Ethics Module5

7/28/2019 Ethics Module5

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CORPORATE GOVERNANCE


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Corporate Governance is a culture of relationships, its

works depends on how the participants behave and

interact with each other. Good governance comes from developing the right

relationship among the right people.

It requires that participants have the right informationand knowledge as well as the incentives and ethics to do

the right thing.


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A systematic and principles based system of

corporate governance relies on trust, depends

on fiduciaries(involving trust) and requires

validation.

Such a system shows the interrelationship to

those addressing Shareholders and Board of

Directors in one way and to those addressing

the relationships between Board of Directorsand the Management, in the other way.


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In India, the question of corporate governance

has come up mainly in the wake of economic

liberalization and deregulation of industry and

business as a part of the New Economic Policysince 1991.


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Corporate

Board of

Directors

Management

Shareholders Stakeholders Creditors

Supervisory &

enforcementauthorities

Executive

directors

Owner

directors

Independent

Directors


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Role of the Board of Directors

Monitor

Are managers acting in shareholdersbest interests

Evaluate & Influence examine proposals,

decisions actions, provide feedback and offer

direction

Initiate & Determine delineate corporate

mission, specify strategic options, make decisions


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The role of directors:

Hire a CEO.

Monitor him (make assessments).

Replace him if necessary.


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InsidersThe firms CEO and other top-level managers

Affiliated Outsiders

Individuals not involved with day-to-day

operations, but who have a relationship with

the company

Independent Outsiders

Individuals who are independent of the firmsday-to-day operations and other relationships


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The corporate governance system should promote

transparent and efficient markets; should beconsistent with rule of law and should lay down clearroles of various regulatory and enforcementauthorities.

Corporate governance system should protect andfacilitate shareholder rights.

The system should facilitate equitable treatment to allshareholders, including minority and foreignshareholder.

Corporate governance should recognise the rights ofstakeholders established by law or mutual contract;should encourage cooperation between the corporateand the stakeholders to create value


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OECD principle shareholder rights

Basic shareholder rights: registration and transferof shares, right to vote at meetings, obtainrelevant information, appoint and removedirectors and share in the profits

Fundamental corporate structure changes torequire shareholder participation

Shareholders to vote on director


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Roles & Responsibilities director

The role and responsibility of an individual director, of

course, would depend upon the nature of his directorship.

Broadly, there are three types of directors.

Full time, executive director who is normally a paid

employee of a company having some functional

responsibility.

Non executive but non independent director who is

normally a promoter of the company or having high stakes

in the company.

And finally independent directors who are not full timedirectors. There is another class of directors known as

nominee directors representing some interests like lending

institutions etc.

An executive director, by very nature has much more

responsibilities than non executive directors.


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Attributes, Duties, Responsibilities,

Liabilities OF BOARD

Board members should act on a fully informedbasis,with due diligence and care, and in the best

interest of the company and its share holders.

The board should treat all shareholders fairly

The board should apply high ethical standards

Reviewing and guiding corporate strategy,mojour

plans of action, risky policy, annual budgets and

business plan Monitoring the effectiveness of the companys

governance practices and making changes as needed


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Aligning key executive and board remuneration

with the longer term interests of the company and

its share holders.

Ensuring a formal and transparent board nomination

and election process.

Monitoring and managing potential conflicts of

interest of management , board members andshareholders , including misuse of corporate asset

and abuse in related party transactions.

Board should consider assigning a sufficient

number of non-executive board members capable ofexercising independent judgment to tasks where

there is a potential for conflict or interest.


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When committees of board are established, their mandate,

composition and working procedures should be well defined

and disclosed by the board.

Board members should be able to commit themselves

effectively to their responsibilities.

In order to fulfill their responsibilities, board members

should have access to accurate, relevant and timely

information.


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Effective corporate governance frame work

The corporate governance framework should promote

transparent and efficient markets, be consistent with therule of law and clearly articulate the division of

responsibilities among different supervisory, regulatory

and enforcement authorities.

The corporate governance framework should be

developed with a view to its impact on overall

economic performance, market integrity and the

incentives it creates for market participants and the

promotion of transparent and efficient markets.


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The legal and regulatory requirements that affectcorporate governance practices in a jurisdiction should

be consistent with the rule of law, transparent and

enforceable.

The division of responsibilities among different

authorities in a jurisdiction should be clearly

articulated and ensure that the public interest is served


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Ethics Module5

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