VALUE ADDITION TO ENTERPISE THROUGH CORPORATE GOVERNANCE Pavan Kumar Vijay Managing Director 03/21/2022
Aug 20, 2015
VALUE ADDITION TO ENTERPISE THROUGHCORPORATE GOVERNANCE
Pavan Kumar Vijay
Managing Director
04/18/2023
Corporate Governance Framework
Output – Input = Wealth Created ?
Sustainability
Happiness andProsperity of all
Stakeholders
Reinvestment
Distribu- tion
Research and Development HR Development Infrastructure Risk Management
SUPPLIERS Adequate Returns HUMAN ASSETS Adequate Remuneration CUSTOMERS Affordable Prices PUBLIC Payment of Taxes and Partnership in National Development Projects
Wealth Creation Wealth Management Wealth Sharing
EnhancedCapabilities
Best Management Practices are Vital Here Law and Ethics are Vital Here
Principles of Corporate Excellence
Fairness to all stakeholders
Mutual Trust, Transparency and Togetherness
Unrestricted Communication and Continuous Feedback
Sharing Knowledge, Success Stories and Experience
Sharing Happiness and Concerns
Helping Each Other – Round the Clock
Fairness to all stakeholders
Mutual Trust, Transparency and Togetherness
Unrestricted Communication and Continuous Feedback
Sharing Knowledge, Success Stories and Experience
Infact, these principles are the foundation of
Best Governed Organizations'
irrespective of their form and size
Dharma : “Dharma is for the stability of society, the maintenance of social order and the general well-being and progress of humankind.”
- Karna Parva of the Mahabharata. Verse-58 in Chapter 69
Corporates are also expected to use their
Capacity, Knowledge and Resources
Maximisation of stakeholders’ value and well-being and progress of humankind
TOWARDS
THROUGH
Transparency, accountability and truthful disclosure of state of affairs
Dharma
Truth
WINNINGEMPLOYEES
WINNINGEMPLOYEES
GROWINGINVESTORS
GROWINGINVESTORS
DELIGHTEDCUSTOMERS
DELIGHTEDCUSTOMERS
TRUSTEDSUPPLIERS
TRUSTEDSUPPLIERS
SATISFIEDGOVERNMENT AND
REGULATORS
SATISFIEDGOVERNMENT AND
REGULATORS
HAPPYSOCIETY
HAPPYSOCIETY
“ Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.”
- The Institute of Companies Secretaries of India-
Widespread Goodwill and Brand Reputation
Access to Global Markets
Better Access to Human Capital
Ready Market for New Products
Widening Customer Base
Enhanced Trust and Confidence of all
Stakeholders
EMPLOYEESEMPLOYEES
INVESTORSINVESTORS CUSTOMERSCUSTOMERS
SUPPLIERSSUPPLIERS
GOVERNMENT AND REGULATORS
GOVERNMENT AND REGULATORS
SOCIETYSOCIETY
Corporate Value without Corporate Governance – The Past
COMPANY
• Loss of reputation in International Market
• Loss of Moral Fibre of Corporataions.
Corporate Value without Corporate Governance – The Past
STAKEHOLDERS
• Auditors - Independence compromised to
obtain lucrative consulting assignments
• Employees - Large disparity between the
highest and lowest paid employee
• Analysts - Ever-greening of Corporate & Stock
reports.
Corporate Value without Corporate Governance – The Past
STOCKHOLDERS:
• Loss of Investors Confidence.
• Difficulty in further raising of capital.
• Investor Complaints
Corporate Value without Corporate Governance – The Past
PRACTICES:
• Aggressive accounting practices.
• Incompetence of board members and
overriding of audit committees .
• Dividend linked to short-term revenue
growth, EPS and stock price.
Upshots in Legal Framework
Clause 49 of Listing Agreement.
