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

Independence

Procedures and structures are in place so as to minimize, or avoid completely conflicts of interest.

Independent Directors and Advisers i.e. free from the influence of others.

Benefits of Corporate Governance

Good corporate governance ensures corporate success and economic growth.Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficiently and effectively.It lowers the capital cost.There is a positive impact on the share price.It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization.

Good corporate governance also minimizes wastages, corruption, risks and mismanagement.It helps in brand formation and development.It ensures organization in managed in a manner that fits the best interests of all.

Good and Bad Governance

Good corporate governance creates a transparent set of rules and controls in which shareholders, directors and officers have aligned incentives. Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior and sound corporate governance practices.

Bad corporate governance can cast doubt on a company's reliability, integrity or obligation to shareholders. Companies that do not cooperate sufficiently with auditors or do not select auditors with the appropriate scale can publish spurious or noncompliant financial results. Bad executive compensation packages fail to create optimal incentive for corporate officers. Poorly structured boards make it too difficult for shareholders to oust ineffective incumbents.

NEED FOR CORPORATE GOVERNANCE

Corporate governance is an important part of strategic management that can improve firm performance. Good governance practices entail active participation of shareholders in the direct and indirect management of corporation through the Board of Directors and an arrangement of productive checks and balances among shareholders, board of directors and management of corporations.

Corporate governance is of interest to us as it determines the strategy of the organization and how it is to be implemented. It is also important to us because the Corporate Governance, framework determines who the organization is there to serve and how the priorities and purposes of the organization are determined.

CORPORATE GOVERNANCE AND STRATEGIC MANAGEMENT

Corporate governance, in strategic management, refers to the set of internal rules and policies that determine how a company is directed. Corporate governance decides, for example, which strategic decisions can be decided by managers and which decisions must be decided by the board of directors or shareholders.

Corporate Governance is highly essential from the point of view of the shareholders, customers, employees and company and society at large for the survival and sustainable growth of the company. Strategy integrates internal environment including corporate governance and external environment.

The corporate governance meets the interests all the stakeholders including the long-run interest of the company itself in a more balanced way, by regulating and controlling the misleading, immoral and unethical ideas and acts of CEO, Board of Directors and other strategists. Thus strategic management should be under the preview, control of and the provisions of corporate governance provisions and practices of a company.

Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate authority and complete responsibility to the Board of Directors. In today’s market- oriented economy, the need for corporate governance arises. Also, efficiency as well as globalization are significant factors urging corporate governance. Corporate Governance is essential to develop added value to the stakeholders.

RESPONSIBILITIES OF BOARD OF DIRECTORS

The Board of Directors is responsible for supervising the successful management of the organization’s business. It has the authority and obligation to protect and enhance the assets of the corporation in the interests of all shareholders and the company’s public mission.

The Board of Directors responsibilities include: Oversight and approval on an ongoing basis of the corporation’s corporate and business strategies and monitoring their implementation; Oversee the establishment and implementation of effective corporate governance processes

Establish standards for management and monitor performance; and Approve procedures for strategy implementation, for identifying and managing risks and for insuring the integrity of internal control and management information systems.

The Quality of Board is a deciding factor for good corporate governance. The compositing and number are the determinants of quality. Even in a small concern the efficiency of the Board of Directors is a crucial factor for the survival in a competitive environment. Board of Directors in different companies contributes differently to the corporate governance due to variations in goals and duties, structure, composition, size of the board, board leadership and board committees.

GOVERNANACE ISSUES

Corporate governance has wide ramifications and extends beyond good corporate performance and financial propriety. The complexity of corporate governance arises from two main reasons. First in most countries there is no separation between ownership and management control of organization. The second is the increasing tendency to make organization more visibly accountable not only to owners(shareholders) but also to other stakeholders groups.

In the case of the first issue, it is imperative to distinguish the nature of the two basic components of governance in terms of, (a) Policy making and overnight responsibilities of the board of directors and (b) the executive and implementation responsibilities of corporate management. The second issue is to make organizations more visibly accountable and the demand for more transparency and accountability on the part of corporations.

THANK YOU!