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Set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered

or controlled. Kautilyas(Chanakya) Arthashastra is the oldest book (around 300 B.C) onManagement available to the world This masterpiece covered a wide range of topics and also recommended that the king shall not consult with any advisor who had a vested interest in the outcome of a particular project. establishment of an ethical code of conducta topic which has received a great deal of attention now during the past few years after corporate scandals the codification of accounting rules into one uniform system to prevent problems in translating financial data between disparate methods of accounting a subject which the international accounting community is dealing with in terms of the convergence of accounting standards. In the western world The East India Company introduced a Court of Directors, separating ownership and control (U.K., the Netherlands) in 1600s In 19th century, state corporation laws enhanced the rights of corporate boards to govern without unanimous consent of shareholders. Has been a subject of debate since the late 70s Early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and WorldCom, led to increased shareholder and governmental interest in corporate governance.

Corporate is adjective meaning of or relating to a corporation derived from the noun corporation. A corporation is an organization created (incorporated) by a group of shareholders who have ownership of the corporation. The elected Board of directors appoints and oversee management of the corporation.

Oxford English Dictionary defines Governance as the act, manner, fact or function of governing, sway, control. The word has Latin origins that suggest the notion of 'steering'. It deals with the processes and systems by which an organization or society operates.

It is a broad concept and has been defined and understood differently by different groups and at different points of time. The Cadbury Committee report defines it as the system by which companies are directed and controlled. It is generally understood as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations. Corporate Governance is the system by which companies are directed and controlled Cadbury Report (UK), 1992

to do with Power and Accountability: who exercises power, on behalf of whom, how the exercise of power is controlled. Sir Adrian Cadbury, in Reflections on Corporate Governance, Ernest Sykes Memorial Lecture, 1993 A Canadian Definition the process and structure to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business. Where were the Directors? Guidelines for Improved Corporate Governance in Canada, TSE, 1994 An OECD Definition Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Preamble to the OECD Principles of Corporate Governance, 2004 An Indian Definition fundamental objective of corporate governance is the enhancement of the long-term shareholder value while at the same time protecting the interests of other stakeholders. SEBI (Kumar Mangalam Birla) Report on Corporate Governance, January, 2000 A Gandhian Definition Trusteeship obligations inherent in company operations, where assets and resources are pooled and entrusted to the managers for optimal utilization in the stakeholders interests.

Some Further Definitions Corporate governance is essentially about leadership: leadership for efficiency; leadership for probity; leadership with responsibility; and Leadership which is transparent and which is accountable. And according to me Corporate Governance is: System of laws, regulations and a practice, which promotes enterprise, accelerates performance and ensures accountability. OR It may also be defined as a system of structuring, operating and controlling a company.

The concept of corporate governance cannot be completed without acknowledging the contribution of the most celebrated scholar of ancient India, Kautilya. One of the worlds most compete manuscript on the science of governance was penned by Kautilya in the third century BC. Kautilyas discussions on administrations and management are strikingly modern and scientific covering almost all facets of governance. According to him, an ideal king is one for whom Praja sukhe, sukhamragyam, Prajanan ca hite hitam, Naatman priyam hitam ragyan Prajanan tu piyam hitam, i.e., in the happiness and well-being of the subjects lies the well-being of the king, in the welfare of the subjects is the welfare of the king, what is desirable and beneficial to the subjects and not his personal desires and ambitions is desirable and beneficial for the king. He further elaborates that a king has fourfold duty as Raksha or protection, vridhi or enhancement, palana or maintenance, yogakshema or safeguard. It is the duty of the king to protect the wealth of the state and its subjects. If we for a moment assume todays business CEO or corporate board as king and the shareholders as the subject, it brings out the quintessence of corporate governance as public good should be ahead of private good and companys resources should not be used for personal gains .The four duties in corporate parlance would imply protection of shareholders wealth enhancement of wealth by proper utilization of assets, maintaining the wealth (without appropriating it otherwise)and safeguarding the interests of all stakeholders.

