Download VTU (Visvesvaraya Technological University) MBA 2nd Semester (Second Semester) 17MBA24-Business Law BL Module 3 Important Lecture Notes (MBA Study Material Notes)
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CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
Cont..
? National Interest
? Political non-alignment
? Legal compliance
? Rule of law
? Honest and ethical conduct
? Corporate Citizenship
? Ethical behaviour
? Social concerns
? CSR
? Environment friendliness
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
Cont..
? National Interest
? Political non-alignment
? Legal compliance
? Rule of law
? Honest and ethical conduct
? Corporate Citizenship
? Ethical behaviour
? Social concerns
? CSR
? Environment friendliness
Cont..
? Healthy and safe working environment
? Competition
? Trusteeship
? Accountability
? Effectiveness and efficiency
? Timely responsiveness
? Corporations should uphold the fair name of
the country
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
Cont..
? National Interest
? Political non-alignment
? Legal compliance
? Rule of law
? Honest and ethical conduct
? Corporate Citizenship
? Ethical behaviour
? Social concerns
? CSR
? Environment friendliness
Cont..
? Healthy and safe working environment
? Competition
? Trusteeship
? Accountability
? Effectiveness and efficiency
? Timely responsiveness
? Corporations should uphold the fair name of
the country
Obligations to Investors
v The investors as shareholders and providers
of capital are of paramount importance to a
corporation.
?Towards shareholders
?Measures promoting transparency and
informed shareholder participation
?Transparency
?Financial reporting and records
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
Cont..
? National Interest
? Political non-alignment
? Legal compliance
? Rule of law
? Honest and ethical conduct
? Corporate Citizenship
? Ethical behaviour
? Social concerns
? CSR
? Environment friendliness
Cont..
? Healthy and safe working environment
? Competition
? Trusteeship
? Accountability
? Effectiveness and efficiency
? Timely responsiveness
? Corporations should uphold the fair name of
the country
Obligations to Investors
v The investors as shareholders and providers
of capital are of paramount importance to a
corporation.
?Towards shareholders
?Measures promoting transparency and
informed shareholder participation
?Transparency
?Financial reporting and records
Obligation to Employees
? Fair employment practices
? Equal opportunities employer
? Encouraging whistle blowing
? Humane treatment
? Participation
? Empowerment
? Equity and inclusiveness
? Participative and collaborative environment
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
Cont..
? National Interest
? Political non-alignment
? Legal compliance
? Rule of law
? Honest and ethical conduct
? Corporate Citizenship
? Ethical behaviour
? Social concerns
? CSR
? Environment friendliness
Cont..
? Healthy and safe working environment
? Competition
? Trusteeship
? Accountability
? Effectiveness and efficiency
? Timely responsiveness
? Corporations should uphold the fair name of
the country
Obligations to Investors
v The investors as shareholders and providers
of capital are of paramount importance to a
corporation.
?Towards shareholders
?Measures promoting transparency and
informed shareholder participation
?Transparency
?Financial reporting and records
Obligation to Employees
? Fair employment practices
? Equal opportunities employer
? Encouraging whistle blowing
? Humane treatment
? Participation
? Empowerment
? Equity and inclusiveness
? Participative and collaborative environment
Obligation to Customers
? Quality of products and services
? Products at affordable prices
? Unwavering commitment to customer
satisfaction
FirstRanker.com - FirstRanker's Choice
CORPORATE GOVERNANCE
Corporate Governance
? Corporate Governance refers to the set of
systems, principles and processes by which a
company is governed.
? They provide the guidelines as to how the
company can be directed or controlled ? to
fulfill its goals and objectives ? adds to the
value of the co & beneficial to the
stakeholders in the long run.
? Stakeholders ? everyone ranging from the
Board of Directors, Management,
shareholders to customers, employees and
society.
? C.G is the technique by which companies are
directed and managed.
? It means carrying the business as per the
stakeholder?s desires.
? It is all about balancing individual and societal
goals, as well as economic and social goals.
? It also deals with determining ways to take
effective strategic decisions.
? Corporate Governance ensures transparency
which ensures strong and balanced economic
development.
? It ensures that the interests of all shareholders
are safeguarded.
? It encourages a trustworthy, moral as well as
ethical environment.
Meaning of Corporate Governance
? Refers to the relationship that exists between
the different participants and defining the
direction and performance of a corporate firm.
? Actors ? The CEO, Board of Directors,
Shareholders.
? Other Actors ? Staff, Suppliers, Creditors,
Customers and the Community.
? Corporate Governance is a systematic process
by which companies are directed and
controlled to enhance their wealth generating
capacity.
