CORPORATE GOVERNANCE

CORPORATE EXCELLENCE
Meaning Code of Corporate Governance

Definitions of Corporate Governance

From the academic point of view, corporate governance deals with problems that result from the separation of ownership and control From the angle of developed versus developing countries, according to John D. Sullivan: In developing economies, one must look to supporting institutions for example, shoring up weak judicial and legal systems in order to better enforce contracts and protect property rights.

Definitions of Corporate Governance

1. Narrow versus broad perceptions of corporate governance: Corporate governance is defined narrowly as the relationship of a company to its shareholders or more broadly, as a relationship to society 2. Corporate governance is corporate management and includes a fair, efficient and transparent administration to meet certain well-defined objectives. It is a system of structuring, operating and controlling a company with a view to achieving long-term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs. When it is practiced under a well-laid out system, it leads to the building of a legal, commercial and institutional framework and demarcates the boundaries within which these functions are performed. Corporate Governance is a way of life and not a set of rules. A way of life that necessitates taking into account the shareholders interests in every business decision.

Narrow View of Corporate Governance Shareholders

Regularly report and update Monitor and guide

Managers

Directors
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Why Corporate Governance Matters

Provides Access to, Lowers Cost of Capital

Value Added
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Improves Operational Efficiency

Improves the Companys Reputation

Basic ingredients of CG
Accountability of board of directors to ultimate owners Transparency in timely disclosures of right information with integrity Clarity in responsibilities of directors, chairman and managing director through empowerment to enhance accountability Quality and competence of directors and their tract record. Popular participation in decision-making, implementation and responsiveness Checks and balances in governance. Conforming to laws, rules and spirit of codes.

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

Factors influencing Quality of Governance

Integrity of management Ability of the board Adequacy of the process Commitment level of individual board members Financial reporting Participation of stakeholders in the management Quality of corporate reporting

A Historical Perspective of Corporate Governance: In the US

1977: The legislation of the Foreign and Corrupt Practices Act in America provided for the establishment, maintenance and review of systems of internal control. The Securities and Exchange Commission (SEC) proposed mandatory reporting on internal financial controls. 1987: The Treadway Report highlighted the need for a proper control environment, independent audit committees and an objective internal audit system. 1992: COSOs Report stipulated a control framework for the orderly functioning of corporations. July 30, 2002: Emergence of the Sarbanes-Oxley Act (SOA)

A Historical Perspective of Corporate Governance: In the UK

1991: Committee under the chairmanship of Sir Adrian Cadbury was appointed by the London Stock Exchange December, 1992: The committee submitted its report along with the Code of Best Practices

A Historical Perspective of Corporate Governance: In India

1997: A voluntary code framed by the Confederation of Indian Industry (CII). 1997 1999: Almost 30 large listed companies accounting for over 25 per cent of Indias market capitalization voluntarily adopted the CII code. 1999: Recommendations of the Kumar Mangalam Birla Committee by SEBl culminating in the introduction of Clause 49 of the standard Listing Agreement to be complied with all the listed companies in stipulated phases. April 2003: Every listed company followed the SEBI code. The Companies Amendment Act, 2000 Naresh Chandra Committee Report, 2002 Narayana Murthy Committee Report, 2003 Dr. J.J. Irani Committee Report on Company law, 2005

Golden Peacock award for excellence in corporate Governance and Corporate Social Responsibility won by TISCO