An overview of Corporate Governance, Principles ofCorporate Governance.
Need for Corporate Governance.
Perspectives, Benefits, and Important issues in Corporate Governance.
Composition, Structure, Role and Responsibilities and Committee of the Board in an Organization
Effective and reliable internal control to form the basis for compliance with sound and prudent business
Compliance aimed at preventing the materialisation of compliance risks.
Corporate Governance – Overview
• Corporate governance has a broad scope which includes both social and institutional aspects.
• Corporate governance is the system by which companies are directed, controlled and managed.
• Corporate influences:
o how the objectives of the company are set and achieved,
o how risk is monitored & assessed,
o how performance is optimized.
• Corporate governance is the system of principles, policies, procedures, and clearly defined responsibilities
and accountabilities used by stakeholders to overcome the conflicts of interest inherent in the corporate
• Corporate governance is the interaction between various participants (Shareholder, Board of Director and
Company Management) in shaping corporation’s performance and the way it is proceeding towards.
• Corporate governance deals with determining ways to take effective strategic decisions and developed
added value to the stakeholder.
• The Board of Directors have a fiduciary duty to the shareholders, and thereby are responsible for
overseeing the operations and activities of the company.
• Corporate governance also provides the framework for the attainment of a company’s objectives.
• The main focus is to make the business function in a highly effective manner so as to achieve positive
results and thereby maximise the returns of the stakeholders.
• Corporate governance ensures transparency which ensures strong and balance economic development.
This is also ensures that the interest of all shareholders (Majority as well as minority shareholder) are
• Corporate governance affects the operational risk and sustainability of a corporation.
• The quality of a corporation’s corporate governance affects the risks and value of the corporation.
• Effective, strong corporate governance is essential for the efficient functioning of markets.
• Corporate Governance is intended to increase the accountability of the company and avoid massive
disasters before they occur.
• Failed energy giant Enron, and its bankrupt employees and shareholders, is a prime argument for the
importance of solid Corporate Governance
• Enron was an energy company that began to trade extensively in energy derivatives markets.
• The company hid massive trading losses, ultimately leading to one of the largest accounting scandals
and bankruptcy in recent history.
• Enron executives used fraudulent accounting practices to inflate the company's revenues and hide
debt in its subsidiaries.
• The SEC, credit rating agencies, and investment banks were also accused of negligence—and, in some
cases, outright deception—that enabled the fraud.
• As a result of Enron, Congress passed the Sarbanes-Oxley Act to hold corporate executives more
accountable for their company's financial statements
• Well- executed Corporate Governance should be similar to a police department’s internal affairs unit,
weeding out and eliminating problems with extreme prejudice
Corporate Governance Principles
Corporate governance refers to all laws, regulations, codes and practices, which defines how institution is
administrated and inspected, determines rights and responsibilities of different partners, attracts human and
financial capital, makes institution work efficiently, provides economic value to stake holders in the long run
while respecting the values of the community it belong.
For corporate governance, the management approach should be in accordance with the following principles.
Principal 1. Governance structure:
All Organizations should be headed by an effective Board. Responsibilities and accountabilities within the
organization should be clearly identified.
Principal 2:The structure of the board and its committees:
The board should comprise independent minded directors. It should include an appropriate combination of
executive directors, independent directors and non-independent non-executive directors to prevent one
individual or a small group of individuals from dominating the board’s decision taking.The board should be of a
size and level of diversity commensurate with the sophistication and scale of the organization. Appropriate board
committees may be formed to assist the board in the effective performance of its duties.
Principal 3. Director appointment procedure:
There should be a formal, rigorous and transparent process for the appointment, election, induction and re-
election of directors.The search for board candidates should be conducted, and appointments made, on merit,
against objective criteria (to include skills, knowledge, experience, and independence and with due regard for the
benefits of diversity on the board, including gender).The board should ensure that a formal, rigorous and
transparent procedure be in place for planning the succession of all key officeholders.