? It is a set of relationships?.
? Companies around the world are realizing that
better Corporate Governance adds
considerable value to their operational
Performance:-
v It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience, and
a host of new ideas.
v It rationalizes the management and monitoring of risk that a
firm faces globally.
v It limits the liability of top management and directors, by
carefully articulating the decision making process.
v It assures the integrity of financial reports.
v It has long term reputational effects among key stakeholders,
both internally and externally.
The corporate governance framework consists
of:
? (i) Explicit and implicit contracts between the
company and the stakeholders for distribution
of responsibilities, rights and rewards.
? (ii) Procedures for reconciling the conflicting
interests of stakeholders in accordance with
their duties, privileges and roles.
? (iii) Procedures for proper supervision, control,
and information-flows to serve as a system of
checks- and-balances.
Corporate governance consists of two elements:
? The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors.
? The transactional relationship which involves
dealing with disclosure and authority.
Definitions
? OECD (1999), ?Corporate governance is the system by which
business corporations are directed and controlled. The
corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and
other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives
are set, and the means of attaining those objectives and
monitoring performance.?
Concept of Corporate and
Governance
? Corporate is a business or entity which has
separate legal personality, with limited liability
or unlimited liability for its members or
shareholders, who buy and sell their
shares/stocks depending on the performance
of the board of directors.
? Governance is the act of governing. It relates
to decisions that define expectations, grant
power, or verify performance. It consists of
either a separate process or part of decision-
making or leadership processes.
Good Corporate Governance
? It ensures:
?Adequate disclosures and effective decision
making to achieve corporate objectives;
? Transparency in business transactions,
?Statutory and legal compliances,
?Protection of shareholder interests,
?Commitment to values and ethical conduct of
business.
? The aim of ?Good Corporate Governance? is to
ensure commitment of the board in managing
the company in a transparent manner for
maximizing long-term value of the company
for its shareholders and all other partners. It
integrates all the participants involved in a
process, which is economic, and at social level.
? A properly structured board capable of taking independent and objective
decisions is in place at the helm of affairs;
? The board should be balance with regards to the representation of
adequate number of non- executive and independent directors who will
take care of their interests and well-being of all the stakeholders;
? The board adopts transparent procedures and practices and arrives at
decisions on the strength of adequate information;
? The board has an effective machinery to subserve the concerns of
stakeholders;
? The board keeps the shareholders informed of relevant developments
impacting the company:
? The board effectively and regularly monitors the functioning of the
management team;
? The board remains in effective to control the affairs of the company at all
times.
Significance and Importance of
Corporate Governance
? Changing Ownership Structure
? Importance of Social Responsibility
? Growing Number of Scams
? Indifference on the part of Shareholders
? Globalization
? Takeovers and Mergers
? SEBI
Benefits of Corporate Governance
? Good corporate governance ensures corporate success and economic
growth.
? Strong corporate governance maintains investors? confidence, as a result
of which, company can raise capital efficiently and effectively.
? It lowers the capital cost.
? There is a positive impact on the share price.
? It provides proper inducement to the owners as well as managers to
achieve objectives that are in interests of the shareholders and the
organization.
? Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
? It helps in brand formation and its development.
? It ensures an organization to manage in a manner that fits the best
interests of all.
Corporate Governance and the
Economy
? Good corporate governance practices should
make firms more profitable and productive, in
turn contributing to the overall health of the
economy.
? Why is it important ?
? Why was it in the news recently? (Corporate
Fraud by Satyam )
Models of Corporate Governance
? Market Model or Outsider Model
? Control Model or Insider Model
Model-1- Market Model
? Mathematical representation of the
interactions among various participants,
economic forces, and choices made.
The market model governance chain*
*Examples can be found in Australia, Canada, U.K. and U.S.
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Dispersed
ownership
Sophisticated
institutional
investment
Non-
executive
majority
boards
Aligned incentives
Active
takeover
market
Active private
equity market
(incl. IPOs)
Shareholder
equality
High
disclosure
? Characteristics:
? A priority to market regulation.
? The owners of firms tend to have a transitory interest in the
firm.
? The absence of close relationships between shareholders and
management.
? The existence of an active market for corporate control-
takeovers.
? The primacy of shareholder rights over those of other
organizational groups.
Control Model
? Represented by underdeveloped equity
markets, concentrated ownership, less
shareholder transparency and inadequate
protection of minority and foreign
shareholders.
