Consensus Oriented
Accountable
Follow the Rule
Responsive
Participatory
Transparent
Equitable & Inclusive
Effective & Efficient
Corporate Governance
Course Objectives
Explain What is Corporate Governance
Define Corporate Governance
Explain What is a Corporation
Describe the Features of a Corporation
Explain What is Good Corporate Governance
Explain the Sarbanes Oxley Act
Describe the Role of Government in Corporate Governance
Describe the World Bank Directives for Corporate Governance
Explain the Factors Directing Corporate Behavior
Describe the Emerging Best Practices of Corporate Governance
Explain What is Corporate Social Responsibility
Explain the Role of Board of Directors in Corporate Governance
Describe the Benefits of Corporate Governance
List the Principles of Corporate Governance
List the Rules of Corporate Governance
Introduction
Look at the news that made headlines in all the leading newspapers across
the world.
Let us see what really
happened.
Introduction
Satyam Computers is a reputed software firm of
India with around 185 Fortune 500 companies
as customers and operations in 66 countries.
Satyam Computers had on
December 16, 2008
announced that it will
acquire two group firms:
• Maytas Properties
• Maytas Infra
Introduction
The Board of Directors of Satyam had approved
the founder, Byrraju Ramalinga Raju's proposal
to buy 51% stake in Maytas Infra and 100% in
Maytas Properties.
The total outflow for both the acquisitions
were expected to be US$ 1.6bn comprising
of US$ 1.3 bn for 100% stake in Maytas
Properties and US$ 0.3 bn for 51% stake in
Maytas Infra.
Introduction
This is the point that sparked a row over alleged
violation of corporate governance laws. The
deal was not profitable to the investors. Hence,
after this announcement, the investors started
raising a hue and cry.
The promoters decided to inflate the
revenue and profit figures of Satyam. Hence,
the company had a huge gap in its balance
sheet.
Introduction
So, Satyam Computers Services Ltd. got
involved in a multimillion dollar accounting
fraud which ultimately led to a huge face loss
for the entire Indian IT industry.
The involvement of the reputed external agency
like Price Waterhouse Coopers (PWC) in the
scandal made the entire episode a nightmare
for the regulatory bodies, the government and
the employees of the organization.
Introduction
Therefore, it is very critical that every corporate
should follow the norms of good corporate
governance.
The objective of corporate governance is the
prevention of such scams in businesses which
have a huge bearing not only on the immediate
shareholders but also on the morale of the
larger stakeholder groups.
Introduction
Corporate Governance is basically a detailed disclosure of information and
an account of an organization’s financial situation, performance, ownership
and governance, relationship with shareholders and commitment to
business ethics and values.
What is Corporate Governance?
•
Corporate Governance refers to the
way a corporation is governed.
•
It is the technique by which
companies are directed and
managed.
•
It means carrying the business as per
the stakeholders’ desires.
•
It is actually conducted by the board
of Directors and the concerned
committees for the company’s
stakeholder’s benefit.
•
It is all about balancing individual
and societal goals, as well as,
economic and social goals.
Corporate Governance – Definition
It is interesting to note that the definition of
corporate governance changes in different
cultural contexts. For example: Let us look at
a definition provided by the Center of
European Policy Studies or CEPS. CEPS define
corporate governance as:
“The whole system of rights, processes and
controls established internally and externally
over the management of the business entity
with the objective of protecting the interests
of the stakeholders.”
Evolution of Corporations
Let us now look at the evolution of corporations into the form we know today.
1
2
3
•
To begin with, in the earlier times, the educational and religious
corporations were given considerable independence and perpetual
existence to evade the all encompassing power of the king.
•
•
Later, corporations were set to address state’s specific needs
like establishing colonies during the colonial era.
Initially, corporations were characterized by a few wealthy people
who negotiated amongst themselves, invested capital and worked
towards maximizing profits.
What is Good Corporate Governance?
Corporate Governance is the
art of directing and controlling
the organization by balancing
the needs of the various
stakeholders. This often
involves resolving conflicts of
interest between the various
stakeholders and ensuring that
the organization is managed
well meaning that the
processes, procedures and
policies are implemented
according to the principles of
transparency and
accountability.
Sarbanes Oxley Act
Corporate Governance has been in the news for the last decade or so
following a spate of scandals that engulfed companies like Enron which led
to their collapse because of mismanagement.
This prompted regulators all over the world to
implement various acts and rules to check
irresponsible corporate behavior that would mar the
prospects of the corporations and cause harm to
their shareholders and stakeholders.
Acts like the Sarbanes Oxley Act were
passed to enforce greater oversight
over corporations and ensure that they
did not overreach themselves in their
relentless pursuit of profits. Indeed, it
can be said that the Enron debacle was
a wakeup call for corporate America to
set its house in order.
The Role of the Government: Legislation and Regulation
•
Another
important
consideration is
the choice of
going after the
corporation or
people, who have
been involved in
the misconduct.
•
A rather fair and objective
view of this issue, is that if
the organization has a
proper system of
safeguards and checks in
systems and processes
and if the misconduct
profits just one person, in
this case even the
corporate becomes a
victim.
•
For such situations, a
single person can be
accused of
embezzlement and
liable for
prosecution.
However, if the fraud is
at a larger level
involving more people,
the situation becomes
complex, whether to
hold liable the board
members and senior
leaders for failing to
ensure the prevention.
Expectations of the Community from the Corporate
The following are the various expectations that the community has from the
corporate:
Impact of Corporate Behavior
Any lack or deficiency in
the corporate
governance structures
has a potential to threat
the stability of financial
structures globally.
The corporate behavior
tends to have a direct or
sometimes an indirect
impact on the economic
state of the countries
and communities they
operate in.
The very recent
examples were the
economic crisis in US,
Brazil and Asia in 1998
and the ever continuing
financial meltdown of
the current times.
Emerging Best Practices of Corporate Governance
Best Practice #1
•
In the wake of the crisis, several
proposals aimed at introducing greater
transparency and accountability from
the corporate have been set in
motion.
•
These include the Dodd-Frank Act or
the legislation that has been passed in
the US to monitor the accounting and
business practices of the banks and
corporate.
Principles of Corporate Governance
The following are the principles of good corporate governance:
Ethical Approach - organizational image, culture, society
Balanced Objectives - Agreement of goals by all interested parties
Equal Participation of Each Party - Roles of key players such as:
owners/directors/staff
Existence of Proper Decision-making Process – Decisions should reflect all
other principles and give due importance to all stakeholders
Caring for Stakeholders – Though some have greater importance than
others
Accountability and Transparency - to all stakeholders
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