Principal 4: Director’s duties, remuneration and performance:
Directors should be aware of their legal duties. Directors should observe and foster high ethical standards and a
strong ethical culture in their organization. Each director must be able to allocate sufficient time to discharge his
or her duties effectively. Conflicts of interest should be disclosed and managed.The board is responsible for the
governance of the organization’s information, information technology and information security.The board,
committees and individual directors should be supplied with information in a timely manner and in an
appropriate form and quality in order to perform to required standards.The board, committees and individual
directors should have their performance evaluated and be held accountable to appropriate stakeholders.The
board should be transparent, fair and consistent in determining the remuneration policy for directors and senior
Principal 5: Corporate Governance and Internal Control:
The board should be responsible for risk governance and should ensure that the organization develops and executes a
comprehensive and robust system of risk management.The board should ensure the maintenance of a sound internal
Principal 6: Reporting and Integrity:
The board should present a fair, balanced and understandable assessment of the organization’s financial,
environmental, social and governance position, performance and outlook in its annual report and on its website.
Principal 7: Audit:
Organizations should consider having an effective and independent internal audit function that has the respect,
confidence and cooperation of both the board and the management.The board should establish formal and
transparent arrangements to appoint and maintain an appropriate relationship with the organization’s auditors.
Principal 8: Relations with share holders and other key shareholder:
The board should be responsible for ensuring that an appropriate dialogue takes place among the organization, its
shareholders and other key stakeholders.The board should respect the interests of its shareholders and other key
stakeholders within the context of its fundamental purpose.
Need for Corporate Governance
Corporate Governance is needed to create a corporate culture of transparency, accountability and disclosure
Improved governance structures and processes ensure quality decision-making, encourage effective succession
planning for senior management and enhance the long-term prosperity of companies, independent of the type of
company and its sources of finance.This can be linked with improved corporate performance- either in terms of
share price or profitability.
Investors consider corporate governance as important as financial performance when evaluating companies for
investment. Investors who are provided with high levels of disclosure and transparency are likely to invest openly in
those companies.The consulting firm McKinsey surveyed and determined that global institutional investors are
prepared to pay a premium of up to 40 percent for shares in companies with superior corporate governance practice
Better Access to Global Market:
Good corporate governance systems attract investment from global investors, which subsequently leads to greater
efficiencies in the financial sector.
Companies that are transparent, and have sound system that provide full disclosure of accounting and auditing
procedures, allow transparency in all business transactions, provide environment where corruption would certainly
fade out. Corporate Governance enables a corporation to compete more efficiently and prevent fraud and
malpractices within the organization.
Easy Finance from Institutions:
Several structural changes like increased role of financial intermediaries and institutional investors, size of the
enterprises, investment choices available to investors, increased competition, and increased risk exposure have made
monitoring the use of capital more complex thereby increasing the need of Good Corporate Governance. Evidences
indicate that well-governed companies receive higher market valuations.The credit worthiness of a company can be
trusted on the basis of corporate governance practiced in the company.
Improved management accountability and operational transparency fulfil investors’ expectations and confidence on
management and corporations, and in return, increase the value of corporations.
Reduced Risk of Corporate Crises and Scandals:
Effective Corporate Governance ensures efficient risk mitigation system in place. A transparent and accountable
system makes the Board of a company aware of the majority of the mask risks involved in a particular strategy,
thereby, placing various control systems in place to facilitate the monitoring of the related issues.
Wide Spread of Shareholders
Today a company has a very large number of shareholders spread all over the nation and even the world; and a
majority of shareholders being unorganized and having an indifferent attitude towards corporate affairs.The idea of
shareholders’ democracy remains confined only to the law and the Articles of Association; which requires a practical
implementation through a code of conduct of corporate governance.
Changing Ownership Structure
The pattern of corporate ownership has changed considerably, in the present-day-times; with institutional investors
(foreign as well Indian) and mutual funds becoming largest shareholders in large corporate private sector.These
investors have become the greatest challenge to corporate managements, forcing the latter to abide by some
established code of corporate governance to build up its image in society.
Corporate Scams or Scandals public confidence in corporate management.
The event of Harshad Mehta scandal, which is perhaps, one biggest scandal, is in the heart and mind of all, connected
with corporate shareholding or otherwise being educated and socially conscious.
