Organisations and
Corporations
Organizations: collection of people
who work together and coordinate
their actions to achieve a wide variety
of goals
Corporations: have business interests
in many industries and geographical
regions
Internal Stakeholders
Board
Board
Employees
Employees
Corporate
Corporate
Governance
Governance
Analytical
Analytical
Perspective
Perspective
Majority
Majority
Shareholders
Shareholders
Minority
Minority
Shareholders
Shareholders
External Business
Stakeholders
Suppliers
Suppliers
Corporate
Corporate
Governance
Governance
Analytical
Analytical
Perspective
Perspective
Customers
Customers
Creditors
Creditors
External non-Business
Stakeholders
Society
Society
Corporate
Corporate
Governance
Governance
Analytical
Analytical
Perspective
Perspective
Stakeholders
Board
Board
Employees
Employees
Society
Society
Suppliers
Suppliers
0
360
3600
Corporate
Corporate
Governance
Governance
Analytical
Analytical
Perspective
Perspective
Majority
Majority
Shareholders
Shareholders
Minority
Minority
Shareholders
Shareholders
Customers
Customers
Creditors
Creditors
Corporate Governance
Role of Corporate Governance
Principles of Corporate Governance
Codes and Standards of Corporate
Governance
Models of Corporate Governance
'Best Practices' in Corporate
Governance
Role of Corporate
Governance
Corporate Governance:
Broadly refers to the rules, processes or laws
by which businesses are established,
operated, regulated and controlled
Internal factors defined by the management
and stockholders
External factors defined by consumer groups,
clients, society, and government regulations
Is also concerned with the ethics, values and
morals of a company and its directors
(contd.)
Role of Corporate
Governance
Corporate Governance: NACD (National
Association of Corporate Directors, USA)
definition:
Corporate Governance ensures that long erm
strategic objectives and plans are established
and that the proper management structure
(organization, systems and people) is in place
to achieve those objectives, while at the same
time making sure that the structure functions to
maintain the corporation's intergrity, reputation
and responsibility to various constituencies
Role of Corporate
Governance
Initially (19th century), corporate laws and
rules for business in a state or country
formed the basis of corporate governance,
which was not necessarily transparent
Rise of trading houses and corporations;
and flow of public money to corporates,
rights of individual owners and
shareholders became corporate
governance issues
Role of Corporate
Governance
In 1983, Eugene Fama and Michel Jensen,
established Agents Theory to understand the
purpose and process of corporate governance
A firm is seen as a series of contracts and the
responsibilty of the firm is governed by
'principal-agent' relationship
In modern corporate governance:
'Principal' is shareholders or owners of the
corporate
'Agent' is the board responsible for economic
efficiency and protecting shareholders' interests
Role of Corporate
Governance
To model itself to by establishing:
A good and ethical sense of purpose of
business
Structure the business processes with well
defined objectives to serve shareholders and
stakeholders
Build a spirit of inclusive growth in society and
within the environment of operations
Build a partnerships with all stakeholders
Think and act in bigger framework of global
businesses
(Contd)
Role of Corporate
Governance
To model itself to by establishing:
Continually sensitise the
organization to global business
changes and risks
Always keep on the right side of law
and environmental regulations
Corporate Governance system should
treat the 'cause than the symptoms'
Principles of Corporate
Governance
Principles lend the direction to reach goals
and objectives
They are non-binding; Principles are for selfregulation
Principles are stated in the form of codes
Rules are binding; they are fixed by
regulators or controllers
Elements of principles: (a) what to act (b)
how to act and (c) by whom to act
Principles of Corporate
Governance
Commonly accepted principles of corporate
governance
Rights and equitable treatment of
shareholders
Interests of other stakeholders
Role and responsibilities of the Board
Integrity and ethical behaviours
Disclosure and transparency
Codes and Standards of
Corporate Governance
International initiatives:
Treadway Report US
The Cadbury Code of Best Practices
UK
Vienot Report France
Sarbanes Oxley Compliance US
The OECD principles of corporate
governance
UN Global Compact
Codes and Standards of
Corporate Governance
Indian initiatives:
CII-Rahul Bajaj Committee
Kumaramangalam Birla Committee
Naresh Chandra Committee
Narayana Murthy Committee
Models of Corporate
Governance
Anglo-American Model
The Coordinated Model
The Family-Owned Company Model
'Best Practices' in
Corporate Governance
Adherence to a code of conduct and the practice
of whistle-blowing
Following trusteeship: protect shareholders'
interests
An independent and transparent process to
evaluate the board
Integrity and ethical values
Focus on sustainability
Increased responsibility of independent directors
Concern for purposeful CSR