Supervisory Board/ Committee/ Team Audit Committee Internal Audit Statutory Audit Disclosure of information Risk management framework Internal Control framework Whistle blower policy

Supervisory Board/ Committee/ Team Disclosure of information Internal Audit

Corporate Governance
Whistle blower policy Audit Committee

Risk management framework

Statutory Audit

Board of Directors

Shareholders

Management

The main constituents of Corporate Governance are the shareholders, the board of directors and the management. The Board of Directors is responsible for the governance of the company. The board members set the strategic objectives, frame financial as well as other policies and oversee the implementation thereof, control the financial aspects and present the directors report on the activities and the progress of the company to the shareholders to whom they are accountable. The boards actions are subject to applicable laws, rules and regulations. The shareholders role in enabling good governance is to identify and elect the directors as well as auditors of the company and satisfy themselves as well as the auditors of the company and satisfy themselves that an appropriate governance structure is in place. The responsibilities of the senior management include ensuring that control systems are in place to achieve the objectives laid down by the Board and help the board to discharge its responsibilities to the shareholders effectively.

Corporate Governance

Management

CORPORATE GOVERNANCE

CORPORATE MANAGEMENT
Internal Focus Management assumes a closed system Task-oriented

External Focus Governance assumes an open system

Strategy- oriented

Concerned with where the company is going

Concerned with getting the company there

Legal and Ethical Compliance Mechanisms


Many abuses that have enraged the public are entirely legal Laws regulating companies are ambiguous, juries have a hard time grasping abstract and sophisticated financial concepts. Ethical dilemmas are always very visible in those industries where profit and unethical behavior go hand in hand, are known as inherent contradiction Best examples are tobacco industry, alcoholic beverage industry, etc.

Factors
Ethos

Legal
Regards ethics as a set of limits and something that has to be done

Ethical
Defines ethics as a set of principles to guide choices

Objectives

Geared toward preventing unlawful conduct

Geared toward achieving responsible conduct Treats ethics as infused in business practice (leadership, core systems, decision-making processes,etc)

Method

Emphasizes rules and uses increased monitoring and penalties to enforce these rules

Behavioral Assumptions

Rooted in deterrence theory

Rooted in individual and communal values

Fulfilling long-term strategic goals of owners Taking care of the interests of employees A consideration of the environment and local community Maintaining excellent relations with customers and suppliers Proper compliance with all the applicable legal and regulatory requirements. Strong corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection .It is the blood that flow within the veins of transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure.

Enhancing the value for stakeholders. A well-understood corporate vision/mission statement. A broad-based board, comprising of directors with professional and expert acumen with independent dispositions. Establishment of relevant committees of the board, with their roles clearly defined, to oversee functions of the company in critical areas. Setting standards for good corporate practices to1. Ensure a transparent and fair relationship between the stakeholders and the company, 2. Institute a comprehensive management evaluation system; 3. Proactively eliminate investor complaints and evolve for redressal of the grievances (of the customers, investors and borrowers),and, 4. Institute systems and processes to ensure compliance with the statuses and laws concerning the company. A clearly enunciated code of conduct for dealing with the stakeholders. Effective systems of internal control, monitoring and reporting mechanisms. Communication to the shareholder to ensure a high degree of transparency. The board to establish appropriate policies and monitor the performance at all levels organization including self-evaluation.

Board of directors Managers Workers Shareholders or owners Regulators Customers Suppliers Community (people affected by the actions of the organization)

Openness Integrity Accountability

Board of Directors Audit Committee Subsidiary Companies Disclosures CEO/CFO certification Report on Corporate Governance Compliance

Composition of Board Non executive directors compensation and disclosures Other provisions as to Board and Committees Code of Conduct

Qualified and Independent Audit Committee Meeting of Audit Committee Powers of Audit Committee Role of Audit Committee Review of information by Audit Committee I Basis of related party transactions Disclosure of Accounting Treatment Board Disclosures Risk management Proceeds from public issues, rights issues, preferential issues etc. Remuneration of Directors Management Shareholders

Financial Statements (i) Do not contain any materially untrue statement. (ii) Present true and fair view of the state of affairs and are in compliance with AS and applicable laws.. a) No transactions entered are fraudulent or illegal. b) Accepted the responsibility for establishing and maintaining Internal Controls for the purpose of financial reporting(amended on 13.1.2006) c) Disclosed to the auditors and Audit Committee deficiencies in the design or operation of internal control.

