Internal Corporate Governance Mechanism

8/2/2019 Internal Corporate Governance Mechanism

1/23

Internal corporate governance

mechanism


2/23

Corporate Governance

A relationship among stakeholders used to

determine and control the strategic direction

and performance of organizations

Concerned with making strategic decisions

moreeffectively

Used to establish order between a firms owners

and its top-level managers whose interests may

be in conflict


3/23

Corporate Governance mechanisms

Internal mechanism

Board of DirectorsFunctional Committees of

Board Code of conduct

whistle blowers.

External mechanism

Regulatory Oversight(Financial market regulator)

Legal System (Company law,Bankruptcy law)

Corporate Control activity

Institutional investors(CalPERS, FIIs)

Capital market access Rating Agencies

External Auditors


4/23

Types of Directors

Executive Directors (Infosys)

Non- Executive directors (Independent Directors and

family members) (Hindalco board)

Nominee Directors (Tata Power)

Representative Directors for employees, suppliers

(Cummins)

Alternative directors (Patni)Shadow directors (Ranbaxy)

Associate directors
http://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Infosys%20Board_composition.pdfhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Hindalco_Annual_Report_FY2006.pdfhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/The%20Tata%20Power%20Company%20Limited.htmhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Cummins%20India%20Limited%20%20Investor%20Relations.htmhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Patni.pdfhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Patni.pdfhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Cummins%20India%20Limited%20%20Investor%20Relations.htmhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/The%20Tata%20Power%20Company%20Limited.htmhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Hindalco_Annual_Report_FY2006.pdfhttp://c/Documents%20and%20Settings/Kannan/My%20Documents/BECG_slides/New%20Folder/Infosys%20Board_composition.pdf


5/23

Types of Board structure

All executive board (Most of the unlistedfirms)

Majority Executive board (family business

firms)Majority outsider board - (Software companies-

Satyam, Wipro)

TwoTier structureAdvisory board Murugappa Corporate Board


6/23

Issues in designing the board

The board size

The role of chairman and CEO

Duality of board membership in a subsidiaryboards


7/23

Board Styles

Based on concern for relationship amongdirectors and Concern for effectivecommunication

Rubber stamp board (low, low) (fully ownedsubsidiaries)

Country club board (high, low)

Representative board (low, high) Professional board (high, high)


8/23

Role of directors

Performance role

Provides specialized knowledge specialists

Lawyers, Auditors, Academics (Infosys, RIL)

Caters the needs of corporation for networking,

representing and adding status


9/23

Role of directors

Conformance Role

Ensure top management following policies andprocedures laid down by the board


10/23

Responsibilities

Responsibilities to the shareholders

Obligation to maintain honesty and integrity

Proper presentation of documents and annualaccounts


11/23

Duties of the directors

Exercise care in the discharge of functions as

Directors

Attend Board meetings and devote sufficient time

and attention to the affairs of the company Not to be negligent and not to commit or let others

commit tort-liable acts

(Tort -wrongful act that causes injury to a person orproperty and for which the law allows a claim by the

injured party to recover damages -money)


12/23

Duties of the directors

Not to misuse power

Protect the interests of creditors and

employees

Maintain confidentiality

Not to exercise power for a collateral purpose

Not to waste company assets


13/23

Role of Chairman

Manage the board and conduct of meetings

Good business and financial knowledge

Maintain good relations with the Executivedirectors Independent directors and CEO


14/23

Role of CEO with respect to board

Good relationship with directors and

Chairman

Assist the executive directors in presenting the

strategic proposals

To present the company to the investors

To act as a representative of executive

directors while interacting with independent

directors


15/23

Functions of the board

Strategic role

Policy making role - Like code of conduct

Monitoring and supervisory role


16/23

Committees of the board

Audit committee

Compensation Committee

Nomination committee

Finance committee

Investors grievance committee


17/23

Corporate Code

Corporate Codes are the policy statements

which guides the behavior of employees

based on the value systems of the company.

The top management and board has the

responsibility prepare the Corporate Code


18/23

Types of corporate codes

Compliance Code : Directive Statements which

provide guidance and prohibit certain kind conduct

Corporate Credos: The broad general statements of

corporate commitments relating to constituencies,values and Objectives

Management Philosophy Statements : The formal

statements of companys value system


19/23

Types of Compliance code

Special documents Code of conduct

Circulated letters about company policies for

employees while dealing business partners


20/23

Code of Conduct

Companies' policy statements that define ethicalstandards for the employee conduct

Code varies from company to company

Can take a number of formats and address any issue -like workers' rights, behavior with customers .

Codes of conduct create a proper environment to helpidentify and reinforce within the firm those critical

success factors which improve its capacity to competein a rapidly changing environment.


21/23

Process of corporate code

Identification of key behavior developing the

code

Review

Communicate the code

Implement

Update


22/23

Code of Conduct an example

Code of conduct @ Grasim Industries Ltd


23/23

Whistle Blowing

Whistle blowing - the deed of making exposures about the

corporate fraud and corruption to the public in anticipation ofimplementing appropriate measures of correction.

whistleblower - an employee, former employee, or member

of an organization, especially a business or government

agency, who reports misconduct to people or entities thathave the power and presumed willingness to take corrective

action.

The misconduct which are reported, by and large, include an

infringement of law, rule, regulation and/or a constantmenace to public interest, such as health/safety violations,

fraud and corruption.

Internal Corporate Governance Mechanism

Documents

Transcript of Internal Corporate Governance Mechanism