Corporate strategy and corporate governance are two important tools of functioning of any company Corporate governance is more

operational and no strategy can succeed without operational support No governance can achieve organizational objectives without a strategic management system

The board of directors represents the interest of the shareholders who are the owners of the company CEO and other managers represent the management of the company

Corporate governance ensures that long term strategic objectives and plans are established and that the proper management structure (organization, systems and people) is in place to achieve those objectives while at the same time, making sure that the structure functions to maintain the corporates integrity, reputation and responsibility to its various constituencies

CORPORATE GOVERNANCE

CORPORATE STRATEGY

Objectives have more governance orientation Primarily guided by the shareholders and result in good returns on investment of shareholders and their happiness Concentrates on organizational structure, rules, procedures and systems for better governance

Objectives have more strategic focus Focuses more on market share , long term growth and development

Focusses more on strategic planning and resource allocations

CORPORATE GOVERNANCE

CORPORATE STRATEGY

Attempts to streamline operations for good governance

Guiding force behind corporate governance is the shareholders

Depends more on strategic functions ( Manufacturing, finance, marketing and HR) and strategic implementation It is dictated by market, competition and customers

A strong demand for evolving a good corporate governance system is emerging from the corporate sector itself. The board of directors expects the corporate to run transparently Over the years, organizations have witnessed frequent violations of organizational and governmental regulations

Shareholders are also becoming more demanding and more conscious about their rights and privileges They expect efficient management, good governance, high profit and large dividends They look for transparency and public image to maximize shareholders value

What is the purpose corporate objective or philosophy or goal of an organization Whom the organization should be serving How best to serve their interests

Stakeholders are those individuals or groups or institutions, who depend on the organization to fulfil their own objectives or goals, and on whom, in turn, the organization depends for achievement of its objectives Internal stakeholders are stockholders, employees of a company different departments, staff union etc.

External stakeholders include creditors ( banks and financial institutions), vendors or suppliers and customers Many internal and external stakeholders have high stakes in formulation of corporate governance policies and strategies of a company

Stockholders supply capital and expect an appropriate return on their investment Employees provide labour, skill and management and want fair wages and job satisfaction Creditors give financial support and expect more value and timely repayment Suppliers of raw materials and inputs expect the company to keep its commitment Customers buy a companys products and services and want value for their purchases

Every company should take into account the interests of all these stakeholders while formulating its policies and strategies A company should send a clear message that its policies and strategies would be formulated with shareholders interests in mind This brings us to corporate social responsibilty

A number of developed countries have documented corporate codes appropriate to their business, economic and social systems Treadway report, Greenbury report, Cadbury report and vienot report are some of the examples of the development of country specific codes of corporate governance

The Anglo-American system tends to focus on shareholders and various creditors Continental Europe, Japan and south korea believe that companies should also discharge their obligations towards employees, local communities, suppliers and ancillary units In India, Kumaramangalam Birla Committee deliberated on corporate governance practices

Corporate Governance extends beyond Corporate Law. Its fundamental objective is not the mere fulfilment of the requirement of law, but, ensuring the boards commitment to managing the company in a transparent manner for maximizing long term shareholder value

CII had taken a special initiative to set up a National Task Force on Corporate Governance in 1996 It focusses on the context of liberalization of Indias economy, its integration with the global economy and Indias international competitiveness

Commitment achieving the highest international standards Board structure Gives adequate representation to all stakeholders Business policy Fair market practices and transparency in appointment of agents, consultants etc. Transparency and disclosure Believes in information sharing Corporate ethics focus on integrity, efficiency and interpersonal relationships

STRATEGIC

GOVERNANCE

Long term growth Cost efficiency through technology or new investment Expanding into mass market; product and price strategy

Sacrifice of short term profitability Job losses in the organization Decline in quality standards

To resolve or mitigate the conflicts between corporate strategy and corporate governance, empowerment of the board may be a useful tool The board, by virtue of its position, is the single entity, which can influence both corporate governance and corporate strategy and also strike a balance between their conflicting requirements or demands

Empowerment of board means that outside directors have the independence and also the capability to monitor the performance of top management and the company; to influence management to change the strategic direction of the company if its performance does not meet the boards expectations; and, in extreme cases, to change corporate leadership.

Many investors do not like to be on the board and play a direct role in governing companies, but would like to keep pressure on the board to control or monitor the management of the company through nominated directors The move to empower directors has been initiated by some stakeholders because of a controversy about CEO compensation Examples are General motors, IBM, AT&T, ITC and Hindustan Unilever

Monitoring will result to crisis management. First the board will remain passive till a crisis develops and then acts according to it But in board empowerment outside directors should anticipate and prevent changes In many cases board suggest to remove the CEOs for poor corporate performance

To ensure legal and ethical conduct by the companys managers and employees to approve companys strategic direction and evaluate its progress To select, evaluate, reward and, if necessary remove the CEO To ensure that appropriate top management succession plans are in position

Full time functional directors with executive powers representing areas like manufacturing, marketing, finance and HR Non-executive directors nominated by and to represent or protect the interests of financial institutions or banks who may be holding substantial equity shares of the company Professional directors provide professional inputs and expertise in management of the company, but do not directly represent the interests of the shareholders

Professional directors , rightly appointed , can play significant roles in giving directions to the company both in governance and strategic matters Some issues like , number of companies a professional director should serve simultaneously There is a issue of leakage of information or strategic details and conflicting decisions

The Cadbury committee has prescribed a code of best practice to serve as a guidelines to those companies which want to achieve higher standards of corporate governance Separate positions of chairman and CEO Role clarity of chairman and CEO Professional inputs from independent directors

Strategic audit is a formal strategic review process, which imposes its own discipline on both the board and the management very much like the financial audit process Five elements of strategic unit Establishing criteria for performance Database design and maintenance Strategic audit committee Relationship with the CEO Alert to duty ( by board members)

THE MANAGED CORPORATION

THE GOVERNED CORPORATION

Boards role is to hire, monitor and when necessary change failed management Power sufficient to control the CEO and the performance evaluation process

Boards role is to foster effective decisions and monitor and reverse failed policies Expertise sufficient to allow the board to add value to the decision making process and per formance

The objective of corporate governance is to protect the interests of the stockholders whose primary concern is maximization of return on investment or short term profitability The objective of corporate strategy is more to focus on long term growth and profitability, which gives sustenance to the company

The strategic management process of companies are also trying to find ways to strike a balance between corporate social responsibility and profitability, realizing that ideally both should coexist for optimal/proper organizational growth. This is one area where both corporate strategy and governance are showing a common focus. Bajaj auto, Tata motors and Nirma are good examples

It is defined as the alignment of business operations with social values People think issues like pollution, waste disposals, environment safety conservation of natural resources are considered for formulation of policy and strategic decision making An organizations social policy should be integrated into all management activities including the mission statement and objectives

Infosys, Wipro, ITC, Dr.Reddys, Godrej, Mahindra & Mahindra and Tata steel The Infosys foundation works for both economic and social upliftment of the villages it has adopted ITCs E-choupals have not only helped to meet the information requirements of rural households, but also immensely contributed to the establishment of better relations with customers and rural suppliers

How much and how far have they shown their social responsibility, i.e., what is their social performance against stated social objectives It improves its public image and social standing Also to scan the external environment To improve the relations with the government and public bodies First carried out for Tata steel by the social audit committee by the company