• Corporate governance includes the practices, principles and values
that guide a company and its business every day.
• Corporate governance covers set of relationships between a
company's management, its board, its shareholders and other
• It is a control measure that can result into overall economic growth
and development of an economy plus will generate social justice, if
implemented and executed correctly.
• The definition of corporate governance most widely used is "the
system by which companies are directed and controlled"
(Cadbury Committee, 1992) .
• The OECD Principles of Corporate Governance states:
"Corporate governance involves a set of relationships between
a company’s management, its board, its shareholders and other
stakeholders. Corporate governance also provides the structure
through which the objectives of the company are set, and the
means of attaining those objectives and monitoring
performance are determined."
• Started as economic or financial concept
• Involves lot of parties
• Involves organizational & social objective
• Guiding practices, process & principles
• Used to motivate management to perform better
• Universal approach (world wide acceptance)
• framework of rules, relationships, systems, and processes
• Implemented at all levels in an organization
• Tool for benchmarking & controlling performance
• Focuses on long term value addition (profitability, goodwill,
brand recognition etc.)
• It creates a safe environment in front of the
• It promotes the investment habits of people
by securing better return on investment .
• It make the management as responsible and
• It ensures proper allocation of resources.
• It focuses on the stakeholders betterment.
• Economic development of the society through
1. Strengthen management oversight functions and accountability
2. Balance skills, experience and independence on the board
appropriate to the nature and extent of company operations
3. Establish a code to ensure integrity
4. Safeguard the integrity of company reporting
5. Risk management and internal control
6. Protection of minorities
7. Role of other stakeholders in management
8. System of reporting and accountability
9. Effective supervision and enforcement by regulators
10. To encourage Sustainable Development of the Company and its
Clarifying governance roles & responsibilities,
and supporting voluntary efforts to ensure the alignment
of managerial and shareholder interests and monitoring
by the board of directors capable of objectivity and
Requiring timely disclosure of adequate
information concerning corporate financial performance
Ensuring that corporations comply with
relevant laws and regulations that reflect the
Ensuring the protection of shareholders’
rights and the enforceability of contracts with
1. Board of directors
4. Shareholders or owners
8. Community (people affected by the actions of the
Followings are the instruments of corporate governance
These instruments provide wider coverage and cover the following
• Share holders rights and protection
• Shareholders instruments
• Employees and stakeholders right protection
• Company board responsibility
• Transparency of corporate structures and operations, and disclosure of it
There are four theories of corporate governance
»The agency theory
»The stewardship theory
»The stakeholder theory
»The political theory
• The basis for the agency theory is the separation
of ownership and control.
• Principal (shareholders) own the company but
the agents (managers) control it.
• Managers must maximize the shareholders
• The main concern is to develop rules and
incentives, based on implicit explicit contracts, to
eliminate or at least, minimize the conflict of
interests between owners and managers.
• Managers as stewards
• Assumed to work efficiently and honestly in
the interests of company and owners.
• Self directed and motivated by high
achievements and responsibility in discharging
• Managers are goal oriented
• Feel constrained if they are controlled by
• Managers are responsible to maximize the
total wealth of all stakeholders of the firm ,
rather than only the shareholders wealth.
• The government that decides the allocation of
control, rights, responsibility, profit, etc.
between owners, managers, employees and
• Each stakeholder may try to enhance its
bargaining power to negotiate higher
allocation in its favor.
• Corporate governance practiced in an
organization through the following manners
• Board of directors
• Audit committee
• Shareholders or investors grievance committee
• Remuneration committee
• Management analysis
• Auditor’s certificate on corporate governance
• The board of directors constitute the top and strategic
decision body of a company.
• It is composed of executive and non executive
• The board should meet frequently and all pertinent
information affecting or relating to the functioning of
the company should be placed before the board.
• Some of the significant maters are:
Review of annual operating plans of business , capital expenditure
budget and updates.
Quarterly result of the company.
Minutes of the meeting of Audit committee and other
Materially important show causes, demands, prosecutions and
penalty notice etc……
• It is a powerful instrument of ensuring good corporate
governance in the financial matters.
• The function of audit committee includes the following:
Overseeing the company's financial reporting process and
ensuring the correct , adequate and credible disclosure of
Reviewing the adequacy of the audit and compliance function ,
including their policies, procedures, techniques and other
Recommending the appointment of statutory auditors.
To review the observation of internal and statutory auditors
about the findings during the audit of the company
• Companies should form a shareholders/investors
grievance committee under the chairmanship of
a non executive independent director
• The committee is responsible for attending to the
grievance of shareholders and investors relating
to transfer of shares and non receipt of dividend.
• The company may appoint a remuneration
committee to decide the remuneration and
other perks etc. of the CEO and other senior
management officials as per the Companies
Act and other relevant provisions.
• Management is required to make full
disclosure of all material information to
• It should give detailed discussion and analysis
of the company's operations and financial
• The quarterly , half yearly and annual financial
results of the company must be send to the stock
exchange immediately after they have been
taken on record by the board
• Some companies simultaneously post them on
• Companies may also provide periodic event
based information to investors and the public at
large by way of press releases/intimation to the
• The external auditors are required to give a
certificate on the compliance of corporate
• In this certification they conclude the firm
initiatives in respect of the corporate
governance and they also advise the
management for better corporate governance
• Contemporary discussions of corporate governance tend to refer to
principles raised in three documents released since 1990:
The Cadbury Report (UK, 1992),
The Principals of Corporate Governance (OECD, 1998 and
The Sarbanes-Oxley Act of 2002 (US, 2002).
• The Cadbury and OECD (Organization for Economic Corporation and
Development) reports present general principals around which
businesses are expected to operate to assure proper governance.
• The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is
an attempt by the federal government in the United States to
legislate several of the principles recommended in the Cadbury and
• Rights and equitable treatment of shareholders : Organizations should
respect the rights of shareholders and help shareholders to exercise those
rights. They can help shareholders exercise their rights by openly and
effectively communicating information and by encouraging shareholders
to participate in general meetings.
• Interests of other stakeholders : Organizations should recognize that they
have legal, contractual, social, and market driven obligations to non-
shareholder stakeholders, including employees, investors, creditors,
suppliers, local communities, customers, and policy makers.
• Role and responsibilities of the board : The board needs sufficient
relevant skills and understanding to review and challenge management
performance. It also needs adequate size and appropriate levels of
independence and commitment to fulfill its responsibilities and duties.
• Integrity and ethical behavior : Integrity should be a fundamental
requirement in choosing corporate officers and board members.
Organizations should develop a code of conduct for their directors
and executives that promotes ethical and responsible decision
• Disclosure and transparency : Organizations should clarify and
make publicly known the roles and responsibilities of board and
management to provide stakeholders with a level of accountability.
They should also implement procedures to independently verify
and safeguard the integrity of the company's financial reporting.
Disclosure of material matters concerning the organization should
be timely and balanced to ensure that all investors have access to
clear, factual information.
• In essence good corporate governance consists of a system of
structuring, operating and controlling a company such as to achieve
• a culture based on a foundation of sound business ethics
• fulfilling the long-term strategic goal of the owners while taking into
account the expectations of all the key stakeholders, and in particular:
• consider and care for the interests of employees, past, present and
• work to maintain excellent relations with both customers and
• take account of the needs of the environment and the local
• maintaining proper compliance with all the applicable legal and
regulatory requirements under which the company is carrying out its