corperate governance

8/9/2019 corperate governance

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CORPORATEGOVERNANCE

Dr Y R Reddy


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“ Corporate”

• Corporate is adjective meaning “of or relating to a corporation” derived from

the noun corporation.

• A corporation is an organization created (incorporated) b a group of

shareholders !ho have o!nership of the corporation.

• "he elected #oard of directors are appointed and the oversee

management of the corporation.


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$

“Governance”

%&ford 'nglish ictionar defines “Governance” as the act manner fact

or function of governing s!a control

"he !ord has *atin origins that suggest the notion of +steering+. ,t deals !ith

the processes and sstems b !hich an organization or societ operates.


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-

“ Corporate

overnance” • Corporate governance is the process and

structure used to direct and manage the

business and affairs of the compan to!ards

enhancing business prosperit and corporate

accountabilit !ith the ultimate objective of

realizing long/term shareholder value !hilst

ta0ing into account the interest of other

sta0eholders.


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#rief ,ndian istor of C 3autila4s(Chana0a) Arthashastra is the oldest boo0 (around $55 #.C) on

6anagement available to the !orld

"his masterpiece covered a !ide range of topics and also recommended that

– the 0ing shall not consult !ith an advisor !ho had a vested interest in the

outcome of a particular project.

– establishment of an ethical code of conduct 7a topic !hich has received a

great deal of attention no! during the past fe! ears after corporate

scandals

– the codification of accounting rules into one uniform sstem to prevent

problems in translating financial data bet!een disparate methods of

accounting 8 a subject !hich the international accounting communit isdealing !ith in terms of the convergence of accounting standards.

• 9her 9hah 9uri (1-5/1-) !as regarded as best governor of medieval ,ndia

,n the western world "he 'ast ,ndia Compan introduced a Court of irectors

separating o!nership and control (:.3. the ;etherlands) in 1


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=h overnance

• ,n the toda environment – 6anagers must be monitored and institutional

arrangements must provide some chec0s and

balances to ma0e sure the don4t abuse theirpo!er

– "ransaction cost be limited

–'nhancement of shareholder value

– >ational on Authorit? elegation

@


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overnance

overnance can be used !ith reference to all 0ind of organizational structure

e.g.

1. Corporates li0e "ata B >eliance

2. 6unicipal corporation? ram panchat

$. Central? 9tate overnment

-. artnership firm

. ;%/ not for profit organization


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D

Corporate overnance B

Corporate 6anagement

CORPORATEGOVERNANCE

CORPORATEMANAGEMENT

'&ternal Eocus ,nternal Eocus

overnance

assumes an opensstem

6anagement

assumes a closedsstem

9trateg/ oriented "as0/oriented

Concerned !ith!here the companis going

Concerned !ithgetting thecompan there

overnance

6anagement


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a

t

y

Fundam ental Pillars of Corp orate

Governan e

Corporate

Governan e

T

a

p

e

R

e

p

b

t

y

F

r

n

Source: Malaysian Institute of Corporate Governance


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Accountability

Clarifying governance roles &responsibilities, and supporting voluntaryeorts to ensure the alignment ofmanagerial and shareholder interests and

monitoring by the board of directorscapable of objectivity and sound

judgment.

Transparency Reuiring timely disclosure of adeuateinformation concerning corporate !nancial

performance


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Responsibility

"nsuring that corporations comply #ithrelevant la#s and regulations that re$ectthe society%s values

Fairness"nsuring the protection of shareholders%rights and the enforceability of contracts

#ith serviceresource providers


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=h to follo! C

• #etter access to '&ternal Einance

• *o!er cost of capital/ lesser interest rates

•

,mproved compan performance• igher firm valuation/ sustainabilit

• >educed ris0 of corporate scams and

frauds

1$


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Corporate overnance of an

%rganisation


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,nternational scenario Year Name of Committee/od! Areas/Aspects Covered

1DD2 9ir Adrian Cadbur Committee:3

Einancial Aspects of Corporate overnance

1DD- 6ervn ' . 3ing4s Committee 9outh Africa

Corporate overnance

1DD reenbur Committee :3 irectors4 >emuneration

1DD ampel Committee :3 Combine Code of #est ractices

1DDD #lue >ibbon Committee :9 ,mproving the 'ffectiveness of Corporate AuditCommittees

1DDD %'C rinciples of Corporate overnance

1DDD CAC rinciples for Corporate overnance in

Common!ealth

255$ ere0 iggs Committee :3 >evie! of role of effectiveness of ;on/e&ecutiveirectors

255$ A9F Corporate overnanceCouncil Australia

rinciples of ood Corporate overnance and #estractice >ecommendations


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1<

,ndian scenario

Year Name ofCommittee/od!

Areas/Aspects Covered

1DD Confederation of,ndian ,ndustr (C,,)

esirable Corporate overnance 8 A Code

1DDD 3umar 6angalam#irla Committee

Corporate overnance

2552 ;aresh ChandraCommittee Corporate Audit B overnance

255$ ;. >. ;araana6urth Committee

Corporate overnance


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%bjectives of good corporate

governance1. 9trengthen management oversight functions and accountabilit

2. #alance s0ills e&perience and independence on the board appropriate to

the nature and e&tent of compan operations

$. 'stablish a code to ensure integrit

-. 9afeguard the integrit of compan reporting

. >is0 management and internal control

ecognition and preservation of needs of shareholders


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1

arties to corporate governance

1. #oard of directors

2. 6anagers

$. =or0ers

-. 9hareholders or o!ners

. >egulators


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1D

Erame!or0 of Corporate

Compan overnance1. 9upervisor #oard? Committee? "eam

2. Audit Committee

$. ,nternal Audit

-. 9tatutor Audit

. isclosure of information

is0 management frame!or0

@. ,nternal Control frame!or0

. =histle blo!er polic


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Clause -D in *isting agreement

• "he *isting agreement !as first introduced b #omba 9toc0 '&change

and later follo!ed b other stoc0 e&changes

• 9'#, vide its circular dated Eebruar 21 2555 specified principles of

corporate governance and introduced a ne! clause -D in the *isting

agreement of the 9toc0 '&changes.• "he *isting agreement contains 1 clauses

• *isting means admission of the securities to dealings on a recognised stoc0

e&change. "he securities ma be of an public limited compan Central or

9tate overnment Guasi governmental and other financial

institutions?corporations municipalities etc.

• *isting helps in free transferabilit leads to transparenc in disclosure of

information and ensures official Guotation is available.


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corperate governance