BASICS OF CORPORATE GOVERNANCE..... ...!!

Meaning of corporate governance!!

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) 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. The principal stakeholders are the shareholders, the board of directors, executives, employees, customers, creditors, suppliers, and the community at large

MEANING OF CORPORATE!!
A corporation is an organization created (incorporated) by a group of shareholders who have ownership of the corporation. The elected Board of directors appoint and oversee management of the corporation.

Governance. ..meaning.!!
defines Governance as the act, manner, fact or function of governing, sway, control The word has Latin origins that suggest the notion of 'steering'. It deals with the processes and systems by which an organization or society operates.

Corporate Governance
Corporate governance is
a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations concerned with identifying ways to ensure that strategic decisions are made effectively used in corporations to establish order between the firms owners and its top-level managers

 Corporate governance specifies the distribution of rights And responsibililities among different participants in corporations.

 CG means a system by which corporate entities are under control and are directed CG attempts to put a check on the working of the organization.

Definition of CG..!!
CG denotes direction and control of the affairs of a company and it is the relationship between the owners ,directors and managers.

Main features of CG..!!

1. It is a set of system and processes which embraces organization structure. Ensures best interest of the stakeholders Denotes direction leadership explains relationship between directors , owners and managers. Attempts to put a check on working ofa n organization.

2. 3. 4.

5.

Features continued
6. Protects interests of bond holders and society. 7. To make balance between economic and social goals. 8. Ensures timely flow of all info. t o board of directors. 9. Ensures sound system of risk management and internal control. 10. Leads to transparency in working of corporate affairs.

Scope of CG!!
IT provides the structure for setting objectives and providing means to attain them.

Benefits of good CG!!

1) 2) 3) 4) REDUCES RISK STIMULATES PERFORMANCE IMPROVES ACCESS TO CAPITALMARKETS ENHANCES THE MARKETIBILITY OF GOODS AND SERVICES IMPROVES LEADERSHIP DEMONSTRATES TRANSPARENCY AND SOCIAL ACCOUNTABILITY PROMOTES TRANSPARENCYINDECISIONM AKING PROCESS

5) 6)

7)

STEPS FOR MAKING CORPORATE GOVERNANCE EFFICIENT!!

i. ii. iii. iv. v. vi. vii. viii. ix. x. Commitment of the management Legal & administrative framework Transparency in decision making Proper implementation of codes Improving the system Reviewing banking system Making laws effective Strict compliance Increasing role of independent directors Highlighting governance role.

ACTIVITY TIME.!!
CORPORATE GOVERNANCE IS THE BLOOD THAT FILLS THE VEIN OF TRANSPARENT CORPORATE DISCLOSURE IN THE LIGHT OF THIS EXPLIAN THE IMPORTANCE OF CG.

Objectives of good corporate governance

Objectives of good corporate governance Strengthen management oversight functions and accountability Balance skills, experience and independence on the board appropriate to the nature and extent of company operations

 Establish a code to ensure integrity Safeguard the integrity of company reporting Risk management and internal control Disclosure of all relevant and material matters Recognition and preservation of needs of shareholders

Corporate Governance Mechanisms

Internal Governance Mechanisms
Board of Directors Managerial Incentive Compensation Ownership Concentration

External Governance Mechanisms

Market for Corporate Control

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Agency Relationship: Owners and Managers

Shareholders (Principals)
Firm owners

Decision makers

Managers (Agents)

Risk bearing specialist (principal) pays compensation to a managerial decisionmaking specialist (agent)

An Agency Relationship
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Issues in corporate governance.

CG Is a system by which corporate entities are being controlled and directed . corporate governance attempts to puts check on working of an organization .it checks the balance between directors, auditors and management..

 Corporate Governance is concerned with holding the balance between economic and social goals and between individual and public goals. The 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 interest of individuals, corporations and society.

 The foundation of any structure of corporate governance is disclosure. Openness is the basis of public confidence in the corporate system and funds will flow to centers of economic activity that inspire trust.

 Shareholders role in governance is to appoint the directors and the auditors. Poor corporate governance has ruined companies, sent directors to jail, and destroyed a global accounting firm and threatened economies and governments.

Objectives of CG.!!
Parties to corporate governance Board of directors Managers Workers Shareholders or owners Regulators Customers Suppliers Community (people affected by the actions of the organization)

code of business conduct???

This Code of Business Conduct and Ethics helps ensure compliance with legal requirements and our standards of business conduct

Code of conduct continued..!!