The need for corporate governance is, then, imperative for reviving investors’ confidence in the corporate sector
towards the economic development of society..
Transparency means the quality of something which enables one to understand the truth easily. In the context of
corporate governance, it implies an accurate, adequate and timely disclosure of relevant information about the
operating results etc. of the corporate enterprise to the stakeholders. In fact, transparency is the foundation of
corporate governance; which helps to develop a high level of public confidence in the corporate sector. For ensuring
transparency in corporate administration, a company should publish relevant information about corporate affairs in
leading newspapers, e.g., on a quarterly or half yearly or annual basis.
Accountability is a liability to explain the results of one’s decisions taken in the interest of others. In the context of
corporate governance, accountability implies the responsibility of the Chairman, the Board of Directors and the chief
executive for the use of company’s resources (over which they have authority) in the best interest of company and its
stakeholders. Investor relations are essential part of good corporate governance. Investors directly/ indirectly entrust
management of the company to create enhanced value for their investment.The company is hence obliged to make
timely disclosures on regular basis to all its shareholders in Corporate Governance is integral to the existence of the
company. Good Corporate Governance practices create the environment whereby Boards cannot ignore their
accountability to these stakeholders.
Good corporate governance requires independence on the part of the top management of the corporation i.e. the
Board of Directors must be strong non-partisan body; so that it can take all corporate decisions based on business
prudence.Without the top management of the company being independent; good corporate governance is only a
Perspective and Important Issues in Corporate Governance
There are several important issues in corporate governance and they play a great role, all the issues are inter related,
interdependent to deal with each other. Each issues connected with corporate governance have different priorities in
each of the corporate bodies.
1. Value based corporate culture
For any organization to run in effective way, it needs to have certain ethics, values. Long run business needs to
have based corporate culture.Value based corporate culture is good practice for corporate governance. It is a set
of beliefs, ethics, principles which are inviolable. It can be a motto i.e. A short phrase which is unique and helps in
running organization, there can be vision i.e. dream to be fulfilled, mission and purpose, objective, goal, target.
2. Holistic view
This holistic view is more or less godly, religious attitude which helps in running organization. It is not easier to
adopt it, it needs special efforts and once adopted it leads to developing qualities of nobility, tolerance and
3. Compliance with laws:
Those companies which really need progress, have high ethical values and need to run long run business they
abide and comply with laws of Securities Exchange Board Of India (SEBI), Foreign Exchange Regulation Act,
Competition Act 2002, Cyber Laws, Banking Laws etc.
4. Disclosure, transparency, and accountability:
Disclosure, transparency and accountability are important aspect for good governance.Timely and accurate
information should be disclosed on the matters like the financial position, performance etc.Transparency is
needed in order that government has faith in corporate bodies and consequently it has reduced corporate tax
rates from 30% today as against 97% during the late 1970s.Transparency is needed towards corporate bodies
so that due to tremendous competition in the market place the customers having choices don’t shift to other
5. Corporate Governance and Human Resource Management:
For any corporate body, the employees and staff are just like family. For a company to be perfect the role of
Human Resource Management becomes very vital, they both are directly linked. Every individual should be
treated with individual respect, his achievements should be recognized. Each individual staff and employee
should be given best opportunities to prove their worth and these can be done by Human Resource
Department.Thus in Corporate Governance, Human Resource has a great role.
Every Corporate body needs to take risk of innovation i.e. innovation in products, in services and it plays a
pivotal role in corporate governance.
7. Necessity of Judicial Reform:
There is necessity of judicial reform for a good economy and also in today’s changing time of globalization
and liberalization. Our judicial system though having performed salutary role all these years, certainly are
becoming obsolete and outdated over the years.The delay in judiciary is due to several interests involved in
it. But then with changing scenario and fast growing competition, the judiciary needs to bring reforms
accordingly. It needs to speedily resolve disputes in cost effective manner.
