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    Corporate Governance............................................................................................................3

    Agency Theory........................................................................................................................5

    Why did BMW buy Rover?........................................................................................................6

    Acquisition Failure...................................................................................................................7

    Cause of Failure Cause of Success.......................................................................................7

    Did BMW lose money on Rover?..............................................................................................7

    Supervisory Body....................................................................................................................8

    Role of Supervisory Body.....................................................................................................8

    Corporate Governance-JAPAN..................................................................................................9

    A comparison between BMW and General Motors.................................................................10


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    Corporate Governance

    Corporate Governance is the system by which companies are directed and


    Cadbury Committee Report

    The single over-riding objective shared by all listed companies, whatever their size

    or type of business, is the preservation and the greatest practicable enhancement

    over time of their shareholders investment. All boards have their responsibility and

    their policies, structures, composition and governing processes should reflect this.

    The boards task is to approve appropriate policies and to monitor the performance

    of management in implementing them.

    Kumar Mangalam Birla committee Report

    Corporate Governance is not to be measured in terms of stock markets valuation.

    For me Corporate Governance is a mindset, a question of value systems. It is a way

    of saying that I put public good ahead of private good, of not using the corporate for

    personal benefit.

    Narayan Murthy

    - Chairman, InfosysTechnologies Limited

    Corporate governance involves a set of relationships between a companys

    management, its board, its shareholders and other stakeholders ..also the

    structure through which objectives of the company are set, and the means of

    attaining those objectives and monitoring performance are determined.

    Preamble to the OECD Principles of Corporate

    Governance, 2004

    Principles in developing corporate Governance.


    everything that happens in the company, if it is not shy to share it publicly,

    it is transparent


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    Rights of all shareholders are equal, of minor or major shareholding.

    It involves letting Investors know how the company in which they have

    invested is utilizing their money


    The management is accountable for its decisions

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    Agency Theory

    The delegation of decision-making authority from principal to agent is problematic

    in that;

    1. The interests of principal and agent will diverge

    2. The principal cannot perfectly and costlessly monitor the actions of the agent

    3. The principal cannot perfectly and costlessly monitor and acquire the

    information available to or possesed by the agent

    These constitute the agency problem - the possibility of opportunistic behaviour

    on the part of the agent that works against the welfare of the principal

    Agency costs; incur to protect principals interests and to reduce the possibility that

    agents will misbehave

    Monitoring expenditures by principals

    Bonding expenditures by agents

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    Residual loss of the principal

    Essential sources of agency problems:

    Moral hazard; more of the agents actions are hidden from the principal or are

    costly to observe

    Adverse selection; the agent posseses information that is, for the principal

    unobservable or costly to obtain

    Risk aversion; as organisations grow managers become risk averse

    (they would like to protect their position, managers would like to

    max. chance of success by projects that have already brought success,

    managers build structures to increase their chances of control)

    Principals and agents resolve agency problems through;

    Monitoring; observing the behaviour and performance of agents

    Bonding; arrangements that penalise agents for acting in ways that violate

    the interests of principals or reward them for achieving principals goals

    Contracts between agents and principals specify the monitoring and bonding


    Why did BMW buy Rover?

    This is a very interesting question. For a company with the prestige of BMWto have purchased a car company and then dumped Rover after such ashort time, questions must be raised as to why exactly did they buy thecompany in the first place, and did they ever really intend to keep it?

    BMW had a highly developed and nurtured image. However, they also had avery limited market into which they sold cars. BMW had been described asa company that 'made only one saloon, but in three different sizes'.Although their market was expanding, global consolidation of the motorindustry threatened either their independence or their ability to continue tomake cars competitively, depending on how you viewed it.

    BMW therefore needed to expand their market, and thus their product base.However, to do this threatened to destroy their carefully nurtured image. Ifthey were to develop a cheaper range of cars to compete with VW, Ford,Fiat and other mass market players, surely this would devalue the BMW

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    brand. Other companies had already seen it become increasingly difficult tohave a brand stretched between the extremes of a small budget car and alarge luxury car. Ford failed to achieve a quality reputation with theirScorpio when they also produced the Fiesta.