All Company employees are expected to read and understand this Code of Business Conduct and Ethics, uphold these standards in day-to-day activities, obey with all applicable policies and procedures, and ensure that all agents and Contractors are aware of, understand and adhere to these standards. Because the principles described in this Code of Business Conduct and Ethics are general in nature COMPLIANCE IS EVERYONE'S BUSINESS

 Ethical business conduct is critical to our business. As an employee, your responsibility is to respect and adhere to these practices. Many of these practices reflect legal or regulatory requirements. Violations of these laws and regulations can create significant legal responsibility for you, the Company, its directors, officers, and other employees. Part of your job and ethical responsibility is to help enforce this Code of Business Conduct and Ethics.

Corporate social responsibility.!!

Proposes that a private firm has responsibilities to society that extend beyond making a profit Obligation of firm decision makers to make decisions & act in ways that recognize the interrelatedness of business & society. It recognizes the existence of various stakeholders and firms deal with them Two Views of who are firms responsible to?

Traditional View
There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud (M. Friedman, The Social Responsibility of Business is to Increase Profits,

By taking on the burden of social cost, the business becomes less efficient:
Prices go up to pay for increased costs; or Investment in new activities & research is postponed

Firms are responsible to only their shareholders Purely economic reasoning

(2) Modern View

Business firms have four responsibilities (a) Economic; Produce goods & services of value to society so that the firm may repay its creditors and stockholders (b) Legal: Defined by governments in laws that management is expected to obey. (c) Ethical ; Follow generally held beliefs about how one should act in society
Work with employees & community in planning for layoffs, though no laws requiring this Many people expect firms to do these things

(d) open Purely voluntary obligations a firm assumes

humanitarian contributions, training hard-core unemployed, providing day-care centers, etc. Many people do not expect firms to do these things

CSR concept..!!
CSR is about how companies manage the business processes to produce an overall positive impact on society.

cSr DeFIneD..!!
CSR encompasses the Economic, Legal, Ethical and society has of organizations at a given point of time. "A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis

..WHY CSR??
A societal approach to business Exemption of Income tax A good corporate image Social responsibility of business enables the organization to improve its product positioning and thereby improve its market share.

ESSENTIAL COMPONENTS OF CSR!!

ECONOMIC (required):-BE profitable LEGAL (required) :-obey rules ETHICAL (expected) :- do right things DISCRETIONARY (expected) :- be a good corporate citizen

Principles of CSR .!!

strives to conduct all business dealings in an ethical manner, make a concerned effort to balance the needs of all stake holders, while working to protect the environment , some of the principals are as follows:STAKE HOLDERS EMPLOYEES RELATIONSHIP BETWEEN THE CORPORATION AND COMMUNITY. CONSUMER SUPPLIER

Initiatives by Indian Corporates in CSR

India has consistently ranked among the top three along with Singapore and Hong Kong in a survey carried out by the Asian Governance Association. In another study undertaken by automotive research company, TNS Automotive, India has been ranked second in global Corporate Social Responsibility. Bharat Petroleum and Maruti Udyog were ranked as the best companies in India. According to Times, the Indian corporate sector spent Rs30,000 crore on social expenditure during the last year. Tata Steel Ltd spends an average of Rs150 crore as part of its annual revenue expenditure

EXAMPLE!!
Bharat Petroleum and Maruti Udyog were ranked as the best companies in India. According to Times, the Indian corporate sector spent Rs30,000 crore on social expenditure during the last year. Tata Steel Ltd spends an average of Rs150 crore as part of its annual revenue expenditure

Activity time..!!
Write short note on :I. CODE OF CONDUCT II.CODE OF BUSINESS PRACTICES III.CSR

Code of corporate practice..!!

Written guidelines i ssued by an official body or professional associ ation to its members to help themcomply with its ethical standards.

Example of code of corporate practice!!

The International Council of Toy Industries (ICTI), an association of associations, is committed on behalf of its member companies to the operation of toy factories in a lawful, safe, and healthful manner. It upholds the principles that no underage, forced, or prison labor should be employed; that no one is denied a job because of gender, ethnic origin, religion, affiliation or association, and that factories comply with laws protecting the environment.

