Forever speak the truth and follow the dharma - Taittariya Upanishad

Corporate governance is all about promoting corporate fairness, transparency and accountability.

IF CORPORATE GOVERNANCE IS NOT FOLLOWED

Corporate Governance is the application of best management practices, Compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders. - The Institute of Company Secretaries of India

Purpose of corporate governance is to have a demonstrable IMPACT on a corporations FINANCIAL PERFORMANCE.

Corporate Bodies: Tasks & Responsibilities

General / Annual Meeting
not involved in decisions of day-to-day management elects of Supervisory Board ratification of actions of Board of Management and Supervisory Board resolves on appropriation of distributable profits & appointment of external auditor

Board of Management
- Responsible for independently managing and representing the enterprise in dealings with 3rd parties

Supervisory Board / Board of Directors

- appoints & dismisses members of the Board of Management - supervises management

One-Tier vs. Two-Tier System

One-Tier All directors (both executive directors as well as non-executive directors) form one board

Two-Tier (all executive directors) and there is a separate supervisory board (all non-executive directors)

Driving Forces of CG in India

1) Unethical Business Practices Security Scams ---Harshad Mehtha Security Scam Equity allotments at discount rates to the controlling groups Disappearance of Companies (1993-94) - around 4,000 companies with 25,000 crores without starting business Misdeed of Companies Plantation, Sheep rearing, etc. 2) Impact of Globalization Integration with Foreign Market Foreign Investors expectations New Business Opportunities --- IT & ITES, BPO etc., New Capital formation FII, FDI 3) Impact of Privatisation New structure of ownership Multinational Companies

Theories of Corporate Governance

Anglo-American model

German model of CG
Japanese model of CG Polish model of CG

ANGLO-AMERICAN CORPORATE GOVERNANCE SYSTEM (THEORY) (A System of Checks and Balances)

ANGLO-AMERICAN CORPORATE GOVERNANCE SYSTEM (PRACTICE)

GERMAN CORPORATE GOVERNANCE SYTEM

American vs. German Corporate Governance

Germany
Terms Aufsichtsrat Vorstand Composition Supervisory Board Determined by law. Supervisory board comprises between 12 and 20 members, 10 of which are elected by the sharehol-ders, the other 10 being employee repre-sentatives, works council representa-tives employees are granted big influence

USA
Supervisory Board / Board of Directors Board of Management Elected by the shareholders, employee representatives are not required

practically no employee representation

Frequency of Meetings (Supervisory Board) Composition Board of Management

Twice a year Members of the Board of Management must not be members of Supervisory Board

Six times a year Majority of Supervisory Boards are chaired by the CEO of the respective company and in many Supervisory Boards at least 1 further member is member of the Board of Management Under control of individual states, multiplicity of legislation One-Tier: at least 1 member of Supervisory Board / Board of Directors is member of Board of Management

Regulation System

Clear and specific legislation through Federal Government Two-Tier: Aufsichtsrat & Vorstand are strictly separated

Focus

Long-term well being of company, stakeholders

Shareholders

JAPANESE CORPORATE GOVERNANCE SYSTEM

A Keiretsu is a group of closely-related Japanese companies: They own each others shares and bonds, and give each other preferential treatment as business partners. Each keiretsu is formed around a large bank. This diagram presents the well-known Fuyo keiretsu with Fuji bank in the center.

Source: Keiretsu and Industry Map Tomokazu Ohsono

The Polish Corporate Governance System

ICSI National Award for Excellence in Corporate Governance Best Governed Companies

The biggest corporate scam in India has come from one of the most respected businessmen. Satyam founder Byrraju Ramalinga Raju resigned as its chairman after admitting to cooking up the account books. His efforts to fill the "fictitious assets with real ones" through Maytas acquisition failed, after which he decided to confess the crime. With a fraud involving about Rs 8,000 crore (Rs 80 billion), Satyam is heading for more trouble in the days ahead. India's fourth largest IT company lost a staggering Rs 10,000 crore (Rs 100 billion) in market capitalisation as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 on the Bombay Stock Exchange. The NYSE-listed firm could also face regulator action in the US.

"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in a letter to SEBI and the Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to "fill the fictitious assets with real ones." Raju said the company's balance sheet as of September 30 carries "inflated (non-existent) cash and bank balances of Rs 5,040 crore (Rs 50.40 billion) as against Rs 5,361 crore (Rs 53.61 billion) reflected in the books."

Dont overcome evil with evil, but overcome evil with good. (Romans 12:21)

References
http://www.businessdictionary.com/definition/corporate-governance.html http://www.ramin.com.au/itgovernance/as8015.html http://www.prioritysystem.com/reasons3.html http://en.wikipedia.org/wiki/Supervisory_board http://en.wikipedia.org/wiki/Works_council http://www.economics.phil.uni-erlangen.de/bwl/lehrbuch/gst_kap5/vglshstv/vglshstv.html http://www.daimler.com

THANK YOU
Manpreet Kaur (14) Ramnish Pal (20)

Pharmaceutical Management