NATURE & EVOLUTION OF CORPORATE GOVERNANCE

Presented By :Amna AhmadMd. Nadeem

Mohd. Navaid HasanMd. Tabish Shams

Mohd. Yasir YaqubMd. Altamash Junaid

Rashda YasminRashmi Singh

Richa Chauhan

NATURE & EVOLUTION OF CORPORATE GOVERNANCE

• Sir Adrian Cadbury - ‘The system by which companies are directed or controlled’.

• The broad nature of corporate governance has led to a tendency to consider it as a concept rather than emphasizing the definition.

Different models of corporate governance:-• Anglo-American model• Co-ordinated or Relationship model

PRINCIPLES OF CORPORATE GOVERNANCE

Global Perspective:-• The Cadbury Report (UK, 1992)• The Sarbanes-Oxley Act of 2002 (US, 2002)• The Principles of Corporate Governance (OECD, 1998 and 2004)

National Perspective:-• CII Code recommendations (1997)• Birla Committee (SEBI) recommendations (2000)• Narayana Murthy committee (SEBI) recommendations (2003)

CHANGES IN CORPORATE GOVERNANCE DURING THE 80’S

Since the 1980s there has been a partial convergence between the major systems of corporate governance:

SHAREHOLDER-BASED and STAKEHOLDER-BASED

Causes of convergence• Growth of European stock markets• Harmonization of securities regulation and disclosure rules• Transition towards investor capitalism

CADBURY REPORT

• Published in 1992• Set up by London Stock Exchange• It is a report of committee headed by Adrian

Cadbury• Sets out recommendations on the

arrangement of company boards and accounting systems to mitigate corporate governance risks and failures

The main recommendations of the Cadbury

report were:

• a division of responsibilities at the head of the company to ensure that no one individual has powers of decision

• a majority of non-executive directors to be independent• at least three non-executives on the audit committee• a majority of non-executives on the remuneration

committee• non-executives should be selected by the whole board

HAMPEL REPORT

• Published in 1998, by the Hampel committee in UK.• Succeeded the Cadbury and Greenbury

recommendations.• Concerns over the standards of the corporate

governance in the UK led to the publication of these three reports.

• The combined code of these reports have led to significant changes in the accountability aspects of corporate governance.

OECD

• The role of the shareholders and their interaction with the management of the Company

• The role of stakeholders and their importance to the company and the company’s corporate social responsibility

• Openness and transparency- regular evaluation

• The tasks and responsibilities of the supreme and the central governing bodies

• Composition and organisation of the supreme governing body Where the board of directors constitutes the supreme governing body,

it should be composed in such a way so as to allow it to perform its managerial tasks, including overall and strategic tasks.

• Remuneration of members of the governing bodies The principles of the remuneration policy should support a long-term

value-creation for the company. Competitive remuneration should be a prerequisite for attracting and retaining competent members of the governing bodies.

• Financial reporting Each member of the supreme governing body and the executive board

is responsible for preparing the annual report and other financial reports.

• Risk management and internal control reducing strategic and business risks, ensuring observance of current rules and regulations,

ensuring the quality of the basis for management decisions and financial reporting.

• Audit Ensuring an independent, competent and thorough audit is an

essential element of the work of the supreme governing body.

SARBANES OXLEY ACT 2002 (SOX 2002)

• Passed by the US congress in 2002 to protect the investors from fraudulent practices of the companies.

• The Act mandated strict reforms to improve the financial disclosures from the corporations.

• Sox was incorporated as a response to the accounting scandals in early 2000s.

Key Provisions of Sarbanes-Oxley Act,2002

• Section 302 A mandate that requires the senior management to certify the

accuracy of the reported financial statement.

• Section 404 A requirement that management and auditors establish internal

controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to maintain the required internal controls.

CONCLUSION• PROBLEM Problem for private companies, remains largely unaddressed

• IMPROVEMENT Development of norms and guidelines

• CHALLENGE Proper implementation of those rules at the ground level

• DRAWBACK Outside agencies like analysts and stock markets influence is restricted to the top

companies

• SOLUTION Industry organizations and chambers of commerce themselves pushing for an

improved corporate governance system, the future of corporate governance in India promises to be distinctly better than the past

THANK YOU