 Supply agreements with firms manufacturing on behalf of ICTI members must also provide for adherence to these principles. The role of ICTI is to inform, educate, and survey its members so that individual member companies can adhere to its Code of Business Practices. As an association, it also acts tao encourage local and national governments to enforce wage and hour laws and factory health and safety laws

 Specific operating conditions that member companies are expected to meet and obtain contractor agreement in advance are as follows:

Labor..!!
That working hours per week, wages and overtime pay practices comply with the standards set by law or, in the absence of a law, address humane, safe and productive working conditions; that no one under the legal minimum age is employed in any stage of toy manufacturing; that a minimum age of 14 applies in all circumstances, but notwithstanding the foregoing, that C138 Minimum Age Convention (1973) and C182 Worst Forms of Child Labor Convention (1999) of the International Labor Organization apply; that no forced or prison labor is employed, that workers are free to leave once their shift ends, and that guards are posted only for normal security reasons; that all workers are entitled to sick and maternity benefits as provided by law; that all workers are entitled to freely exercise their rights of employee representation as provided by local law.

THE WORKPLACE.!!

That toy factories provide a safe working environment for their employees and comply with or exceed all applicable local laws concerning sanitation and risk protection; that the factory is properly lighted and ventilated and that aisles and exits are accessible at all times; that there is adequate medical assistance available in emergencies, and that designated employees are trained in first aid procedures; that there are adequate and well-identified emergency exits, and that all employees are trained in emergency evacuation;

WORKPLACE CONTINUED!!
that protective safety equipment is available and employees are trained in its use; that safeguards on machinery meet or exceed local laws; that there are adequate toilet facilities which meet local hygiene requirements, and that they are properly maintained; that there are facilities or appropriate provisions for meals and other breaks; if a factory provides housing for its employees, it will ensure that dormitory rooms and sanitary facilities meet basic needs, are adequately ventilated and meet fire safety and other local laws; that

Compliance..!!
The purpose of this Code is to establish a standard of performance, to educate, and to encourage commitment to responsible manufacturing, not to punish. To determine adherence, ICTI member companies will evaluate their own facilities as well as those of their contractors. They will examine all books and records and conduct on-site inspections of the facilities, and request that their contractors follow the same practices with subcontractors. An annual statement of compliance with this Code must be signed by an officer of each manufacturing company or contractor.

Contracts for the manufacture of toys should provide that a material failure to comply with the Code or to implement a corrective action plan on a timely basis is a breach of contract for which the contract may be canceled. Because of the great diversity in the kinds of toys manufactured and the manufacturing methods used, as well as the wide range in factory sizes and numbers of employees, three annexes are attached to this Code to provide guidelines for determining compliance. A rule of reason must be used to determine applicability of the annex provisions. This Code should be posted or available for all employees in the local language.

CORPORATE SOCIAL REPORTING..!!

Consequent to increasing globalization, greater environmental and social awareness, and more efficient communication, the concept of companies responsibilities beyond the purely legal or profit-related has gained new impetus. In order to succeed, business now has to be seen to be acting responsibly towards people, planet and profit (the so-called 3Ps) sometimes also known as the triple-bottom line.

 The perspective taken is that for an organisation (or a community) to be sustainable (a long run perspective) it must be financially secure (as evidenced through such measures as profitability); it must minimise (or ideally eliminate) its negative environmental impacts; and, it must act in conformity with societal expectations. These three factors are obviously highly inter-related. Many companies now report regularly on the subject producing Sustainability and/or CSR (Corporate Social Responsibility) reports whose content is increasingly scrutinized by investors and financial institutions.

 Since 2000 the CSR concept has pushed further and further up the corporate agenda as business strives to act responsibly towards people, planet and profit (the so-called 3Ps). Some driving forces pushing CSR up the corporate agenda are:

 Informed investors recognise that the business risk (both internal and external) for companies that successfully manage their social and environmental impact is lower than the business average; Consumers prefer products that are produced in a socially responsible way Increased concern about the damage caused by economic activity to the environment Transparency of business activities brought about by the media and modern information and communication technologies Search for new forms of global governance

 Measurement of progress toward sustainable development: Companies that already produce CSR reports have found that the process of developing a sustainability report provides a warning of trouble spots and unanticipated opportunities in supply chains, in communities, among regulators, and in reputation and brand management. Reporting helps management evaluate potentially damaging developments before they develop into unwelcome surprises.

