corporate goverance in india

7/29/2019 Corporate Goverance in India

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Corporate Governance in India

Group 9

Shanthan Reddy V (246)

HarshVardhan Gupta (221)

Parvinder Singh Randhawa (203)

Avinash Kaza (237)

Kalyan Chakravarthy B (245)

Aditya Singh (241)



Flow of the Presentation

Brief Introduction

Principles

Prerequisites, Constituents and Organizational & Legal Framework

Clause 49

Companies Bill 2012

Guidelines at International Level

Suggestions and Opinions

Case studies

Future Prospects



Brief Introduction

• Corporate governance is a system by which companies are directed

and controlled.

• It involves regulatory and market mechanisms, the roles andrelationships between a company’s management, its board, its

shareholders and other stakeholders, and the goals for which the

corporation is governed.

• It includes debate on the appropriate management and control

structures of a company.



Contd..

• Corporate governance is also concerned with mitigation of the

conflicts of interests between stakeholders.

• An important theme of corporate governance is the nature andextent of accountability of people in the business.

• Renewed interest in the corporate governance practices of modern

corporations, particularly in relation to accountability.



Principles

• 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 generalmeetings.

• 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.



Contd ..

•

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.

• Integrity and ethical behaviour:

–

Integrity should be a fundamental requirement in choosing corporate officersand board members. Organizations should develop a code of conduct for their

directors and executives that promotes ethical and responsible decision making.

• Disclosure and transparency:

– Organizations should clarify and make publicly known the roles and

responsibilities of board and management to provide stakeholders with a levelof 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.



Prerequisites and Constituents

• Corporate Governance practices has emerged as an integral element for doing business as they are not only a pre-requisite for facing intense

competition for sustainable growth in the emerging global market scenario

but are also an embodiment of the parameters of fairness, accountability,

disclosures and transparency to maximize value for the stakeholders.

• Corporate governance is beyond the realm of law as it cannot be regulated by legislation alone.

• This is because legislation can only lay down a common framework – the

"form" to ensure standards but the "substance" will ultimately determine

the credibility and integrity of the process as it is inexorably linked to the

mindset and ethical standards of management.



Contd.

•

Studies of corporate governance practices across several countriesconducted by the Asian Development Bank, International Monetary Fund,

Organization for Economic Cooperation and Development and the World

Bank reveal that there is no single model of good corporate governance.

• However, a high degree of priority has been placed on the interests of

shareholders, who place their trust in corporations to use their investmentfunds wisely and effectively is common to all good corporate governance

regimes.



• There are three different forms of corporate responsibilities which all

models do respect:

– Political Responsibilities: the basic political obligations are abiding by

legitimate law; respect for the system of rights and the principles of constitutional state.

– Social Responsibilities: the corporate ethical responsibilities, which the

company understands and promotes either as a community with shared values

or as a part of larger community with shared values.

–

Economic Responsibilities: acting in accordance with the logic of competitivemarkets to earn profits on the basis of innovation and respect for the

rights/democracy of the shareholders which can be expressed in terms of

managements' obligation as 'maximizing shareholders value'.

• In addition, business ethics and corporate awareness of the environmental and

societal interest of the communities, within which they operate, can have an impact

on the reputation and long-term performance of corporations.



• The three key constituents of corporate governance are the Board of Directors, the

Shareholders and the Management.

– Board of directors is accountable to the stakeholders and directs and controls

the management. It stewards the company, sets its strategic aim and financialgoals and oversees their implementation, puts in place adequate internal

controls and periodically reports the activities and progress of the company in

the company in a transparent manner to all the stakeholders.

– The shareholders' role in corporate governance is to appoint the directors and

the auditors and to hold the board accountable for the proper governance of thecompany by requiring the board to provide them periodically with the requisite

information in a transparent fashion, of the activities and progress of the

company.

– The responsibility of the management is to undertake the management of the

company in terms of the direction provided by the board, to put in place

adequate control systems and to ensure their operation and to provideinformation to the board on a timely basis and in a transparent manner to

enable the board to monitor the accountability of management to it.



• The Main Constituents of Good Corporate Governance are:

– Role and powers of Board: the foremost requirement of good corporate

governance is the clear identification of powers, roles, responsibilities and

accountability of the Board, CEO and the Chairman of the board.

– Legislation: a clear and unambiguous legislative and regulatory framework is

fundamental to effective corporate governance.

