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CORPORATE

GOVERNANCE

Dr. MRIDULA
MISHRA
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.

Dr. MRIDULA
Relationships among various participants in
determining the direction and performance of a
corporation.
Effective management of relationships among
Shareholders
Managers
Board of directors
Employees
Customers
Creditors
Suppliers
Community Dr. MRIDULA
MISHRA
Better access to external finance
Lower costs of capital interest rates
on loans
Improved company performance
sustainability
Higher firm valuation and share
performance
Reduced risk of corporate crisis and
scandals

Dr. MRIDULA
1. Sustainable development of all stake
holders
2. Effective management and distribution
of wealth
3. Discharge of social responsibility
4. Application of best management
practices
5. Compliance of law in letter & spirit
6. Adherence to ethical standards

Dr. MRIDULA
1. Sustainable development of all stake
holders -
To ensure growth of all individuals associated
with the enterprise on sustainable basis
2. Effective management and distribution of
wealth
to ensue that enterprise creates maximum
wealth and judiciously uses the wealth so
created for providing maximum benefits to all
stake holders and enhancing its wealth
creation capabilities to maintain sustainability

Dr. MRIDULA
3. Discharge of social responsibility- to ensure
that enterprise is acceptable to the society in
which it is functioning
4. Application of best management practices- to
ensure excellence in functioning of enterprise
and optimum creation of wealth on sustainable
basis
5. Compliance of law in letter & spirit- to ensure
value enhancement for all stakeholders
guaranteed by the law for maintaining socio-
economic balance
6. Adherence to ethical standards- to ensure
integrity, transparency, independence and
accountability in dealings with all stakeholders
Dr. MRIDULA
Accountability
Fairness
Transparency
Independence

Dr. MRIDULA
Ensure that management is
accountable to the Board

Ensure that the Board is


accountable to shareholders

Dr. MRIDULA
Protect Shareholders rights

Treat all shareholders including


minorities, equitably

Provide effective redress for


violations

Dr. MRIDULA
Ensure timely, accurate disclosure
on all material matters, including
the financial situation, performance,
ownership and corporate governance

Dr. MRIDULA
Procedures and structures are in place so
as to minimize, or avoid completely
conflicts of interest

Independent Directors and Advisers i.e.


free from the influence of others

Dr. MRIDULA
Good Board Practices

Control Environment

Transparent Disclosure

Well-defined Shareholder Rights

Board Commitment
Dr. MRIDULA
Clearly defined roles and authorities
Duties and responsibilities of Directors
Board is well structured
Appropriate composition and mix of skills
Appropriate Board procedures
Director Remuneration in line with best practice
Board self-evaluation and training conducted

Dr. MRIDULA
Internal control Independent external
procedures auditor conducts audits
Risk management Independent audit
framework present committee established

Disaster recovery Internal Audit Function


systems in place
Management
Media management Information systems
techniques in use established

Business continuity Compliance Function


procedures in place established
Dr. MRIDULA
Financial Information disclosed

Non-Financial Information disclosed

Financials prepared according to International


Financial Reporting Standards (IFRS)

Companies Registry filings up to date

High-Quality annual report published

Web-based disclosure
Dr. MRIDULA
Minority shareholder rights formalized

Well-organized shareholder meetings


conducted

Policy on related party transactions

Policy on extraordinary transactions

Clearly defined and explicit dividend


policy
Dr. MRIDULA
The Board discusses corporate governance issues and
has created a corporate governance committee
The company has a corporate governance champion
A corporate governance improvement plan has been
created
Appropriate resources are committed to corporate
governance initiatives
Policies and procedures have been formalized and
distributed to relevant staff
A corporate governance code has been developed
A code of ethics has been developed
The company is recognized as a corporate governance
leader
Dr. MRIDULA
Corporate Governance applies to all
types of organizations not just
companies in the private sector but
also not for profit and public sectors

Examples are NGOs, schools,


hospitals, pension funds, state-
owned enterprises

Dr. MRIDULA
The Indian corporate scenario was more or
less stagnant till the early 90s.

