CORPORATE GOVERNANCE GLOBAL MODELS

Dr. Varadraj BapatIndian Institute of Technology, Mumbaivaradraj@som.iitb.ac.in9869083118/ 9892413119

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SHARE IN % OF WORLD GDP BASED ON PPP--Emerging & developing economies (like China and India) are raising while G-7 (like USA, Europe) is falling. Hence the world is more interested in China and India.

4 MODELS. ANGLO-US Model. Japanese German model. China Model. Indian Model.

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Dr. Varadraj B

apat, IIT Mum

bai

ANGLO-US MODEL The chief executive plays an important role. Capital markets are quite active. Short-term action pervasive. There exists a fairly active marker for corporate to

takeover and control. If the company is poorly managed it is exposed to

takeover threats.

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ANGLO-US MODEL AND AGENCY PROBLEM Agency theory is the study of how to align the

interest between shareholders and management.

Solutions to agency problem: A big pay check, and other perks. Stock options Mobilize the manager The market for takeover

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JAPANESE GERMAN MODEL Capital markets are not quite as active. Long-term goals are pursued in preference to short-

term goals. Stakeholders’ primacy is foundation of good

corporate governance practice. The scope to mergers and market based takeovers

is somewhat limited. It places restrictions on non-bank finance

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CHINA MODEL In the case of China, the focus of industrial policy

reform is deregulating the state owned enterprises. Partly privatised companies are trading in the stock

market. And the standards of corporate governance have started emerging.

In China, we have evidence of the practice of two-tier boards. It’s truly an insider dominated system.

Also primarily, it is the domination of the state and the partly be the enterprises. There is an issue of minority shareholders still being unprotected.

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CORPORATE GOVERNANCE IN INDIA In the third century B.C. Kautilya (Chanakya) wrote

his celebrated treatise on Statecraft – Arthashastra or Law of Economics.

History records Pataliputra, the Capital of Mauryan Empire as a city "astonishingly well organized and administered according to best principles of Governance.“

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CORPORATE GOVERNANCE IN INDIAKautilya further elaborates on fourfold

dharmas (duties) of a King as: - 1. Raksha – Protection  

2. Vriddhi – Enhancement3. Palana – Maintenance 4. Yogakshema – Safeguard

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SALIENT IDEAS AND THOUGHTS ON PRINCIPALS OF GOVERNANCE AS REVEALED BY OUR ANCIENT SCRIPTURES Atmano Mokshartham, Jagat hitaya cha ( आत्मनो मोक्षार्थं जगदह्ि�ताय च) : One's

actions should lead to the unravelling of one's latent Divinity and at the same time benefit the society. All work is an opportunity for doing good to the world and thus gaining materially and spiritually in our lives

Atmana Vindyate Viryam: Strength and inspiration for excelling in work comes from the Divine, God within, through prayer, spiritual readings and unselfish work.

Tesham sukhm tesham shanti shaswati: Infinite happiness and infinite peace come to them who see the Divine in all beings.

Yogah karmashu Kaushalam, Samatvam yoga uchyate: He who works with calm and even mind achieves the most.

Yadishi bhavana yasya siddhi bhavati tadrishi: As we think, so we succeed, so we become. Attention to means ensures the end.

Parasparam bhavayantah shreyah param bhavapsyathah: By mutual cooperation, respect and fellow feeling, all of us enjoy the highest good both material and spiritual.

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BASIC VALUES OF INDIAN PRINCIPALS OF GOVERNANCE Human being has immense potential, energy and

talents for perfection. Holistic approach indicating unity between the individual

self and the universe. Subtle, intangible subject and gross tangible objects are

equally important. One must develop one’s Third Eye, Jnana Chaksu, the Eye of Wisdom, Vision, Insight and Foresight. Inner resources are much more powerful than outer resources. Divine virtues are inner resources. Capital, materials and plant & machinery are outer resources.

Co-operation is a powerful instrument for team work and success in any enterprise involving collective work. 2-11

STRENGTHS OF INDIA

The magic mantra of ‘Demographic Dividend’

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StrengthsSaving MindsetFamily ValuesSocial CapitalIntegral approachSustainable thinkingDemocratic ValuesDiversityLanguage skillsLong history of Higher EducationEntrepreneurshipBharatiya Sanskruti

14Strength: Bharatiya Sanskruti

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StrengthsSaving Mindset

Bharatiya Sanskruti

GOLD Investment: beneficial or harmful ? Gold accumulation by Indian families

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GOLD: CONSUMER DEMAND 1995-2011Countries 199

52000

2005

2008

2009

2010

2011

India 477 855 722 713 579 1006 933

China 427 329 293 432 472 667 811

Indonesia 119 107 81 59 35 48 51Middle East

365 498 388 346 246 234 200

USA 315 396 377 267 265 235 195

U.K 46 65 59* 37* 32 27 23

Total Incl.others

2864 3288 3092 3048 2503 3217 3450

Gold price ($/oz)

384.1

279.1

444.5

872 972.3

1224.5

1571.5

Note: 1 Tonne=32,151 troy oz of fine gold; * Jewellary only Source: World Gold Council—Gold Demand Trends various issues

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StrengthsFamily ValuesSocial Capital

Bharatiya Sanskruti

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FAMILY VALUESSOCIAL CAPITAL 

Strong family tiesLow rate of crimesRapes are 30 times more in US than in Bharat

REMITTANCES from abroad ?