– Code of Conduct: it is essential that an organization's explicitly prescribed

code of conduct are communicated to all stakeholders and are clearly

understood by them. There should be some system in place to periodicallymeasure and evaluate the adherence to such code of conduct by each member

of the organization.

– Board Independence: an independent board is essential for sound corporate

governance as it ensures that board is capable of assessing the performance of

managers with an objective perspective

– Board Skills: in order to be able to undertake its functions effectively, the

board must possess the necessary blend of qualities, skills, knowledge and

experience so as to make quality contribution. It includes operational or

technical expertise, financial skills, legal skills as well as knowledge of

government and regulatory requirements.



– Management Environment: includes setting up of clear objectives and

appropriate ethical framework, establishing due processes, providing for

transparency and clear enunciation of responsibility and accountability,

implementing sound business planning, encouraging business risk assessment,

having right people and right skill for jobs, establishing clear boundaries for acceptable behaviour, establishing performance evaluation measures and

evaluating performance and sufficiently recognizing individual and group

contribution.

– Board Appointments: to ensure that the most competent people are appointed

in the board, the board positions must be filled through the process of extensive

search. A well defined and open procedure must be in place for reappointmentsas well as for appointment of new directors.

– Board Induction and Training: is essential to ensure that directors remain

abreast of all development, which are or may impact corporate governance and

other related issues.

– Board Meetings: are the forums for board decision making. These meetings

enable directors to discharge their responsibilities. The effectiveness of board

meetings is dependent on carefully planned agendas and providing relevant

papers and materials to directors sufficiently prior to board meetings.

– Strategy Setting: the objective of the company must be clearly documented in

a long term corporate strategy including an annual business plan together with

achievable and measurable performance targets and milestones.



– Business and Community Obligations: though the basic activity of a business

entity is inherently commercial yet it must also take care of community's

obligations. The stakeholders must be informed about the approval by the

proposed and on going initiatives taken to meet the community obligations.

– Financial and Operational Reporting: the board requires comprehensive,

regular, reliable, timely, correct and relevant information in a form and of a

quality that is appropriate to discharge its function of monitoring corporate

performance.

– Monitoring the Board Performance: the board must monitor and evaluate its

combined performance and also that of individual directors at periodicintervals, using key performance indicators besides peer review.

– Audit Committee: is inter alia responsible for liaison with management,

internal and statutory auditors, reviewing the adequacy of internal control and

compliance with significant policies and procedures, reporting to the board on

the key issues.

– Risk Management: risk is an important element of corporate functioning and

governance thus there should be a clearly established process of identifying,

analysing and treating risks, which could prevent the company from effectively

achieving its objectives.



Organizational Framework

• The organizational framework for corporate governance initiatives in India consistsof the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board

of India (SEBI).

• The first formal regulatory framework for listed companies specifically for

corporate governance was established by the SEBI in February 2000, following the

recommendations of Kumarmangalam Birla Committee Report. It was enshrined as

Clause 49 of the Listing Agreement.

• Thereafter SEBI had set up another committee under the chairmanship of Mr. N. R.

Narayana Murthy, to review Clause 49, and suggest measures to improve corporate

governance standards.

• Some of the major recommendations of the committee primarily related to audit

committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, codes of conduct and

financial disclosures.



Contd.

•

The Ministry of Corporate Affairs had also appointed Naresh Chandra Committeeon Corporate Audit and Governance in 2002 in order to examine various corporate

governance issues. It made recommendations in two key aspects of corporate

governance: financial and non-financial disclosures: and independent auditing and

board oversight of management.

• It had also set up a National Foundation for Corporate Governance (NFCG) in

association with the CII, ICAI and ICSI as a not-for-profit trust to provide a platform to deliberate on issues relating to good corporate governance, to sensitise

corporate leaders on the importance of good corporate governance practices as well

as to facilitate exchange of experiences and ideas amongst corporate leaders, policy

makers, regulators, law enforcing agencies and non- government organizations.



Legal Framework

•

An effective regulatory and legal framework is indispensable for the proper andsustained growth of the company.

• In rapidly changing national and global business environment, it has become

necessary that regulation of corporate entities is in tune with the emerging

economic trends, encourage good corporate governance and enable protection of

the interests of the investors and other stakeholders.

• The important legislations for regulating the entire corporate structure and for dealing with various aspects of governance in companies are Companies Act, 1956

and Companies Bill, 2004.

