CORPORATE GOVERNANCE

CORPORATE GOVERNANCEPRESENTED BY:-Ashish Mishra (17)Kaustubh Brid (32)

PRESENTED TODr. Seema Laddha

NCRD Sterling Institute of Management Studies CORPORATE GOVERNANCE Corporate Governance may be defined as a set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. It is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. CONCEPTIt involves a set of relationships between a companys management, its board, its shareholders and other stakeholders; It deals with prevention or mitigation of the conflict of interests of stakeholders.Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled.An important theme of corporate governance is the nature and extent of accountability of people in the business, and mechanisms that try to decrease the principalagent problem.

OBJECTIVESA properly structured board capable of taking independent and objective decisions is in place at the helm of affairs;The board is balance as regards the representation of adequate number of non-executive and independent directors who will take care of their interests and well-being of all the stakeholders;The board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information;

OBJECTIVESThe board has an effective machinery to subserve the concerns of stakeholders.The board keeps the shareholders informed of relevant developments impacting the company;The board effectively and regularly monitors the functioning of the management team;The board remains in effective control of the affairs of the company at all times.

ADVANTAGES OF CORPORATE GOVERNANCE

Enhanced Performance- helps a company improve overall performance.Without corporate governance, a company tends to be weak and sluggish. Access to Capital- The better corporate governance a company has, the more easily it can access outside capital that the business can use to fund its projects.Since corporate governance includes major shareholders, it connects investors with the business itself, and these investors use their resources and contacts to support the company monetarily.

Better Standards- Corporate governance makes many decisions about business operations, but one of the most important decisions involves corporate standards. Standards affect the quality of products and the goals that the business has in technology, customer service, and marketing. Better Talent Utilization- With a strong corporate governance structure, people can find positions that utilize their talents more effectively, and the board of directors and top leaders of the business are always looking to add more talented people to their numbers.

DISADVANTAGES OF CORPORATE GOVERNANCEEasily Corruptible-Corporate governance needs a certain level of government oversight to avoid increasing levels of corruption. The lack of governmental oversight in corporate governance lead to a misallocation of credit that actually worked against competition. Family-Owned Companies- Corporate governance works at its best when shareholders and board members are able to make objective decisions that are in the best interest of the company. According to Ibis Associates, a business planning firm, family-run corporations (founding family members own controlling share of the company), such as Ford and Wal Mart, lose objectivity in business making decisions due to the family's financial investment in the business' performance and the emotional ties associated with building a worldwide corporation from the ground up.Costs of Monitoring- To effectively govern a publicly traded corporation, shareholders must speak with one voice and have enough votes to allow that voice to have any real weight. This requires individuals that have a collective vision for the company to pour more money into that company to gain a controlling share.

PRINCIPLES OF CORPORATE GOVERNANCERights and equitable treatment of shareholders-- Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings.Interests of other stakeholders:- Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.Role and responsibilities of the board:-- The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment

Integrity and ethical behavior:- Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.

Disclosure and transparency:- Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

FACTORS AFFECTING CORPORATE GOVERNANCE:-1. RISK MANAGEMENT & EFFECTIVE GOVERNANCE2. REGULATION & THERE ENFORCEMENTRISK MANAGEMENT AND EFFECTIVE GOVERNANCE:-

In todays world, frauds are an undeniable fact of business life. Affecting all types of businesses. New technologies such as the Internet, and the development of fully automated accounting systems, have increased the opportunities for fraud to be committed. Once suspected or discovered, investigating fraud is a specialist taskrequiring experience and technical skill and can be very costly. Thus, there is no doubtthat fraud is best prevented, rather than dealt with after the fact. The most effective and appropriate response to the problem of fraud involves a combination of risk management techniques. These techniques include:Setting up inherent control based upon soft controls that occur continuously andconsistently throughout the organization. Such controls should be embedded innormal business practice and be designed in such a way that they are to a largeextent self sustaining; and Setting up formal control processes of monitoring, reviewing and reporting

REGULATION AND THERE ENFORCEMENT :-

Since corporate governance failures have proved to be harmful not just for the organizations but also for the economy and the general public at large as well, there have been public pressures on the government and regulatory authorities to reform business practices and increase transparency. Consequently, it has become a part of the governments duty to ensure accountability and responsibility in corporate behavior.Effective disposal of this responsibility basically revolves around two things:First, the designing of regulatory commands i.e. the regulations and laws to ensure good corporate governance; andSecond is the enforcement of regulations.

