CORPORATE GOVERNANCE

Prepared by : Ankit Mody Jimi Shah Ravin Mehta Hirenv Shilu Ankit Panchasara Bhavin Yogi

Definition
Corporate

governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled.

The primary objective of the management of any publicly-

traded enterprise is to enhance its value.

Factors

Corporate governance depends upon two factors.

1)

First relates to the commitment of management towards the principle of integrity and transparency in business operations.
Second factor involves the legal and administrative framework created by the government of the country in which the business operates.

2)

Objectives Of Corporate Governance

On the basis of definition, the core objectives of corporate governance can be classified as follows:
Strategic Focus Predictability Transparency Participation Accountability Efficiency and Effectiveness Stakeholder Satisfaction

1) 2) 3) 4) 5) 6) 7)

Principles Of Corporate Governance

The first principle of corporate governance is that of agency issues.

The second principle is about the impact of a corporate governance system on the economic efficiency of the company. There are a number of studies that show that companies with good governance protocols have been able to demonstrate higher earnings.

Evolution of Corporate Governance In first half of 1990 due dssmisal of a few high profile CEO. In 1997 east asian financial crisis occurred. In 2001 high profile collapse of US firms like Enron Corporation and Worldcom Formation of sir George Adrian Hayhurst Cadbury.

Development of Corporate Goverance in India

In 1960 Licence Raj. In 1990 liberlization took place.

Foreign capital infusion started

With formation of WTO movement of capital started globally this required better and more corporate governance. It included Increasing FDI. New role of mutual funds. Better goverance and management of corporate bodies. Aderance to ecological and environmental standards.

CII Code 97 No need for two tiered board Single person should not hold directorships in more than 10 listed companies. Key information listed in the code.

Birla Committee (SEBI) 00 At least 50% are non executives members. Chairman should have office and be paid. No need to present in the code.

Narayana murthy 03 Training of board members is suggested. Compensation should be fixed by board . Information should be presented to every members.

Audit Committee

Cii Companies With Turnover Over Rs 1 Billion should have an audit committee with 3 members, nonexecutive & with clear terms of reference.

Birla Minimum 3 members, with one at least financial and accounting knowledge. AGM to answers shareholders.

Narayana Murthy Whistle blowers should have direct access to information. Committee should be responsible for appointment, removal and remuneration.

Remuneration committee

CII
Reduction in number of nominee directors. FIs should withdraw nominee directors from companies with individual shareholding.

Birla
committee decide packages. Board will decide on remuneration for non executives directors

Narayana Murthy
Subsidiaries should follow the parent companies rules and regulations. Code of conduct for board of members and senior management.

Discloser And Transparency

CII
Companies to inform their shareholders about prices and performance. Stock exchange requires ceos and cfos certificate.

Birla

Narayana Murthy

Consolidated accounts for subsidiaries.

Analysis of report tells performance of the company.

Justify deviation from accounting standard.

Followed by auditors comment management should provide clear descriptions.

Other issues

CII FIs rewrite loan in some case. Same disclosure norms for foreign and domestic creditors.

Birla Quarterly results should be communicated to investors. Board committee should look into shareholder complaints.

Narayana Murthy Companies making IPO should inform to audit committee of funds. Audit committee advise to board for action in this matter.

Key Aspects of Corporate Governance

The fundamental concern of corporate governance is to ensure the conditions under

which an organizations directors and managers act in the larger interests of the organization and shareholders in particular. It allows more constructive and flexible responds to raise the standards in running and managing a company as opposed to strict statutory requirements. Corporate Governance in India, is mainly on based Birla Committees guidelines, which have three key aspects relating to scope, importance and ambit of corporate governance. These are defined as accountability, transparency, and equality of treatment for all stakeholders.

 Some

of the key aspects of governance are as follows :

[A] Focus on Shareholders and Stakeholder : Objective of C.G.- Enhancement of shareholder value, keeping in view the interests of other stakeholder

[B] Framework for both private and public sector companies - two type (i) Mandatory requirements (ii) Non- mandatory requirements [C] Code section relating Board of Directors - Size- 50 %- Non executive directors [D] Code Chairman of Board and Chief Executive: - if Executive Chairman 1/2 Independent Directors in board - if an Executive Chairman 1/3 Independent Directors in board

[E] As per debt funding covenants and for financial or investment institution :
- Nominate the director for protect shareholders interest for it in board.

[F] Code for Audit Committee : - object

- three non executive members- independent director. - chairman also independent director. - at least one director appropriate finance knowledge

[G] Code for remuneration committee:

- All elements of the remuneration disclosures in the annual report - B.O.D decide the remuneration of the non-executive director

[H] Framework for board meetings and board procedures :

- BOD meeting - 4 times a year with a maximum of 4 months between any two meetings - Director should not be involved in more than 10 committee or act as chairman of more than five committee across all companies with which he is a director.

