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