Corporate

Governance
An analysis by Team Bournvita
 Team Bournvita
Table of
Contents

01
Corporate
02
How Corporate Governance
03
Major Cases that affect
Governance affects companies Corporate Governance

04
Diversity Vs
05 06
Size Vs
07
Independence
08
Board Composition Vs Vs Corporate Recommendations
Corporate Corporate
Corporate Governance Governance
Governance Governance
 Team Bournvita

Corporate governance is the structure of rules, practices, and

processes used to direct and manage a company.

A company's board of directors is the primary force influencing

Corporate
corporate governance.

The basic principles of corporate governance are accountability,

Governance
transparency, fairness, and responsibility.

Poor corporate governance, at best, leads to a company failing to

achieve its stated goals, and, at worst, can lead to the collapse of
the company and significant financial losses for shareholders.

How Corporate Governance
affects companies
1. Good corporate governance also minimizes
wastages, corruption, risks and mismanagement.
2. Helps to create a strong brand reputation.
Maintains the confidence of investors and as
consequence companies raise capital efficiently
and effectively.
3. Misleading financial statements- There are many
ways to present factually accurate information on
a financial statement in a manner that is
misleading to investors. For example, selling
property from a parent company to a subsidiary
to maximize parent company revenues .
4. ‘Corporate governance’ has no unique structure
or design and is largely considered ambiguous.
This portrays a huge shadow over the company’s
credibility.
Team Bournvita
Case Study
Volkswagen AG
1. Volkswagen AG’s "Dieselgate" revealed that
automaker had deliberately and
systematically rigged engine emission
equipment in its cars in order to
manipulate pollution test results in
America and Europe.
2. Volkswagen saw its stock shed nearly half
its value in the days and its global sales for
the month following the news fell 4.5%.
3. Volkswagen adopts a two-tier corporate
structure, consisting of two independent
boards, Management Board and
Supervisory Board, working together to
govern the firm.
4. The supervisory board was meant to
monitor management and approve
corporate decisions, however, it lacked the
independence and authority to be able to
carry out these roles, thus cancelling the
purpose of the supervisory board.
 Major Cases that affect CG
Observable diversity includes race/ ethnic
background, nationality, gender and age,
while less visible diversity comprises
educational, functional and occupational
backgrounds, industry experience, and
organisational membership.
How diversity affects the company ?
Board size covers several directors,
CEO and Chairman. This will
include outside directors, executive
directors and non-executive
directors.
Performance Vs Size of the board.
Executive and non-executive composition
are the major classification when it
comes to compositional structure of the
organisation.
The board composition maybe subjected
to these changes depending on the
functionalities and aim of the board.
Board independence plays a vital
role in the Corporate Governance
structure of the firm.
A Chairperson and CEO role
shouldn’t be exercised by the same
individuals.

Diversity Vs
Corporate Governance
1. The decision-making process is incomplete
without experience. Therefore, the goal can be
achieved through experience-diverse teams while
deciding against the given situation.
2. Homogeneous boards’ effectiveness is lower
when supervising investment-related activities
than heterogeneous boards in terms of
experience specific to the firm.
3. In terms of education, group diversity refers to
the members’ heterogeneity based on
technological proficiency and perspectives.
4. Thus, the skill-set and viewpoint of the individual
with higher education shall differ from the others.
Therefore, the board’s diversity in education may
result in newness of ideas and increased team
inefficiency.
Team Bournvita
Case Study
Sodexo
1. Although gender, generations and sexual
orientation are all part of the diversity
hiring strategy at Sodexo, they state that
“gender balance is our business”, and their
mission is to make it everyone else’s
business too.
2. 55% of all staff members in Sodexo are
women – that’s up from just 17% in 2009.
58% of the members on the board of
directors are female and the company runs
14 Gender Balance Networks worldwide.
3. What they have found is that when there is
an optimal gender balance within an
organisation, employee engagement
increases by 4 percentage points, gross
profit increases by 23% and brand image
strengthens by 5 percentage points.

Case Studies
Accenture
1. Accenture believe that “no one should be
discriminated against because of their
differences, such as age, disability,
ethnicity, gender, gender identity and
expression, religion or sexual orientation.”
2. Diversity training within the company is
broken into 3 different categories: Diversity
Awareness – to help people understand
the benefits of working with a diverse
organisation; Diversity Management – to
equip executives to manage diverse teams;
Professional Development – to enable
women, LGBT and ethnically diverse
employees to build skills for success.
3. The organisation also hosts a company-
wide celebration of International Day of
Persons with Disabilities as well as
endeavour to help their employees with
various supports, like assistive technology,
flexible work arrangements and additional
training.
Team Bournvita
Marriott
1. Named as one of the ‘World’s Best
Multinational Workplaces by Great Place to
Work’, the world’s largest annual study of
workplace excellence, Marriott
International extends their commitment to
creating an inclusive guest experience to
their workforce around the globe.
2. Women-owned business enterprises make
up approximately 10% of Marriott’s supply
chain and they vow to spend $1 billion with
diverse-owned businesses by 2020.
3. LGBT inclusion is also a top priority for
Marriott International. They received that
‘Best Place to Work for LGBT Equality’
accolade when they earned a perfect score
on the HRC’s 2016 Corporate Equality
Index, a widely recognised benchmark for
diversity and inclusion.
 Team Bournvita

