Corporate governance

Corporate Governance

Prof. R N Swain,School of Management,KIIT University

Governance

To steer an organisation in the desired direction

The responsibility to steer lies with the Board of Directors/Governing Board

Corporate Governance : Def

Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherance to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders

Governance is concerned with:

The intrinsic nature of an organisation Purpose of an organisation Integrity of an organisation Identity of an organisation Relevance of an organisation Continuity of an organisation Fiduciary aspects of an organisation

Kautilya’s Arthasastra:

For good governance all administrators including the King are considered servants of the people

Their duty: Raksha – protection (risk management) Vridhi –(stakeholders value enhancement) Palana-(compliance to the law in spirit) Yogakhema (social security system–CSR)

Six enemies of good governance:

Lust Anger Greed Conceit Arrogance Foolhardiness (Personal ethics of Corporate Leaders)

Good governance results in stability There will be stability if leaders are

responsive, accountable and removable

Definitions of Corporate Governance

Conduct of business in accordance with shareholders desires (maximising wealth) while confirming to the basic rules of the society embodied in the Law and Local Customs

Relationships among various participants in determining the direction and performance of a corporation

Corporate Governance: Def:

Effective management of relationships among Shareholders Managers Board of directors employees Customers Creditors Suppliers community

Corporate Governance: Def:

Corporate Governance requires the formation of the value framework, the ethical framework and the moral framework which will guide the decision making process

Corporate Governance: Def: President of World Bank-Wolfensohn

Corporate governance is about promoting corporate fairness, transparency and accountability

The way a company is organised and managed to ensure that all financial stakeholders (shareholders and creditors) receive their fair share of a company’s earnings and assets

Corporate Governance: Def:OECD

Corporate governance is a system by which business corporations are directed and controlled

Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders and spells out the rules and procedures for corporate decision making.

Corporate Governance provides the structure through which company’s objectives are set along with the means of attaining these objectives as well as monitoring performance

Corporate Governance-Def: Cadbury Committee

It is a system of structuring, operating and controlling a company with the following specific aims:- Fulfilling long-term strategic goals of owners Taking care of the interests of employees A consideration for the environment and local

community Maintaining excellent relations with customers

and suppliers Proper compliance with all the applicable legal

and regulatory requirements

Corporate Governance-Def:By CII

Corporate governance deals with laws, procedures, practices and implicit rules that determine a company’s ability to take informed managerial decisions vis-à-vis its claimants-in particular, its stakeholders, creditors, customers, the state and employees

Kumar Mangalam Birla Committee:

Strong corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection

It is the blood that fills the veins of transparent corporate disclosures and high quality accounting practices

It is the muscle that moves a viable and accessible financial reporting structure

Narayan Murthy Committee 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

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 execellance 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

Shareholders expectations vrs. Other stakeholders expectations

Shareholders are key stakeholders and they expect management to use their hard earned money responsibly to the productive use and enhancement of value for their money.

The stakeholders on whom the company depends heavily, partner with the company to make it a successful venture. Hence they also have certain expectations: Employees expect adequate

remuneration for their services and security so that they can lead a better life

Customers expect best quality products at minimum price so that they can achieve various ends with their scarce means

Vendors expect fair and timely return on goods and services supplied by them. Lenders expect timely repayment of loan and interest thereon

Government expects management to be partner in nation building by paying accurate taxes or directly incurring expenditure on national development project

Society has a larger stake and thus larger expectations. It owns the resources that move through value chain. Sustainability of business mainly depends on sustainability of these scarce resources.

Public perception about Corporate world

Corporate leadership is fraught with greed & excess

Business institution

Created by society to meet the purpose of the society

A citizen of the country Secondarily a business organisation

interdependency of the World market

Modern Corporate Model

A system of trust & confidence Assumptions:

Shareholders entrust directors to provide oversight of the executives who professionally deploy crores rupees worth of company’s assets for its long term sustainability & shareholder value

System of corporate stewardship

It becomes effective when shareholders have a high level of confidence that their representatives are managing the affairs of the company in its best interest

To achieve this level of investor confidence, the corporate leaders need - a set of tools that provide:

greater visibility into their organizations & strengthen corporate governance & corporate performance management

Corporate Governance Model

Keep the house clean, transparent & accountable

Report the same in a time bound manner

Management to look beyond their systems & procedures

How to go about it Model charter for the Audit Committee Model Whistle Blower Policy Model code of Ethics for principal executives

and senior financial officers Model policies & guidelines relating to HR Succession planning Diversity in employment, environment &

acceptance of gifts Model policy on Ombudsman for companies

Are these mandatory under law?

Yes. SEBI requires listed companies to

report on Corporate Governance in their Annual Reports: Disclosures on mandatory requirements Disclosures on non-mandatory

requirements Management Discussion & Analysis

Report

Disclosures about mandatory requirements

Brief statement on company’s philosophy on Code of Governance

Composition of Board of Directors Remuneration of directors & Board’s

procedure & code of conduct Disclosure of non-executive directors’

pecuniary relationship or transactions

Audit committee, its constitution, role, & power

Management as a body Investors’ grievance mechanism Report on Corporate governance

Disclosures about Non mandatory requirements

The Board, its procedures & its Committees

Mechanism for evaluating non-executive board members

Training of board members Remuneration committee Nomination committee

Investors’ grievance committee Means of communication of

company’s results of performances Shareholders’ rights Audit qualifications Whistle blower policy

How corporate rise high-A review

Bajaj Auto Ltd. Vision

By challenging the given By exploring the unknown & thereby stretching

ourselves towards tomorrow, today Mission

Bajaj strives to inspire confidence through excitement engineering

Blending together youthful creativity & competitive technology to exceed the spoken & the implicit expectations of our customers

Godrej consumer products Ltd.

Vision We are dedicated to deliver superior

stake holder value by providing solutions to existing & emerging consumer needs in the house hold & personal care business

We will achieve this thru enduring trust & relentless innovations delivered with passion & entrepreneurial sprit

Mission We shall operate in existing & new

businesses which capitalize on the Godrej brand & our corporate image of reliability & integrity

Our objective is t delight our customers both in India & abroad

We shall achieve this objective thru continuous improvement in quality, cost & consumer service

We shall strive for excellence by nurturing, developing & empowering our employees & suppliers

Hero Honda Motors Ltd.

Vision World class manufacturer Market leader Highest level of customer satisfaction Excellence thru team work Enduring relationship with stake holders

Mission We at Hero Honda, are continuously striving for

synergy between technology, systems & human resources to provide products & services that meet quality, performance & price aspirations of our customers.

While doing so, we maintain the highest standards of ethics & societal responsibilities, constantly innovate products & processes, & develop teams that keep the momentum going to take the company to excellence in the new millennium

Infosys Technologies Ltd.

Vision/Mission To be a globally respected corporation

that provides best of breed business solutions, leveraging technology, delivered by best in class people

Larsen & Toubro Ltd. Vision

L&T shall be a professionally managed Indian multinational, committed to total customer satisfaction & enhancing shareholder value

L&T-ites shall be an innovative, entrepreneurial & empowered team constantly creating value & attaining global bench marks

L&T shall foster a culture of caring, trust & continuous learning while meeting expectations of employees, stakeholders & society

Siemens Ltd.

Mission/Vision To set the benchmark by being the best

in class’ in our fields & to create value for our customers, wealth for our stakeholders & a future for our employees, while giving back graciously to society, a piece of our success

Assignment

Read at least 20 articles on corporate governance.