CORPORATE GOVERNANCE

Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations.

Definition of Corporate Governance

The definition of corporate governance most widely used is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). More specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC states, "the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders". The OECD Principles of Corporate Governance states: "Corporate governance involves a set of relationships between a companys 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." While the conventional definition of corporate governance and acknowledges the existence and importance of 'other stakeholders' they still focus on the traditional debate on the relationship between disconnected owners (shareholders) and often self-serving managers. Indeed it has been said, rather ponderously, that corporate governance consists of two elements: 1. The long term relationship which has to deal with checks and balances, incentives for manager and communications between management and investors;

2. The transactional relationship which involves dealing with disclosure and authority.

Principles of corporate governance

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Rights and equitable treatment of share: 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.
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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 making.

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.

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.

IMPORTANCE OF CORPORATE GOVERNANCE

Banks are a critical component of the economy while providing financing for commercial enterprises, basic financial services to a broad segment of the population and access to payment systems. The importance of banks to national economies is underscored by the fact that banking is, almost universally, a regulated industry and that banks have access to government safety nets. It is of crucial importance therefore that banks have strong corporate governance practices.
From a banking industry perspective, corporate governance involves the manner in which the business and affairs of individual institutions are governed by their Supervisory Boards and senior management, affecting how banks: - Set corporate objectives to generate sustainable economic returns to owners; - Run day-to-day operations of the business;

- Protect the interests of depositors; - Consider the interests of other recognized stakeholders; and, - Align corporate activities and behaviours with the expectation that banks will operate in a sound manner and in compliance with applicable laws and regulations.

Banks are also important catalysts for economic reforms, including corporate governance practices. Because of the systemic function of banks, the incorporation of corporate governance practices in the assessment of credit risks pertaining to lending process will encourage the corporate sector in turn to improve their internal corporate governance practices.

Importance of implementing modern corporate governance standards is conditioned by the global tendency to consolidation in the banking sector and a need in further capitalization.

Best corporate governance practices will enable banks to:

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Increase efficiency of their activities and minimize risks; Get an easier access to capital markets and decrease the cost of capital; Increase growth rate; Attract strategic investors; Improve the standards of lending; Protect the rights of minority shareholder and other counterparts; Strengthen their reputation and raise the level of investors and clients.

Social Reporting

Social reporting is the use of social media to report collectively and live from events, like workshops, and conferences. It allows to share in real time photos, videos, power point presentations, and summaries / comments. You can for example set up a blog for an event, feed in your photo stream as well as your bookmarks from delicious, videos on Blip TV, YouTube, or twitter feeds. You can blog about the different session, and include short interviews in video,

podcast or written format. You can invite participants to be part of the social reporting team by contributing with blog posts, photos, and videos. SR adds to the "official" documentation a rich mix of stories and conversations. It means a contribution to both facilitation and documenting. And it has human voice and a philosophy of inclusion and empowerment.

Social reporting from events varies from traditional "post event" reporting in two ways. 1. Interactive: It happens both during and after the event to allow people who cannot be at the F2F to have at the minimum a "line of sight" to the event and possibly even a way to interact with people at the event by commenting on material produce from the event. 2. Collaborative: It is done not by one person, but by a team that can either be a dedicated reporting team, or if your event participants have some social media experience, ANYONE can contribute by uploading and tagging photos, taking notes and blogging them from sessions, or participating in a podcast.

Role of the Board of Directors in Corporate Governance

The principal role of the board of directors as representatives of the shareholders, is to oversee the function of the organization and ensure that it continues to operate in the best interests of all stakeholders. Given the complexity of todays organizations, that is no simple or straightforward task. Today, board effectiveness is a key performance driver of the Indian companies. With expectations of them continuing to increase, boards can take several actions to govern more effectively. Indian boards must move away from being a rubber stamp to being a strategic asset for the company. They need to set the tone from top in promoting a transparent culture that promotes effective dialogues among the directors, senior management, and various function and risk managers. Boards should look beyond the old boy network and select directors with individual areas of expertise, and invest on an ongoing basis on their formal and informal education. Independent directors should significantly contribute to the functioning of the board

through requisite understanding of the company and the business. Boards must take a hard look at its own performance evaluation and enable continuous feedback and communication cycle. Effective boards build capabilities within themselves and their organizations that allow them to do both, protect existing assets (compliance role), as well as, manage threats to future growth (strategy oversight role). This section of the site includes a range of useful publications relating to improving the effectiveness of the board. Roles of the board of directors The roles of the board of directors include :-

Establish vision, mission and values

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Determine the company's vision and mission to guide and set the pace for its current operations and future development.

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Determine the values to be promoted throughout the company. Determine and review company goals. Determine company policies

Set strategy and structure

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Review and evaluate present and future opportunities, threats and risks in the external environment and current and future strengths, weaknesses and risks relating to the company.

Determine strategic options, select those to be pursued, and decide the means to implement and support them.

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Determine the business strategies and plans that underpin the corporate strategy. Ensure that the company's organisational structure and capability are appropriate for implementing the chosen strategies.

Delegate to management
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Delegate authority to management, and monitor and evaluate the implementation of policies, strategies and business plans.

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Determine monitoring criteria to be used by the board. Ensure that internal controls are effective. Communicate with senior management.

Exercise accountability to shareholders and be responsible to relevant stakeholders

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Ensure that communications both to and from shareholders and relevant stakeholders are effective.

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Understand and take into account the interests of shareholders and relevant stakeholders. Monitor relations with shareholders and relevant stakeholders by gathering and evaluation of appropriate information.