MALIK DEENAR INSTITUTE OF MANAGEMENT STUDIES

KASARAGOD

PRESENTATION REPORT ON: MANAGEMENT THEORY AND PRACTICE

TOPIC: : Corporate Governance

Submitted To: Mrs. Roshell correa

Asst. Professor

Malik Deenar Institute of Management Studies

Kasaragod

Submitted by: Sanjay Kumar K

1st sem M.B.A

Malik Deenar Institute of Management Studies

Kasaragod

Submitted On: 20-11-2015

Sl. No Particulars P. No

1 Introduction and Meaning of Corporate governance 1

2 Code of corporate governance 1

3 The OECD Principles of Corporate Governance 2

4 Example: Code of corporate governance of Reliance Industries 4

Content
Corporate Governance
Corporate governance is a newly introduced system for managing a company in the best interest of all its
stakeholders though in the context of state administration, the concept of governance is quite old, where it is
referred to as the system of directing and controlling the activities of a state, particularly in princely states
and empires. We may find the concept of state governance even in the writings of Kautilya.

The term governance as applied in the state governance has been derived from Latin origin that suggests
the notion of steering. The sense of steering a society can be contrasted with the traditional top-down
approach of governments driving society or the distinction between power in to contrast to governments
power over.

In corporate sector, however, the concept of governance cannot be applied in the same form in which
governance used to be applied in princely states because these states were sovereign and had right to frame
governance rules and enforce them. Companies do not enjoy such sovereignty but they function within the
legal framework of the country concerned. For example, companies in India function according to the
provisions of the Companies Act, 1956 and directions of other bodies constituted by the government in this
regard. Corporate governance is a system by which companies are directed and controlled based on code of
good corporate practices. World Bank has defined corporate governance as follows:

Corporate governance is about promoting fairness, transparency, and accountability.

Code of Corporate Governance

For practicing corporate governance in organizations, code of corporate governance is required. Code of
corporate governance is just like any other professional code and prescribes the practices that the
organizations should follow to achieve their objectives. In Indian context, code of corporate governance is
required because the company laws which prescribe how a company can be managed, only prescribe
procedural matters and the penal provisions if any offence is committed in the form of non-conformity to
these procedures. These do not prescribe good corporate management practices. Code of corporate
governance prescribes such practices.

Contents of a code of corporate governance may differ from country to country but, in general, a code of
corporate governance contents the compositions of board of directors, disclosure of information, and
management practices.

Composition of Board of Directors. We know that board of directors of a company involves in both
strategic and legal functions. Therefore, the composition of board of directors should be in accordance with
company laws and other prescriptions. In India, the companies Act has prescribed the composition of board
of directors. Board members are classified as full-time directors or executive directors and part-time
directors. In order to make board of directors more independent, that is, free from the influence of promoters
of a company ,SEBI has prescribed that all those companies whose shares are listed on any stock exchange
must have at least 50 per cent independent directors. An independent director is a person who does not have
any significant direct interest, except the compensation he receives by providing the service, in the company
at the time of joining the company as a director. Just like the provisions of the Companies Act, it is a
mandatory provision.

Disclosure of information. Disclosure of information is the supply of information of financial nature

relevant to all types of stakeholders of the company through annual reports, accounts, and other sources.
While the Companies Act provides the format for providing such information periodically, SEBI has made
provisions that all companies listed on the stock exchange will provide all such information which is likely
to affect the share prices. Such information relates to financial performance, mergers and acquisitions,
opening of a new unit/plant/office, declaration of dividend, and other relevant information.

Management practices. Management practices include performing management functions (planning,

organizing, staffing, directing, and controlling) relevant to business functions (production/operations,
marketing, finance, and human resource) as well as to stakeholders (shareholders, customers, suppliers,
financial institutions, government, and society). Management practices as suggested by corporate
governance should have fairness, transparency, and accountability. Fairness in management practices refers
to equitable treatment to stakeholders, that is, giving them honestly what is due to them. Transparency refers
to the extent organizational decisions are being verifiable by others. Accountability refers to the obligation
that an organization has towards others.

Corporate governance has been applied in many countries and international institutions. Many countries
have formulated code of corporate governance. In India, though on such code has been formulated as yet,
Confederation of Indian Industry (CII), an association of a number of companies and regional chambers of
commerce has suggested a code of corporate governance. Besides this, many companies have formulated
their own code of corporate governance, for example, Reliance Industries, Tata Group, Hindustan Unilever,
etc. some companies operating in India follow codes formulated by foreign countries, for example, ICI
Limited follows Anglo-Saxon principles of Corporate Governance.

OECD PRINCIPLES OF CORPORATE GOVERNANCE

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. Although, these principles mainly focuses on publicly traded companies (both financial and
non-financial), they also act as a useful tool to improve corporate governance in non-traded companies, for
example, privately held and state owned enterprises.

