Corporate Governance –

A Conceptual Analysis
Corporate Governance – Introduction, Meaning & Definition

• Corporate governance is how a corporation is administered

or controlled.
• Corporate Governance is a set of processes, customs,
policies, laws & instructions affecting the way a
corporations is directed, administrated or controlled.
• The participants in the process include employees and
suppliers, partners, customers, government and
professional organization regulators, and the communities
in which the organization has a presence.
Definition (contd)
CG may be defined as a set of systems, processes and principles which ensures that a
company is governed in the best interest of all the stakeholders.

In other words, ‘good corporate governance’ is simply ‘good business’.

It ensures:
• Adequate disclosures and effective decision making to achieve corporate objectives.
• Transparency in business transaction.
• Statutory and Legal Compliances
• Protection of shareholder interests
• Commitment of values and ethical conduct of business
Objectives of Corporate Governance

• Predictability
• Transparency
• Accountability
• Ethical Standards
• Efficiency & Effectiveness
• Stakeholders’ Satisfaction
FRAMEWORK for CG
FIVE GOVERNANCE PRINCIPLES for CG

(A) Effective Leadership: The CEO’s leadership role in governance is

fundamental. The Executives also has a collective responsibility to provide
leadership, communicating coherent governance principles throughout the
agency and ensuring the operation of checks and balances with effective
governance demands.
1.Executive Leadership Group…….
2.Embracing better/more comprehensive management performance…..
3.Monitoring policies directed……………..
4.Management Information System is in place……….
5.Reviewing its own process and effectiveness……….
(B) Capable Management:
Capable management includes setting in place the broad principles under
which the agency operates , including setting clear objectives and an
appropriate ethical framework operating in the public interest; establishing
due process; defining duty of care to the agencies client group etc.

(C) Diligent Monitoring:

Diligent Monitoring of risks, and the effectiveness of mitigating strategies,
should include processes to access the delivery of outputs and quality of
control systems overtime enabling the identification of corrective actions
for continuous improvement. Systems operating in a changing environment
require close monitoring
(D) Responsible Risk Management:
Responsible risk management establishes process for identifying, analyzing
and mitigating risks that could prevent the agency from achieving its
business objectives

(E) Clear Accountability and Responsibility:

Clear accountability and responsibility is primarily through the CEO to the
responsible Managers and the Executive Directors
 Advantages/Benefits of Corporate Governance
(1). Enhancing overall company performance.
(2). Preparing a small enterprise for growth, and so helping to secure new
business opportunities when they arise.
(3). Increasing attractiveness to investors and lenders , which enables faster
growth.
(4). Increasing the company’s ability to identify and mitigate risks, manage
crises and respond to changing market trends.
(5). Increasing market confidence as a whole.
(6). All companies suffer from corporate scandals, which scare potential
investors away from the market.
 Importance of Good Corporate Governance

Corporate Governance as a whole, is a system of rights, processes and controls

established internally and externally over the management of the business entity with
the objective of protecting the interests of the stakeholders
Good Corporate Governance means that the processes of disclosure and transparency
are followed so as to provide regulators and shareholders as well as the general public
with precise and accurate information about the financial, operational and other
aspects of the company.
Whistleblowing and Good Corporate Governance
Whistleblowing involves the act of reporting
wrongdoing within an organization to internal
and external parties.

Good governance signifies that it is in the interest of organization, institution

or an economy to report anything wrong happening in it. This reporting of
wrongdoing (whistleblowing) is not meant to cause harm to the organization,
rather, it is to facilitate the exposure of wrongful acts or omissions of a person
or persons that is against the interests or values of organization.
 CG Initiatives in India
Initiatives
• New Companies Act – inducing good CG practices through self regulation,
responsive legal framework based on shareholders’ democracy; disclosure based
regime; rational penal provisions with built-in deterrence and effective
protection
• Amendments to the Acts governing three professional institutes
ICAI/ICSI/ICWAI with a view to strengthen the disciplinary mechanism and bring
transparency in their working.
• Notification of Accounting Standards with a view to bring the disclosure norms
in tune with the international reporting standards;
• SEBI – Clause 49 – Appointment of IDs, Audit committee, Code of conduct,
disclosures of related party transactions, remunerations, compliance of
accounting standards, certifications of CEO & CFO, Compliance Certification &
Whistle-blower policy (optional)
 Initiatives beyond CG…
The Government has renamed the Ministry from “Company Affairs”
to “Corporate Affairs” – with a new vision

“We resolve ourselves to be the leader and partner in initiative for

Corporate Reforms, Good-Governance and Enlightened Regulation, with a
view to promote and facilitate effective corporate functioning and investor
protection. Will aid in the transformation in the service delivery
mechanism for transparency and certainty – low-cost, easy compliance”