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Corporate Governance is the practice of transparency in operations and transactions expected from Corporate Houses. सत्यं वद, धर्मं चर (Forever Speak the Truth and Follow the Dharma) has been our old age mantra for high standard of living and governance practices. To imbibe Corporate Governance norms in the structure of a business, leaders have to have vision and inclination towards Ethics, Integrity and Accountability. History has shown that Companies who followed these practices have earned the faith of world at large. Well governed and transparent companies have fared well in their business and also contributed to maintain the inclusive development and growth of society.
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19/09/2014
“NOWHERE”
“Governance
Initiatives
& Accountability”
Satyam Vada Dharmam Chara
- Taittariya Upanishad
“Forever speak the truth and follow the dharma”
Truth : Disclosure of Actual State of Affairs (Transparency in operations and transactions)
Dharma: “ Dharma is for the stability of
society, the maintenance of social order
and the general well being and progress of
humankind.”
-Karan Parva of the Mahabharata. Verse -58 in Chapter 69
Corporates are also expected to use their
Capacity, Knowledge and Resources
TOWARDSDharma
Maximization of stakeholders’ value and well-being and progress of humankind
THROUGH Truth
Transparency, accountability and truthful disclosure of state of affairs
Corporate Governance rests with the Vision and Perception of the Leadership
and
A Leader need to adopt a
Vision for Corporate Governance
Corporate Governance Framework
Output – Input = Wealth Created ?
Sustainability
Happiness andProsperity of all
Stakeholders
Reinvestment
Distribu- tion
Research and Development HR Development Infrastructure Risk Management
SUPPLIERS Adequate Returns HUMAN ASSETS Adequate Remuneration CUSTOMERS Affordable Prices PUBLIC Payment of Taxes and Partnership in National Development Projects
Wealth Creation Wealth Management Wealth Sharing
EnhancedCapabilities
Best Management Practices are Vital Here Law and Ethics are Vital Here
Principles of Corporate Excellence
Fairness to all stakeholders
Mutual Trust, Transparency and Togetherness
Unrestricted Communication and Continuous Feedback
Sharing Knowledge, Success Stories and Experience
Sharing Happiness and Concerns
Helping Each Other – Round the Clock
Fairness to all stakeholders
Mutual Trust, Transparency and Togetherness
Unrestricted Communication and Continuous Feedback
Sharing Knowledge, Success Stories and Experience
Infact, these principles are the foundation of
Best Governed Organizations'
irrespective of their form and size
Commitment to well-being and progress of all stakeholders is our age old mantra
Companies that have followed these
principles of
Corporate Governance
have
Consistently earned high returns,
increased their net worth and
enhanced their shareholders wealth
Invested significantly in proactive research and development
Developed people into ‘achievers’ than just ‘performers’
Dealt ethically with customers, government and business partners
Maintained and updated their professional management culture, system and processes
..and accomplished
WINNINGEMPLOYEES
WINNINGEMPLOYEES
GROWINGINVESTORS
GROWINGINVESTORS
DELIGHTEDCUSTOMERS
DELIGHTEDCUSTOMERS
TRUSTEDSUPPLIERS
TRUSTEDSUPPLIERS
SATISFIEDGOVERNMENT AND
REGULATORS
SATISFIEDGOVERNMENT AND
REGULATORS
HAPPYSOCIETY
HAPPYSOCIETY
The Institute of Company Secretaries of India
”Corporate Governance is theapplication of best
management practices,compliance of law in letter
and spirit and adherence to ethical standards
for effective management and distribution of wealth
and discharge of social responsibilityfor sustainable
development of all stakeholders”
Advantages of applying Best Corporate Governance Practices
Growth
Growing Revenues
Growing Profits
Growing Market Value
Widespread Goodwill and Brand Reputation
Access to Global Markets
Better Access to Human Capital
Ready Market for New Products
Widening Customer Base
Enhanced Trust and Confidence of all
Stakeholders
EMPLOYEESEMPLOYEES
INVESTORSINVESTORS CUSTOMERSCUSTOMERS
SUPPLIERSSUPPLIERS
GOVERNMENT AND REGULATORS
GOVERNMENT AND REGULATORS
SOCIETYSOCIETY
Leading to…
Environment
Civil SocietyBusiness Society
SUSTAINABLEDEVELOPMENT
Corporate Value without Corporate Governance – The Past
COMPANY
• Loss of reputation in International Market
• Loss of Moral Fibre of Corporataions.
Corporate Value without Corporate Governance – The Past
STAKEHOLDERS
• Auditors - Independence compromised to
obtain lucrative consulting assignments
• Employees - Large disparity between the
highest and lowest paid employee
• Analysts - Ever-greening of Corporate &
Stock reports.
Corporate Value without Corporate Governance – The Past
STOCKHOLDERS:
• Loss of Investors Confidence.
• Difficulty in further raising of capital.
• Investor Complaints
Corporate Value without Corporate Governance – The Past
PRACTICES:
• Aggressive accounting practices.
• Incompetence of board members and
overriding of audit committees .