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05/03/2023D

r. Varadraj Bapat, IIT M

umbai

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REMITTANCES

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Top recipient countries of remittances (in billions of US Dollar)Country 2008 2009 2010 2011

India 50 49 53 64

China 23 23 33 40

Mexico 26 22 22 24

Philippines 19 20 21 23

Nigeria 19 18 20 21http://en.wikipedia.org/wiki/Remittance

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StrengthsIntegral approachSustainable thinking

Bharatiya Sanskruti

What is world economic history ?

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SHARE OF WORLD GDP FROM 0 TO 1998

Year

0 1000

1500

1600

1700

1820

1870

1913

1950

1973

1998

W. Eur

10.8

8.7 17.9 19.9 22.5 23.6 33.6 33.5 26.3 25.7 20.6

USA

0 0 0.3 0.2 0.1 1.8 8.9 19.1 27.3 22.0 21.9

China

26.2

22.7 25.0 29.2 22.3 32.9 17.2 8.9 4.5 4.6 11.5

India

32.9

28.9 24.5 22.6 24.4 16.0 12.2 7.6 4.2 3.1 5.0

World

100 100 100 100 100 100 100 100 100 100 100

Source: Table-B-20 Appendix B; pp263; The World Economy: A millennial Perspective—Angus Maddison OECD Development Centre Studies --2007

GDP DURING 2,000 YEARSSOURCE: ANGUS MADDISON. 2001. THE WORLD ECONOMY: A MILLENNIAL PERSPECTIVE. OECD, PARIS

Share of Global GDP (%): Year 0-1998

0

5

10

1520

25

30

35

40

Western EuropeUnited StatesJapanChina India

India is not a story from Rags to Riches. It’s an economic empire re-establishing itself

Western economies have to loot others to sustain

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Bharatiya approach is integral and sustainable

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THE INTEGRAL APPROACH

0 Individual1 Family2 Society3 Nation4 Nature5 Parameshti

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StrengthsEntrepreneurshipBharatiya Sanskruti

@Prof R.Vaidyanathan,IIMB,2012

Global entrepreneurship monitor shows that …………. % of India Population is engaged in various entrepreneurial activities.

Also Guess for US, Eurpoe and China

@Prof R.Vaidyanathan,IIMB,2012

Global entrepreneurship monitor shows that …………. % of India Population is engaged in various entrepreneurial activities.

18 %

US 11 % Europe 5 % China 3 %

@Prof R.Vaidyanathan,IIMB,2012

Rise of Bharat, is unique – without high FDI, high export and mostly domestic forces-led, unlike that of China. Also the Global Entrepreneur Monitor [GEM] study 2003 showed that Indian economy was entrepreneur-led, unlike China which is investment and state-led.

THE PERFORMING INDIA UNIDO study in 1997 identified 370 clusters in

India 2600 rural and artisan clusters. Of these only 13 Govt.sponsored Contribute 70% of Industrial out-put and 66% of

direct exports Panipat – 75% of blankets produced in the country Tirupur – 80% of cotton knitwear Agra – 75% of leather exports Ludhiana – 95% of woollen knitwear,85% of sewing

machines,60% of Bi-cycles and spares Surat – 85% of diamond polishing and 60% of

synthetic textiles High technology easily absorbed and improvised

DOMESTIC CONSUMPTION DRIVES GROWTH The economist Stephen Roach of Morgan Stanley puts

it, "India's domestic consumption-led approach to growth is better balanced than resource-mobilization & export driven model of China."

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StrengthsDemocratic ValuesDiversity

Bharatiya Sanskruti

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StrengthsLanguage skills – multiple language capacity of IndiansSanskrit

Long history of Higher Education“Beautiful Tree” Dharma Pal ji

Bharatiya Sanskruti

DESPAIR …? We continue to look to at West for our own

solution.

INDIA ON THE MOVE…?

Towards Superpower ? or Towards Jagat Guru ?

FROM DAVOS TO DEVGIRI !Reasons to rejoice:

Transition from Exploited Subdued India to Enlightened Self-confident Bharat

Economics that hurt the moral well-being of an individual or a nation are immoral and therefore sinful.MM-263That economics is untrue which ignores or disregards moral values.XXV-475

Our object in framing the Constitution is rally two-fold: (1) To lay down the form of political democracy, and (2) To lay down that our ideal is economic democracy and also to prescribe that every Government whatever is in power shall strive to bring about economic democracy. The directive principles have a great value, for they lay down that our ideal is economic democracy.

Deendayal Upadhyay “I visualize for India a decentralized polity and self-reliant economy with the village as the base. We cannot rely upon superficial Western concepts like individualism, socialism, communism, capitalism and need to be rooted in the timeless traditions of our ancient culture. He was of the view that the Indian intellect was getting suffocated by Western theories and ideologies and consequently there was a big roadblock on the growth and expansion of original Bharatiya thought.

Maharishi Aurobindo said: “India shall arise upon the ruins of the west” He said by the year 2011 the western countries will fall and India will rise.

INDIA HAS TO GET INTO ACT

The Question is are we getting ready to create a new world order?

BHARAT HAS TO GET INTO ACT

REFERENCES1 Indian Models of Economy, Business and

Management Models- K Kanagasabapathi2 India Unincoporated- L Vaidyanathan3 Indian Business and Financial Models course

by S Gurumurthy conducted at IITB.

FURTHER READINGS1 Too big to fail- Andrew Ross Sorkin2 The Inside Job- A Documentary on how the

global economic crisis happened.

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