Corporate Governance

Corporate Management
 Prepared By
Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com

Kindly restrict the use of slides for personal purpose.

Please seek permission to reproduce the same in public forms and presentations.
 Corporate Governance
• The Cadbury Committee
report (1991) defines
corporate governance as a
system by which corporate
are directed and
controlled.
• According to Salins Sheikh
and Williams Ress,
corporate governance is
concerned with ethics,
values and morals of a
company and its directors.
 Corporate governance in India
• In India, the concept of
corporate governance is
gaining importance mainly
because of two reasons.
– Economic Liberalization

– Deregulation of industry
and business
Corporate governance in India
• Economic Liberalization –
After liberalization, there
has been
institutionalization of
financial markets and the
market began to
discriminate between
wealth creators and wealth
destroyers.
 Corporate governance in India
• Deregulation of industry
and business – The role of
private sector has
increased and the
companies are realizing
that shareholders love to
stay with those corporate
that create value for their
shareholders which is
possible only by adopting
fair, honest and transparent
corporate practices.
Mandatory requirements of corporate
governance code
• Composition of Board of
Directors – The board of
directors of the company
shall have an optimum
combination of executive
and non executive
directors with not less
than 50% of the total
number of directors
comprising of non
executive directors
Mandatory requirements of corporate
governance code
• Director’s pecuniary
relationship – All
pecuniary relationship or
transactions of the non
executive director’s vis-à-
vis the company should
be disclosed in the
Annual Report.
Mandatory requirements of corporate
governance code
• Audit Committee – Every
company is required to set up
a Audit Committee consisting
of minimum three members,
all being non executive
directors, majority of them
being independent and at
least one member having
financial and accounting
knowledge. They should meet
at least 3 times in an year,
once in every six months.
Mandatory requirements of corporate
governance code
• Director’s remuneration –
The remuneration of non
executive directors shall be
determined by the board of
directors and the following
disclosure shall be in the
annual report : (a) all
elements of remuneration
package of all the directors
(b) details of fixed and
performance related
components of remuneration
and (c) service contracts,
notice period etc.
Mandatory requirements of corporate
governance code
• Board meetings –
Minimum four board
meetings should be
conducted in a year.
There should not be a
time gap of more than
four months between
any two board meetings.
Mandatory requirements of corporate
governance code
• Management – The
management of the
company must disclose
to its Board details
relating to all material,
financial and commercial
transactions.
Mandatory requirements of corporate
governance code
• Shareholders – In case of
appointment of a
director, shareholders
should be provided with
a brief resume of the
person. The company
should publish in their
website details regarding
information on stock
exchanges.
Mandatory requirements of corporate
governance code
• Report on corporate
governance – Every
listed company shall
have a separate section
on corporate governance
in the annual report of
the company with a
detailed compliance
report on corporate
governance.
Mandatory requirements of corporate
governance code
• Certificate of
compliance – The
company is required to
obtain a certificate from
the auditors of the
company regarding
compliance of conditions
of corporate governance
as stipulated in clause 49
of the listing agreement.
 Factors influencing corporate
governance
• Promoters – In the
Indian scenario, the
promoters dominate
governance in every
possible way.
• Management culture –
Corporate governance
stems from the culture
and mindset of the
management.
 Factors influencing corporate
governance
• Board’s value and
dedication – If board
wants to live up to an ideal
Corporate governance, the
it must be prepared to face
ordeals, difficulties and
tribulations.
• Role of professionals –
Professionals like company
secretaries, accountants
and auditors should work
together more closely.
 Factors influencing corporate
governance
• Corporate objectives – The
overriding objective of any
corporate should be to
optimize overtime, the
returns of its shareholders.
• Communication and
reporting – Corporate should
disclose adequate, accurate
and timely information and
assist investor to make
informed decision regarding
ownership, acquisition and
sales of shares.
Committees on corporate governance
• Hampel Committee – The
committee was chaired by Sir
Ronnie Hampel, the chairman
of ICI and the committee
published its reports in
August 1997. The basic aim of
the committee was to
promote high standards of
corporate governance in the
interests of investors
protection and to preserve
and enhance the standing of
companies listed on the
London Stock Exchange.
Committees on corporate governance
• Cadbury Committee –
The committee was set
up in May 1991 by the
Financial Reporting
Council, the London
Stock Exchange and the
accountancy profession
to address the financial
aspects of corporate
governance.
Committees on corporate governance

• Greenbury committee –

This committee was set

up to determine and to

account for Director’s

remuneration.
Committees on corporate governance
• Blue Ribbon committee – The
committee was specifically
formulated for NewYork Stock
Exchange (NYSE), National
Association of Securities
dealers (NASP) and Securities
and Exchange Commission
(SEC). The main objectives
were to strengthen the
independence of audit
committee and making it
more effective.
Committees on corporate governance
• Kumar Manglam Birla
Committee – The
committee was chaired
by Mr. Manglam which
submitted its final report
in early 2000. The main
purpose of the
committee is to promote
and raise the standards
of corporate governance.
Committees on corporate governance
• Naresh Chandra
Committee – This
committee was appointed
on 21st August 2002 by the
Department of Company
Affairs(DCA). The
committee submitted two
reports and is based on
almost the same grounds
as Kumar Manglam Birla
committee reports.
Committees on corporate governance
• Narayana Murthy
Committee – SEBI
appointed this committee
comprising of 23 persons.
The committee
recommended that the
corporate organization
should function in a more
organized manner and
should strive for enhancing
long term value to the
shareholders.