GOVERNACE,

RISK AND ETHICS

MBA203B26
MBA I Year II Trimester
Dr.D.RAVINDRAN
UNIT 1 – GOVERNANCE
& RESPONSIBILITY
 Corporate Governance

• It is the system that directs and controls a corporate

• It is a set of relationships between a company’s board, its

share holders and the other stake holders.

• It provides the structure through which the objectives of

the company and the means of attaining those objectives

are set and the means of monitoring the performances
are determined
Corporate Governance -OECD
• OECD (Organisation for Economic Co-operation and
Development)have defined Corporate Governance as

• ‘the system by which business corporations

are directed and controlled’
 Corporate Governance
• Corporate governance ensures objectives of Directors are
aligning with share holders’ Objectives and Directors are
with out affecting stakeholders’ interest.

Shareholders’ Directors’ Stake Holders’

Objectives Objectives interest
Corporate Governance
• Is a method by which organisations are directed and
controlled.
Features of Corporate Governance
• Constitution of Various Committees
• Structuring the boards( composition of board members,
insiders and outsiders representation, role of executive and non
executive directors)
• Boards’ system and procedures( conduct of
meetings, frequency, attendance of board meetings, fulfilling the information
requirements)

• Shareholders’ Democracy(participation in meeting, rights,

disclosure of information required)
• Value orientation(ethics, values etc)
• Monitoring of strategic decisions
 Issues/ challenges in Corporate
Governance
Distinguishing the roles of board and management
• Composition of board
• Conducting Board Committee meetings
• Directors and Executives Remuneration.
• Protection of shareholder rights and expectations
• Disclosure and audit
Reasons for CG failures
• Fraudulent accounting practices
• Weak internal controls
• Mismanagement of funds
• Unqualified/in experienced members of the
board
• Non disclosure of mandatory items
• Favouritism
• Poor management
Benefits of CG
• Benefits to stake holders
• Corporate image
• Mobilization of capital easier
• Minimise mismanagement
• Greater productivity
• Corporate success
• Higher market valuation
• Increased value of firms
• Scope for greater growth
Obligations to Society and employees
• National Interest
• Non political alignment
• Honest and ethical conduct
• Corporate social responsibility
• Environment friendliness
• Accountability
• Fair employment practices
• Equal opportunities
• Whistle blowing
Benefits to Corporations
• Improved Public Image
• Protecting Shareholders’ interests
• Preventing fraud and malpractices
• Enhancing the valuation of the enterprise
 Scope of Corporate Governance
• Corporate Governance has a broad scope.
• It includes both social and institutional aspects.
• Corporate Governance encourages a
trustworthy, moral, as well as ethical
environment.
• It not only protects share holder’s interest but
also has a responsibility to protect all the stake
holders of an organization
Purpose and scope
For the private sector:
• to monitor those parties within a company which control the resources
owned by investors.
• the primary objective of sound corporate governance is improved
corporate performance and accountability in creating long term
shareholder value.
For the public and not for profit sectors:
• objectives within these organisations are more complex and
conflicting.
• organisations are often appraised according to the “value for money”
(VFM) that they generate.
-- defined as performance of an activity to simultaneously achieve
economy, efficiency and effectiveness for the societal/public interests.
Elements of value for money
• The three elements of value for money are:
• • Economy = a measure of inputs to achieve a certain
service or level of service.
• • Effectiveness = a measure of outputs, i.e.
services/facilities.
• • Efficiency = measure of outputs over inputs.
Legal Frame work
• The companies act , 1956
• The competition Act, 2002
• The securities and exchange board of India(SEBI), 1992
• FEMA(Foreign exchange comiittees-1999
• The consumer protection act, 1986
• The environment protection, Act, (1986)
Recommendations by expert commitees
• The Cadbury committee reports
• The Kumara Mangalam committee report
• OECD committee