This document discusses the history and development of corporate governance. It defines corporate governance as systems and procedures to ensure management acts in shareholders' best interests. It describes key players like shareholders, boards of directors, and management and the need to balance their interests. The document outlines corporate governance developments in countries like the UK, US, Germany, and Japan. It advocates for a judicious, indigenous mix of approaches suited for India that evolves over time with support from different experts and management.

1. Jayashree Sadri and Sorab Sadri
CORPORATE GOVERNANCE
Genesis and International Developments
Professor Jayashree Sadri
And
Dr Sorab Sadri

2. Jayashree Sadri and Sorab Sadri
Basis
 This presentation is largely based on the
Sadri, Jayashree and Ajgaokar work of 2002
as well as the Jayashree, Sadri and Dastoor
work of 2008.
 Inputs from Dr S N Tara, Dr Bindi Mehta and
Prof. J. Oke are acknowledged.
 This has all culminated in the Sadri and
Jayashree work of 2009.

3. Jayashree Sadri and Sorab Sadri
What is Corporate Governance ?
 Concept originated with the separation of
ownership and management
 Corporatist business and increasing scales of
operation
 Origin can be traced back to “Agency Theory”
propounded by Berle and Means

4. Jayashree Sadri and Sorab Sadri
A Suggested Definition
 …… Systems, procedures and institutions
that ensure that management acts in the best
interests of the owners (shareholders)
 Ongoing debate about whether it should be
shareholders’ interest or all stakeholders’
interest (including employees, customers
environment and community at large) that the
management should serve

5. Jayashree Sadri and Sorab Sadri
Corporate Governance Further
Defined
 Shareholder Versus Stakeholder debate
continues……….
 Moot point is the timeframe
 Interests of both / all are bound to converge
in the long run
 In the long run, sustainability of the enterprise
is important

6. Jayashree Sadri and Sorab Sadri
Corporate Governance Systems
 CG systems and structure differ in historical and
local condition specific contexts -
 Forms of Organizations in enterprises
 Entrepreneurial form
 Banking dominated form
 Managerial form
 Institutional form
 Democratic corporate form

7. Jayashree Sadri and Sorab Sadri
Corporate Governance Tripod
 Three key players or pillars of CG are:
 Shareholders or owners
 Board of Directors
 Management
 Interests may not coincide and balancing
divergent and conflicting interests becomes
crucial.
 A responsible role of the Fourth Estate can
and does work wonders.

8. Jayashree Sadri and Sorab Sadri
Why is CG Imperative for India ?
 Immediate Factors
 Closely on the heels of corporate
debacles
 Vanishing companies
 Corporate frauds
 Ratings downgrades

9. Jayashree Sadri and Sorab Sadri
CG…. Why is it an Imperative for
India ?
 Structural Factors:
 Globalization of markets
 Indian companies are tapping global
markets for resources
 Stock markets are getting institutionalized
 These factors are fast forwarding the Indian
companies into adopting international
standards and best practices

10. Jayashree Sadri and Sorab Sadri
CG….. Developments in U.K.
 Cadbury Committee Report 1992
 A baseline consensus in UK’s financial
community
 Primarily focusing on accountability aspects
 Improved information to shareholders
 Strengthening auditor’s independence

11. Jayashree Sadri and Sorab Sadri
CG…… Developments in UK
 Greenbury Committee Report 1995
Focuses on Executives &
Directors’ Role & Compensation
 Myner Committee Report 1995
 Winning partnerships between owners and
management
 Role of institutional investors

12. Jayashree Sadri and Sorab Sadri
CG…….. Developments in USA
 California Public Employees Retirement Systems
(CalPERS) - Largest public pension plan in the USA,
World’s 3rd largest
 CG through shareholder activism
 “Global Governance Principles” Accountability,
Transparency, Equity, Voting method improvements
and Long term vision

13. Jayashree Sadri and Sorab Sadri
CG……. German Model
 A Unique System of Two Tier Boards
 Supervisory Board
 Managerial Board
 No official codes, but many provisions
in company legislation
 Of late, demand for professionalising
supervisory boards and importance to
individual shareholders

14. Jayashree Sadri and Sorab Sadri
CG…. Developments in Japan
 CG Forum of Japan (consisting of
corporations, institutional investors &
academia)
 Short / medium term suggested measures
are -
 Size of Japanese boards to be reduced
 Truly independent auditors
 Reduction in cross shareholding

15. Jayashree Sadri and Sorab Sadri
CG………. OECD Principles
 Organization of Economic Co-operation and
Development (OECD) Principles
 Intended to assist member governments in
evaluating their legal, institutional and
regulatory framework
 Shareholders’ Rights
 Board Responsibilities
 Disclosures & Transparency

16. Jayashree Sadri and Sorab Sadri
CG…… Implementation
Modalities
 Available Options are -
 Through general legislation
 Through stock exchanges
 Through independent & well publicized ratings
 Through institutional activism & nominee
directors
 Through Self Regulation

17. Jayashree Sadri and Sorab Sadri
Implementation Choices
 Most experts are averse to generally
applicable standards & legal intervention
 Internationally, self- regulation, linked to
openness and accountability, seems to
generate the maximum support
 Self - regulation may not work in India in the
foreseeable future - A judicious mix of all the
four approaches (UK, USA, German and
Japanese) may be required

18. Jayashree Sadri and Sorab Sadri
Therefore
 The judicious mix has to be indigenous and
founded on business ethics.
 It has to evolve over a period of time.
 The inputs of People Management experts
and Business Strategists must combine with
those of Company Secretaries and Chartered
Accountants to generate this mix.
 Must have the implicit and explicit support of
top management.