    Acquisition Failure

    Coopers and Lybrand (1993) present the following study into causes of acquisitionfailure.

    Cause of Failure Cause of Success

    Target Management attitudes and cultural differences

    No post-acquisition integration planning

    Lack of knowledge of industry or target

    Poor management of target

    No prior acquisition experience

    Causes of acquisition failure (Coopers and Lybrand, 1993)

    Did BMW lose money on Rover?

    Publicly, yes. Privately, probably not.

    BMW did invest in Rover during it's ownership. However, the vast majorityof that investment they either still own or sold at a fair value or a vastprofit.

    They purchased the whole Group for 800,000,000, then soldLand Rover alone for 1,800,000,000. That is a 1bn increaseon its own.

    The vast majority of the investment in plant went to Cowley(or Rover Oxford as BMW called it). BMW retained this plant.

    BMW invested in a new engine facility (Hamms Hall). BMWhave retained this plant.

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    BMW retained the Longbridge Engine & Transmissions facility,thereby forcing Rover to buy components from BMW to be ableto make cars. The same goes for the Swindon panel pressingplant. BMW made money out of Rover car sales, even if Roverwere making a loss. Eventually, they sold these facilities toPhoenix, but it was for a fair value, and not included in the 10.

    Supervisory Body

    The Supervisory Board appoints the members of the Board of Management and, if

    there is good cause, can remove them from office at any time. The Board of

    Management keeps the Supervisory Board informed and reports to it regularly,

    without delay and comprehensively according to the principles of diligent and

    accurate accountability in accordance with the law and the reporting duties laid

    down by the Supervisory Board. For certain important transactions the Board of

    Management requires the consent of the Supervisory Board. However, the

    Supervisory Board is not authorized to take any management measures.

    Role of Supervisory Body

    1. The task of the Supervisory Board is to advise regularly and supervise the

    Board of Management in the management of the BMW Group. It is involved in

    all decisions of fundamental importance for the BMW Group.

    2. The Supervisory Board appoints and dismisses the members of the Board of

    Management. When composing the Board of Management the Supervisory

    Board shall also have regard for diversity. Together with the Board of

    Management, it ensures that long-term successor planning is in place. The

    Supervisory Board has delegated the preparation of appointments to the

    Board of Management to a committee (Personnel Committee) which also

    handles the terms and conditions of employment contracts including


    3. The Supervisory Board of BMW AG examines the efficiency of its activities on

    a regular basis.

    Board of Management

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    1. The Board of Management develops the enterprise's strategy, coordinates it

    with the Supervisory Board and ensures its implementation.

    2. The Board of Management manages the enterprise under its own

    responsibility with the objective of creating sustainable added value and in

    the enterprise's best interests, i.e. taking into account the interests of theshareholders, the employees and other groups associated with the group


    3. The Board of Management ensures that all provisions of law and internal

    regulations are abided by and works to achieve their compliance throughout

    the group.

    4. The Board of Management ensures that an appropriate risk management and

    risk controlling system is in place throughout the group.

    Corporate Governance-JAPAN

    Corporate governance in Japan is concerned with ensuring that firms are run in

    such a way that societys resources are used efficiently by taking into account a

    range of stakeholders such as employees, suppliers, and customers, in addition to


    The overwhelming majority of directors in Japanese firms are from inside the

    company. Their number is such that they include many people in addition to themost senior members of management. The nominations of individuals for positions

    as a director are essentially controlled by the company's CEO.

    To take the example of TOYOTA,the Company has total 27 Directors on its Board.None of them are elected from outside the Company. The management philosophy

    goes as-

    With respect to our system regarding directors, we believe that it is important to

    elect individuals that comprehend and engage in TMCs strengths, including

    commitment to manufacturingTMC will consider the appointment of outside

    directors should there be suitable individuals.

