Obiective.

-
Corporate goverhahce is the hew buzzword ih
corporate ahd academic circles today. It
meahs several thihgs to several people,
depehdihg oh the sehsitivity of the ahalyst ahd
his vested ihterest ih it. This chapter gives ah
overview of the cohcept, defihes it, discusses
its evolutioh ahd explaihs its relevahce ahd
impact oh the ecohomy.
Defihitiohs of Corporate Goverhahce.
From the Academic Poiht of View
"Corporate goverhahce addresses
problems that result from the separatioh of
owhership ahd cohtrol."
"Corporate goverhahce is hot iust corporate
mahagemeht, it is a much broader cohcept ahd
ihcludes a fair, efficieht ahd trahspareht
admihistratioh to meet certaih well-defihed
obiectives. lt is a system of structurihg,
operatihg ahd cohtrollihg a compahy with a
view to achievihg lohg-term strategic goals to
satisfy shareholders, creditors, employees,
customers ahd suppliers ahd complyihg with
the legal ahd regulatory requiremehts, apart
from meetihg ehvirohmehtal ahd local
commuhity heeds. Wheh it is practiced uhder
a well-laid out system, it leads to the buildihg
of a legal, commercial ahd ihstitutiohal
framework ahd demarcate the bouhdaries
withih which these fuhctiohs are performed.
|A. C. Ferhahdo. "Corporate Goverhahce - The
Time for a Metamorphosis, The Hihdu
Busihess lihe, luly , 7.)
Corporate Misgoverhahce ih Ihdia
Reasohs for Corporate Misgoverhahce
lhdiah corporatiohs were ihsulated. A closed
ecohomy, a sheltered market, limited heed ahd
access to global busihess/trade, lack of
competitioh, lack of adequate regulatory
framework were all the causes. Besides,
promoter families ruled the roost. As a result,
there were a series of scams.
Issues ih Corporate Goverhahce
|)Distihguishihg the Roles of the Board ahd the
Mahagemeht. |2)Compositioh of the Board ahd
Related lssues. |3)Separatioh of the Roles of
the CEC ahd the Chairpersoh. |4)Should the
Board Have Committees7 |)Appoihtmehts to
the Board ahd Directors' Re-electioh.
|)Directors' ahd Executives' Remuheratioh.
|7)Disclosure ahd Audit. |6)Protectioh of
Shareholder Rights ahd Their Expectatiohs.
|)Dialogue with lhstitutiohal Shareholders.
|0)Should lhvestors have a say ih makihg a
Compahy Socially Respohsible Corporate
Citizeh.
Relevahce of Corporate Goverhahce.-
Mahagemehts usually have ah ihformatioh
advahtage over others. Good corporate
goverhahce will ehsure all stakeholders
ihterests are protected, while their
requiremehts are fulfilled.
Need for ahd Importahce of Corporate
Goverhahce.-To maximize lohg-term
shareholder value.
Goverhahce ahd Corporate Performahce.-
These are very closely ihter-related lhvestors'
Preferehce for Good Goverhahce Shareholders
are prepared to pay a premium for a compahy
with good corporate goverhahce practices.
5trategies ahd Techhiques Basic to 5ouhd
Corporate Goverhahce.-
Corporate values, codes, ihterhal cohtrol
systems etc. are useful to ehsure flow of
capital for combatihg corruptioh, stakeholder
protectioh, ehsurihg ihdustrializatioh ahd
ecohomic developmeht.
Behefits of Good Corporate Goverhahce to a
Corporatioh.-
).Culture withih the orgahizatioh ahd ihdustry
improves 2).Shareholder cohfidehce improves.
3).Compahies that are seeh as well goverhed
get a premium for their stocks. 4).Creatioh ahd
ehhahcemeht of a corporatioh's competitive
advahtage. Ehablihg a corporatioh perform
efficiehtly by prevehtihg fraud ahd
malpractices. ) Providihg protectioh to
shareholders' ihterest. 7) Creates additiohal
shareholder value over time. 6) Ehhahcihg the
valuatioh of ah ehterprise. ) Ehsurihg
compliahce of laws ahd regulatiohs.
What is corporatet
The term "corporate refers to ah associatioh
of mahy persohs, who cohtribute mohey or
mohey's worth to a commoh stock ahd employ
it ih some trade or busihess, ahd who share the
profit ahd loss arisihg therefrom. The commoh
stock so cohtributed is dehoted ih mohey ahd
is the capital of the compahy. The persohs who
cohtribute it, or to whom it belohgs, are its
members. The proportioh of the capital to
which each member is ehtitled is his share.
Shares are always trahsferable, although the
right to trahsfer them is ofteh more or less
restricted.
What is goverhahcet
Goverhahce is the process of decisioh makihg
ahd the process by which decisiohs are
implemehted or hot implemehted.
Characteristics of a corporatioh .-
|)lhcorporated Associatioh.|2)Artificial Legal
Existehce |3)Perpetual Existehce |4)Commoh
Seal |)Extehsive Membership |)Separatioh of
Mahagemeht ahd Cwhership |7)Limited Liability
|6)Trahsferability of shares
Theoretical Basis of Corporate Goverhahce.-
|)Agehcy Theory.|2)Problems with the Agehcy
Theory. |3)Stewardship Theory. |4)Shareholder
Vs Stakeholder Approaches.|)Stakeholder
Theory. |)Criticisms of the Stakeholder Theory.
|7)Sociological Theory.
Behavioural Differehces
THEORY

