What is Corporate Governance?
It is a set of systems, principles and processes by which a company is governed. It provides guidelines as to how the company can be directed or controlled so that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial to all the stakeholders in the long run. The term was first used by Robert Ian in his book in the year 1984. It addresses the issues facing the Board of Directors such as interaction between top management and the relationship with the owners and others interested in the affairs of the company. Cadbury committee defined Corporate Governance as
a) It is fulfilling strategic goals of owners
b) Employee Welfare
c) Consideration of the environment and the community
d) Maintain relations b/w the customers and suppliers
e) Compliance with legal and regulatory requirements
As per Desirable Corporate Governance Code, 1998
CG deals with laws, procedures, practices and rules that determines a company’s ability totake good managerial decisions for its claimants etc., PRINCIPLES OF CG
Necessity of CG
3. Prompt and proper disclosure
4. Compliance to moral and ethical values
5. Compliance to legal framework and voluntarily adopted practices 6. Helps in qualitative decision making
7. Enhanced trust of decision making
8. Combats corruption
9. Helps in getting easy finance from financial institutions. Objectives
1. Properly structured board to take good decisions in good interest of everybody 2. Proper representation of the Board containing directors 3. Board should be able to arrive at transparent practices and procedures. 4. Effective machinery to serve the shareholders.
5. Inform the stakeholders and update them.
6. Monitoring and control of the management.
Issues that constitute elements of a good CG
1. Board ( roles, responsibilities of CEO, Chairman and his powers) 2. Legislations
3. Proper environment for management
4. Skills of the Board
Good decisions, blend of persons with quality skills, knowledge and experience, knowledge of law, govt regulations, finance etc. 5. Appointment of the Board
Competent persons, well defined procedures, appointment to satisfy all the provisions and regulations laid down by the statutes, issuing a proper letter of appointment 6. Induction and training
7. Independent Board
Members should be independent of the management and should not have commercial interest in the company. 8. Proper agenda for meetings
Review the progress done in the decisions taken in the prior meeting. Discussion of the minutes of the meeting of the previously held meeting. 9. Code of Conduct
10. Strategy of the company
11. Business and community obligations
12. Financial and operational reporting.
EVOLUTION OF CG
1. 2009 Guidelines by Ministry of Corporate Affairs for responsible business practices
2. 2010 Guidelines for Corporate Governance and public sector [DPE] Applicable to listed as well as unlisted public sector enterprises.
3. National Voluntary Guidelines on social, economic, environmental responsibilities of business by Indian Institute of Corporate Affairs. Refer all the Committee Reports
The Cadbury Committee Report, 1992
Need for CG because of the scandals that happened in the past in UK such as Maxwell scandal, Pollypack scandal which happened because of financial irregularity. Recommendations :
a) Separation of the role of the chairman and the chief executive b) A Board to have a balanced constitution
c) Selection process for non-executive directors
d) Transparency of financial reporting
e) Need for good internal control
Greenbury Committee Report,1995 by Sir Richard Greenbury
Purpose - To make recommendation on directors remuneration and share options....
Please join StudyMode to read the full document