CORPORATE ETHICS :

GOOD GOVERNANCE

CORPORATE GOVERNANCE
CG will focus on the internal structure & rules
of board of directors , the creation of
independent audit committee , rules for the
disclosure of information to shareholders
and creditors and control of management .
By Sir Adrian Cadbury : CG is defined as
holding the balance between economic and
social goals and b/w individual and
communal goals. The framework is there to
encourage the efficient use of resources
and equally to require accountability for the
stewardship of those resources .

 By OECD ( Organization for economic

cooperation and development ) : the
system by which business corporations
are directed and controlled .
In short the functions are : 1)
management accountability 2) providing
adequate investments to management 3)
disciplining and replacement of bad
management 4) enhancing corporate
performance 5) transparency 6) investor
protection 7)promoting long term
investment 8) encouraging innovation

Significance of corporate
governance to developing
countries
Developing countries are facing
transformation in the political and
business relationships with the
process of economic growth .
Leads to open, transparent
democratic systems.
Need good CG to maximize the
productivity and economic efficiency.

 CG will help them to fight effectively the

corruption and abuse of power to face the
societies issue .
Acc to Nicolas Meisel developing
countries should concentrate on 1) since
good and effective communication
2)ensure individual players maximum
autonomy while seeing that they are
accountable for their acts. 3) in hierarchy
of the organization new powers should be
there to control the issues 4) the role of
the state and the government officials
should be clearly defined .

Issues in CG
Some people consider it as the important
instrument for economic development but
some think it as a strategy to achieve
goodwill
But it is actually long term shareholder and
stakeholder value.
The some of the important issues are :
1.Distinguishing the roles of board and
management .
2.Composition of the board and related issues.
3.Separation of the roles of CEO and
chairperson

4. Should the board have committees ?

5. Appointment to the board and directors
reelection .
6. Directors and executives remuneration
7. Disclosure and audit
8. Protection of shareholders rights and
their expectations
9. Making a socially responsible corporate
investors role

Need for and importance of

CG
Large corporations are multinational
now a days . They have put impact on
several citizens across the world.
If anything goes wrong it will affect at
the world level.
So the corporate governance should be
effective .
Corporate culture should be
transparent and open.

Strategies and techniques

basic to sound corporate
governance
Found in papers issued by the Basel

committee on banking supervision. These

papers were the management of interest
rate risk , framework for internal control
systems in banking organizations ,
enhancing bank transparency and principles
for the management of credit risk .
Some strategies related to this are as
follows documented on the basis of above
papers :

1. Corporations should cultivate ethics,

develop code of conduct and ethical
behavior in relation of putting the system of
governance .
2. Appropriate and well articulated corporate
strategy against which the contribution of
individual players can be evaluated .
3. Well defined divisions of responsibilities and
assignment of decision making authorities .
4. Setting of a system to facilitate interaction
and to ensure cooperation among senior
management , board of directors, auditors.
5. Establishing strong internal control systems
with both internal and extenal audit

Risk management functions .

6. Instituting a schemem of financial
and managerial incentives to act as a
flip to senior management , business
line management and employees in
the form of compensation , promotion
and other means of recognition.
7. Ensuring the required information
flows internally and to the public at
large.

Indian model of CG
Governed by the companies act 1956 that
follows more or less the UK model.
Literature shows that Indian model is more
of German/Japanese model . But the
acceptance of the Anglo- American model
has come into existence.
Indian govt. has three committees SEBI
(Security exchange board of India)appointed kumar mangalam birla
committee (2000), the governmentappointed naresh chandra committee
(2003), and SEBIS narayan murthy
committee (2003)are similar to those of
England

Cont.
Cadbury Committee and America's Sarbens
oxley act .
As per their legislative reforms they call for
greater transparency in the accounts and for
the certification (Anglo American model)
Accurate and reliable information
Non executive should be given greater roles .
India uses anglo american external and
internal control mechanisms for economic
liberalization and its integration in global
economy.

 CG in indian system has shown a

shift from German/Japanese model to
Anglo- American model.
No preferred model of CG in Indian
system.

What is Good CG?

These are made by the combined
efforts of all stakeholders , that include
the shareholders, board of directors,
employees , customers , dealers ,
government and society.
- Obligations to society
- Obligation to investors
- Obligation to employees
- Obligation to customers
- Obligations to managers