• Companies Bill 2008 later revised to Companies Bill 2009 ;leading to certain

amendments and reintroduction as Companies Bill 2012.

•A significant feature of the corporate governance reforms in India has been itsvoluntary nature and the active role played by public listed companies in improving

governance standards in India. CII, a non-government, not-for-profit, industry-led

and industry managed organization dominated by large public listed firms had

played an active role in the development of India’s corporate governance norms.



Contd.

• Corporate laws have been simplified so that they are amenable to clear interpretation and provide a framework that would facilitate faster economic

growth.

• The Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of

India Act, 1992 and Depositories Act, 1996 have been introduced by Securities and

Exchange Board of India (SEBI), with a view to protect the interests of investors inthe securities markets as well as to maintain the standards of corporate governance

in the country.



Clause 49 and its effect on Corporate

Governance• Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect

from 31 December 2005. It has been formulated for the improvement of corporategovernance in all listed companies.

• As per Clause 49, for a company with an Executive Chairman, at least 50 per centof the board should comprise independent directors. In the case of a company witha non-executive Chairman, at least one-third of the board should be independentdirectors.

• It would be necessary for chief executives and chief financial officers to establishand maintain internal controls and implement remediation and risk mitigationtowards deficiencies in internal controls, among others.

• Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliancereport to stock exchange in the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual report with a detailed

compliance report.• A company is also required to obtain a certificate either from auditors or practising

company secretaries regarding compliance of conditions as stipulated, and annexthe same to the director's report.

• The clause mandates composition of an audit committee; one of the directors isrequired to be "financially literate".



Companies Bill 2012 and its Impact on

Corporate Governance•

The foundations of the comprehensive revision in the Companies Act, 1956 waslaid in 2004 when the Government constituted the lrani Committee to conduct a

comprehensive review of the Act. The Government of India has placed before the

Parliament a new Companies Bill, 2012 that incorporates several significant

provisions for improving corporate governance in Indian companies which, having

gone through an extensive consultation process, is expected to be approved in the

2012 Budget session.• The new Companies Bill, 2012 proposes structural and fundamental changes in the

way companies would be governed in India and incorporates various lessons that

have been learnt from the corporate scams of the recent years that highlighted the

role and importance of good governance in organizations.

• Significant corporate governance reforms, primarily aimed at improving the board

oversight process, have been proposed in the new Companies Bill; for instance it

has proposed, for the first time in Company Law, the concept of an Independent

Director and all listed companies are required to appoint independent directors

with at least one third of the Board of such companies comprising of

independent directors.



• The Companies Bill, 2012 takes the concept of board independence toanother level altogether as it devotes two sections to deal with IndependentDirectors. The definition of an Independent Director has beenconsiderably tightened and the definition now defines positive attributesof independence and also requires every Independent Director to declare

that he or she meets the criteria of independence.• In order to ensure that Independent Directors maintain their independence

and do not become too familiar with the management and promoters,minimum tenure requirements have been prescribed. The initial termfor an independent director is for five years, following which furtherappointment of the director would require a special resolution of the

shareholders. However, the total tenure for an independent director is notallowed to exceed two consecutive terms.

• The new Companies Bill, 2012 expressly disallows IndependentDirectors from obtaining stock options in companies to protect theirindependence.

• In order to balance the extensive nature of functions and obligations

imposed on Independent Directors, the new Companies Bill, 2012 seeksto limit their liability to matters directly relatable to them and limits their liability to “only in respect of acts of omission or commission by acompany which had occurred with his knowledge, attributable through

board processes, and with his consent or connivance or where he had notacted diligently.



• The new Bill also requires that all resolutions in a meeting convened with ashorter notice should be ratified by at least one independent director whichgives them an element of veto power. Various other clauses such as those ondirectors' responsibility statements, statement of social responsibilities, and the

directors' responsibilities over financial controls, fraud. etc, will create a moretransparent system through better disclosures.

• A major proposal in the new Bill is that any undue gain made by a director byabusing his position will be disgorged and returned to the company togetherwith monetary fines.

• Other significant proposals that would lead to better corporate governance includecloser regulation and monitoring of related-party transactions, consolidation of the

accounts of all companies within the group, self-declaration of interests bydirectors along with disclosures of loans, investments and guarantees given for the businesses of subsidiary and associate companies.

• A significant first, in the proposals under the new Companies Bill, is the provisionthat has been made for class action suits: it is provided that specified numberof members may file an application before the Tribunal on behalf of members,if they feel that the management or control of the affairs of the company are being

conducted in a manner prejudicial to the interests of the company or its members.The order passed by the Tribunal would be binding on the company and all itsmembers.