[I] Code for the annual general meeting : - appointment or reappointment of directors - disclose all information, results and documents presentations - right to vote [J] Role of key management (CEO, Directors etc.) - smooth running
- directors report and management discussion and analysis report about position , performance, its outlook etc. - disclose all material related financial and commercial transactions which have potential of conflict

[K] Code for separate section on C.G. in annual report with compliance report. - non compliance report also highlighted in report any with mandatory
recommendations - send certificate from auditors to shareholder and to stock exchange and attached with directors report

[L] The effectiveness of this framework depend upon the corporate response to support the regulatory framework, ability of regulatory to monitor and pressure from shareholder.

Critical Appraisal Of Corporate Governance In India

The post liberalization period of the IT sector have increased

inflows of foreign capital and private equity investments.

Many groups varying interests such as traditional ones, which focus

on the control mechanism and assets values, and new generations groups which focus on investment protection and multi-stakeholder interest.
Ownerships remains highly concentrated and family business

groups continue to be dominant business model.

 Most of Indias corporate governance short-comings are no

worse than in other Asian countries.

According to Balsubramanian survey (2008) compliance with

legal norms is reasonably high in most areas but not complete.

There is a cross sectional relationship between measure of

governance and mesures of firm performance.

Corporate Governance Models Across The World

America : The main problem is conflict of interest between wildly

depressed shareholders & powerful managers.

Europe : The differing voting rights of ownership are tightly held by

families through pyramidal ownership and dual shares.

 Anglo-American:

Liberal model of corporate governance. It encourages radical

innovation and cost competition.

The CEO has broad power to manage the corporation on a daily

basis on all operations issues.

However fund raising, acquisition of business major capital

expansion or other projects require broad approval.

 Companies are primarily regulated by the state in which they are

incorporated.
The companies choose a comfortable regulatory framework and the

highest number of companies is incorporated in Delaware.

The continental model is recognizes the interest of workers,

managers, suppliers and the community in the corporate governance framework.

principles and codes develop in different countries and issued by

stock exchanges.

 OECD

(Organization

For

Economic

Cooperation

and

Development) revised a proponent of corporate governance principles throughout the world in 2004.
Corporate governance focuses on transparences, objectivity and

protecting interest of executive management.

Ethical factors are more or less covered by must do requirements

of guidelines through CSR.

Good governance ensures that all these are done appropriately and

reported objectively and transparently.

Corporate Governance at Infosys

Corporate governance is about commitment to values and ethical business

conduct.

Corporate Governance Philosophy

Satisfy the spirit of the law and not just the letter of the law. Corporate

governance standards should go beyond the law Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose Make a clear distinction between personal conveniences and corporate resources Communicate externally, in a truthful manner, about how the Company is run internally Comply with the laws in all the countries in which we operate Have a simple and transparent corporate structure driven solely by business needs Management is the trustee of the shareholders' capital and not the owner.

Corporate Governance Ratings

CRISIL
It has assigned Infosys 'CRISIL GVC Level 1-Governance &

value creation certificate. ICRA It has assigned Infosys 'CGR 1 Infosys is the first company in India to be assigned the highest CGR by ICRA.

Corporate Governance Guidelines

Board Composition
Board Meetings Board Committees

Management Review & Responsibility

Shareholders

Corporate Social Responsibility

CSR - Definition

Corporate Social Responsibility is a commitment to improve community well being through discretionary business practices and corporate resources.

Social Responsibility

Stakeholders & affected

Environment, Community &Society, Government, NG0.
Employee &Contractors

Impact/ Risk
Pollution, Global Warming, Resource Usage, Ecological imbalance, legal noncompliance
Health care and safety, legal noncompliance, Disaster management Income generation, unemployment, social unrest, health & hygiene, education

Strategic action plans Supported

Improving the quality of life

Environmental Leadership

Health & Safety

Quality of life, environmental, safety and health sustainability Improving the quality of life, partnership with society and social license to operate Quality of life and EHS sustainability

Public conduct/ interaction with community & society for capturing their concerns Safety, health and environment education

Community & Society, NGOs, Citizens

Employees, Community & Society

Health and environment care and safety consciousness

Initiatives
Tata group pioneer of CSR in India
TATA CONSULTANCY SERVICES (TCS)

Reduction of waste at source

Reuse of material wherever possible

Recycling Purchasing of products with recycled content

Tata MOTORS

Reducing Pollution

Restoring Ecological Balance

End of Life Vehicle Treatment and Recycling

At Tata Steel major CSR programme are managed by three organizations Tata Steel

Rural Development Society (TSRDS), Tata Steel Family Initiatives Foundation (TSFIF) and the Tribal Culture Society (TCS).
TSRDS started with 32 villages around Jamshedpur now covers over 700 villages in the

states of Jharkhand and Orissa.

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Institutions
Indian Institute of Science (IISc)
JRD TATA Ecotechnology Centre (JRDTEC) TATA Institute of Fundamental Research (TIFR) TATA Institute of Social Sciences (TISS)

Healthcare
TATA Memorial Centre TATA Medical Centre

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