Behind any corporate success or corporate failure lies the reason to it in the form of corporate governance. Good governance in any corporate the world over is the interplay of legal requirements, the ethics, effectiveness, board relationships and group dynamics. Corporate Governance is common to one and all, be it , China, Africa, or the other advanced countries such as the US or the UK. In the corporate sector, governance has been extrapolated to cover issues such as corporate sustainability, social and financial inclusion, social responsibilities or even social inclusion, etc .In fact, every such issue hinges on good governance, be it any part of the world. While operations, capital and risk management, technological innovations and customer satisfaction shall be the drivers of growth, it is going to be corporate governance which shall lead Indian Corporate to match best business practices on the globe.

Parameter

US (top 50 out of NYSE 100 index)


Largest shareholder holds less than 10% in all cases Largest board size 18. smallest 10 66% of the top 50 companies have more than 12 directors

Ownership pattern

Board size

Board independence

All companies have a board majority of independent directors

Executive directors in board

Boards of 49 companies out of 50 have less than 25% executive directors

Chairman and CEO

Only 20% have separate Chairman and CEO 20 companies have lead independent directors All companies have fully independent audit remuneration and nomination committees

Lead independent director

Board committees

Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of clause (2AA) of section 217 of the Companies Act, 1956 Changes, if any, in accounting policies and practices and reasons for the same Major accounting entries involving estimates based on the exercise of judgment by management Significant adjustments made in the financial statements arising out of audit findings Compliance with listing and other legal requirements relating to financial statements Disclosure of any related party transaction Qualifications in the draft audit report

CONCEPT AND ROLE OF INTERNAL AUDIT Comparison of external and internal auditor: Factor External audit Opinion on truth & fairness Internal Audit

Role & work

Examine control & risk assessment

Qualification Statute Appointed by Duties set by


Report to

Competent person Management

Share holder

Statute
Shareholder

Management
Management

NATURE AND PURPOSE OF INTERNAL AUDIT REVIEW ASSIGNMENT

Types of assignments:
Operational audits Financial audits Informational technology audits

OPERATIONAL INTERNAL AUDITS


Definition: Audits of specific processes and operations performed by an organization Approach: Assessment of adequacy of policies, procedures and control Effectiveness of policies, procedures and control. OPERATIONAL INTERNAL AUDIT Organizational Processes Procurement Marketing Treasury Human Resource Consideration Risk Control procedures in place INTERNAL AUDIT REPORT Structure: Introduction Executive summary Main text Appendices REGULATION AND ETHICS OF INTERNAL AUDIT Regulation: No specific legal requirement Controlled by management No requirement for member of regulatory body ISAs are not mandatory Ethics: Report o non- financial senior management Is not involve in non-audit related task Unrestricted access to necessary information

Supported by all management OUT SOURCING INTERNAL AUDIT Benefits: Flexible availability Access to specialist Reduced overhead cost

While corporate governance is a necessary tool for managerial performance, it also leads to corporate growth and excellence. Corporate is a path on which one can drive to reach the heights of excellence and from there, proceed towards another milestone only through good corporate governance practices. Corporate governance is the path on which success can be experienced and excellence reached. It is the vehicle that drives an institution to the stage of corporate excellence --a state of the highest satisfaction in terms of value creation not only for the owners or contributors of capital and labor but also for all the other stakeholders of an enterprise. Ideals of corporate governance primarily need transparency, full disclosure, fairness to all stakeholders and effective monitoring of the state of corporate affairs. The basic philosophy of corporate governance is to achieve business excellence and enhance stake holders value while keeping in view the need to balance the interests of all stakeholders.