• Dividend linked to short-term revenue
growth, EPS and stock price.
Independent Director
Interdependent Director
Vs.
Reactions in Legal Framework
Clause 49 of Listing Agreement.
Section 108, 150 & 177 etc. in the
Companies Act, 2013
Legal Norms for CG
Concept of Independent Directors, Nomination &
Remuneration Committee & Audit Committees
Mandatory induction of Women Director on
Company’s Board
Familarisation Programme for Independent Directors
Performance Evaluation of Directors
Formation of Risk management Committee by top
100 Listed Entities by Market Capitalisation
Code for Independent Directors
Legal Norms for CG
Green Initiative by allowing paperless compliances i.e.
service of notice & other documents by Company to its
shareholders via electronic mode
Stricter independence standards for Audit Committees
Board Professionalism
Establishment of Vigil Mechanism
Certifications and disclosures
Real time disclosure & Shortened deadlines
ARE
SHAREHOLDERS THE
ONLY
STAKEHOLDERS ?
Stakeholders in Value Chain
SUPPLIERS CUSTOMERSHUMAN RESOURCE
Supply Funds, Materials and Services
Value Addition and Management of Resources
Give Opportunity to Co. to Satisfy their Needs
Adequate Returns for Funds, Material and Services Supplied
Adequate Salary and Security for leading a Happy Life
Best Quality Products and Customer Care at Minimum Prices
ROLE OF STAKEHOLDERS
EXPECTATIONS OF STAKEHOLDERS
Potential Suppliers, Human Resources and Customers
Biological, Economic and Cultural EnvironmentPUBLIC
PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
Corporate Governance Value Chain
Investors Lenders Customers Suppliers Employee
sGovernmen
t Regulator
“Corporate Governance is not related to investors only, though they are most
important Beneficiary.”
Stakeholders’ Stake in Corporate Governance Value Chain
Lenders 2/3rd Investment
Investors 1/3rd Investment
Customers 100% Earnings
Suppliers ½ of Working Capital
Employees 100% Value Generation
Government Basic Infrastructure & Facilities
Regulator Dispute Resolution
2 : 1 Debt –
Equity Ratio
2 : 1 Current Ratio
What CG Brings…
People
PurposePerformance
Process
Value Addition through CG
CORPORATE GOVERNANCE
INVESTORS LENDERS CUSTOMER EMPLOYEESUPPLIER
• Confidence
• Security of Funds
• Safety of interest & principal.
• Better & Favorable Credit Terms
• Value Creation
• Better quality of Products/ Services
• Cheaper prices
• Value Creation
• Favorable terms of supplier agreements
• Better quality of HR
• Better Salary
• Benefits
• Stability
Govt./Regulator
• Tax• Complian
ce• Employm
ent• Social
Commitment
Measurement of Value Addition
• Return on Capital Employed• EPS / DPS• Dividend Pay-out Ratio
Investors
• Debt-Equity Ratio• Debt Coverage Ratio• Interest Coverage Ratio
Lenders
• Market Share• Stock Turnover RatioCustomers
• Credit Period• Credit RateSuppliers
• Employee Turnover RatioEmployees
• Subsidies• Basic Infrastructure AmenitiesGovernment
• No hasty ActionsRegulators
Benefits As To Value Addition
Lenders
Better Credit termsInvestors
Increase in Investment
Customers Increase in Goodwill
Suppliers Increase in creditworthiness
Employees Reduction in Employee Turnover
Government Relaxation of Norms
Regulator Action only after due consideration
Corporate Governance Enhances Brand Value
Quality in Board Structure
Better Board Management and Practices
Contribution of Independent Directors
Successful Strategies
Adequacy of Controls
Independence of Auditors
Outstanding Performance, Higher Profits,
Expanded Market Reach and the like FAILS
to protect a company which has put good governance &
ethics at the back burner….
History is Witness
S
U
C
E
S
S
D
I
S
A
S
T
E
R
..…Only the culture of strict adherence to good
compliance can keep a company
ahead on sustainable basis , bring in larger profits…
Secret behind building foundations
Present Status of CG Practices – The CRISIL Experience
Practice Status
Equitable Treatment of
Shareholders
Moderate
Transparency and Disclosure
Relatively
strong
Composition of Board Scope for improvement
Functioning of Board Moderate
Value Addition - The CRISIL Experience
Stakeholders Status
Share Holders High
Debt Holders Highest
Employees Moderate
Customers High
Suppliers Scope for improvement
Society Scope for improvement
Thus, Although a lot has been done, but a lot needs to be done.
CORPORATES SHOULD ACT LIKE HONEY BEE WHICH SUCK THE
NECTAR OF THE FLOWER WITHOUT EFFECTING ITS FRAGRANCE AND PRODUCE HONEY FOR THE WELL –BEING OF SOCIETY
….
THANK YOU
Corporate Professionals Capital Private Limited D-28, South Extension –I, New Delhi-110 049
Ph: +91.11.40622200; Fax: +91.11.40622201; E: [email protected]
Pavan Kumar VijayManaging Director