Coporate Goverance

Definition “Corporate governance is the system by which companies are directed and controlled….”

Cadbury Report (UK) 1992 “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.”

Shleifer and Vishny

Some further Definitions…!!! Leadership for efficiency. Leadership probity. Leadership with responsibility.  Leadership which is transparent and accountable. In A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'. O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.'[2] It 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. Report of SEBI committee (India) on Corporate Governance defines corporate governance as 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 & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.

India Reports On Corporate Governance 1.Kumara Mangalam Birla Committee on Corporate Governance (2000) 2. Naresh Chandra Committee on Corporate Governance (2002) 3.Narayana Murthy Committee on CorporateGovernance(2003)

Impact of Corporate Governance The positive effect of good corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development.

Necessity 1.Too much of power with few individual 2. Large scale diversion of funds to associated companies & risky ventures 3. Unfocussed business decisions leading to losses 4. Preferential allotment of sweat equity at low prices

5. Spinning off profitable business operations to subsidiary companies

Clause 49 – Corporate Governance

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SEBI has advised all stock exchanges to amend their listing agreements by inserting new clause 49 which deals with good corporate governance practices to be adopted by all listed private & public sector banks Corporate governance implies that the company would manage its affairs with diligence, transparency, responsibility and accountability, and would maximize shareholder wealth. Companies are needed to at least have policies and practices in conformity with the requirements stipulated under Clause 49 of the Listing Agreement

The company agrees to comply with the followings provision • • • •

BOARD OF DIRECTORS AUDIT COMMITTEE SUBSIDIARY COMPANIES DISCLOSURE

• Shareholders’/Investors’ Grievance Committee WHAT IS CORPORATE GOVERNANCE…???

Corporate governance involves:  A set of relationships between a company’s management,  Its shareholders and other stakeholders It’s board

Importance of Corporate Governance Business prosperity and accountability. ➢ Stakeholders with a relevant interest in the company’s business are fully taken into account. ➢ Prevention of malpractice and fraud, although it cannot prevent them absolutely ➢