Download - Corp Guv
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CHAMELIDEVI SCHOOL
OF MANAGEMENT
INDORE
SESSION2011-2012
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WELCOME
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CORPORATE GOVERNANCE
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CONTENTS
Meaning.
Definition.
Objectives.
Theories.
Problems.
Conclusion.
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MEANING
Corporate governance is the set of processes,
customs, policies, laws, and institutions
affecting the way a corporation (orcompany) is directed, administered or
controlled. Corporate governance also
includes the relationships among the many
stakeholders involved and the goals for
which the corporation is governed.
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DEFINITION
Corporate Governance is the system bywhich companies are directed andcontrolled
Cadbu ry Report (UK), 1992
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An Indian Definition
fundamental objective of corporate
governance is the enhancement of the long-
term shareholder value while at the same time
protecting the interests of other stakeholders.
SEBI (Kumar Mangalam B ir la) Report on Corpo rate
Governance, January, 2000
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OBJECTIVES
To build up an environment of trust &
confidence amongst competing & conflicting
interest.
To enhance shareholders value & protect the
interest of other stakeholders by enhancing the
corporate performance & accountability.
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The Cadbury Report 1992
Focus on three areas
Board of Directors
Auditing
Shareholders
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Recommendations
BODs are most important, so requires
continuous monitoring and assessment.
Focus on corporate transparency and
communication with shareholders.
Role of Institutional Investors should be more
active as they are most influential group of
shareholders
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Contt
Chairman and CEO
The roles to be separated
Chairman Head of the Board andCEO- Head of the Company Management
Non-Executive directors - The board should
have majority non-executive directorsTop Management Compensation Separating
salary and performance bonus
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Contt
BOD should report on the effectiveness of
companys systems of internal control
The Directors service contracts should not
exceed 3 years without approval by the
shareholders
Each listed company should establish an
audit committee of at least 3 non executive
directors
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CG Committees formulated in India
CII Committee
Birla Committee
Narayana Murthy CommitteeJJ Irani Committee
Clause 49 of Listing agreement of SEBI(Jan
2006)
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THEORIES
Agency Theory.
Stewardship Theory.Shareholder Theory.
Stakeholder Theory.Political Theory
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Agency Theory
The very term agency suggest a relationship
between two elements or entities. In this case
it is between principals or promoters of acompany & their agents or managers who
implements the formers brief.
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Agency relationships occur when one partner
in a transaction (the principal) delegates
authority to another (the agent) and the welfare
of the principal is affected by the choices of
the agent
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Stewardship Theory
The stewardship theory assumes that managers
are good & trustworthy. They are appointed
mainly due to their good reputation. This isdone with the intention to cut bureaucracy &
increase motivation, which will help the
managers take quick decisions.
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The inclination of individuals to act as selfless
stewards may be culturally contingent. The
'company man' in Japan may place his
employer before family. The voluntary
resignation of executives is not uncommon
when a firm is disgraced and instances of
suicide are still reported.
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Shareholder Theory
The important assumptions of this theory is
that an individual has a complete &
inalienable right to a private property & thatindividual liberty ensures it. Holding stocks or
shares in a company are a form of private
property ownership, & the shareholder alone is
its rightful owner.
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Stakeholder Theory
The purpose of the firm is to create wealth or
value for its stakeholders by covering their
stakes into goods and services.
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In defining 'Stakeholder Theory' Clarkson
(1994) states: '"The firm" is a system of stake
holders operating within the larger system of
the host society that provides the necessarylegal and market infrastructure for the firm's
activities. The purpose of the firm is to create
wealth or value for its stake holders byconverting their stakes into goods and
services'.
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The Political Theory
The political model recognises that theallocation of corporate power, privileges and
profits between owners, managers and other
stakeholders is determined by howgovernments favour their various
constituencies. The ability of corporate
stakeholders to influence allocations betweenthemselves at the micro level is subject to the
macro framework, which is interactively
subjected to the influence of the corporate
sector.
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Models of CG
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Anglo American German Japanese
Share holders Shareholders andemployees /unions
Shareholders and banks
Elects Elects Elects
Board of Directors Supervisory Board Supervisory Board
appoints President And
President
Appoints Appoints Appoints
Officers/Executive Management Board Executive Board
Manage Manage
Manage
Company Company Company
Indian Model = Anglo American Model +German Model
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Anglo American Model
Wide spread shareholding
Separation of ownership and management
Professional managers
Single board structure
Focus on mainly on Shareholders
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Contt
In the case of German model employees have a
role
Where as in Japanese Banks/financial
institutions have a role in the board as stake
holders
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Tata Group
Infosys
L & T
HDFC
MukeshAmbani
Others
35%
25%9%
7%
5%
19%
Investors Favorite Companies
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Thanks A Lot