CORPORATE ETHICS : GOOD

GOVERNANCE
 CORPORATE GOVERNANCE
CG will focus on the internal structure & rules of
board of directors , the creation of independent
audit committee , rules for the disclosure of
information to shareholders and creditors and
control of management .
By Sir Adrian Cadbury : CG is defined as holding the
balance between economic and social goals and
b/w individual and communal goals. The
framework is there to encourage the efficient use
of resources and equally to require accountability
for the stewardship of those resources .
• By OECD ( Organization for economic cooperation
and development ) : the system by which
business corporations are directed and controlled
.
• In short the functions are : 1) management
accountability 2) providing adequate investments
to management 3) disciplining and replacement
of bad management 4) enhancing corporate
performance 5) transparency 6) investor
protection 7)promoting long term investment 8)
encouraging innovation
 Significance of corporate
governance to developing
countries
• Developing countries are facing
transformation in the political and business
relationships with the process of economic
growth .
• Leads to open, transparent democratic
systems.
• Need good CG to maximize the productivity
and economic efficiency.
• CG will help them to fight effectively the
corruption and abuse of power to face the
societies issue .
• Acc to Nicolas Meisel developing countries
should concentrate on 1) since good and
effective communication 2)ensure individual
players maximum autonomy while seeing that
they are accountable for their acts. 3) in
hierarchy of the organization new powers
should be there to control the issues 4) the
role of the state and the government officials
should be clearly defined .
 Issues in CG
• Some people consider it as the important
instrument for economic development but
some think it as a strategy to achieve goodwill
• But it is actually long term shareholder and
stakeholder value.
• The some of the important issues are :
1. Distinguishing the roles of board and
management .
2. Composition of the board and related issues.
3. Separation of the roles of CEO and
chairperson
4. Should the board have committees ?
5. Appointment to the board and directors
reelection .
6. Directors and executives remuneration
7. Disclosure and audit
8. Protection of shareholders rights and their
expectations
9. Making a socially responsible corporate –
investor’s role
 Need for and importance of CG
• Large corporations are multinational now a
days . They have put impact on several citizens
across the world.
• If anything goes wrong it will affect at the
world level.
• So the corporate governance should be
effective .
• Corporate culture should be transparent and
open.
 Strategies and techniques basic to
sound corporate governance
• Found in papers issued by the Basel
committee on banking supervision. These
papers were the management of interest rate
risk , framework for internal control systems in
banking organizations , enhancing bank
transparency and principles for the
management of credit risk .
• Some strategies related to this are as follows
documented on the basis of above papers :
1. Corporations should cultivate ethics, develop code
of conduct and ethical behavior in relation of
putting the system of governance .
2. Appropriate and well articulated corporate strategy
against which the contribution of individual players
can be evaluated .
3. Well defined divisions of responsibilities and
assignment of decision making authorities .
4. Setting of a system to facilitate interaction and to
ensure cooperation among senior management ,
board of directors, auditors.
5. Establishing strong internal control systems with
both internal and extenal audit systems ,
Risk management functions .
6. Instituting a schemem of financial and
managerial incentives to act as a flip to senior
management , business line management and
employees in the form of compensation ,
promotion and other means of recognition.
7. Ensuring the required information flows
internally and to the public at large.
 Indian model of CG
• Governed by the companies act 1956 that follows
more or less the UK model.
• Literature shows that Indian model is more of
German/Japanese model . But the acceptance of the
Anglo- American model has come into existence.
• Indian govt. has three committees – SEBI (Security
exchange board of India)- appointed kumar
mangalam birla committee (2000), the government-
appointed naresh chandra committee (2003), and
SEBI’S narayan murthy committee (2003)are similar
to those of England
 Cont.
Cadbury Committee and America's Sarbens –oxley
act .
• As per their legislative reforms they call for
greater transparency in the accounts and for the
certification (Anglo American model)
• Accurate and reliable information
• Non –executive should be given greater roles .
• India uses anglo american external and internal
control mechanisms for economic liberalization
and its integration in global economy.
• CG in indian system has shown a shift from
German/Japanese model to Anglo- American
model.
• No preferred model of CG in Indian system.
 What is Good CG?
• These are made by the combined efforts of all
stakeholders , that include the shareholders,
board of directors, employees , customers ,
dealers , government and society.
- Obligations to society
- Obligation to investors
- Obligation to employees
- Obligation to customers
- Obligations to managers
 Legislative changes
• Role of Department of company affairs
• Companies act 1956 was amended thrice since
1999 for liberalization .
• The bill was introduced by indian govt. in aug
2001 to provide a legislative framemwork for
the formation and conversion of cooperative
business into companies .
 Clause 49
• SEBI monitors and regulates the corporate
governance of listed companies in India
through clause 49.
• It is compulsory to follow this clause for stock
exchange companies .
• SEBI issued this clause in feb 2000
 Provisions and requirements of board

• Composition of board : it doesn’t have a chairman ,

50% non executive directors and 50% executive
directors
• Audit committee- 3 independent directors with
chairman of sound financial background.
• Audit committee reviews financial performance on
half yearly or annual basis .
• Board procedures - 4 meetings per year.
• Management discussion and analysis report
• Shareholders information
• Performance appraisal of corporate
governance in India
• Future of CG in India
• Impetus for the growth of CG in India.