new horizons- the future of cg-3(7,8,9,10,12)

8/13/2019 New Horizons- The Future of Cg-3(7,8,9,10,12)

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Prof(Dr). Haradhan Das


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We have seen how the concept of the corporateform took its birth. Enabled entrepreneurs to grow their firms togreater sizes and economies to depend on themfor their own growth and industrialization. How the modern corporations saw wide dispersalof shareholding compared to the earlierconcentrated ownership. How this puts the responsibility of looking after

the shareholders on to the boards. How and why committees get fromed for betteradministration of Governance processes.


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How Directors under go the developmentprocess ? How the Directors get compensated ?

How the Directors performance is reviewed ? How the multitude aspects of governance aredealt with ? How governance happens in different types

of firms where ownership structures differ ? How share holder activism can disciplineCorporation or Boards ?


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How failures of corporates and businessescontinue to occur ?


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Best suggested practices are:- Engagement of Independent Directors Separation of the chairman and CEO position

Constitution of certain committees Review of performance of individualDirectors and the Board as a whole


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Follow up actions of the Cadbury Code. General Motors could achieve the benefitterming workers as a resource rather than

just a cost (Peter Drucker). Assembly-line mentality denotes efficientworkers more machine like and the lesshuman oriented.


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Best practices are:-Separating the chairman and CEO positions Regulators and regulations incentivize

The compensation paid to the Directors bedesigned to align with the interest of theshareholders Independent Directors can have access to

external professional advice


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While some of the above best practicescontributed better governance of some of thecompanies but many of them are primarilystructural.

Such structural initiatives not necessarily, alwayslead to better governance. Loopholes in the laws and regulations put a limiton the structural changes and hence could notfetch the desired results. Examples:- Relatives of Directors are oftenengaged in the name of appointment ofIndependent Directors.


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A re-look at the very purpose ofcorporate governance Governance should become a culture Develop social capital within theBoardroom Give importance to values The Directors talent -pool shall beexpanded Number of directorships Auditing


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Auditors independence and indulgence Audit of corporate governance practices Verification by Regulators and Certain

institutions Regulators to play a developmental role Have a governance charter

Take an oath of the Office


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Some of the tools of politics will be used indealing with corporate governance issues. Suchas :-

Debates Negotiations Bargaining


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Will have a broader view that they have aresponsibility to all the stakeholders. The sizes of the boards will be decided by theneed for expertise.

The chairman and CEO positions will beseparate. All new Directors would have undergone adevelopment process. An overwhelming majority of boards will beindependent. Directors will be on a fewer number on boards.


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Conformance and Performance confronteveryone. Legal compliance worries everyone on the Boardwhich, not necessarily, always yields its positiveresults. Raises question about improvements for betterperformance or just compliance ? Examples of Enron and Satyam, inspite ofIndependent Directors, audit committees,compensation committees made up of onlyIndependent Directors, but still adoptedunethical practices leading to corporate mis-governance.


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company Year No. ofBMS

No. ofACMs

No of ACMs on thesame date as BMs

RIL 2008-09 7 5 NA

Infosys 2008-09 6 4 0/4L&T 2008-09 10 7 4/7

ICICI Bank 2008-09 8 6 NA

ITC 2008-09 5 9 4/9

HDFC 2008-09 5 NA 5/5

HeroHonda

2008-09 4 7 4/7


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Future depends upon the relations as under:- Power relationship Effective control of power enjoyed by theCEO

This again depends upon the following:- Is the power sufficient to control the CEO ? Independence to ensure that the CEO is

honestly evaluated. Board procedures that allow the out sideDirectors to evaluate managers performance.


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Model roles of good corporate governance arecharacterized as follows:-

Expertise sufficient to allow the Board to addvalue to the decision making process. Incentives to ensure that the Board iscommitted to creating corporate value. Procedures that foster open debate to attune

to the shareholders concerns .


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The governance conundrum-no straight solutionsbut issues are raised which are as follows:-

Should the functioning of the Board be regulatedexternally or they be better self regulated ?

Share holders who are also part of management,pose a great challenge to the corporategovernance pundits. Being on the management, they have a greatprivileged information which out sideshareholders are deprived of. Should Independent Directors hold shares in thecompany ?


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How many Directors are required on theBoard of a company ? Can there be a number related to thecompanys size ? Should there be a lead Director ? Should Independent Directors meetseparately under the leadership of the lead

Director ? Should outside Independent Directors begeneralists or specialists ?


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Should Independent Directors becompensated with stock related items such asStock options etc. How much time shall an outside Directorsdevote to a company ? Can Directors perform the duty of diligenceand care expected of them ?

Can we expect that the Directors will takecare of the interest of all the shareholdersalive ?


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Can we expect a Director (institutionalInvestors) taking care of the interest of othershareholders as well ? How can Independent Directors monitor thechairman/CEO ? How can the Board ensure monitoringmanagement from entering into risky action ?

How can each Director be made tounderstand that a Director is a Director withresponsibilities like all others ?


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Who is interested in corporate governance ? Apparently, seems to be nobody, excepteverybody with their vested interest specificto them.


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new horizons- the future of cg-3(7,8,9,10,12)

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