corporate governance

2. Corporat e
Governance

3. Meaning And Definition
Corporategovernanceistheset of processes, customs, policies,
laws, and institutionsaffecting theway acorporation (or
company) isdirected, administered or controlled. Corporate
governancealso includestherelationshipsamong themany
stakeholdersinvolved and thegoalsfor which thecorporation
isgoverned.
Definition: According to Cadbury Committee
“Corporategovernanceisdefined asthesystem by which
companiesaredirected and controlled”.

4. Importance
• Changing ownership structure
• Important of social responsibility
• Growing number of scams
• Indifferenceon thepart of shareholders
• Globalization
• Takeover and mergers

5. Historical perspective
In termsof corporatelawsand financial
system, therefore, Indiaemerged far better
endowed than most other colonies. The1956
CompaniesAct built on thisfoundation, asdid
other lawsgoverning thefunctioning of joint-
stock companiesand protection of investors’
rights.

6. Historical perspective (Cont…)
Although Indiahasbeen fortunatein not having
to go through thepainsof massivecorporatefailures
such asEnron and WorldCom, it hasnot been found
wanting in itsdesireto further improvecorporate
governancestandards. On 21 August 2002, the
Department of Company Affairs(DCA) under the
Ministry of Financeand Company Affairsappointed
thisCommitteeto examinevariouscorporate
governanceissues.

7. Two models of Corporate
Governance
The two models of corporate governance
I. Market model or outsidersmodel.
II. Control model or insider model.

8. The outsider model
• A priority to market regulation
• theownersof firmstend to haveatransitory interest
in thefirm
• Theabsenceof closerelationshipsbetween
shareholdersand management
• theexistenceof an active`market for corporate
control´ - takeovers, particularly hostileones
• theprimacy of shareholder rightsover thoseof other
organisational groups

9. The insider model
• Thepriority to stakeholderscontrol
• Theownersof firmstend to havean enduring interest
in thecompany
• They often hold positionson theboard of directorsor
other senior managerial positions
• Therelationshipsbetween management and
shareholdersarecloseand stable
• Thereislittleby way of amarket for corporate
control
• theexistenceof formal rightsfor employeesto
influencekey managerial decisions

10. OECD On corporate governance
OECD: Organization forEconomic Co-
operation and development
• Rightsand equitabletreatment of shareholders
• Interestsof other stakeholders
• Roleand responsibilitiesof theboard
• Integrity and ethical behavior
• Disclosureand transparency

11. Relevance of corporate governance
Thefour aspectsemphasizetherelevance
of corporategovernance
• Issueof integrity
• Bonusculture
• Regulatory framework
• Directorstraining

12. Issues of corporate governance
• Dutiesof directors
• Compensation and balanceof theboard
• Remuneration and reward of directors
• Reliability of financial reporting and external
auditors
• Shareholdersrightsand responsibilities
• Corporatesocial responsibilities

14. References
• http://www.mbaknol.com/strategic-management/historical-perspective-of-
corporate-governance/
• http://www.mondaq.com/india/x/30193/Employee+Benefits+Compensatio
n/The+Relevance+of+Corporate+Governance+in+the+National+Economy
+Indian+Experience
• http://www.corporatesecretary.com/