The position and goals of the Indian corporate


sector has changed a lot after the
liberalization of 90s.

Indias economic reform programme made a


steady progress in 1994.

India with its 20 million shareholders, is one


of the largest emerging markets in terms of
the market capitalization.

Dr. MRIDULA
In 1996, Confederation of Indian Industry (CII), took a
special initiative on Corporate Governance.

The objective was to develop and promote a code for


corporate governance to be adopted and followed by
Indian companies, be these in the Private Sector, the
Public Sector, Banks or Financial Institutions, all of
which are corporate entities.

This initiative by CII flowed from public concerns


regarding the protection of investor interest, especially
the small investor, the promotion of transparency within
business and industry

Dr. MRIDULA
The Government of India's securities watchdog, the
Securities Board of India, announced strict corporate
governance norms for publicly listed companies in India.

The Indian Economy was liberalized in 1991. In order to


achieve the full potential of liberalization and enable the
Indian Stock Market to attract huge investments from
foreign institutional investors (FIIs), it was necessary to
introduce a series of stock market reforms.

SEBI, established in 1988 and became a fully autonomous


body by the year 1992 with defined responsibilities to
cover both development and regulation of the market.

Dr. MRIDULA
On April 12, 1988, the SEBI was established with a dual
objective of protecting the rights of small investors and
regulating and developing the stock markets in India.
In 1992, the BSE, the leading stock exchange in India,
witnessed the first major scam masterminded by Harshad
Mehta.
Analysts felt that if more powers had been given to SEBI,
the scam would not have happened.
As a result the GoI brought in a separate legislation by
the name of SEBI Act 1992and conferred statutory
powers to it.
Since then, SEBI had introduced several stock market
reforms. These reforms significantly transformed the face
of Indian Stock Markets

Dr. MRIDULA
SEBI asked Indian firms above a certain
size to implement Clause 49, a regulation
that strengthens the role of independent
directors serving on corporate boards.

On August 26, 2003, SEBI announced an


amended Clause 49 of the listing
agreement which every public company
listed on an Indian stock exchange is
required to sign. The amended clauses
come into immediate effect for
companies seeking a new listing.

Dr. MRIDULA
Independent Directors

Non-Executive Directors

Board of Directors

Audit Committee

Whistleblower policies

Subsidiary Companies

Dr. MRIDULA
Independent Directors:- 1/3 to depending
whether the chairman of the board is a non-
executive or executive position.

Non-Executive Directors:- The total term of


office of non-executive directors is now
limited to three terms of three years each.

Board of Directors:- The board is required to


frame a code of conduct for all board
members and senior management and each
of them have to annually affirm compliance
with the code.

Dr. MRIDULA
Audit Committee:- Financial statements and the draft audit report of
management discussion and analysis of
Financial condition
Result of operations of compliance with laws
Risk management letters
Letters of weaknesses in internal controls issued by statutory
Internal auditors
Removal and terms of remuneration of the chief internal auditor

Whistleblower Policy :- This policy has to be communicated to all employees and


whistleblowers should be protected from unfair treatment and termination.

Subsidiary Companies:- 50% non-executive directors & 1/3 & independent


directors depending on whether the chairman is non-executive or executive.

Dr. MRIDULA
As Indian companies compete globally for access to
capital markets, many are finding that the ability to
benchmark against world-class organizations is
essential.

For a long time, India was a managed, protected


economy with the corporate sector operating in an
insular fashion.

But as restrictions have eased, Indian corporations


are emerging on the world stage and discovering that
the old ways of doing business are no longer
sufficient in such a fast-paced global environment.