    As the focus of Japanese Corporate Governance is on satisfying the various

    stakeholders,Toyota is a host to several committees that are formed on theapproval of the Board. Ex:

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    CSR Committee Labor Management Council Environment Committee International Advisory Board


    The Japanese Companies Act does not require the presence of independent

    directors on corporate boards to monitor management. Instead, traditionally

    governed Japanese corporations rely internally on corporate auditors and externally

    on competition in product markets, team production alliances with suppliers, and

    main banks to monitor the performance of corporate management.

    Japanese corporate governance makes large companies particularly vulnerable tomishandling a crisis . Such firms typically have a rigid system of seniority and

    hierarchy in which people are reluctant to pass bad news up the chain, thus

    keeping information from those who need to hear it in a misguided effort to protect

    them from losing face.

    The lack of an outside perspective is particularly striking in the case of Toyotas

    board. It is composed of 29 Japanese menall of them Toyota insiders, none of

    them independent

    A comparison between BMW and General Motors


    1) BMW

    The committees are formed by the Supervisory Board with sufficient

    expertise based on the specific requirement of the Group. These committees

    are formed to handle all the complex issues of the business. For this there is

    a Presiding Board and four committees.


    The presiding board consists of the Chairman and the deputy chairpersons of

    the Supervisory Board. Together, they prepare the meetings of the

    Supervisory Board, including the annual declaration of compliance with the

    German Corporate Governance code and the annual efficiency check.

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    The Personnel Committee prepares the decisions of the Supervisory Board

    with regard to the appointment and revocation of appointment of members of

    the Board of Management and with regard to the Board of Managements

    compensation and the Supervisory Boards regular review of thecompensation system. The Personnel Committee is responsible for drawing

    up, amending and revoking service/employment contracts or, when

    necessary, other relevant contracts with members of the Board of

    Management. Personnel Committee also has the authority to give the

    necessary approval for a particular transaction (instead of the Supervisory

    Board). This includes loans to members of the Board of Management or

    Supervisory Board, specified contracts with members of the Supervisory

    Board (in each case taking account of the consequences of related party

    transactions), as well as other activities of members of the Board of

    Management, including the acceptance of non-BMW Group supervisory



    The Audit Committee deals in particular with issues relating to the

    supervision of the financial reporting process, the effectiveness of the

    internal control system, the risk management system, internal audit

    arrangements, compliance, auditor independence, the compliance of the

    audit engagement, the determination of specific areas of audit emphasis and

    the fee agreement with the auditor. The audit committee preparesSupervisory Boards resolution relating to the company and group financial

    statements and discusses the interim reports with the Board of Management

    before publication.


    The Nomination Committee is responsible for seeking suitable shareholder-

    side candidates for the election to the Supervisory Board and proposes

    suitable candidates to the Supervisory Board for its election proposals at the

    Annual General Meeting. Following the recommendation of the German

    Corporate Governance Code the Nomination Committee comprises solely

    representatives of the shareholders.


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    The formation of a Mediation Committee is required under German Co-

    Determination Law. The Mediation Committee is responsible for submitting a

    proposal to the Supervisory Board, should a resolution of the Supervisory

    Board on the appointment of a member of the Board of Management fail to

    reach a majority of 2/3. The Mediation Committee is composed of the

    Chairman and Deputy Chairperson of the Supervisory Board and one memberof the Supervisory Board elected by the shareholder representatives and one

    member elected by the employee representatives.

    2) GENERAL MOTORS (United States)

    The board of directors may, by resolution passed by a majority of the total

    number of directors then in office (and not by a committee thereof),

    designate one or more committees, consisting of one or more of the directors

    of the Corporation, to be committees of the board. To the extent provided inany resolution of the board, these bylaws, or any charter adopted by such

    committee and approved by the board, and to the extent permissible under

    Delaware law and the certificate of incorporation, any such committee shall

    have and may exercise all the powers and authority of the board in the

    management of the business and affairs of the Corporation.