8. Globalization helping Indian Companies to become global giants based on good governance:
In today’s age of competition and due to globalization our several Indian Corporate bodies are becoming
global giants which are possible only due to good corporate governance
9. Lessons from Corporate Failure
Every story has a moral to learn from, every failure has success to learn from, in the same way, corporate
body have certain policies which if goes as a failure they need to learn from it. Failure can be both internal as
well as external whatever it may be, in good governance, corporate bodies need to learn from their failures
and need to move to the path of success
A company, though a legal entity in the eyes of law, is an artificial person, existing only in contemplation of law.
It has no physical existence. It has neither soul nor body of its own. As such, it cannot act in its own person.
It can do so only through some human agency.
The persons who are in charge of the management of the activities of a company are called directors.
They are collectively known as Board of Directors or the Board.
The directors are the brain of a company.
They occupy a pivotal position in the structure of the company.
Directors take the decision regarding the management of a company collectively in their meetings known as Board
Meetings or at the meetings of their committees constituted for certain specific purposes.
Composition and Duties of the Board of Directors
Minimum / Maximum Number of Directors in a Company- Under Section 149 of the Companies Act, 2013
• Every company shall have a minimum number of 3 directors in the case of a public company, 2 directors in the case
of a private company, and 1 director in the case of a One Person Company.
• A company can appoint a maximum of 15 fifteen directors.A company may appoint more than fifteen directors
after passing a special resolution in general meeting and approval of Central Government is not required.
• The maximum number of directorships, including any alternate directorship a person can hold, is 20.
• It has come with a rider that the number of directorships in public companies/ private companies that are either
holding or subsidiary company of a public company shall be limited to 10.
• At least 1 director who has stayed in India for a total period of not less than 182 days in the previous calendar year
shall be appointed by every company.
• At least one woman director shall be appointed in every listed company within one year from the commencement
of the Act.
• Every other public company having paid up share capital of ₹ 100 crores or more or turnover of ₹ 300 crores or more
as on the last date of audited financial statements, shall appoint least one woman director within one year from the
implementation of the Act.
• All the listed public company would have at least 1/3 of the total number of directors as independent directors
(fraction is to be rounded off to one).
Composition of the board of directors - Structure, Role and Responsibilities and Committee of the Board in an
The new Companies Act, 2013 makes a laudable contribution towards stipulation and elucidation of the duties and
responsibilities of the directors of a company, more so of public limited companies.[i] It removed the deficiencies of the
old Companies Act, 1956 and improves the growth and prosperity of the corporate world in India. It increased the
ambit of director's duties and responsibilities and explicitly clarifies (for providing a greater certainty to the directors
with regards to their responsibilities and conduct) them and thus, ensures a better corporate governance and
The functioning of the corporate governance is concerned mainly with the Board of Directors. Directors are appointed
by the shareholders, who sets the overall policy for the company and they appoint some persons to be the managing
director/ executive director/ whole time director by the prior approval of shareholders.
Composition of the board of directors - Companies Act, 2013
Under LODR for Listed Companies (Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015 shall include any statutory modification(s), amendment(s) or re-enactment(s).
Board of Directors
• The composition of the board of directors of the listed entity shall be as follows; Board of Directors shall have an
optimum combination of executive and non-executive directors with at least 1 woman director and not less than
fifty percent of the board of directors shall comprise of non-executive directors.
• Where the chairperson of the board of directors is a non-executive director, at least one-third of the board of
directors shall comprise of independent directors and where the listed entity does not have a regular non-executive
chairperson, at least half of the board of directors shall comprise of independent directors.
• However where the non-executive chairperson is a promoter of the listed entity or is related to any promoter or
person occupying management positions at the level of board of director or at one level below the Board of
Directors, at least 1/2 of the board of directors of the listed entity shall consist of Independent Directors (ID).
The Board of Director- Roles and Responsibilities:
The Board of Directors key function is to ensure the company's prosperity whilst meeting the appropriate interests of
the shareholders. However, the authority of the board is subject to the limitations imposed by the Memorandum of
Association,Articles of Association of the company and the relevant provisions of the Companies Act, 2013.
When it comes to public listed companies, securities are traded publicly and various other provisions like SEBI
regulations and guidelines in the listing agreement deserve consideration.
