Introduction to Corporate

Governance

Dr. Sujata Bali,

Associate Professor,
UPES, Dehradun
 Meaning of Corporate
CORPORATE
 an adjective which
simply means
‘pertaining to
corporations’.
 The term ‘corporate’ is
defined as, “of or
relating to corporation
especially business
corporation” (Black’s
 Defining Corporations:

 Melvin Aron Eisenberg gave an interesting

starting point for defining corporations.

“a corporation is a profit-seeking enterprise of

persons and assets organized by rules. Most of
these rules are determined by the unilateral
action of corporate organs or officials. Some of
these rules are determined by market forces.
Some are determined by contract or other forms
of agreement. Some are determined by law.”
 Suggested reading:

“Theories of the Corporation”,

 Author(s): David Millon
 Source: Duke Law Journal, Vol. 1990, No. 2,
Frontiers of Legal Thought I (Apr., 1990),
pp.201-262
 Published by: Duke University School of Law
 Stable URL:
http://www.jstor.org/stable/1372611 .
How to identify corporate form of
business?
Robert Clark
Four characteristics essential to the
vitality and appeal of corporate form:
1) Limited liability for investors.
2) Transferability of investor-interest.
3) Legal personality (equity-attributable
powers, life-span, and purpose), and
4) Centralized management.
 Meaning of Governance

 Derived from term ‘governare’ which means

to ‘rule’ or ‘steer’.
 “to control and direct the public business of (a
country, city, group of people etc.), to rule”.
Corporate Governance
 Defining Corporate Governance:

 “Corporate governance is a system by which

companies are directed and controlled.” (Cadbury
Committee, 1992).
 Corporate governance deals with laws, procedures,
practices and implicit rules that determine a
company’s ability to take managerial decisions vis-
à-vis its claimants- in particular its shareholders,
creditors, customers, the State and the
employees.” (The CII committee on Desirable
corporate governance in India, 1998)
Defining Corporate Governance (contd.):

 “From corporate perspective, corporate

governance is about maximizing value subject
to meeting company’s financial, legal and
contractual obligations. From a public
perspective, corporate governance is nurturing
an enterprise while ensuring accountability in
the exercise of power and patronage by firms
with the incentives and discipline to minimize
the divergence between private and social
returns and to protect the interest of
Another definition:

 Corporate governance is the acceptance by

management of the inalienable rights of
shareholders as the true owners of the corporation
and of their own role as trustees on behalf of the
shareholders. It is about commitment to values,
about ethical business conduct and about making a
distinction between personal and corporate funds
in the management of a company. {Report of SEBI
Committee on Corporate Governance (February,
2003), Preamble}.
 Corporate Governance

Administration of Corporations
 Corporate governance’s Arena:

Management discipline
Shareholders’ rights and Investor
Protection
Business ethics, RPTs
Corporate social responsibility
Corporate environmental responsibility
Stakeholder participation in decision
making
Benefits:

Sustainable Economic Growth

Boost to investor confidence
Development of financial
Markets
Corporate Democracy
Note to the students:

 “Corporate governance is not a pure legal

concept, it is a synthesis of law, economics,
ethics, politics, management, finance, and
other fields of studies.”
Questions?