    The members and the chairman of each committee shall be elected annually

    by the board at its first meeting after each annual meeting of stockholders or

    at any other time the board shall determine. The members of other

    committees of the board may be designated at such time as the board may

    determine. Vacancies in any committee may be filled at such time and in

    such manner as the board shall determine. Except to the extent otherwise

    provided in these bylaws or any resolution of the board of directors, each

    committee of the board may fix its own rules and procedures.


    The finance and risk committee shall be responsible for assisting the board of

    directors in its oversight of the Corporations financial policies and strategies,including its capital structure. The committee shall also be responsible for

    assisting the board of directors in its oversight of the Corporations risk

    management strategies and policies, including overseeing management of

    market, credit, liquidity and funding risks. In addition, the committee shall

    periodically receive reports regarding U.S. employee benefit plans for the

    purpose of reviewing the administration, financing, investment performance,

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    risk and liability profile, and funding of such plans, in each case including with

    respect to regulatory compliance.


    The audit committee shall have and may exercise the powers, authority, and

    responsibilities that are normally appropriate for the functions of an audit

    committee. The committee shall also annually select the independent

    accountants for the following calendar year, and that selection shall be

    submitted to the board of directors for their concurrence and to the

    stockholders for their ratification or rejection at the annual meeting of



    The executive compensation committee shall be responsible for matters

    related to executive compensation and all other equity-based incentive

    compensation plans of the Corporation. The committee shall determine the

    compensation of: (a) employees of the Corporation who are directors of the

    Corporation; and (b) upon the recommendation of the chief executive officer,

    all senior officers of the Corporation and any other employee of the

    Corporation who occupies such other position as may be designated by the

    committee from time to time.

    The committee shall review the compensation of any director, officer or

    other employee of any direct or indirect subsidiary of the Corporation as may

    be designated by the committee from time to time to determine if it has any

    objection to such compensation. The committee shall have and may exercise

    the powers and authority granted to it by any incentive compensation plan

    for employees of the Corporation.

    In the case of any employee benefit or incentive compensation plan that

    affects employees of the Corporation or its subsidiaries if the compensation

    of such employees is determined or subject to review by the committee, such

    plan shall be submitted to the committee for its review before adoption by

    the Corporation or its subsidiary. Any such plan or amendment or

    modification shall be made effective with respect to employees of the

    Corporation only if and to the extent approved by the committee.

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    The public policy committee shall, upon its own initiative or otherwise, inquire

    into all phases of the Corporations business activities that relate to matters

    of public policy. The committee may make recommendations to the board of

    directors to assist it in formulating and adopting basic policies calculated to

    promote the best interests of the Corporation and the community.


    The directors and corporate governance committee shall be responsible for

    matters related to service on the board of directors of the Corporation, and

    associated issues of corporate governance. The committee from time to time

    shall conduct studies of the size and composition of the board. Prior to eachannual meeting of stockholders, the committee shall recommend to the

    board (in accordance with the terms of the Stockholders Agreement) the

    individuals to constitute the nominees of the board, so that the board may

    solicit proxies for their election. The committee shall review the qualifications

    of individuals for consideration as director candidates and shall recommend

    to the board, for its consideration, the names of individuals for election by the

    board. In addition, the committee shall from time to time conduct studies and

    make recommendations to the board regarding compensation of directors.


    1) BMW

    The compensation affairs are being handled by the Personnel Committee

    of the Supervisory Board. Upon proposal by the Personnel Committee, the

    plenary Supervisory Board fixes the total compensation of the individual

    members of the Board of Management and resolves and regularly reviews

    the compensation system applicable to the Board of Management. The

    total compensation of the members of the Board of Management is fixed

    by the plenary Supervisory Board based on performance criteria andtaking into account any remuneration from group companies. The

    principal criteria for determining the appropriateness of compensation are

    the nature of the tasks allocated to each member of the Board of

    Management, an assessment of the performance of those tasks as well as

    the economic situation, performance and outlook of the BMW Group as

    well as the customariness of the compensation taking into account the

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    comparable environment and the compensation structure that otherwise

    applies in the Company.

