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ETHICS AND CORPORATE
GOVERNANCEPresentation By
Sanjay Manocha
LecturerBharati Vidyapeeth University
Institute of Management and ResearchNew Delhi
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Corporate
Corporate is adjective meaning of or relating to a
corporation derived from the noun corporation.
A corporation is an organization created (incorporated) by a
group of shareholders who have ownership of the corporation.
The elected Board of directors appoint and oversee
management of the corporation.
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Governance
Oxford English Dictionary defines Governance as the act,
manner, fact or function of governing, sway, control
The word has Latin origins that suggest the notion of
'steering'. It deals with the processes and systems by which
an organization or society operates.
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Corporate
Governance It is a broad concept and has been defined and understood
differently by different groups and at different points of time.
The Cadbury Committee report defines it as the system by which
companies are directed and controlled.
It is generally understood as the framework of rules, relationships,
systems and processes within and by which authority is exercised
and controlled in corporations.
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An Indian Definition
fundamental objective of corporate
governance is the enhancement of the
long-term shareholder value while at thesame time protecting the interests of other
stakeholders.
SEBI (Kumar Mangalam Birla) Report on Corporate
Governance, January, 2000
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Governance
Governance can be used with reference to all kind of organisational
structure e.g.
1. NGO- not for profit organisation
2. Municipal corporation/ Gram panchyat
3. Central/ State Government
4. Partnership firm
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Objectives OfGood Corporate
Governance1. Strengthen management oversight functions and accountability
2. Balance skills, experience and independence on the board appropriate
to the nature and extent of company operations
3. Establish a code to ensure integrity
4. Safeguard the integrity of company reporting
5. Risk management and internal control
6. Disclosure of all relevant and material matters7. Recognition and preservation of needs of shareholders
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Why Corporate Governance
1. The liberalization and de-regulation world over gave greater
freedom in management. This would imply greater responsibilities.
2. The players in the field are many. Competition brings in its wake
weakness in standards of reporting and accountability.
3. Market conditions are increasingly becoming complex in the light
of global developments like WTO, removal of barriers/reduction in
duties.
4. The failure of corporate due to lack of transparency and disclosures
and instances of falsification of accounts/embezzlement and the
effect of such undesirable practices in other companies.
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Parties to corporate governance Parties involve in corporate governance include the CEO, the Board of
directors, Management and share holders. Other stakeholders who take
part include suppliers, employees, creditors, customers and the
community at large.
1. Board of directors
2. Managers
3. Workers
4. Shareholders or owners
5. Regulators
6. Customers
7. Suppliers
8. Community (people affected by the actions of the organization)
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All parties to corporate governance have an
interest :
All parties to corporate governance have an interest
Directors , management and workers receive salaries, benefits and
reputation.
Shareholders receive capital return.
Customers receive goods and services.
Suppliers receive compensation for their goods and services.
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What Is The Role Of Investors ?
To help the company in raising finance or
capital in dividend policies.
In selection of Board Of Directors.
Deciding dividends policies.
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Principles
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.
Of importance is how directors and management develop a
model of governance that aligns the values of the corporate
participants and then evaluate this model periodically for its
effectiveness.
In particular, senior executives should conduct themselves
honestly and ethically, especially concerning actual or apparent
conflicts of interest, and disclosure in financial reports.
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Principles Of Corporate
Governance :
1. Rights and equitable
treatment of shareholders
2. Interests of other
stakeholders
3. Role and responsibilities of
the board
4. Integrity and ethical
behaviour
5. Disclosure and Transparency
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IMPORTANCE OF CORPORATE GOVERNANCE
Corporate governance has succeeded in attracting a good deal
of public interest because of its apparent importance for the
economic health of corporations and society in general.
Corporate governance provides the structure through which
the objectives of the company are set, and the means of attainingthose objectives and monitoring performance are determined.
Corporate governance provides proper incentives for the board
and management to pursue objectives that are in the interests of
the company and shareholders and should facilitate effectivemonitoring, thereby encouraging firms to use resources more
efficiently.
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The corporate governance structure spells out the rules and
procedures for making decisions on corporate affairs.
Corporate governance is used to monitor whether outcomesare in accordance with plans and to motivate the organization to
be more fully informed in order to maintain or alter
organizational activity.
Corporate governance is a tool for competitive advantage.Normally when we look at the issue of competitive advantage
from a managerial point of view, we can look at those factors,
which are within the control of the enterprise. This relates to the
focus on quality, productivity as well as innovation, which arethe basic requirements, in a highly competitive environment.
This is needed for getting the competitive edge in a market
where the customer is king.
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The corporate governance framework ensures the timely and
accurate disclosure of all material matters regarding the
corporation, including the financial situation, performance,ownership, and governance of the company.
A strong disclosure regime can help to attract capital and
maintain confidence in the capital markets.
Disclosure also helps improve public understanding of thestructure and activities of enterprises, corporate policies and
performance with respect to environmental and ethical
standards, and companies' relationships with the communities in
which they operate.Corporate Governance as a catalyst forOrganizational
Change.
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