Corporate governance
- 1. CORPORATE GOVERNANCE a synthesis of the theory
- 2. AGENDA • Evolution • Introduction • Principles • Governance issues • Codes of best practice
- 3. EVOLUTION Pataliputra, the capital of the Mauryan Empire, is a city “astonishingly well organized and administered according to the best principles of governance”. Writing about the ideal conduct of the King, Kautilya, an official says an ideal king is one for whom- “In the happiness & well being of the subjects, is the well being of the King” (English translation from the Sanskrit version of Arthasastra) Kautilya’s fourfold duty of a king, 1. Raksha – Protection - Shareholders Wealth 2. Vriddhi – Enhancement - Wealth through proper utilization of Assets 3. Patna – Maintenance - Of that wealth 4. Yogakshema – Safeguard - Interest of Shareholders
- 4. INTRODUCTION What is Corporate Governance? It means governing a company in a value based manner. Objective Enhancement of shareholders value keeping in view the interests of other stakeholders. Key Constituents • Shareholders • Board of Directors • Management
- 5. IMPORTANCE OF CG • “The ultimate measure of success is the creation of wealth for our shareholders”. - Georgia-Pacific leading manufacturer • “The proper governance of companies will become as crucial to the world economy as the proper governing of countries”. - James Wolfensohn president of WB,1999
- 6. PRINCIPLES • Right and equitable treatment of shareholders • Interest of stakeholders • Disclosure and transparency • Integrity and ethical behavior • Responsibilities of the board
- 8. DIFFERENT TYPES OF GOVERNANCE • The American corporate governance system is a market based system. • The German system is a bank-based system, often referred to as a universal banking system. • The Japanese system is one of cross-ownership of firms and interlocking relationships called keiretsu.
- 9. GOVERNANCE ISSUES Crucial issues to achieve the objectives are: • Distinguishing the roles of board and management • Separation of the roles of the CEO and chairperson. • Protection of shareholder right and their expectations. • Director’s and executive’s remuneration. • Should the board have committee.
- 10. BENEFITS OF CORPORATE GOVERNANCE • Creation and enhancement of a corporation’s competitive advantage • Enabling a corporation performs efficiently by preventing fraud and mal practices. • Providing protection to shareholders’ interest • Enhancing the valuation of an enterprise • Ensure compliance of laws and regulations.
- 11. OTHER ADVANTAGES OF CG • Increases access to external financing leading to larger investment, high growth & creation of more jobs • Better allocation of resources • Better management creating wealth • Reduces the risk of financial crisis • Better relationship with all stakeholders
- 12. CONCLUSION If a country doesn't have a reputation for strong corporate governance practice, or If investors are not confident with the level of disclosure capital will flow else where. Corporate governance is known to be one of the criteria that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs.
- 13. REFERENCES • "OECD Principles of Corporate Governance, 2004". OECD. Retrieved 2011-07-20. • “A Blueprint for Corporate Governance” by Fred R. Kaen. • “Corporate Governance: A Synthesis of Theory, Research, and Practice” by H. Kent Baker and Ronald Anderson. • “Corporate Governance (3rd Edition)” by Kenneth Kim, John R. Nofsinger and Derek J Mohr
- 14. QUESTIONS