• The Companies Bill, 2012 seeks to provide clarity on the respective roles of SEBI

and the MCA and demarcate their roles - while the issue and transfer of securities

and non-payment of dividend by listed companies or those companies which intend

to get their securities listed shall be administered by the SEBI all other cases are proposed to be administered by the Central Government.

• Furthermore, by focusing on issues such as Enhanced Accountability on the part of

Companies, Additional Disclosure Norms. Audit Accountability, Protection for

Minority Shareholders, Investor Protection, Serious Fraud Investigation Office

(SF10) in the new Companies Bill, 2012, the MCA is expected to be at the

forefront of Corporate Governance reforms in India.



Guidelines at International Level

• Over the years, the issue of corporate governance has received a high level of

attention. There are several reports and recommendations of the InternationalCommittees/ Associations, etc. on the development of appropriate framework for

promoting good corporate governance standards, codes and practices to be followed

globally.

• Some of the main codes and principles on the Corporate Governance are as follows:-

I. Cadbury Committee Report-The Financial Aspects of Corporate Governance

(1992)

II. Sarbanes Oxley Act (2002)

III. OECD Principles of Corporate Governance (2004)

IV. UNCTAD Guidance on Good Practices in Corporate Governance Disclosure

(2006)

V. The Combined Code on Corporate Governance (2008)

These recommendations and principles have been mainly focused on structure of the

company, financial and non-financial disclosures, compliance with codes of corporate

governance, competitive remuneration policy, shareholders rights and responsibilities,

financial reporting and internal controls, etc.



Contd.Cadbury Committee Report (1992)

The 'Cadbury Committee' was set up in May 1991 with a view to overcome the huge

problems of scams and failures occurring in the corporate sector worldwide in the late

1980s and the early 1990s.

The report was mainly divided into three parts:-

• Reviewing the structure and responsibilities of Boards of Directors and

recommending a Code of Best Practice.

The boards of all listed companies should comply with the Code of Best Practice. Alllisted companies should make a statement about their compliance with the Code in

their report and accounts as well as give reasons for any areas of non-compliance.

• Considering the role of Auditors and addressing a number of recommendations

to the Accountancy Profession .

Professional and objective relationship between the board of directors and auditorsshould be maintained, so as to provide to all a true and fair view of company's

financial statements.

• Dealing with the Rights and Responsibilities of Shareholders

The Committee's report places particular emphasis on the need for fair and accurate

reporting of a company's progress to its shareholders, which is the responsibility of the

board.



Contd.Sarbanes Oxley Act (2002)

The Sarbanes Oxley Act was enacted in the year 2002 with a view to protect investors

by improving the accuracy and reliability of corporate disclosures made pursuant to

the securities laws and for other purposes. Some of the main provisions of the Act

are:-

• The Act called for establishment of the Public Company Accounting Oversight Board.

• The Act calls for the formation of an independent and competent audit committee,which is directly responsible for the appointment, compensation, and oversight of the

work of any registered public accounting firm and of auditor's activities.

• The lead audit and reviewing partner must rotate off the audit every 5 years.

• It prohibits loans to any of the firm’s directors or executives.

•It requires that each annual report contain an internal control report.

• It prohibits any public accounting firm from providing non-audit services while

auditing firm.



Contd.OECD Principles of Corporate Governance (2004)

The OECD Principles of Corporate Governance were developed with a view to assist

OECD and non-OECD governments in their efforts to evaluate and improve the legal,

institutional and regulatory framework for corporate governance in their countries, and

to provide guidance and suggestions for stock exchanges, investors, corporations, and

other parties that have a role in the process of developing good corporate governance.

• Insider trading and abusive self-dealing should be prohibited.

• An annual audit should be conducted by an independent, competent and qualifiedauditor in order to provide an external and objective assurance to the board and

shareholders.

• All shareholders of the same series of a class, including minority and foreign

shareholders, should be treated equally.

•

Capital structures and arrangements that enable certain shareholders to obtain a degreeof control disproportionate to their equity ownership should be disclosed.



Contd.UNCTAD Guidance

UNCTAD has undertaken various actions to strengthen their regulatory frameworks in

order to restore investor confidence as well as enhance corporate transparency and

accountability.

