CORPORATE

GOVERNANCE.
CORPORATE GOVERNANCE.

 Corporate governance – field in management that explores ways to

secure efficient management of corporations – by use of mechanisms
such as organizational design & legislation.

 It is concerned with – striking the balance between economic & social

goals & between individual & communal goals.

 Corporate Governance framework – to encourage efficient use of

resources.

 Corporate Governance aim – align the interests of individuals,

corporations & society.
 Corporate governance is about commitment to values and about ethical
business conduct.

 Timely and accurate disclosure of information regarding the financial

performance, ownership and governance of the company is an
important part of corporate governance.
 CORPORATE GOVERNANCE – NEW
DEVELOPMENTS.

Over the past decade, various countries have issued

recommendations for corporate governance. Compliance with this is
generally not mandated by law, although codes that are linked to stock
exchanges sometimes have a mandatory content.
 Sabanes – Oxley Act, signed by the U.S President George W. Bush
into law in July 2002, brought about sweeping changes in financial
reporting.
 Perceived to be the most significant change to federal securities law
since the 1930’s.
 Besides directors and auditors, the Act has also laid down new
accountability standards for security analysis and legal counsels.
 This act was enacted in response to Enron, Health – South & several
other recent episodes involving corporate fraud, mismanagement &
abuse of power.
 The act is legally binding only to publicly traded companies but a small
part of it is legally binding for unlisted & non profit companies.
 The Higgs Report on non- executive directors and the Smith
Report on audit committees, both published in Jan 2003, form part
of the systematic review of corporate governance being
undertaken in the UK and Europe.

 This is because of recent corporate failures.

 Enhancing the effectiveness of the non- executive directors and

switching the key audit relationship from executive directors to an
independent audit community can help eradicate some of these
corporate failures.
 In India , the Confederation of Indian Industry (CII) took lead in
framing a desirable code of corporate governance in April 1998.
 Followed by recommendations of the Kumar Mangalam Birla Committee
on Corporate Governance appointed by the SEBI.
 Also, an important decision taken in this regard in India is that all listed
companies should have 50% independent directors on their board.
 In addition, the Department of Company Affairs, Govt. of India had
constituted a nine-member committee under the chairmanship of Mr.
Naresh Chandra, former Indian ambassador to the U.S., to examine
various corporate governance issues, and the major recommendations
have been implemented.