09-08-2012, 11:50 AM
CORPORATE GOVERNANCE: AN OVERVIEW
Chapter 1 CORPORATE GOVERNANCE AN OVERVIEW.ppt (Size: 131.5 KB / Downloads: 49)
OBJECTIVES
Corporate governance is the new buzzword in corporate and academic circles today. It means several things to several people, depending on the sensitivity of the analyst and his vested interest in it. This chapter gives an overview of the concept, defines it, discusses its evolution and explains its relevance and impact on the economy.
CHAPTER OUTLINE
Capitalism at Crossroads
Increasing Awareness
Global Concerns
What Is Corporate Governance?
Governance Is More Than Just Board Processes and Procedures
A Historical Perspective of Corporate Governance
Issues in Corporate Governance
Capitalism at Crossroads
America’s Hall of Shame – 2002
Giant corporations such as Enron Worldcom, Dynegy, Waste Management, Adelphia Communications, Tyco, Imclone Systems and Rite Aid failed and were being investigated for fraud and malpractices.
Many of their top executives were penalised for committing fraud and irregularities.
Corporate Misgovernance in India
Reasons for Corporate Misgovernance
Indian corporations were insulated. A closed economy,
a sheltered market, limited need and access to global business/trade, lack of competition, lack of adequate regulatory framework were all the causes. Besides, promoter families ruled the roost. As a result, there
were a series of scams.
Increasing Awareness
Global Concerns
What is Corporate Governance?
Definitions of Corporate Governance:
From the Academic Point of View
“Corporate governance addresses problems that result from the separation of ownership and control.”
From the Angle of Developed Versus Developing Countries
John D. Sullivan: “In developing economies, one must look to supporting institutions – for example, shoring up weak judicial and legal systems in order to better enforce contracts and protect property rights.
Narrow Versus Broad Perceptions of Corporate Governance
Corporate Governance… is defined narrowly as the relationship of a company to its shareholders or, more broadly, as a relationship to society.
(An article in Financial Times)
“Corporate governance is not just corporate management; it is a much broader concept and includes a fair, efficient and transparent administration to meet certain well-defined objectives. It is a system of structuring, operating and controlling a company with a view to achieving long-term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs. When it is practised under a well-laid out system, it leads to the building of a legal, commercial and institutional framework and demarcate the boundaries within which these functions are performed.”
(A. C. Fernando. “Corporate Governance – The Time for a Metamorphosis”, The Hindu Businessline, July 9, 1997.)
Different Perceptions in Definitions
A Historical Perspective of Corporate Governance
From a Narrow to a Broader Vision
(Shareholder to Stakeholder perspective)
The Growth of Modern Ideas of Corporate Governance
from the USA
England Catches Up With US
The Cadbury Committee
The Aftermath of Cadbury Report
Corporate Governance in the Banking Sector
Revival of Corporate Governance Issues in the New Millennium
Issues in Corporate Governance
Distinguishing the Roles of the Board and the Management
Composition of the Board and Related Issues
Separation of the Roles of the CEO and the Chairperson
Should the Board Have Committees
Appointments to the Board and Directors’ Re-election
Directors’ and Executives’ Remuneration
Disclosure and Audit
Protection of Shareholder Rights and Their Expectations
Dialogue with Institutional Shareholders
Should Investors have a say in making a Company Socially Responsible Corporate Citizen
Relevance of Corporate Governance
Managements usually have an information advantage over others. Good corporate governance will ensure all stakeholders interests are protected, while their requirements are fulfilled.
Need for and Importance of Corporate Governance
To maximise long-term shareholder value
Governance and Corporate Performance
These are very closely inter-related
Investors’ Preference for Good Governance
Shareholders are prepared to pay a premium for a company with good corporate governance practices.
Strategies and Techniques Basic to Sound Corporate Governance
Corporate values, codes, internal control systems etc. are useful to ensure flow of capital for combating corruption, stakeholder protection, ensuring industrialisation and economic development.
Benefits of Good Corporate Governance to a Corporation
Culture within the organisation and industry improves
Shareholder confidence improves
Companies that are seen as well governed get a premium for their stocks
Creation and enhancement of a corporation’s competitive advantage
Enabling a corporation perform efficiently by preventing fraud and malpractices
Providing protection to shareholders’ interest
Creates additional shareholder value over time
Enhancing the valuation of an enterprise
Ensuring compliance of laws and regulations