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Corporate governance is the set of processes,
customs, policies, laws, and institutions
affecting the way a corporation (or company) is
directed, administered or controlled. Corporate
governance also includes the relationships
among the many stakeholders involved and the
goals for which the corporation is governed. In
simpler terms it means the extent to which
companies are run in an open & honest
ISSUES OF CORPORATE
Internal controls and internal auditors
The independence of the entity's external
auditors and the quality of their audits
Oversight of the preparation of the entity's
Review of the compensation arrangements
for the chief executive officer and other senior
SCOPE OF CORPORATE
Accountability of Board of Directors & their
constituent responsibilities to the ultimate ownersthe shareholders.
Transparency, i.e. right to information, timeliness &
integrity of the information produced.
Clarity in responsibilities to enhance
Quality & competence of Directors and their
Checks & balances in the process of governance.
Adherence to the rules, laws & spirit of codes.
Corporate governance ensures that a properly structured
Board, capable of taking independent & objective decisions
is at the helm of affairs of the company. This lays down the
framework for creating long-term trust between the
company & external providers of capital.
It improves strategic thinking at the top by inducting
independent directors who bring a wealth of experience & a
host of new ideas.
It rationalizes the management & monitoring of risk that a
corporation faces globally.
Corporate governance emphasizes the adoption of
transparent procedures & practices by the Board, thereby
ensuring integrity in financial reports.
It inspires & strengthens investors‟ confidence by
ensuring that there are adequate number of nonexecutive & independent directors on the Board, to look
after the interests & well-being of all the stakeholders.
Corporate governance helps provide a degree of
confidence that is necessary for the proper functioning of
a market economy, as it contemplates adherence to
ethical business standards.
Finally, globalization of the market place has ushered in
an era wherein the quality of corporate governance has
become a crucial determinant of survival of corporate.
CODES OF CORPORATE
Codes of corporate governance have existed for more
than two decades and have been developed in many
“Codes of corporate governance are defined as a set of
„best practice‟ recommendations with regard to the
behavior and structure of the board of directors of a
firm.” In recent years, some codes have gone beyond
those boundaries to embrace the governance
characteristics and behavior of institutional investors
and intermediaries as well.
NEED OF CORPORATE
Generally, originators of codes of corporate governance did not intend
them to be some kind of gentler version of one-size fits- all, rigid, and
binding regulation. Rather, they conceived of a code as an over-arching,
flexible, and principles-based framework that provides for companies
adopting guidelines to either comply with provisions, or to explain why
they are not in compliance. This is often described as a „soft standards‟
approach based on a „comply or explain‟ regime rather than hard rules
policed by law and regulation. In most instances, codes are developed to be
flexible enough to encompass the views of many actors within a single
market: multiple company types, many industries, and many stakeholder
Codes aim to help guide the actions of the board or other market
participants, and to provide benchmarks that can be used by others to
evaluate their performance in light of those standards.
SOCIAL RESPONSIBILITY OF
Corporate social responsibility may be referred to as "corporate
citizenship" and can involve incurring short-term costs that do
not provide an immediate financial benefit to the company, but
instead promote positive social and environmental change.
Companies have a lot of power in the community and in the
national economy. They control a lot of assets, and may have
billions in cash at their disposal for socially conscious
investments and programs. Some companies may engage in
“green washing” in corporate responsibility, but many large
corporations are devoting real time and money to
environmental sustainability programs, alternative energy and
various social welfare initiatives to benefit employees,
customers, and the community at large.
BENEFITS OF CSR
Win new business
Increase customer retention
Develop and enhance relationships with
customers, suppliers and networks
Attract, retain and maintain a happy
workforce and be an Employer of Choice
Save money on energy and operating costs and
Differentiate yourself from your competitors
Generate innovation and learning and enhance
Corporate social reporting is referred as the process
of communicating the social and environmental
effects of economic organizations. The reporting is
also a form of corporate self-regulation integrated
into a business model. Its policy functions as a self
regulating mechanism whereby business monitors
and ensures its active compliance with the spirit of
the law ethical standards and international norms.
ROLE OF BOARD
Select individuals for Board membership and evaluate the
performance of the Board, Board committees and individual
Select, monitor, evaluate and compensate senior
Assure that management succession planning is adequate.
Review and approve significant corporate actions.
Review and monitor implementation of management‟s
Review and approve the Company‟s annual operating plans
performance and evaluate results
compared to the strategic plans and other long-range goals.
Company‟s financial controls and reporting
approve the Company‟s financial statements and
Company‟s ethical standards and legal
compliance programs and procedures.
Company‟s management of enterprise risk.
Monitor relations with shareholders,
employees, and the
communities in which the Company operates.
A. Basis of related party transactions:
A statement in summary form of transactions with related
parties shall be placed periodically before the audit committee.
Details of material individual transactions with related parties
which are not in the normal course of business shall be placed
before the audit committee.
B. Disclosure of Accounting Treatment: where in the
preparation of financial statements, a treatment different from
that prescribed in an Accounting Standard has been followed,
the fact shall be disclosed in the financial statements, together
with the management‟s explanation as to why it believes such
alternative treatment is more representative of the true and fair
view of the underlying business transaction in the Corporate
C. Board Disclosure- Risk Management: the
company shall lay down procedures to inform Board
members about the risk assessment and minimization
D. Proceeds from public issues, rights issues ,
preferential issues etc. : When money is raised
through an issue (public issues rights issues, preferential
issues etc.), it shall disclose to the Audit committee, the
uses/ applications of funds by major category (capital
expenditure,, sales and marketing, working capital, etc.),
on a quarterly and annual basis.
E. Remuneration of Directors :
All pecuniary relationship or transactions of the nonexecutive directors vis-à-vis the company shall be disclosed in
the Annual Report.
Further, certain prescribed disclosures on the remuneration
of directors shall be made in the section on the corporation
governance of the Annual Report;
The company shall disclose the number of shares and
convertible instruments held by non-executive directors in
the annual report.
When investors finance firms, they typically obtain certain rights or
powers that are generally protected through the enforcement of
regulations and laws.
Some of these rights include disclosure and accounting rules, which
provide investors with the information they need to exercise other
rights. Protected shareholder rights include those to receive
dividends on pro-rata terms, to vote for directors, to participate in
shareholders' meetings, to subscribe to new issues of securities on
the same terms as the insiders, to sue directors or the majority for
suspected expropriation, to call extraordinary shareholders'
meetings, etc. Laws protecting creditors largely deal with bankruptcy
and reorganization procedures, and include measures that enable
creditors to repossess collateral, to protect their seniority, and to
make it harder for firms to seek court protection in reorganization.