Dr. MRIDULA
Corporate governance is the system of rules,
practices and processes by which a company is
directed and controlled.
Corporate governance essentially involves
balancing the interests of a company's many
stakeholders, such as shareholders, management,
customers, suppliers, financiers, government and
the community.
Corporate Governance is concerned with
holding the balance between economic and
social goals and between individual and
communal goals.
The corporate governance framework is there
to encourage the efficient use of resources and
equally to require accountability for the
stewardship of those resources.
The aim is to align as nearly as possible the
interests of individuals, corporations and
society.
Corporate Social Responsibility (CSR) is a
business approach that contributes to
sustainable development by delivering
economic, social and environmental
benefits for all stakeholders.

Corporate social responsibility is


concerned with treating the stakeholders
of the firm ethically or in a socially
responsible manner.
Stakeholders exist both within a firm
and outside.

Consequently, behaving socially


responsibly will increase the human
development of stakeholders both
within and outside the corporation.
Economic efficiency
Employees participation
Code of conduct
Balance
Efficient use of resources
Setting standards
Standard of living
Accurate and reliable information
Transparency
The Companies Act
SEBI
Capital Market
Legislative Audit
Nominee on Company Boards
Code of Conduct
Issue of guidelines
Public interest advertisement
Dealings with complaints of investors
Investor education
Investor surveys
Disclosures by companies
Code regarding takeovers
Insider Trading - Insider trading refers to
trading on price sensitive information by
companies employees or individual
closely connected with the firm.

Whistle Blowing - It is an attempt by a


member or ex-member of an organization
to disclose wrong doing in or by the
organization.
CASE STUDY
Do You Know Him ???
B. RAMALINGA RAJU
FOUNDER AND FORMER CHAIRMAN OF ONE OF THE BIGGEST I.T.
GIANT OF OUR NATION SATYAM COMPUTERS

THE PRIME CONVICT IN ONE OF THE BIGGEST SCAM OF COUNTRY


FOURTH LARGEST
I.T. OUTSOURCING
COMPANY OF INDIA

EMPLOYEES MORE
THAN 50,000 PEOPLE
IN INDIA

HIGH GLOBAL
REPUTATION

OFFERS SERVICES
TO MORE THAN 550
MNCs
What was Scam all about
The companys balance sheet was inflated to Rs.
5,361 Cr at the end of September 2008 against the actual
Rs 5,040 Cr.

There is an artificial cash balance of Rs.588 Cr in


September 2008.

Rs.1,230 Cr was arranged to Satyam, which is not


reflected in its books, to keep Satyam's operations
running.

Raju also admitted that Satyam's profits were inflated


over several years.
HOW DID THE SCAM MATTER TO THE NATION ?

Jobs of over 50,000 technocrats were at risk.

Countrys booming economy feared slight


collapse as Country's GDP fell by estimated 0.4%.

Indias I.T. sector suffered downturn as its


image was tarnished globally.
How it was caught ?
Satyam Computers had
on December 16, 2008,
announced that it will
acquire two group firms
Maytas properties and
Maytas Infra for $1.6
billion (about Rs 8,000
cr) as part of its
diversification strategy ,
this created a alleged
violation of corporate
governance laws.
SALVAGING SATYAM
To stabilize the sinking Satyam Computers, the
Government nominated Banker Deepak Parekh,
I.T. Expert Kiran Karnik and Former SEBI
Member C. Achutan to the I.T. Company's Board.

KIRAN KARNIK C. ACHUTAN


ALLs WELL THATs END WELL

Satyam Computers was took over by Mahindra Group


I.T. Arm , Tech Mahindra on April 13, 2009.
ASIAN CASE STUDY
The World Bank has conducted a number of studies
of corporate governance practices in various
countries all over the world.
It has conducted Eight Studies of Asian Countries.
This part summarizes some of the components of
those studies.
Noticeably absent are China and Japan.
Chart shows the scores for each of the Eight Asian Countries
REVIEW/ANALYSIS OF ASIAN CASE STUDY

No perfect score

Indias progress in Corporate Governance

Improvement with time

Clean up