CORPORATE GOVERNANCE

Presented by: Abdul Rahim Khan Mohammed Amaan Mirza Mohd. Kamil Ajaz Banday Mohd. Nasim Raza

Evolution

Evolution of Corporate Governance

History records of Patliputra,the capital of Mauryan empire, as a city astonishingly well organized and administered according to the best principles of governance
According to the ideal conduct of King Kautilya, further elaborates on the fourfold duties of a King as: Raksha or Protection - Shareholders wealth Vruddhi or Enhancement - Wealth through proper utilization of wealth Palayana or Maintenance - of that wealth Yogakshema or Safeguard - interests of shareholders The substitution of the State with the Company, The King with the CEO or The Board of the Company & the subjects with the Shareholders brings out the spirit of Corporate Governance

INTRODUCTION

What is Corporate Governance?

It means governing a Company in a value based manner. Objective Enhancement of shareholders value, keeping in view the interests of other stakeholders. Key constituents Shareholders Board of Directors Management Corporate Governance involves Promoting o Transparency - everything that happens in the company if it is not shy, should be shared publically, it is transparent. o Accountability the management should be accountable for its decisions. o Equitability (Equitable treatment),rights of all shareholders are equal regardless of minority or majority shareholding.

It involves letting the investors know that how their money invested is utilized.

Some Definitions
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

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

Corporate Governance

What are the principles underlying corporate governance?

based on principles such as conducting the business with all integrity and fairness being transparent with regard to all transactions making all the necessary disclosures and decisions complying with all the laws of the land, accountability and responsibility towards the stakeholders and commitment to conducting business in an ethical manner.
Another point which is highlighted in the SEBI report on corporate governance is the need for those in control to be able to distinguish between what are personal and corporate funds while managing a company.

Objectives
To promote a healthy environment for long-term investment. To create a trust in the corporate and in its abilities. To promote business development. To improve the efficiency of the capital markets. To enhance the effectiveness in the service of the real economy.

Benefits of Corporate Governance

There are three Benefits of Corporate Governance:To Companies. To Shareholders. To National Economy.

To Companies
Corporate Governance Principles can benefit the owners and managers of companies and increase transparency and disclosure by, Improving access to capital and financial markets. Help to survive in an increasingly competitive environment through mergers, acquisitions, partnerships and risk reduction through asset diversification. It leads to better system of internal control, thus leading to greater accountability and better profit margins. It has a ability to attract equity investors-nationally and from abroad. It also reduce the cost of loans/ credit for corporations. Investors and potential partners will have more confidence in investing in or expanding the companys operations.

To Shareholders
Provide the proper incentives for the board and management to pursue objectives that are in the interest of the company and shareholders as well as facilitate effective monitoring. Greater Security on their investments. It ensures that shareholders are sufficiently informed on decisions concerning amendments of statutes or articles in incorporation , sale of assets etc.,

To National Economy
Empirical evidence and research conducted in recent years supports the proposition that it pays to have good corporate Governance. It was found out that more than 84% of the global institutional investors are willing to pay a premium for the shares of well governed company over one considered poorly governed but with a comparable financial record. The adoption of Corporate Governance Principles as good Corporate Governance practice has already shown in other markets can also play a role in increasing the corporate value of companies.

Corporate Governance in recent times

Why was it in the news recently?

Corporate governance has most recently been debated after the corporate fraud by Satyam founder and chairman Ramalinga Raju. In fact, trouble started brewing at Satyam around December 16 when Satyam announced its decision to buy stakes in Maytas Properties and Infrastructure for $1.3 billion. The deal was soon called off owing to major discontentment on the part of shareholders and plummeting share-price. However, in what has been seen as one of the largest corporate frauds in India, Raju confessed that the profits in the Satyam books had been inflated and that the cash reserve with the company was minimal. Ironically, Satyam had received the Golden Peacock Global Award for Excellence in Corporate Governance in September 2008 but was stripped of it soon after Raju's confession