Corporate Governance

• Corporate governance is a concept,

rather than an individual instrument. It
includes debate on the appropriate
management and control structures of a
company
• 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
such that it can fulfill its goals and
objectives in a manner that adds to the
value of the company and is also
beneficial for all stakeholders in the long
term
• Stakeholders in this case would include
everyone ranging from the board of
directors, management, shareholders to
customers, employees and society. The
management of the company hence
assumes the role of a trustee for all the
others.
• 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, complying with all the laws of
the land, accountability and responsibility
towards the stakeholders and commitment
to conducting business in an ethical
manner.
 Corporate Governance Parties
• Shareholders – those that own the
company
• Directors – Guardians of the Company’s
assets for the Shareholders
• Managers who use the Company’s assets
 Corporate Governance
• Primarily concerned with public listed
companies i.e. those listed on a Stock
Exchange
• Focused on preventing corporate
collapses such as Enron, Polly Peck and
the Maxwell companies
 Four Pillars
of Corporate Governance

• Accountability
• Fairness
• Transparency
• Independence
 Accountability
• Ensure that management is accountable
to the Board
• Ensure that the Board is accountable to
shareholders
 Fairness
• Protect Shareholders rights
• Treat all shareholders including
minorities, equitably
• Provide effective redress for violations
 Transparency

Ensure timely, accurate disclosure on all

material matters, including the financial
situation, performance, ownership and
corporate governance
 Independence
• Procedures and structures are in place so
as to minimise, or avoid completely
conflicts of interest
• Independent Directors and Advisers i.e.
free from the influence of others
 Elements of Corporate Governance
• Good Board practices
• Control Environment
• Transparent disclosure
• Well-defined shareholder rights
• Board commitment
 Good Board Practices
• Clearly defined roles and authorities
• Duties and responsibilities of Directors
understood
• Board is well structured
• Appropriate composition and mix of skills
 Good Board procedures
• Appropriate Board procedures
• Director Remuneration in line with best
practice
• Board self-evaluation and training
conducted
 Control Environment
• Internal control procedures
• Risk management framework present
• Disaster recovery systems in place
• Media management techniques in use
 Control Environment
• Business continuity procedures in place
• Independent external auditor conducts
audits
• Independent audit committee
established
 Control Environment
• Internal Audit Function
• Management Information systems
established
• Compliance Function established
 Transparent Disclosure
• Financial Information disclosed
• Non-Financial Information disclosed
• Financials prepared according to
International Financial Reporting
Standards (IFRS)
 Transparent Disclosure
• Companies Registry filings up to date
• High-Quality annual report published
• Web-based disclosure
 Well-Defined Shareholder Rights

• Minority shareholder rights formalised

• Well-organised shareholder meetings
conducted
• Policy on related party transactions
 Well-Defined Shareholder Rights

• Policy on extraordinary transactions

• Clearly defined and explicit dividend
policy
 Board Commitment
• The Board discusses corporate
governance issues and has created a
corporate governance committee
• The company has a corporate
governance champion
• A corporate governance improvement
plan has been created
• Appropriate resources are committed to
corporate governance initiatives
 Board Commitment
• Policies and procedures have been
formalised and distributed to relevant
staff
• A corporate governance code has been
developed
• A code of ethics has been developed
• The company is recognised as a
corporate governance leader
 Why Corporate Governance?
• Better access to external finance
• Lower costs of capital – interest rates on
loans
• Improved company performance –
sustainability
• Higher firm valuation and share
performance
• Reduced risk of corporate crisis and
scandals
 Corporate Governance in India

• In India, corporate governance initiatives

have been undertaken by the Ministry of
Corporate Affairs (MCA) and the
Securities and Exchange Board of India
(SEBI).
• The first formal regulatory framework for
listed companies specifically for
corporate governance was established by
the SEBI in February 2000, following the
recommendations of Kumarmangalam
Birla Committee Report.
• The Ministry of Corporate Affairs had
appointed Naresh Chandra Committee
on Corporate Audit and Governance in
2002 in order to examine various
corporate governance issues
• It made recommendations in two key
aspects of corporate governance:
financial and non-financial disclosures:
and independent auditing and board
oversight of management.
• It is making all efforts to bring
transparency in the structure of
corporate governance through the
enactment of Companies Act and its
amendments.
• Another point which is highlighted in the
SEBI report on corporate governance is
the need for those in control to be able
to distinguish between what are personal
and corporate funds while managing a
company.