While private limited companies are closely held and run by the directors.Annual general meetings in such companies
are actually conducted as there are certain directions which can only be given by a discussion in AGM.
Rest day to day affairs of the company are taken care of by the directors according to the provision of Companies Act,
2013 as it is not possible for AGM to direct company in every matter.
Company is a legal personality and Board of Director's are its body and mind.
The Board of Directors focuses on four key areas:
• by establishing vision, mission and values;
• by setting strategy and structure;
• by delegating authority and responsibility to management; and,
• by exercising accountability to shareholders and be responsible to relevant stakeholders.
The Board of Director- Roles and Responsibilities:
As per Section 166 of the Companies Act, 2013 the duties of the director are:
• They should act in accordance with the Articles of a company.
• A director of the company shall act in good faith in order to promote the objects of the company for the benefits of
its members as a whole.
• A due and reasonable care, skill and diligence shall be exercised which performing duties of a director.
• A director should never involve into a situation which directly or indirectly collides with the interests of the company.
• A director shall not attempt to achieve an undue gain for himself or his relatives and if he is found guilty of making
such undue advantage then he has to pay a sum equal to that gain to the company.
• A director shall not assign his office and any assignment so made, is void.
For better governance, the board should function as follows-
• Directors must be totally committed to the company, should meet regularly and steer discussions properly.
• Board should set up their priorities and then acted upon them.
• Board must have the courage to look to any deteriorating situation related to stock market, finance and
especially moral issues.
• Board should not exercise the powers for their own or in a fiduciary capacity but for a proper purpose, for which
they are given to them by the shareholders.
• Directors must always look for the best interests of the company and should work honestly and in good faith
and if there is a conflict between their own interests and company's then they must go in favour of the
• Board has a great responsibility of recruiting the CEO of the company based on the market reports.
• Board has to ensure that processes are in place in order to maintain the integrity of the company and should also
look upon the company's compliance with all legal requirements.
Role of Independent Directors:
The revised clause 49 of the listing agreement states that if a company has executive chairman then the Board requires
to have at least 50 percent of independent directors and if a company has non- executive chairman then the
independent directors required are one-third of the board.
An independent director is a non-executive director who maintains integrity, sense of accountability, tracks various
activities of the company from failures to achievements, plans strategically, degree of commitment and possess sense
of devotion. Neither they possess any financial relationship with the company (except the sitting charges) nor can own
shares in the company.
Most significant duties and functions of independent directors as per Schedule IV of the Companies Act, 2013 are:
• Help in bringing an independent and equitable judgement to the board;
• Safeguard the interests of all stakeholders, particularly the minority shareholder;
• balance the conflicting interest of the stakeholders;
• Strive to attend all the meetings of the Board;
• Report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct
or ethics policy.
Independent directors plays a major role in improving the corporate credibility of the company and in risk management.
They also play a great role in various committees set up by the company to ensure good governance.They should
makeup at least two-thirds of the directors in the audit committees of listed companies to oversee the financial
reporting process and disclosure of the company's financial information, ensure compliance with listing and other legal
requirements, disclosure of related party transactions and qualification in the draft audit report, among other things.
Independent directors are responsible for formulating business strategies on behalf of the shareholders and have to
make sure that all business activities are compatible with all legal provisions.These directors have power to challenge
the decision of management directors and this protects the interests of shareholders and other stakeholders also.
The Board (of the company) shall comprise of following committees:
Section 292A of the Companies Act, 1956 states that every public limited company (whether listed or unlisted) having a
paid-up capital of at least Rs.10 crore should constitute a committee of the board to be known as Audit Committee.
The meetings of this committee should happen at least two to three times a year and preferably before the date of
each Board meeting. The act provides that the Audit Committee shall consist of a minimum of three directors with
independent directors forming a majority.
The functions of the Audit committee shall include-
• the recommendation for appointment, remuneration and terms of appointment of auditors of the company;
• review and monitor of the auditor's independence and performance and effectiveness of audit process;
• examination of the financial statement and the auditor's report thereon;
• Approval of any subsequent modification of transaction of the company with related parties;
• Scrutiny of inter-corporate loans and investments;
• Valuation of undertakings or assets of the company, wherever it is necessary;
• Evaluation of internal financial controls and risk management systems;
• Monitoring the end use of funds raised through public offers and related matters.