These principles majorly include:-

1. An effective corporate governance framework should be developed with a view to its impact on
overall economic performance, market integrity and the incentives it creates for market participants
as well as for the promotion of transparent and efficient markets. The legal and regulatory
requirements that affect corporate governance practices in a jurisdiction should be consistent with the
rule of law, transparent and enforceable. They should clearly articulate the division of responsibilities
among different supervisory, regulatory and enforcement authorities.
2. The corporate governance framework should protect and facilitate the exercise of basic shareholders
rights, which should include the right to: (I) secure methods of ownership registration; (ii) convey or
transfer shares; (iii) obtain relevant and material information on the corporation on a timely and
regular basis; (iv) participate and vote in general shareholder meetings; (v) elect and remove
members of the board; and (vi) share in the profits of the corporation. Shareholders should have the
right to participate in, and to be sufficiently informed on, decisions concerning fundamental
 corporate changes, such as, amendments to the statutes or articles of incorporation; authorization of
additional shares; etc.
3. Capital structures and arrangements that enable certain shareholders to obtain a degree of control
disproportionate to their equity ownership should be disclosed. The rules and procedures governing
the acquisition of corporate control in the capital markets, and extraordinary transactions, such as
mergers and sales of substantial portions of corporate assets, should be clearly articulated and
disclosed so that investors understand their rights and recourse. Transactions should occur at
transparent prices and under fair conditions that protect the rights of all shareholders according to
their class.
4. All shareholders of the same series of a class, including minority and foreign shareholders, should be
treated equally. Within any series of a class, all shares should carry the same rights. All investors
should be able to obtain information about the rights attached to all series and classes of shares
before they purchase. Besides, all shareholders should have the opportunity to obtain effective
redress for violation of their rights.
5. Insider trading and abusive self-dealing should be prohibited.
6. The corporate governance framework should recognize the rights of stakeholders established by law
or through mutual agreements and encourage active co-operation between corporations and
stakeholders in creating wealth, jobs and the sustainability of financially sound enterprises. Further,
it should be complemented by an effective, efficient insolvency framework and by effective
enforcement of creditor rights.
7. Performance-enhancing mechanisms for employee participation should be permitted to develop.
8. The corporate governance framework should ensure that timely and accurate disclosure is made on
all material matters regarding the corporation, including the financial situation, operating results,
objectives, performance, ownership, remuneration policy and governance of the company.
Information should be prepared and disclosed in accordance with high quality standards of
accounting and financial and non-financial disclosure.
9. An annual audit should be conducted by an independent, competent and qualified auditor in order to
provide an external and objective assurance to the board and shareholders, such that the financial
statements fairly represent the financial position and performance of the company in all material
respects. External auditors should be accountable to the shareholders and owe a duty to the company
to exercise due professional care in the conduct of the audit.
10. The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board's accountability to the company and
its shareholders. That is, the Board members should act on a fully informed basis, in good faith, with
due diligence and care, and in the best interest of the company and the shareholders. It should review
and guide corporate strategy, major plans of action, risk policy, annual budgets, business plans,
performance objectives, etc. as well as monitor the effectiveness of company's governance practices
and make changes, wherever needed.

Example: Code of corporate governance of Reliance Industries

Code of corporate governance of Reliance is very widely elaborated and includes: its commitment, board
structure and practices, transparency and disclosure, corporate ethics, and business policies.

1. Commitment. Reliance is committed to achieving the highest international standards of corporate

governance, recognizing that the management is accountable to all stakeholders for good governance
including shareholders, employees, the government and creditors. Reliance believes that its key
decisions must serve underlying goals of enhancing shareholders value over a sustained period of
time ,and achieving the definite and measurable performance targets that have publicly been set out
by the company. To this end, Reliance consistently aims at achieving increased level of transparency,
accountability, and equity, in all facets of its operations.
2. Board of Structure and Practices. Reliance believes that the board of directors is a balanced one
and ensures adequate representation to all stakeholders, provides the company with the benefits of
the accumulated skills, experiences and wisdom of an independent body of professionals. In addition
to the matters statutorily requiring board approval, all major decisions involving , inter alia,
mobilization of resources, new investments and capital expenditure, acquisitions, risk management,
and technology are brought before the board of its decisions. To assist the board, various committees
are constituted like audit committee, finance committee, share transfer committee, etc.
3. Transparency and Disclosure. Reliance believes that increased transparency and enhanced
disclosure promote better corporate governance. It believes that the accounts are prepared on the
basis of the highest accounting standards and practices including US GAAP and International
Accounting Standards. The accounts are audited by the statutorily appointed Indian auditors, and a
firm of international accountants. Reliance believes in adequate information sharing, both financial
and non-financial, with all stakeholders in terms of time and volumequantity and quality.
4. Corporate Ethics. Reliance believes that an effective corporate governance process transcends
integrity and efficiency and encompasses all of the corporations relationships. It believes that any
business conduct can be ethical only when it rests on the nine core values of: honesty, integrity,
respect, fairness, purposefulness, trust, responsibility, citizenship, and caring.

Conclusion
Corporate governance is a system by which companies are directed and controlled based on code of good
corporate practices. And also corporate governance is the way a corporation polices itself. In short, it is a
method of governing the company like a sovereign state, instating its own customs, policies and laws to its
employees from the highest to the lowest levels. Corporate governance is intended to increase the
accountability of your company and to avoid massive disasters before they occur.

Corporate governance is very important for a good business to maintain its standard. For good corporate
governance there should

I. Commitment towards business must be adopted.

II. Increased transparency and enhanced disclosure promote better corporate governance.
III. There must corporate ethics. etc

Reference

1. Principles and practice of management, L M Prasad, sultan chand and sons

publishers, pg. no. 152-154
2. http://www.businessdictionary.com/article/618/corporate-governance-important/