MODULE # 03

BUSINESS ETHICS AND CORPORATE GOVERNANCE Models of CG

Prof.Madhura TilakPIMR-Parul group of mgmt. Institute

MODELS OF CORPORATE GOVERNANCE

Provisions for corporate governance factually refers to a set of company practices, rules, relations, processes and system designed for fair and efficient management of the enterprise and are meant as a system of earning benefit among the potentially differing interest of many stakeholders, including minority shareholder and the directors and employees of a company.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

MODELS OF CORPORATE GOVERNANCE

Different models of corporate governance around the world and they differ according to Economic style, Social practices, and Business philosophy of the country or the state in which the company operates. There is no one-size-fits-all corporate governance model.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

MODELS OF CORPORATE GOVERNANCE

The Anglo-American Model The Coordinated Model The Family-Owned Company Model

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

THE ANGLO-AMERICAN MODEL

Anglo British or English

This is a typical liberal model of governance, which is prevalent in the US, UK, and many English speaking countries of the erstwhile (former) British Empire.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

THE ANGLO-AMERICAN MODEL

This model calls for governance by the board of directors, which has the power to choose the CEO. While the CEO has the power delegated by the board to manage the company on a daily basis, he or she needs board approval for certain major decisions.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

THE ANGLO-AMERICAN MODEL

Decisions like, Senior level appointment, Fund raising Acquisition bids Expansion, etc.

Will be taken by CEO

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

THE ANGLO-AMERICAN MODEL

Duties of the board may include policy making, decision making, monitoring, management performance and corporate control, besides facilitating CEO to functions under set policy and guidance.

Largest share holder may have the influence over the board.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

THE ANGLO-AMERICAN MODEL

Individual share holder many not have the opportunities to elect their nominees despite the fact that their total holding if put together may exceed the shareholding of largest shareholder, which is contrary to the interest of Corporate governance.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

THE ANGLO-AMERICAN MODEL

Often, responsibility of board are marginalized (demoted) & interest of share holders are compromised. CEO and board may take the decision according to their choice and may violate the corporate norms.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE ANGLO-AMERICAN MODEL

However, this model give priority to shareholders interests and which translate into strong pressure of management to innovate, compete and grow profitably, This models places less emphasis on the interest of managers, employees, customer, suppliers and community in general.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE ANGLO-AMERICAN MODEL

US scandals in 90s have introduced great concern for oversight responsibilities beyond their traditional stewardship that were before the scandals. Financial crisis of 2008 in UK and US requires effective Corporate governance.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE COORDINATED MODEL

This model, prevalent in Europe and Japan, acquiesces (agree) to shareholder interest but also gives priority to the interests of managers, employees, customers, suppliers and the community in general. The coordinated model encourages innovation and profit on a more incremental level.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE COORDINATED MODEL

Companies less likely to suffer from ethical and moral failure Not like Anglo-American model, - demand of for grater and grater profit. Combination of this two may provide a right answer for social and democratic countries like India.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE FAMILY OWNED MODEL

Asian and Latin America. Company owned by small family dominate the market Small number of powerful families controls large number of public companies.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE COORDINATED MODEL

Example, The Reliance Group of Industries in India, is termed by as many as a family owned business because majority of share holding over 51% - closely related family member. Family has controlling stake and governance in their listed companies.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE COORDINATED MODEL

Family-owned companies do not necessarily harm the interests of shareholders because they themselves are major beneficiaries of their dividend policy or related benefits.
Shareholding exceed 51% Neither fully open nor fully transparent to disclosure norms. Many company complying with clause 49 of listing agreements, Doing social and development works.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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CONT..
Both governments and regulators have to recognize corporate governance as a corner stone of economic reforms. Asian crisis of 1997 having its roots in poor governance. Both national and international governments increase importance to Corporate governance. India mixture of A-AM a CM.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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HISTORY
Corporate governance began with managing agency system pre-independence era Then promoter system in the early 90s Then after Indian companies act acted as main anchor of Corporate governance.

Monday, April 29, 2013

Prof.Madhura Tilak- PIMR

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THE COORDINATED MODEL

Corporate governance Standards across UK and US are trying to adjust with the contemporary business situation and stock market bubbles.
Ownership concentration Separation of management and control Increasing importance of stake holders

Concerns are increasing in UK and US.

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Prof.Madhura Tilak- PIMR

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THANK YOU

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Prof.Madhura Tilak- PIMR

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