AGENCY

5TEWARD5HIP

Mahagers act
as

Agehts

5tewards

Goverhahce
Approach

Materialistic

5ociologicalahd
Psychological

Behaviour
Patterh

Ihdividualistic
Opportuhistic
5elf-servihg

Collectivistic
Pro-orgahisatiohal
Trustworthy

Mahagers
motivated by

Their owh
obiectives

Prihcipal's
obiectives

Mahager's ahd
Prihcipal's
Ihterests

Differ Cohverge

Mahagemeht
5tructures

Mohitor ahd
cohtrol

Facilitate ahd
empower

Owhers'
Attitude

Risk Avoidahce

Risk takeh

Psychological Mechahisms
P5YCHOLO
GICAL
RE5PON5E
5

AGENCY THEORY

5TEWARD5
HP
THEORY

Motivatioh

Lower order
heeds
Extrihsic heeds

Higher
order heeds
Ihtrihsic
heeds

5ocial
comparisoh

Compatriots

Prihcipal

Attachmeht

Little attachmeht
to compahy

Great
attachmeht
to compahy

Power

Ihstitutiohal

Persohal


5ituatiohal Mechahisms
SlTUATlCNAL
RESPCNSES

AGENCY
THECRY

STEWAREDSHlP
THECRY

Mahagemeht
Philosophy

Cohtrol
oriehted

lhvolvemeht
oriehted

While
dealihg with
ihcreasihg
Uhcertaihty
ahd risk

Greater
cohtrols
More
supervisiohs

Traihihg ahd
empowerihg
people
Makihg iobs to
be more
challehgihg
ahd motivatihg

Risk
oriehtatioh

Through a
system of
cohtrol

Through trust

Time frame

Short term
based

Lohg term
based

Cbiective

Cost cohtrol

lmprovihg
performahce

Cultural
differehces

lhdividualism
Large power
distahce

Collectivism
Small power
distahce


Corporate Goverhahce Mechahisms
The lmportahce of Corporate Goverhahce,
Cohtemporary Corporate Goverhahce Situatioh,
Growihg Awarehess ahd Societal Respohses.
Ouestioh- .
Corporate Goverhahce 5ystems.-
Ahglo-Americah Model, the Germah Model, the
lapahese Model, lhdiah Model of Corporate
Goverhahce




What Is Good Corporate Goverhahcet
Obligatioh to society at large.
).Natiohal lhterest.2).Political Noh-
alighmeht.).Legal Compliahces |).Rule
of Law |7).Hohest ahd Ethical Cohduct
|6).Corporate Citizehship
|).EthicalBehaviour |0).SocialCohcerhs
|).Corporate Social
Respohsibility.|2).Ehvirohmeht-
friehdlihess Health,|3)Safety ahd
WorkihgEhvirohmeht.|4)Competitioh.|
)Trusteeship.|)Accouhtability.|7)Effe
ctivehess ahd Efficiehcy|6)Timely
Respohsivehess|6)Corporatiohs Should
Uphold the Fair Name of the Couhtry
Obligatioh to ihvestors.-
)Towards Shareholders. 2)Measures Promotihg
Trahsparehcyahd lhformed Shareholder
Participatioh. 3)Trahsparehcy4)Fihahcial
Reportihg ahd Records
Obligatioh to customers.-
).Fairemploymeht Practices.2)Equal-
opportuhities
Employer.3)EhcouragihgWhistleBlowihg.4)Huma
heTreatmeht.)Participatioh.)Empowermeht.7)
Equiy ahd lhclusivehess.6)Participative ahd
Collaborative Ehvirohmeht.
Mahagerial obligatioh.-
)Protectihg Compahy's Assets.2)Behaviour
TowardsGoverhmehtAgehcies.3)Cohtrol.4)Cohs
ehsus Criehted.)Gifts ahd Dohatiohs. )Role
ahd Respohsibilities of Corporate Board ahd
Directors.7)Directioh ahd Mahagemeht must be
Distihguished.8)Mahagihg ahd Whole-Time
Directors.
Corporate Goverhahce ih Ihdia
I) 3roblems.- Ihadequate 5ahctioh ahd
Ehforcemeht.
2) No clear demarcatioh of cohtrol
mechahisms betweeh 5EBI, DCA ahd
5tock Exchahges.
3) Lack of 3rofessiohalism of Directors
4) Ihstitutiohal Ihvestors show poor
commitmeht
) Ihdiah boards are hot professiohal
) Uhihdepehdeht Ihdepehdeht directors
7) Whistle Blower 3olicy hot ih place.
8) Too mahy uhlisted compahies
) Accouhtihg gimmicks
I0) 3oor 5hareholder participatioh
II) Obligihg auditors
I2) 5oft 5tate, lethargic iudiciary, ihefficieht
market regulator, poor ehforcemeht
machihery, ahd a value system which is
ihdiffereht to moral turpitudes.