Section 192A, 292A etc. in the Companies
Act
Legal Norms of CG
Concept of Independent Directors & Audit
Committees
Stricter independence standards for Audit
Committees
Board Professionalism
Whistle Blower Policy
Certifications and disclosures
Real time disclosure & Shortened deadlines
Corporate Governance Value Chain
Investors Lenders Customers Suppliers Employee
sGovernmen
t Regulator
“Corporate Governance is not related to investors only, though they are most
important Beneficiary.”
Stakeholders in Value Chain
SUPPLIERS CUSTOMERSHUMAN RESOURCE
Supply Funds, Materials and Services
Value Addition and Management of Resources
Give Opportunity to Co. to Satisfy their Needs
Adequate Returns for Funds, Material and Services Supplied
Adequate Salary and Security for leading a Happy Life
Best Quality Products and Customer Care at Minimum Prices
ROLE OF STAKEHOLDERS
EXPECTATIONS OF STAKEHOLDERS
Potential Suppliers, Human Resources and Customers
Biological, Economic and Cultural EnvironmentPUBLIC
PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
Stakeholders’ Stake in Corporate Governance Value Chain
Lenders 2/3rd Investment
Investors 1/3rd Investment
Customers 100% Earnings
Suppliers ½ of Working Capital
Employees 100% Value Generation
Government Basic Infrastructure & Facilities
Regulator Dispute Resolution
2 : 1 Debt –
Equity Ratio
2 : 1 Current Ratio
Value Addition through CG
CORPORATE GOVERNANCE
INVESTORS LENDERS CUSTOMER EMPLOYEESUPPLIER
• Confidence
• Security of Funds
• Safety of interest & principal.
• Better & Favorable Credit Terms
• Value Creation
• Better quality of Products/ Services
• Cheaper prices
• Value Creation
• Favorable terms of supplier agreements
• Better quality of HR
• Better Salary
• Benefits
• Stability
Govt./Regulator
• Tax• Complian
ce• Employm
ent• Social
Commitment
Measurement of Value Addition
•Return on Capital Employed
•EPS / DPS
•Dividend Pay-out Ratio
Investors
•Debt-Equity Ratio
•Debt Coverage Ratio
•Interest Coverage Ratio
Lenders
•Market Share
•Stock Turnover Ratio
Customers
•Credit Period
•Credit Rate
Suppliers
•Employee Turnover Ratio
Employees
•Subsidies
•Basic Infrastructure Amenities
Government
•No hasty Actions
Regulators
Benefits As To Corporate Governance
Investors
Lenders
Customers
Suppliers
Employees
Government
Regulators
• Increase in Goodwill• Increase in Investment
• Better credit terms• Fund security
• Better quality goods• increase in Goodwill
• More credit• Increase in
creditworthiness• Reduction in Employee
Turnover
• Relaxation of norms
• Increase in Goodwill• Relaxation of Norms
Corporate Governance Enhances Brand Value
Quality in Board Structure
Better Board Management and Practices
Contribution of Independent Directors
Successful Strategies
Adequacy of Controls
Independence of Auditors
Outstanding Performance, Higher Profits,
Expanded Market Reach and the like FAILS
to protect a company which has put good governance &
ethics at the back burner….
History is Witness
S
U
C
E
S
S
D
I
S
A
S
T
E
R
..…Only the culture of strict adherence to good
compliance can keep a company
ahead on sustainable basis , bring in larger profits…
Secret behind building foundations
Present Status of CG Practices – The CRISIL Experience
Practice Status
Equitable Treatment of
Shareholders
Moderate
Transparency and Disclosure
Relatively
strong
Composition of Board Scope for improvement
Functioning of Board Moderate
Value Addition - The CRISIL Experience
Stakeholders Status
Share Holders High
Debt Holders Highest
Employees Moderate
Customers High
Suppliers Scope for improvement
Society Scope for improvement
CORPORATES SHOULD ACT LIKE HONEY BEE WHICH SUCK THE NECTAR OF THE FLOWER WITHOUT EFFECTING THE FRAGRANCE AND PRODUCE HONEY FOR THE WELL-BEING OF SOCIETY.