Assignment

Subject : Strategic Management

Topic : Corporate Governance

Submitted by ,
Ajmal S
Roll no : 2
Strategic Management

Corporate governance
Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests
of a company's many stakeholders, such as shareholders, management, customers,
suppliers, financiers, government and the community. Since corporate governance also
provides the framework for attaining a company's objectives, it encompasses practically
every sphere of management, from action plans and internal controls to performance
measurement and corporate disclosure.
Conduct of business in accordance with shareholders desires (maximizing wealth) while
confirming to the basic rules of the society embodied in the Law and Local Customs.
Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

Principles of Corporate Governance

 Sustainable development of all stake holders - to ensure growth of all individuals
associated with or effected by the enterprise on sustainable basis.
 Effective management and distribution of wealth - to ensure that enterprise creates
maximum wealth and judiciously uses the wealth so created for providing maximum
benefits to all stake holders and enhancing its wealth creation capabilities to
maintain sustainability.
 Discharge of social responsibility- to ensure that enterprise is acceptable to the
society in which it is functioning.
 Application of best management practices - to ensure excellence in functioning of
enterprise and optimum creation of wealth on sustainable basis.
 Compliance of law in letter & spirit- to ensure value enhancement for all
stakeholders guaranteed by the law for maintaining socio-economic balance.
 Adherence to ethical standards- to ensure integrity, transparency, independence
and accountability in dealings with all stakeholders.

Pillars of Corporate Governance

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The four pillars of corporate governance are:
 Accountability
 Ensure that management is accountable to the Board.
 Ensure that the Board is accountable to shareholders.
 Fairness
 Protect Shareholders rights.
 Treat all shareholders including minorities, equitably.
 Provide effective redress for violations.
 Transparency
 Ensure timely, accurate disclosure on all material matters, including the
financial situation, performance, ownership and corporate governance.
 Independence
 Procedures and structures are in place so as to minimize, or avoid completely
conflicts of interest. Independent Directors and Advisers i.e. free from the
influence of others.

Benefits of Corporate Governance

 Good corporate governance ensures corporate success and economic growth.
 Strong corporate governance maintains investors’ confidence, as a result of
which, company can raise capital efficiently and effectively.
 It lowers the capital cost.
 There is a positive impact on the share price.
 It provides proper inducement to the owners as well as managers to achieve
objectives that are in interests of the shareholders and the organization.
 Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
 It helps in brand formation and development.
 It ensures organization in managed in a manner that fits the best interests of
all.

Good and Bad Governance

Good corporate governance creates a transparent set of rules and controls in which
shareholders, directors and officers have aligned incentives. Most companies strive to have
a high level of corporate governance. For many shareholders, it is not enough for a
company to merely be profitable; it also needs to demonstrate good corporate citizenship
through environmental awareness, ethical behaviour and sound corporate governance
practices.
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Bad corporate governance can cast doubt on a company's reliability, integrity or obligation
to shareholders. Companies that do not cooperate sufficiently with auditors or do not
select auditors with the appropriate scale can publish spurious or noncompliant financial
results. Bad executive compensation packages fail to create optimal incentive for corporate
officers. Poorly structured boards make it too difficult for shareholders to oust ineffective
incumbents.

NEED FOR CORPORATE GOVERNANCE

Corporate governance is an important part of strategic management that can improve firm
performance. Good governance practices entail active participation of shareholders in the
direct and indirect management of corporation through the Board of Directors and an
arrangement of productive checks and balances among shareholders, board of directors
and management.
Corporate governance is of interest to us as it determines the strategy of the organization
and how it is to be implemented. It is also important to us because the Corporate
Governance, framework determines who the organization is there to serve and how the
priorities and purposes of the organization are determined.

CORPORATE GOVERNANCE AND STRATEGIC MANAGEMENT

 Corporate governance, in strategic management, refers to the set of internal rules
and policies that determine how a company is directed. Corporate governance
decides, for example, which strategic decisions can be decided by managers and
which decisions must be decided by the board of directors or shareholders.
 Corporate Governance is highly essential from the point of view of the shareholders,
customers, employees and company and society at large for the survival and
sustainable growth of the company. Strategy integrates internal environment
including corporate governance and external environment.
 The corporate governance meets the interests all the stakeholders including the long-
run interest of the company itself in a more balanced way, by regulating and
controlling the misleading, immoral and unethical ideas and acts of CEO, Board of
Directors and other strategists. Thus strategic management should be under the
preview, control of and the provisions of corporate governance provisions and
practices of a company.
 Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding
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authority. In modern corporations, the functions/ tasks of owners and managers
should be clearly defined, rather, harmonizing.
 Corporate Governance deals with determining ways to take effective strategic
decisions. It gives ultimate authority and complete responsibility to the Board of
Directors. In today’s market- oriented economy, the need for corporate governance
arises. Also, efficiency as well as globalization are significant factors urging corporate
governance. Corporate Governance is essential to develop added value to the
stakeholders.

RESPONSIBILITIES OF BOARD OF DIRECTORS

The Board of Directors is responsible for supervising the successful management of the
organization’s business. It has the authority and obligation to protect and enhance the
assets of the corporation in the interests of all shareholders and the company’s public
mission. The Board of Directors responsibilities include: Oversight and approval on an
ongoing basis of the corporation’s corporate and business strategies and monitoring their
implementation; Oversee the establishment and implementation of effective corporate
governance processes Establish standards for management and monitor performance; and
Approve procedures for strategy implementation, for identifying and managing risks and for
insuring the integrity of internal control and management information systems.
The Quality of Board is a deciding factor for good corporate governance. The compositing
and number are the determinants of quality. Even in a small concern the efficiency of the
Board of Directors is a crucial factor for the survival in a competitive environment. Board of
Directors in different companies contributes differently to the corporate governance due to
variations in goals and duties, structure, composition, size of the board, board leadership
and board committees.

GOVERNANACE ISSUES
Corporate governance has wide ramifications and extends beyond good corporate
performance and financial propriety. The complexity of corporate governance arises from
two main reasons. First in most countries there is no separation between ownership and
management control of organization. The second is the increasing tendency to make
organization more visibly accountable not only to owners(shareholders) but also to other
stakeholders groups. In the case of the first issue, it is imperative to distinguish the nature
of the two basic components of governance in terms of, (a) Policy making and overnight
responsibilities of the board of directors and (b) the executive and implementation
responsibilities of corporate management. The second issue is to make organizations more
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visibly accountable and the demand for more transparency and accountability on the part
of corporations.