The committee can also call for the comments of the auditors about the internal control systems and the review of the
financial statement before the submission to the Board
Nomination and Remuneration Committee:
the Objective of this committee is to lay down a framework in relation to the remuneration and appointment of
directors, Key Managerial Personnel and senior management personnel. This committee consists of three or more
non-executive directors out of which not less than one-half shall be independent directors.The functions of this
committee are- it should identify persons who are qualified to become directors and recommend their appointment to
It shall formulate the criteria for determining the qualifications of a director and recommend a policy to the Board
regarding the remuneration for directors and other employees.The committee while formulating the policy for
remuneration should take care that it is reasonable and motivate directors of the quality required to run the company.
Stakeholders' relationship committee:
This committee shall be constituted if Board of Directors of the company consists of more than one shareholders,
debenture-holders, deposit-holders or any other security holder during the financial year.The said committee shall
consist of a chairperson who shall be the non-executive director and such other persons as may be decided by the
Board.The objective of this committee is to solve the grievances of security holders of a company.
As per the SEBI regulations, the committee shall meet at least once in year.The key to a good governance is to conduct
business in such a manner that the stakeholder's rights and interests are protected and the transparency is maintained
to ensure that the trust and confidence of the stakeholder in the company remains unharmed.Thus, this committee
plays a great role in achieving the objective of good corporate governance.
Stakeholders Relationship Committee
• To specifically look into the mechanism of Redressal of grievances of shareholders, debenture holders and other
security holders the listed entity shall constitute a Stakeholders Relationship Committee.
• The chairperson of this committee shall be a non-executive-director.
Risk Management Committee
• The board of directors shall constitute a Risk Management Committee.
• The majority of members of the Risk Management Committee shall consist of members of the board of directors.
• The Chairperson of the Risk management committee shall be a member of the board of directors and senior
executives of the listed entity may be members of the committee.
• According to Section 149 of the Companies Act, 2013, every company must have a minimum number of three
directors in case of a public company, two in case of a private company and one in case of a one-person
company; and a maximum of fifteen directors (the number of maximum directors can be increased by passing
a special resolution). The Central government may prescribe the class of companies who are required to have at
least one women director. Every public listed company shall have at least one-third of the total number of
directors as independent directors.
Under LODR (Listing obligation and disclosure requirement), for listed companies, the members of the board shall
have an optimum combination of executive and non-executive directors and at least one women director. At least
fifty percent of the board of directors must be non-executive directors.The size of the board should not be too small
or big as small size allows for real strategic decisions, are more cohesive and productive and monitor the firm more
effectively while larger board results in diverse experience and viewpoints.They involve high coordination cost and
thus less effective in monitoring.
• Diversity in case of large boards includes nationality, gender, technical expertise, academic qualifications and age.
Gender diversity is the relevant aspect of board diversity and companies should have women in the board.The
board would be considered effective by its size, demographics and diversity.
Structure, Size and Composition of Board of Directors
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.
• High performance Boards of Directors;
• Accountable management and strong internal controls;
• Increased shareholder engagement;
• Better managed risk;
• Effectively monitored and measured performance
Offenbar haben Sie einen Ad-Blocker installiert. Wenn Sie SlideShare auf die Whitelist für Ihren Werbeblocker setzen, helfen Sie unserer Gemeinschaft von Inhaltserstellern.
Sie hassen Werbung?
Wir haben unsere Datenschutzbestimmungen aktualisiert.
Wir haben unsere Datenschutzbestimmungen aktualisiert, um den neuen globalen Regeln zum Thema Datenschutzbestimmungen gerecht zu werden und dir einen Einblick in die begrenzten Möglichkeiten zu geben, wie wir deine Daten nutzen.
Die Einzelheiten findest du unten. Indem du sie akzeptierst, erklärst du dich mit den aktualisierten Datenschutzbestimmungen einverstanden.