CORPORATE

GOVERNANCE

Brief history
Series of business scandals in UK in late 1980s.
Pensions fund fraud, bankruptcy of Bank of Credit

and Commerce Intnl

Appointment of Cadbury Committee ;Adrian
Cadbury,1991.
India-Harshad Mehta in banking, Satyam in IT
industry etc.
Basic principles of good corporate governance;
-Clear responsibilities,-Precise distinction between
direction and management- Checks and balances
in governance- effective control and transparency.

Concept of corp.
governance
Corporate governance is not just about

corporate management, It is broader in sense

to include a fair,efficient and transparent
administration to meet certain objectives and is
a system of structuring, operating and
controlling a company with a view to achieve
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.

Definition of Corp Governance

The ICAI (Institute of Chartered Accountants of India)

suggested, A corporate governance system is an

embedded configuration of values, ethics and
appropriate and expected behaviour which provide
the coordinates for the organisations performance
of its role as a societal entity in all its aspects. A
code of corporate governance makes explicit both
the auditable and desirable aspects of such a
configuration.
The Cadbury committee of UK defined corporate
governance as the system by which companies are
directed and controlled.

Main features of corporate

governance
1.Corporate governance is concerned with how

companies are controlled and managed .

2.It involves appropriate supervision and control
over the top management.
3.It requires fair, transparent and efficient
administration and effective internal monitoring.
4.It is meant to serve the interests of all the
stakeholders in a company.
5.It requires a legal and institutional framework
within which companies are to be managed.

Corporate governance goes beyond law, it

requires high level of business ethics and a

sense of corporate social responsibility.
Corporate govenance embraces as to how the
set systems and processes and how are the
things are done wihin certain structural and
organisational systems.
It is an interplay between a company, its
stakeholders,the capital market and corporate
laws.

Need and significance of c.

governance
Changing ownership structure-complex

ownership structure involving promoters,public

financial instns., institutional shareholders
(foreign in terms of their FDI and Indian),banks,
insurance companies and small private investors.
It is a challenge for management of companies.
Social Responsibility-An effective corporate
governance provides for regulating the duties of
directors so that they act in the best interest of
customers, lenders, suppliers and local
community .

Need & significance of corp.

governance contd.
Scams-Corporate scams like Harshad Mehta ,Satyam etc

have shaken the public confidence, hence need for

corporate governance.
Corporate oligarchy-i.e. Only a small group of people
govern an organisation.It has given rise to need for
mechanisms and systems for corporate governance.Also,
shareholders activism and shareholders democracy have
also developed.
Globalisation- Rise of international markets and need to
get listed on intnl stock exchanges have prompted
corporate to focus on corp. governance.
Intnl orgns like EC,GATT and WTO have all contributed to
rising awareness.

Fundamental Principles of Corp

Governance
Transparency - disclosure of adequate,
accurate and timely information related to
business processes to stakeholders.

Accountability
Meritorious management/board of

directors-

Known for sound business prudence

,integrity and responsibility to shareholders.

Sound parameters of reporting, accounting

and control systems in the company.

Promoting corp. governance in India

Ministry of Corporate Affairs has set up

National Foundation of Corporate Governance

(NFCG) as a non-profit body to deliberate and
advise on good corp. governance.
NFCG has made action plan for corp.
governance norms on 3 themesi. For institutional investors.
ii. For Independent directors on board.
iii.For Audit
CII & SEBI have developed codes for corp.gov.