The control model governance chain*
*Examples can be found in Asia, Latin America and many Continental and South Eastern European countries
Source: McKinsey
Shareholder
environment
Independence
and performance
Capital market
liquidity
Corporate
context
Institutional
context
Transparency and
accountability
OECD
Principles
Concentrated
ownership
Reliance on
family, bank and
State finance
?Insider
boards?
Incentives
aligned with
core shareholders
Limited
takeover
market
Under-developed
new issue
market
Inadequate
minority
protection
Limited
disclosure
Control Model
? The priority to stakeholders control
? The owners of firms tend to have an enduring interest in the
company
? They often hold positions on the Board of Directors or other
senior managerial positions
? The relationships between management and shareholders are
close and stable
? There is little by way of a market for corporate control
? The existence of formal rights for employees to influence key
managerial decisions
? Corporate governance is about promoting
corporate fairness, transparency and
accountability.
? Corporate Governance means doing
everything better to improve relations
between companies and their shareholders.
OECD on Corporate Governance
? Corporate governance is based on principles
such as conducting the business with all
integrity and fairness, being transparent with
regard to all transactions, making all the
necessary disclosures and decisions.
? Rights and equitable treatment of
shareholders
? Interests of other stakeholders
? Role and responsibilities of the board
? Integrity and ethical behavior
? Disclosure and transparency
A Historical Perspective of Corporate
Governance
? The seeds of modern corporate governance
were probably sown by the Watergate scandal
in the United States.
? Cadbury Committee Report in the United
Kingdom (1992)
? Recommendations of the National Association
of Corporate Directors of the US (1995)
? After Enron and Worldcom failures
? On 21 August 2002, the Department of
Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed this
Committee to examine various corporate
governance issues.
Issues in Corporate Governance
? Duties of Directors
? Composition and Balance of the Board
? Remuneration and Reward of Directors
? Reliability of Financial Reporting and External
Auditors
? Board?s Responsibility for Risk Management and
Internal Control
? Shareholders? Rights and Responsibilities
? Corporate Social Responsibility and Business Ethics
Relevance of Corporate Governance
? Corporate governance (CG) is a set of systems, principles and
processes, about how companies are directed and controlled.
? It regulates the way boards manage the running of a company
by its executives, and how board members are accountable to
shareholders and the company.
? This has a direct influence on company?s attitude,
accountability and responsibility, towards all stakeholders,
including employees, shareholders, and customers alike.
Cont..
? Superior CG plays a fundamental role in
strengthening the integrity and efficiency of financial
markets.
? Inadequate corporate governance however
undermines a company?s potential and at worst
leads to financial difficulties and even may result in
fraud.
? Well governed companies usually outperform other
companies and are able to attract new investors
whose support can help to finance further growth.
Theoretical basis for Corporate
Governance
? The fundamental theoretical basis of
corporate governance is agency costs.
? In a limited liability company structure a large
number of investors provide the risk capital.
They are called shareholders, the deemed
owners of the company.
? They delegate the power to manage the
company to board of directors.
? Principal-agent relationship.
? Core of the Corporate Governance ? Ethical
Conduct of Business.
? Unless the corporations adopt and
demonstrate ethical conduct and act in the
best interest of its various stakeholders , they
will not be able to succeed.
Obligation to Society
? A corporation is a creation of law as an
association of persons forming part of the
society in which it operates.
? Its activities are bound to impact the society
as the society?s values would have an impact
on the corporation.
Cont..
? National Interest
? Political non-alignment
? Legal compliance
? Rule of law
? Honest and ethical conduct
? Corporate Citizenship
? Ethical behaviour
? Social concerns
? CSR
? Environment friendliness
Cont..
? Healthy and safe working environment
? Competition
? Trusteeship
? Accountability
? Effectiveness and efficiency
? Timely responsiveness
? Corporations should uphold the fair name of
the country
Obligations to Investors
v The investors as shareholders and providers
of capital are of paramount importance to a
corporation.
?Towards shareholders
?Measures promoting transparency and
informed shareholder participation
?Transparency
?Financial reporting and records
Obligation to Employees
? Fair employment practices
? Equal opportunities employer
? Encouraging whistle blowing
? Humane treatment
? Participation
? Empowerment
? Equity and inclusiveness
? Participative and collaborative environment
Obligation to Customers
? Quality of products and services
? Products at affordable prices
? Unwavering commitment to customer
satisfaction
Managerial Obligation
? Protecting company?s assets
? Behaviour towards govt agencies
? Control
? Consensus-oriented
? Gifts and donations
? Role and responsibilities of corporate board and
directors
? Direction and management must be distinguished
? Managing and whole-time directors
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This post was last modified on 18 February 2020