Download - Internal Corporate Governance Mechanism
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Internal corporate governance
mechanism
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Corporate Governance
A relationship among stakeholders used to
determine and control the strategic direction
and performance of organizations
Concerned with making strategic decisions
moreeffectively
Used to establish order between a firms owners
and its top-level managers whose interests may
be in conflict
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Corporate Governance mechanisms
Internal mechanism
Board of DirectorsFunctional Committees of
Board Code of conduct
whistle blowers.
External mechanism
Regulatory Oversight(Financial market regulator)
Legal System (Company law,Bankruptcy law)
Corporate Control activity
Institutional investors(CalPERS, FIIs)
Capital market access Rating Agencies
External Auditors
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Types of Directors
Executive Directors (Infosys)
Non- Executive directors (Independent Directors and
family members) (Hindalco board)
Nominee Directors (Tata Power)
Representative Directors for employees, suppliers
(Cummins)
Alternative directors (Patni)Shadow directors (Ranbaxy)
Associate directors
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Types of Board structure
All executive board (Most of the unlistedfirms)
Majority Executive board (family business
firms)Majority outsider board - (Software companies-
Satyam, Wipro)
TwoTier structureAdvisory board Murugappa Corporate Board
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Issues in designing the board
The board size
The role of chairman and CEO
Duality of board membership in a subsidiaryboards
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Board Styles
Based on concern for relationship amongdirectors and Concern for effectivecommunication
Rubber stamp board (low, low) (fully ownedsubsidiaries)
Country club board (high, low)
Representative board (low, high) Professional board (high, high)
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Role of directors
Performance role
Provides specialized knowledge specialists
Lawyers, Auditors, Academics (Infosys, RIL)
Caters the needs of corporation for networking,
representing and adding status
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Role of directors
Conformance Role
Ensure top management following policies andprocedures laid down by the board
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Responsibilities
Responsibilities to the shareholders
Obligation to maintain honesty and integrity
Proper presentation of documents and annualaccounts
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Duties of the directors
Exercise care in the discharge of functions as
Directors
Attend Board meetings and devote sufficient time
and attention to the affairs of the company Not to be negligent and not to commit or let others
commit tort-liable acts
(Tort -wrongful act that causes injury to a person orproperty and for which the law allows a claim by the
injured party to recover damages -money)
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Duties of the directors
Not to misuse power
Protect the interests of creditors and
employees
Maintain confidentiality
Not to exercise power for a collateral purpose
Not to waste company assets
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Role of Chairman
Manage the board and conduct of meetings
Good business and financial knowledge
Maintain good relations with the Executivedirectors Independent directors and CEO
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Role of CEO with respect to board
Good relationship with directors and
Chairman
Assist the executive directors in presenting the
strategic proposals
To present the company to the investors
To act as a representative of executive
directors while interacting with independent
directors
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Functions of the board
Strategic role
Policy making role - Like code of conduct
Monitoring and supervisory role
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Committees of the board
Audit committee
Compensation Committee
Nomination committee
Finance committee
Investors grievance committee
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Corporate Code
Corporate Codes are the policy statements
which guides the behavior of employees
based on the value systems of the company.
The top management and board has the
responsibility prepare the Corporate Code
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Types of corporate codes
Compliance Code : Directive Statements which
provide guidance and prohibit certain kind conduct
Corporate Credos: The broad general statements of
corporate commitments relating to constituencies,values and Objectives
Management Philosophy Statements : The formal
statements of companys value system
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Types of Compliance code
Special documents Code of conduct
Circulated letters about company policies for
employees while dealing business partners
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Code of Conduct
Companies' policy statements that define ethicalstandards for the employee conduct
Code varies from company to company
Can take a number of formats and address any issue -like workers' rights, behavior with customers .
Codes of conduct create a proper environment to helpidentify and reinforce within the firm those critical
success factors which improve its capacity to competein a rapidly changing environment.
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Process of corporate code
Identification of key behavior developing the
code
Review
Communicate the code
Implement
Update
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Code of Conduct an example
Code of conduct @ Grasim Industries Ltd
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Whistle Blowing
Whistle blowing - the deed of making exposures about the
corporate fraud and corruption to the public in anticipation ofimplementing appropriate measures of correction.
whistleblower - an employee, former employee, or member
of an organization, especially a business or government
agency, who reports misconduct to people or entities thathave the power and presumed willingness to take corrective
action.
The misconduct which are reported, by and large, include an
infringement of law, rule, regulation and/or a constantmenace to public interest, such as health/safety violations,
fraud and corruption.