Board Composition Vs Case Studies

Corporate Governance
1. A lot of time there is ambiguity between the roles that
members of the same board exercise, which leads to
the members with better representation eventually
voting on their ideas.
MSTC Ltd
1. The Board should have an optimum number of
executive and non-executive directors and not
less than 50% of the Board should consist of
the non-executive directors and shall have at
least one (1) woman director on the Board
subject to the applicable laws.

2. It is generally seen that companies that maintain a
good composition within their board and maintain the
right composition are perceived by the investors as
more robust and a sign of integrity. This inevitably
drives more funding into the organisation.
2. The company has seen a considerable increase
in efficiency after the implementation of the
said policies. And thereafter have seen a
strong backing from the investors side.

3. Age variation may have a good impact on keeping the

communication alive between an employee and the
board. Including a comparatively young board member
in most cases become effective in creating open
communication from top to bottom.

4. Women are usually given the roles under-age

constraint since the company require age diversity the
women is usually the one who gets that spot.
Extract - Annual Corporate Director’s meet, PWC 2020
“You can have all the
diversity in the world, but it
won’t matter if you don’t
have the right culture.”
- A Senior Female Board of
Director
 Team Bournvita

Size Vs
Corporate Governance
1. Small’s considered good, big is considered bad. But
big boards exist at some great and admired Performance Vs Board Size
companies—GE, Wal-Mart, and Schwab—along with
some poorly performing companies like US Airways
and AT&T. At the same time, small boards are part of
the landscape at good companies like Berkshire
Hathaway and Microsoft and some not-so-good
companies like Trump.

2. According to the Corporate Library's study, the

average board size is 9.2 members, and most boards
range from 3 to 31 members. Some analysts think
the ideal size is seven.

3. Enhancing the size of the board will affect the market

performance of companies inversely thus proving
that increase in board size will bring these
complications.

4. Communication and coordination problems, higher

free-loader obstacles, and knowledge sharing cost,
less expression of notion and thoughts.

Independance Vs
Corporate Governance
1. Malaysian Code on Corporate Governance (MCCG)
2012 has taken an effort to reinforce board
independence in the company through several
recommendations.
2. The Code emphasizes the composition of the
nomination committee, which should comprise a
majority of independent directors.
3. Further, if the chairman of the company is not
independent, most members of the board must be
independent, and the board should review the
independence of its independent directors
annually.
4. Kakabadse, Yang and Sanders (2010) narrated the
effectiveness of non-executive directors in China is
determined by their formal independence,
information accessibility, incentives provided and
competency and was weak because there was too
much intervention of controlling shareholders.
Team Bournvita
Case Study
Satyam Computer Services
1. Eight years ago, B. Ramalinga Raju
confessed to Rs.7,000 crore fraud on its
balance sheet, which he had hidden from
IT company’s board, employees and
auditors for several years, the largest
accounting fraud in history of corporate
India and dubbed India’s Enron, a
reference to American Energy company
that collapsed due to a mammoth
accounting scandal.
2. It laid bare many alarming truths about
inadequacies of Country’s corporate
governance standards.
3. The scam brought to focus multiple flaws
in corporate governance practices-
unethical conduct, fraudulent accounting,
dubious role of auditors, ineffective board,
failure of independent directors and non-
disclosure of pledged shares.
How do we arrive at a good Corporate
Governance?
After analysing the cases and scenarios for multiple companies, we have
arrived at the following recommendations,

1. Diversity: To maximize the efficiency of board it is always suggested to

have a great diversity, but it is not true that with great diversity, the
organization will always be successful. The best practice is to identify the
best combination of diversity in team. Devil's advocate and Whiteboard
approach is desirable.

2. Composition: Employee and consumer should understand the level of

commitment that the board and CEO have for promoting compositional factor
in the organisation. When this kind of structural framework is in place integrity
becomes a core feature of the organization.

3. Size: The most involved, diligent, value-adding boards may or may not
follow every recommendation in the good-governance handbook. What
distinguishes exemplary boards is that they are robust, effective social
systems.

4. Independence: chairperson should be an independent director and the

roles of chairperson and chief executive officer should not be exercised by
the same individual.

Recommendations
 Team Bournvita

Abhiram Puthukkudi
LBSIM, Delhi
abhiramputhukkudi@gmail.com
+91 7676446213

Divanshu Pahuja
LBSIM, Delhi
Thank you. divanshupahuja10@gmail.com
+91 9996622149

Saravanan Krishnan
LBSIM, Delhi
saravanan911997@gmail.com
+91 8903293429

Sourav Nandi
LBSIM, Delhi
sourav.india999@gmail.com
+91 9002974846
 References
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