• One of the major responsibilities of the board of directors is to ensure that

shareholders and other stakeholders are provided with high-quality disclosures on the

financial and operating results of the entity.

• The objectives of the enterprise should be disclosed, such as governance objectives,like why does the company exist? etc. The objectives of enterprises may vary

according to the values of society.

• The composition of the board should be disclosed, in particular the balance of

executives and non-executive directors.

•

The number, type and duties of board positions held by an individual director should be disclosed.

• Directors should disclose the mechanism for setting directors remuneration and its

structure.

• Disclosure should be made of the process for holding and voting at annual general

meetings and extraordinary general meetings, as well as all other information

necessary for shareholders to participate effectively in such meetings.



Contd.Combined Code on Corporate Governance

The Combined Code on Corporate Governance (‘the Code’) is being published by the

Financial Reporting Council (FRC) to promote confidence in corporate reporting and

governance.

• Every company should be headed by an effective board, which is collectively

responsible for the success of the company.

• The annual report should identify the chairman, the deputy chairman (where there is

one), the chief executive, the senior independent director and the chairmen andmembers of the nomination, audit and remuneration committees.

• The board should undertake a formal and rigorous annual evaluation of its own

performance and that of its committees and individual directors. The board should

state in the annual report how performance evaluation has been conducted.

•

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.

• All directors should be subject to election by shareholders at the first annual general

meeting after their appointment, and to re-election thereafter at intervals of no more

than three years.

• The chairman should ensure that the views of shareholders are communicated to the

board as a whole, as well as discuss governance and strategy with major shareholders.



Benefits and LimitationsI. Several studies in India and abroad have indicated that markets and investors take

notice of well managed companies and respond positively to them.

II. In today's globalised world, corporations need to access global pools of capital as well

as attract and retain the best human capital from various parts of the world. Under

such a scenario, unless a corporation embraces and demonstrates ethical conduct, it

will not be able to succeed.

III. The credibility offered by good corporate governance procedures also helps maintain

the confidence of investors – both foreign and domestic – to attract more long-termcapital. This will ultimately induce more stable sources of financing.

IV. Good Corporate Governance standards add considerable value to the operational

performance of a company by:-

•Improving strategic thinking at the top through induction of independent directors

who bring in experience and new ideas.

•Rationalizing the management and constant monitoring of risk that a firm faces

globally.

•Limiting the liability of top management and directors by carefully articulating the

decision making process.

•Assuring the integrity of financial reports, etc.



Contd.

• The instances of financial crisis have brought the subject of corporate

governance to the surface which has brought to sharper focus the need for

intellectual honesty and integrity. This is because financial and non-

financial disclosures made by any firm are only as good and honest as the

people behind them.

• Effective governance reduces perceived risks, consequently reduces cost of

capital and enables board of directors to take quick and better decisions

which ultimately improves bottom line of the corporate.

• Adoption of good corporate governance practices provides long term

sustenance and strengthens stakeholders' relationship.

• Adoption of good corporate governance practices provides stability and

growth to the enterprise.



Suggestions and Opinion

• Corporations are the prominent players in the global markets. They are mainly

responsible for generating majority of economic activities in the world, ranging

from goods and services to capital and resources. The essence of corporate

governance is in promoting and maintaining integrity, transparency and

accountability in the management of the company as well as in manifestation of

the values, principles and policies of a corporation.

• Many efforts are being made, both at the Centre and the State level, to promote

adoption of good corporate governance practices, which are the integral

element for doing and managing business. However, the concepts and

principles of good governance are still not clearly known to the Indian business

set up.



Contd.

• Hence, there is a greater need to increase awareness among entrepreneurs about

the various aspects of corporate governance. There are some of the areas thatneed special attention, namely:-

– Quality of audit, which is at the root of effective corporate governance.

– Role of Board of Directors as well as accountability of the CEOs and

CFOs.

– Quality and effectiveness of the legal, administrative and regulatoryframework etc.

• That is, it is necessary to provide the corporate desired level of comfort in

compliance with the code, principles and requirements of corporate

governance; as well as provide relevant information to all stakeholdersregarding the performance, policies and procedures of the company in a

transparent manner. There should be proper financial and non-financial

disclosures by the companies, such as, about remuneration package, financial

reporting, auditing, internal controls, etc.



Case Study – Satyam Computers

Satyam Computer Services Limited was founded in 1987 and wasone of the big four IT Companies in India with a $2.1 billion dollar

revenue. It had employed over 53,000 IT Professionals in over 67

countries with development centers in over 20 countries.