    The monetary compensation of members of the Board of Management

    comprises fixed and variable components. The Supervisory Board ensures

    that in principle the variable compensation components are assessed on a

    multi-year basis and that its composition takes into account positive as

    well as negative developments. The variable compensation components

    are based on exacting, relevant comparators. Performance targets and

    comparators are not amended retrospectively. Moreover, upper limits are

    agreed for all members of the Board of Management. Furthermore, the

    Supervisory Board ensures that all compensation components are

    reasonable individually and altogether and do not give rise to any

    inducement to enter into any unreasonable risks. The total compensation

    of each individual member of the Board of Management will be disclosedin a Compensation Report, broken down into fixed and variable

    compensation components.


    Review executive officer compensation for compliance with Section 16 ofthe Securities and Exchange Act and Section 162(m) of the Internal

    Revenue Code, as each may be amended from time to time, and otherapplicable laws, rules, and regulations.

    Set the CEOs compensation level based on the Committees evaluation ofthe CEOs performance versus goals and objectives set by the Board andreview its determinations with the Board in executive session.

    In the exercise of its responsibilities, the Committee shall approve:a. The desired mix of compensation elements, eligibility, aggregate levelsof equity compensation, and annual run rate and dilutionb. With respect to the various incentive plans

    i. Performance measures

    ii. Applicable threshold, target, and maximum award performanceand payout levels

    iii. Maximum aggregate funding levels for employees who are notexecutive officers of the Companyc. Any benefit plans and perquisites limited to the executive population ora subset thereof. Any executive severance policy, benefit, or arrangement

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    The Board of Management is expected to disclose without delay anynew facts which arise within the company and are not known publicly.

    BMW treats all its shareholders equally when it comes to providing

    information. The company uses suitable media to communicate theinformation such as the internet, to shareholders and investorspromptly.

    Purchase and sale of shares or derivative instruments related to BMWby the members of BOM and SB have to be reported to BMW withoutany delay where the value of transaction with BMW stock exceed25000 Euros in 30 days in an appropriate electronic informationsystem or in a journal.

    The essential publications such as the annual reports, interim andquarterly reports are published sufficiently in advance in a financial

    calendar. The information should also be available on the Internet Siteof BMW.

    The Consolidated financial statements are made publicly availablewithin 90 days of the end of the financial year.

    2) GENERAL MOTORSThey believe transparency.


    1) BMWEach member of the Supervisory Board has to act in the interest of thecompany. The members of SB cannot pursue personal interests whiletaking decisions or taking advantage of business opportunitiesintended for the enterprise.

    Each member of SB is expected to inform the SB about any conflict ofinterest and those that may result from a consultant or directrelationship with the clients, suppliers, lenders and other businesspartners.

    Material conflict of interests and those that are not temporary in natureresult in the termination of the mandate of the relevant SB member.

    2) GENERAL MOTORSA conflict of interest arises when an individuals personal interests, orthose of an Immediate Family Member (defined below), improperlyinterfere, or appear to interfere, with the interests of the Company.

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    GMs code of ethics and business conduct, Winning With Integrity: OurValues and Guidelines for Employee Conduct (the Code), whichapplies to all employees and directors when engaged in the Companysbusiness, provides that all conflicts of interest should be avoided.

    It is the Companys policy that all Related Party Transactions will be

    approved or ratified in accordance with this policy by the Committee orby the President and Chief Executive Officer (the CEO) and the VicePresident and General Counsel. Executive officers and directors of theCompany must seek approval in accordance with the procedures setforth below prior to entering into any transaction or establishing anyrelationship that they reasonably believe may possibly constitute aRelated Party Transaction.


    We recommend to go for 2 tier corporate governance as in the case of BMW

    Opening the Board to independent directors - making management more agile,

    improving management transparency and strengthening group management

    According to the McKinseys Global investor opinion survey on Corporate

    Governance, 2002 we have the corporate governance of Japan rated much over

    than that of U.S and Germany.



    ICFAI knowledge center case Corporate governance at BMW

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