Corporate Governance Abby

7/31/2019 Corporate Governance Abby

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DefinitionThe definition of corporate governance most widely

used is "the system by which companies are directed andcontrolled" (Cadbury Committee, 1992).

OR

Milton Friedman has defined Corporate Governance asThe conduct of business in accordance with shareholders

desire which generally is to make as much money as possiblewhile conforming to the basic rules of society embodied in law

and local customs.


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Laws and RegulationsInterests of

Stakeholders

OwnershipBoard of DirectorsOther Stakeholders


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To promote a healthy environment for long-term investment.

To create a trust in the corporate and in its

abilities.To promote business development.To improve the efficiency of the capital

.markets.

To enhance the effectiveness in the service ofthe real economy.


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Compliance with the Corporate GovernancePrinciples can benefit the owners and managers of

companies and increase transparency and disclosure by,Improving access to capital and financial markets.Help to survive in an increasingly competitive

environment through mergers, acquisitions, partnershipsand risk reduction through asset diversification.

provide an exit policy and ensure a smooth inter-generational transfer of wealth and divestment of familyassets, as well as reducing the chance for conflicts ofinterest to arise.

To be contd.


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It leads to better system of internal control, thus leading togreater accountability and better profit margins.

It has a ability to attract equity investors-nationally andfrom abroad.It also reduce the cost of loans/ credit for corporations.Investors and potential partners will have more confidence in

investing in or expanding the companys operations.


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Provide the proper incentives for the board andmanagement to pursue objectives that are in the interest of

the company and shareholders as well as facilitate effectivemonitoring.Greater Security on their investments.It ensures that shareholders are sufficiently informed on

decisions concerning amendments of statutes or articles in

incorporation , sale of assets etc.,


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Empirical evidence and research conducted in recent years

supports the proposition that it pays to have good corporateGovernance.

It was found out that more than 84% of the globalinstitutional investors are willing to pay a premium for theshares of well governed company over one considered poorlygoverned but with a comparable financial record.

The adoption of Corporate Governance Principles as goodCorporate Governance practice has already shown in othermarkets can also play a role in increasing the corporate valueof companies.


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Corporate Governance is part of an economys systemwhich has today become the most important mechanism forresource allocation. It is affected by Capital market, block holders,

institutional investors, proxy wars, company law and capitalmarket regulation s and many other macro-economic as well aspolitical factors.

Much of the concerned literature revolves around the

agency problem, while developing countries expropriation of smallshareholders is the governance problem, However, shareholdersactivism is not likely to resolve the issue. Many more measuresform audit committee of the board, rigorous disclosure, exercise of

voting rights will ensure the issue.


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Good Corporate Governance dictates that the Boardbe Comprised of individuals with certain personal traits andcare competencies such as..

Recognition of Boards tasks.

Integrity.Sense of Accountability.track record of achievements.

Each of the members of the Board should have a

driving motivation and aggressiveness, natural leadershipand organizational abilities with a high degree of technicalcompetence and team spirit.


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Section 291 of the companies Act of 1956 specifies

that the Board of Directors of the company shall be entitledto exercise all such powers and duties.

Powers exercisable only at meetings of the Board.Powers exercisable only with the prior consent of the

company in general meeting.Powers exercisable by the Board through resolution passed

by circulation.Boards is free to act and decide based on its wisdom.


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Directors must act bona fide in the interests of thecompany.

Every director must act with care and skill reasonably

expected of his office.Personal interests must not be placed before companysinterests.

The information and knowledge gained during his tenure asdirector should not be used to gain personal profits.

Duty to disclose his concern or interest in transactions.


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Liability to maintain Books and Registers.Directors responsibility for proper books of accounts.Personal liability of Directors to repay in certain cases.Duty of filing of returns.Duty to seek approval form registrar.

Corporate Governance Abby

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