The company has been currently taken over by Tech Mahindra (a

joint venture with British Telecom), 6th largest IT firm in India. The

new company formed as a result of this merger is called Mahindra

Satyam.

The company continues to be listed on the NYSE Euro next

exchange and has reportedly stabilized its operation after the takeover

by the Mahindra Group, a family owned business group too.



Case Study – Satyam ComputersThe Scandal

Satyam’s troubles started when the World Bank, one of the biggest clients for

Satyam, announced that two of Satyam’s employees had hacked into their

systems and managed to access sensitive information.

To follow this up, the company was jolted again by Ramalinga Raju’s(Chairman, Satyam) announcement to influx $ 1.6 billion dollars into the

acquisition of Maytas Infrastructure and Maytas Properties.

Upaid Systems alleged Satyam of intellectual fraud and forgery and made a

claim of $1 billion, adding to the company’s woes

Raju wrote a letter to the board and the SEBI (Securities and Exchange Board

of India) explaining the accounting fraud and the over inflated balance sheets.




Having discussed the background of this scandal, let us summarize the

failures in Corporate Governance at Satyam:-

Decision of Maytas acquisition was announced without shareholder approval.

Ramalinga Raju had only 8.5% stake in the company. How could he manage totake such a big decision without the approval of distributed shareholding with a

total stake of 91.5%?

Besides, Maytas was a company in which he and his sons had a major stake. So

his interests in that company were known to the board. Transferring $1.6 billionfrom Satyam’s books to Mayta’s was like transferring money from the company

to own pockets (because Raju and Family had only 8.5 % stake in Satyam

whereas the stake in both the Maytas companies was 30% +). This is a serious

failure as per the Arm’s Length Principle (ALP). How did the board approve the

deal?




Failures in Corporate Governance at Satyam:-

Raju justified the investment of company resources into his son‟s

companies by calling it diversification of investment. If it was genuinely

diversification, why was a novice company like Maytas chosen instead

of the several other reliable options available in the market?



Kingfisher Airlines -- Corporate Governance

Kingfisher Airlines Limited is an airline group based in Indiaowned by Dr. Vijay Mallya.

Kingfisher Commenced its operations on May9,

2005

Kingfisher Airlines was the holder (along with only a fewother airlines) of the 5-star rating by Skytrax along with Cathay

Pacific, Qatar Airways



Problems with Kingfisher Airlines

Bad Governance

Absence of professional management.

Individual decision takers.

Lack of delegation is being talked about as the major move thatMallya did not undertake when running the airline.

After acquiring Air Deccan, Kingfisher suffered a loss of over 1,000

crore for three consecutive years.



Contd…

Even though India is a price sensitive country,

kingfisher owner, Vijay Mallya maintained high fares for theairlines.

Huge amount of bank loans with high interest rates.

High investments to promote the brand name kingfisher to makeupfor the prohibition on advertising for the business of alcohol.

It had also been hit badly by external factors.



Numbers and Statistics

Kingfisher has an outstanding debt of over Rs 13,000 crores. Over Rs 6,000 crore of accumulated losses

Kingfisher shares have lost around 67% of their value in 2011

The share value reached a record low on 11-Nov- 2011,reducing the carrier’s market value to around USD213 million.

Kingfisher falls deep into the red in 2nd Q FY2012 with 16thconsecutive quarterly loss; net loss margin of --29%



Suggestions

Introduction of professional management into the board.

Route rationalization: Cutting back unprofitable sectors and services to several cities.

Debt recast: asking banks to reduce rates or take a cut on loans

Decisions should be not be taken by the Mr. Mallya itself alone but it should be consulted with BOD.

Raising capital: it has plans to raise $ 200 MILLION throughGDR.

FDI: Now the FDI limit is raised and foreign airlines areallowed to buy a stake, Mr Mallya could recapitalisekingfisher



Future Prospects

• As the global environment changing continuously, there is a greater need of adopting and sustaining good corporate governance practices

for value creation and building corporations of the future

• However, inapt application of corporate governance requirements

can adversely affect the relationship amongst participants of the

governance system

• If companies are to reap the full benefits of the global capital

market, capture efficiency gains, benefit by economies of scale and

attract long term capital, adoption of corporate governance standards

must be credible, consistent, coherent and inspiring.• Hence, in the years to come, corporate governance will become

more relevant and a more acceptable practice worldwide

corporate goverance in india

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