Excellence through Corporate Governance

Genesis of Governance Debate

Concept originated with separation of ownership & management

Corporatization of business and increasing scales of production

Origin can be traced back to Agency Theory propounded by Berle & Means

Defining Corporate Governance

. Systems, procedures and institutions that ensure that management acts in the best interests of the owners or shareholders
On going debate about whether it should be shareholders interest or all stakeholders interest that the management should serve

Shareholder v/s Stakeholder Debate

Debate ongoing with strong proponents on either side Moot point is the timeframe In the long run, interests of all are likely to converge & need to be balanced Sustainability of the enterprise is of paramount importance

Governance systems

Governance systems, structures and challenges differ in historical and local condition specific context Organisational forms

Entreprunerial form Banking dominated form Managerial form Institutional form Democratic corporate form

CG. International Developments

Cadbury Committee, UK
California Public Employees Retirement System, USA

1992

Surbanes Oxley Act, USA

2002

CG. International Developments

King Committee, South Africa

Malaysian Code

1994
1999

Organisation for Economic Co-operation & Development (OECD) Principles

CG Indian Initiative

1997 CII Committee Report under the chairmanship of Mr Rahul Bajaj 2000 K Birla Committee Report to SEBI 2003 N R Narayan Murthy Committee Report to SEBI

Definition of CG

Corporate Governance is concerned with holding the balance between the economic and social goals and between individual and communal goals. Framework of Corporate Governance encourages the efficient use of resources and the accountability of the stewardship of these resources Sir Adrian Cadbury

The primary purpose of Corporate Governance is to create wealth legally and ethically.It also has to bring high level of satisfaction to all the stakeholders.The raison de etre of every corporate is to ensure predictability,sustainability and profitability. N R Narayan Murthy

Why Corporate Governance

As a Feedback to the Owners ( Shareholders) BOD is the Trustee of the Shareholders They are collectively responsible to the shareholders.

Responsibility to Stakeholders

Customers Employees Shareholders Lenders and Institutions Suppliers The Governments The Society

Governance in spirit 7 x 7 = 49 Principles

Corporate Governance Principles

Transparency Disclosures Accountability Fairness in dealings Compliance of laws Ethical practices Value creation

7 Commandments of Good Governance

Why good governance is an imperative in India ?

Immediate Factors Corporate debacles - Satyam Stock market scams Harshad Mehta, Ketan Parikh Vanishing companies Plantation Companies Corporate frauds CRB IPO Frauds Yes Bank Mutual Funds Scams Master Share and Rajlakshmi - UTI

Why good governance is an imperative in India ?

Structural Factors Globalization of markets

Indian companies tapping international markets for resources Institutionalization of securities markets

Revisiting Corporate Excellence

Profitability Satisfied Stakeholders Growth in

Revenues Profits

Increasing Market Share Market Capitalisation

In Search of Excellence

Bias for Action Closeness to consumer Autonomy & intra-pruneurship Hands on, values driven Productivity through people Simaultaneous loose tight properties Stick to knitting

Built to Last

Remarkable resilience
Profit maximization not the only / primary objective

Why should corporates be socially responsible ?

Large size of modern corporation

Rolling back of the state

Recognition of business benefits Increasing pressures from stakeholders

Unresolved issues

Role of independent directors

Remuneration to independent directors Evaluation of board / directors performance

Training for independent directors

Concluding Observations

Good governance is a means, the end being corporate excellence In future links between governance & excellence to be stronger

Shifting of power to knowledge workers More informed & demanding consumers Increasing importance of institutional investors

Industry
Industry Companies

Companies Price on 23.2.07

Price on 23.2.07 Compa ny 29.27 34.72 37.55 Industr y 15.76 13.96 27.28

Premium valuation

Banks (44) Hotels (8)

HDFC bank Indian Hotel

957 143 2237

86% 149% 38%

Software (38) Infosys

Telecom (4)

Reliance Communication s Tata Steel

432

69.96

41.16

69%

Steel (24)

459

6.40

16.99

(62%)

Industry

Companies

Price on 23.2.07
Company Industry 44.57

Premium valuation

Retail (5)

Pantaloon

424

135.96

205%

FMCG (16)

ITC

166

24.97

32.52

(23%)

Capital goods (13) Cement (18)

Thermax

384

29.79

21.83

36%

Gujarat Ambuja

122

26.41

15.38

72%