Description
What is corporate governance, principal agent problem, effect of corporate governance, stakeholders vs shareholders.
What is Corporate governance?
? Corporate governance is the set of processes ,
customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. ? It also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. ? Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.
Who r the stakeholders?
? . The principal stakeholders
? Shareholders
? Management ? BOD
Other stakeholders include ? Employees,suppliers,customers, banks and other lenders, regulators, the environment and the community at large.
SEBI DEFINES C.G. AS
? The acceptance by management of the
unchallengeable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.
WHY C.G.?
? An important theme of corporate governance is to ensure the ACCOUNTABILITY of certain individuals in an organization through mechanisms that try to reduce or eliminate the PRINICIPAL-AGENT problem.
PRINICIPAL-AGENT problem?
? This separation of ownership from control implies a
loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders.
Objective
? Attain highest standard of procedures and
practices followed by the corporate world so as to have transparency in its functioning with an ultimate aim to maximise the value of various stakeholders
.
Principles of C.G.
? Key elements of good corporate governance principles
? ? ? ? ?
include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization Integrity and ethical behaviour Disclosure and transparency(ACCOUNTABILITY) Rights and equitable treatment of shareholders Interests of other stakeholders Role and responsibilities of the board
Role and responsibilities of the board
? A board of directors often plays a key role in corporate
governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities ? The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person.
Effect of corporate governance
The positive effect of good corporate governance on different stakeholders ultimately is ? a strengthened economy, ? a tool for socio-economic development. ? sustainable development ? Economic health of a nation depends substantially on how sound and ethical businesses are. ? Investors confidence
History of corporate governance
? Although started in 19th century, ? Events like In 1997, the east Asian financial crisis. ? There has been renewed interest in the corporate
governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of U.S. firms such as Enron ,World.com with the massive bankruptcies led to increased shareholder and governmental interest in corporate governance. This is reflected in the passage of the Sarbanes-Oxley act of 2002 that was passed intending to restore public confidence in corporate governance
Shareholder v/s stakeholders theory
? Shareholder theory
It is a view that an organisation exists solely for the benefits of its shareholders and goals of the organisation is to maximise shareholders wealth. ? Stakeholders theory It is a view that organisation need to go beyound just overning the interest of shareholder and try to balance the legitimate interest of its stakeholders.
SHAREHOLDERS FOCUSSHAREHOLDERS
EMPHASIS ON PROFITABILITY SUCCESS MEASURED BY SHARE PRICE AND DIVIDENDS U.S,U.K.
STAKEHOLDERS SERVE MULTIPLE STAKEHOLDERS
EMPHASIS ON RESPONSIBILITY SUCCESS MEASURED BY MULTIPLE MEASURES DENMARK,ASIAN
C.G. IN INDIA
? ? ? ? ?
OWNERSHIP STRUCTURE ISSUE OF MAJORITY V/S MINORITY SHAREHOLDERS. 60% FAMILY OWNED BUSINESSES 70% OF LARGEST BUSINESS HOUSE FAMILY OWNED. REPORTING MORE TRANSPARENT DUE TO PROGRESSIVE TAX STRUCUTURE AND ABOLISHED LICENSE RAJ. ? PROBLEM- MGRS FAVOUR INTEREST OF LARGE SHAREHOLDERS THAN SMALLER ONES. ? LARGE SHAREHOLDERS- GOVERNMENT,MNCS OR INDIVIDUALS.
Case study- Enron
? 2001 - $6OO MILLION FINANCIAL
MISAPPROPRIATION ? 97-2000- F.M ? Stock price- 2000 $90 2001- $1 ? Fortune 500- most innovative company ? Employees- 30000- 6000 houston,texas ? Early 2001- ranked no.7 on basis of revenue- fortune 500.
Case study- Enron
? 1985- Internorth takes over houston natural gas ? 1987- Enron formed ,kenneth lay CEO ? 1989- Enron begin natural gas trading ? 1990- Jeffrey skilling joins enron from mckinsey ? 1994- Enron begins trading electricity
? 1996- skilling appointed president and COO
? 1997-enron begins trading weather derivaties ? 2001 feb- Skilling takes over as CEO ? 2001 aug- Skilling resigns, lay takes over as CEO, stock price down ? 15th aug-whistleblower by Sherron Watkins/ consequences ? Sept- warren buffet, head, berkshire hathway ? Oct 2001- Andrew Fastow resigns, moody’s ratings ? Nov 2001-Dynegy announces takeover but later backs out ? December 2001- files for bankruptcy
? 2004- restructured as Prisma energy international.
? Problem
? Executive remuneration- salaries, insider trading(
fastow-33 mn, lay 184 mn, skilling 70 mn- 200-01, bonus payment. ? Board of directors ? Audit committee
? Thank you.
doc_153544301.ppt
What is corporate governance, principal agent problem, effect of corporate governance, stakeholders vs shareholders.