 Reporting and external communication is a significant part of CSR and one that is no longer restricted to the largest multinationals. Recent statistics indicate that up to half of the UKs top 250 companies produce some sort of CSR report. The UN sponsored Global Reporting Initiative (GRI) has developed a set of reporting guidelines for CSR reporting. These Guidelines organise sustainability reporting in terms of economic, environmental, and social performance (also known as the triple bottom line). This structure has been chosen because it reflects what is currently the most widely accepted approach to defining sustainability.

 The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines. These Guidelines are for voluntary use by organisations for reporting on the economic, environmental, and social dimensions of their activities, products, and services

ISO is also planning to develop an International Standard for social responsibility. The objective is to produce "a guidance document, written in plain language which is understandable and usable by nonspecialists" and not intended for use in certification.

Board of Directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as "the board."

Rights of Directors ..!!

Directors have the right to: Participate in corporate decisions and inspect corporate books and records. Compensation (usually a nominal sum) and indemnification. If a director is sued for acts as director, the corporation should guarantee reimbursement (indemnification) or purchase liability insurance to protect the board from personal liability

 A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet.

Typical duties of boards of directors include

governing the organization by establishing broad policies and objectives; Selecting, appointing, supporting and reviewing the performance of the chief executive; ensuring the availability of adequate financial resources; Approving annual budgets; Accounting to the stakeholders for the organization's performance.

 The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.

CG SYSTEM WORLDWIDE..!!

 World wide corporate governance systems (outsider) are those in which the owners of firms tend to have a transitory interest in the firm and do not have close relationships with those in senior managerial positions within the company.

 Rather, these systems are characterized by relationships between management and shareholders being fluid and armslength. Outsider systems are also characterized by the existence of an active 'market for corporate control'- takeovers, particularly hostile ones, are seen as both a remedy for managerial failure and a disciplinary mechanism on managers, ensuring that they act in the best interests of shareholders. Indeed, a further feature of this system in the protection of shareholder rights over those of other organizational groups (particularly employees).

 by contrast, in 'insider' systems the owners of firms tend to have an enduring interest in the company and often hold positions on the board of directors or other senior managerial positions. These systems are characterized by stable and close relationships between management and shareholders. This stability of ownership, often coupled with legal or institutional barriers to takeovers, means that there is little by way of a market for corporate control. Moreover, insider systems are characterized by the existence of formal rights for employees to influence key managerial decisions, often through supervisory boards or works council-type bodies.

CORPORATE DISCLOSURE AND INVESTORS PROTECTION IN INDIA

SEBI's disclosures and investor protection in INDIA!

The Securities and Exchange Board of India was established on April 12, 1992 under the Securities and Exchange Board of India Act, 1992. It protects the interests of investors in securities and promotes the development of, and to regulate the securities market and for matters connected therewith or incidental thereto. As a result of its intervention a number of companies which are practicing unfair trade practice have been controlled !!

 Do you feel safe investing in the stock markets in India? Do you trust the legal system to protect you against malpractices? Do you know the legislations and the government or other bodies that act as watchdogs for investors? Have you heard of Disclosure and Investor Protection guidelines?

 If not, read on. How do we protect ourselves from fraud? The best way to exercise control over your investments is to have complete knowledge about the stocks in which you invest. This is where transparency and accurate information from the corporate world is desired to enable investors to make informed decisions.

 Disclosures and Investor

Protection guidelines are tools that empower investors with information and also protect them from cases of mismanagement like insider trading.

 Role of Securities and Exchange Board of India The primary functions of the Securities and Exchange Board of India (SEBI) are to protect the interests of investors in the security markets in India and to regulate the securities market to ensure its orderly operation. With this objective, SEBI issued the SEBI (Disclosure and Investor Protection) Guidelines, 2000. SEBI uses these guidelines as a yardstick to ensure that investor interests are protected. The Disclosure and Investor Protection guidelines apply to the primary market, i.e., public issues made by listed and unlisted companies, rights issues, and offers for sale by listed companies in certain cases.

 SEBI (Disclosure and Investor Protection) Guidelines: These guidelines include instructions for eligibility standards for companies issuing securities, pricing of securities to be issued by companies, requirements relating to promoter contribution, and lock-in period for securities and more. The guidelines also describe the information that should be included in offer documents to the public, like a prospectus, abridged prospectus, and letter of offer.

How does SEBI ensure that the guidelines are complied with? The Merchant Bankers are responsible for ensuring that all the requirements of Disclosure and Investor Protection Guidelines are complied with at the time of submitting the draft offers documents to SEBI. SEBI on its part evaluates if the guidelines are being followed and all required disclosures are made in the offer documents.