Professional Documents
Culture Documents
&
BOARD OF DIRECTORS
Arun Chakravarthy
Lokesh Narang
Prateek Maheshwari
Rahul Pangasa
Sumit Jhawar
What is Corporate
Governance?
Corporate governance is the set of processes,
customs, policies, laws, and institutions affecting
the way a corporation (or company) is directed,
administered or controlled.
It is in accordance with the democratic spirit of the
modern day corporate practices.
Concept of Corporate Governance
(Different Perspectives)
Monks and Minow – “Relationships among various participants
in determining the direction and performance of a corporation.”
James D.Wolfensohnn, President of World Bank - “Corporate
Governance is about promoting corporate fairness,
transparency and accountability.”
Standard and Poor - “the way a company is organized and
managed to ensure that all financial stakeholders receive their
fair share of a company’s earnings and assets.”
Cadbury Committee (U.K) - “(it is) the system by which
companies are directed and controlled.”
Governance vis-a-vis
Management
Governance Management
External focus Internal focus
Assumes an open system Assumes a closed system
Strategy oriented Task oriented
Relates to where the company is to go Getting the company to the targeted goal
Job of the board of directors Job of the executives
Scope of Corporate
Governance
Structuring of Boards
Board Procedures
Enhancing of shareholders’ participation,
disclosure of financial information, and fulfilling
shareholder’s rights
Industrial Democracy
Objectives of
Corporate Governance
Installation of a properly structured board
Ensuring a properly balanced board
Adoption of transparent procedures and practices
Effective and regular monitoring of management
functioning by the board
Disclosures to shareholders
Exercise of effective control on corporate affairs
by the board at all times
Systems of Corporate
Governance
According to Franks and Mayer –
Outsider System
• Dominant in UK & USA
• Large Number of listed companies
• A liquid capital market
• Little concentration of shareholdings
• Relies on market and outside investors for corporate control
Insider System
• Continental Europe and Japan
• Small number of listed companies
• An illiquid capital market
• High concentration of shareholdings
Aspects of
Corporate Governance
Internal Aspects
• Set of Organizational Rules within the company.
• Sound internal processes and procedures
• Sound corporate philosophy based on ethical principles.
• Good quality leadership by the board and senior management.
• The management’s mindset imbued by vision, sense of responsibility,
respect for law and a value system
External Aspects
• Focus on profit optimisation
• Assessments of performance of the company through market mechanism
Principal activities of
Corporate Governance
DIRECTION
ACCOUNTABILIITY
Historical Evolution of the Board
Constitutional Boards
Consultative Boards
Collegial Boards
Communal Boards
Corporate Boards
Guardians of respective enterprises
Protectors of shareholder’s interest
Needed to control the top management
Counsel and advice the top management
Board Structures
All Executive Board
Majority Executive Board
Majority outside Board
Two-tier board
Supervisory Board
Management or Executive Board
Board Objectives
Business objectives
Marketing related objectives
Financial Objectives
Technical objectives
Compliance Objectives
Social Objectives
Environmental Objectives
Responsibilities of the Board
Determination of Board functions
Setting values, mission and vision
Preparation of strategic plan, next year’s operating plan and
budget
Ensuring of adequate resources
Monitoring progress
Preparation of a work plan
Mentoring, monitoring and evaluating the Chief Executive
Ensuring compliance and disclosure
Communicating with stakeholders
Directors
Directors
Non-
Executive
executive
The Directors
Executive Directors are those directors who
devote whole or substantially the whole of the
time in the management of the affairs of the
company.
Non-Executive Directors are those directors who
are not involved in the day to day affairs of the
company.
Rules for composition of board
[According to clause 49 (IA)]
Minimum 3 NEDs one of whom may be company’s
Chairman
Non Executive Directors – Not less than 50% of the
board of directors
If the board has non-executive chairman at least one –
third of total number of directors in the board shall be
independent directors
If the board has an executive chairman at least 50% of
the total number of directors shall be independent
The Role of Directors
Performance role
Contributing know-how, expertise and information about the
external environment
Representing the company and networking
Conformance Role
Judging
Questioning the board’s assumptions
Supervising Executive Management
Watchdog Role
Role of a Confidante
Responsibilities of Directors
Responsibility to shareholders
Duty to act honestly
Duty not to make secret profits
Duty to exercise reasonable care, diligence and skill in their work in the
board
Selection, compensation, monitoring and replacement of key executives
Review of key executives and board remunerations
Ensuring formal and transparent nomination process
Monitoring and managing potential conflicts of interests
Ensuring integrity of company’s accounting and financial reporting systems
Putting in place appropriate control systems
Monitoring the effectiveness of corporate governance practices
Overseeing process of disclosure and communications
Clause 49 – Corporate
Governance
Composition of Board
Non executive directors’ compensation and
disclosures
Other provisions as to Board and Committees
Code of Conduct
Fiduciary Relationship
A fiduciary duty is a legal or ethical relationship of
confidence or trust between two or more parties,
most commonly a fiduciary or trustee and a principal
or beneficiary.
A fiduciary is expected to be extremely loyal to the
person to whom he owes the duty (the "principal"):
he must not put his personal interests before the
duty, and must not profit from his position as a
fiduciary, unless the principal consents.
Independent Directors
Only Non-executive director can be an
independent director for the purpose of clause
49
Chairman -> Non Executive Director
Non Executive Director known as Independent
Director.
Composition = one third of board of directors
• Corporate Governance Committee
• Compliance Committee
• Share Holders Committee
• Nomination Committee
• Remuneration Committee
• Audit Committee
Board Committees