What is Corporate governance?
? Corporate governance is the set of processes ,
customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. ? It also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. ? Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.
Who r the stakeholders?
? . The principal stakeholders
? Shareholders
? Management ? BOD
Other stakeholders include ? Employees,suppliers,customers, banks and other lenders, regulators, the environment and the community at large.
SEBI DEFINES C.G. AS
? The acceptance by management of the
unchallengeable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.
WHY C.G.?
? An important theme of corporate governance is to ensure the ACCOUNTABILITY of certain individuals in an organization through mechanisms that try to reduce or eliminate the PRINICIPAL-AGENT problem.
PRINICIPAL-AGENT problem?
? This separation of ownership from control implies a
loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders.
Objective
? Attain highest standard of procedures and
practices followed by the corporate world so as to have transparency in its functioning with an ultimate aim to maximise the value of various stakeholders
.
Principles of C.G.
? Key elements of good corporate governance principles
? ? ? ? ?
include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization Integrity and ethical behaviour Disclosure and transparency(ACCOUNTABILITY) Rights and equitable treatment of shareholders Interests of other stakeholders Role and responsibilities of the board
Role and responsibilities of the board
? A board of directors often plays a key role in corporate
governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities ? The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person.
Effect of corporate governance
The positive effect of good corporate governance on different stakeholders ultimately is ? a strengthened economy, ? a tool for socio-economic development. ? sustainable development ? Economic health of a nation depends substantially on how sound and ethical businesses are. ? Investors confidence
History of corporate governance
? Although started in 19th century, ? Events like In 1997, the east Asian financial crisis. ? There has been renewed interest in the corporate
governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of U.S. firms such as Enron ,World.com with the massive bankruptcies led to increased shareholder and governmental interest in corporate governance. This is reflected in the passage of the Sarbanes-Oxley act of 2002 that was passed intending to restore public confidence in corporate governance
Shareholder v/s stakeholders theory
? Shareholder theory
It is a view that an organisation exists solely for the benefits of its shareholders and goals of the organisation is to maximise shareholders wealth. ? Stakeholders theory It is a view that organisation need to go beyound just overning the interest of shareholder and try to balance the legitimate interest of its stakeholders.
SHAREHOLDERS FOCUSSHAREHOLDERS
EMPHASIS ON PROFITABILITY SUCCESS MEASURED BY SHARE PRICE AND DIVIDENDS U.S,U.K.
STAKEHOLDERS SERVE MULTIPLE STAKEHOLDERS
EMPHASIS ON RESPONSIBILITY SUCCESS MEASURED BY MULTIPLE MEASURES DENMARK,ASIAN
C.G. IN INDIA
? ? ? ? ?
OWNERSHIP STRUCTURE ISSUE OF MAJORITY V/S MINORITY SHAREHOLDERS. 60% FAMILY OWNED BUSINESSES 70% OF LARGEST BUSINESS HOUSE FAMILY OWNED. REPORTING MORE TRANSPARENT DUE TO PROGRESSIVE TAX STRUCUTURE AND ABOLISHED LICENSE RAJ. ? PROBLEM- MGRS FAVOUR INTEREST OF LARGE SHAREHOLDERS THAN SMALLER ONES. ? LARGE SHAREHOLDERS- GOVERNMENT,MNCS OR INDIVIDUALS.
Case study- Enron
? 2001 - $6OO MILLION FINANCIAL
MISAPPROPRIATION ? 97-2000- F.M ? Stock price- 2000 $90 2001- $1 ? Fortune 500- most innovative company ? Employees- 30000- 6000 houston,texas ? Early 2001- ranked no.7 on basis of revenue- fortune 500.
Case study- Enron
? 1985- Internorth takes over houston natural gas ? 1987- Enron formed ,kenneth lay CEO ? 1989- Enron begin natural gas trading ? 1990- Jeffrey skilling joins enron from mckinsey ? 1994- Enron begins trading electricity
? 1996- skilling appointed president and COO
? 1997-enron begins trading weather derivaties ? 2001 feb- Skilling takes over as CEO ? 2001 aug- Skilling resigns, lay takes over as CEO, stock price down ? 15th aug-whistleblower by Sherron Watkins/ consequences ? Sept- warren buffet, head, berkshire hathway ? Oct 2001- Andrew Fastow resigns, moody’s ratings ? Nov 2001-Dynegy announces takeover but later backs out ? December 2001- files for bankruptcy
? 2004- restructured as Prisma energy international.
? Problem
? Executive remuneration- salaries, insider trading(
fastow-33 mn, lay 184 mn, skilling 70 mn- 200-01, bonus payment. ? Board of directors ? Audit committee
? Thank you.
doc_153544301.ppt