WHY CORPORATE GOVERNANCE?:-AT NATIONAL LEVEL :- As barriers to the free flow of capital fall, it becomes imperative to recognize that the quality of corporate governance is relevant to capital formation and that sound corporate governance principles is the foundation upon which the trust of investors is built.Corporate governance represents the ethical the moral framework under which business decisions are taken. Thus, any investor, when making investments across the borders or even otherwise, wants to be sure that not only are the capital markets or enterprises with which they are investing are being run competently but they also have good corporate governance.Consequently, lack of sound corporate governance practices in any countrycan badly affect the confidence of foreign investors, in turn causing damage to theamount of foreign investments flowing in.At the company and individual level:-It is self evident that sound corporate governance is essential to the well being of an individual company and its stakeholders, particularly its shareholders and creditors.We need only remind ourselves of the many companies, across the world, whose financial difficulties and, ultimate demise have been substantially attributable to weak corporate governance. On the other hand, there are several areas of self-interest that should drive companies to embrace more effective governance. These areas are:1. Effective governance helps to minimize reputational risks and thus, protecting thebrand;2. It helps to instill trust in customers and vendors;3. It also helps to assure effectiveness and integrity of a companys businessprocesses.4. Further, in many cases, the punishment, in terms of penalties or imprisonment, forwhite-collar crimes are now in excess for such criminal acts such as armedrobbery, assault, and negligent murder. Even to escape such punishments,ensuring corporate governance compliance is a must.15CASE STUDY : GLAXO SMITH KLINEDo more,feel better,live longer

GLAXOSMITHKLINEThey believe that it is in the vital financial interest of the firm to conduct their business with honesty and integrity complying all legal and regulatory requirements. The code applies to all their employees worldwide. Their code of conduct is as follows:All employees must conduct business with honesty and integrity in a professional manner for the firms good reputation.Employees must build relationships on the basis of trust and treat all with respect and dignity. Their stakeholders like customers, suppliers, employees must know the legal requirements of business and company rules, policy and procedures.Avoid any activity which could lead to unlawful practice and harm the firms image.Avoid conflicts of interest within the firm in all transactions.Give accurate and reliable information in records submitted while safeguarding the firms confidential information.Promptly report to the concerned person any violation of law or any unethical practice and cooperate with any audit, enquiry or investigation by the firm.

Employees are responsible for the following:All employees must uphold standards in the conduct of the firms business. When in doubt the must ask the firms legal department.Senior Management should be the role model for others.Failure of the employees regarding compliance to the code would lead to disciplinary action right up to severance from employment of the firm.When in doubt the firm wants the employees to ask questions for them.GlaxoSmithKline recognizes that commercial pressures and complex regulatory environments can present employees with difficult ethical situations.GSK provide guidance and support for the backed by rigorous auditing and action if misconduct is identified.

GSK has audit systems to help identify and deal with cases of non-compliance. Those who violate company standards are subjected to disciplinary action including dismissal in serious cases. Serious violations and remedial actions are reported to the audit committee of the board. Doing the right thing can, at times appear to sacrifice some immediate advantage. However, GSKs commitment to integrity and high standards of business ethics benefit their customers, communities, shareholders, employees and the business The companys Code Of Conduct An Introduction to Corporate Ethics and Compliance promotes honest and ethical conduct by setting out standards to be followed by GSKs employees in their everyday work for the companyA separate publication, the Employee Guide to Business Conduct, helps employees understand what the Code means in practice and what is acceptable and unacceptable behavior.The Code is available on the company intranet.Employees have access to corporate compliance officers and are encouraged to seek guidance or raise concerns with the officers directly. Their contact details are in the Code Of Conduct brochure the Employee Guide and on the company intranet.A secure off-site PO Box address is available for confidential written communication, and toll-free telephone GlaxoSmithKline Integrity Help lines are available in the US and the UK.

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