Corporate Governance: Issues, Challenges, and Benefits

Corporate Governance is a system ensuring businesses are directed and controlled in the best interests of stakeholders. It emphasizes ethics, transparency, and fair practices. Implemented by companies like Infosys and Wipro, it promotes balanced economic development, stakeholder protection, and corporate success.

• Corporate Governance
• Stakeholders
• Transparency
• Ethics
• Economic Development

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1. ANNAMALAI UNIVERSITY DEPARTMENT OF COMMERCE CORPORATE GOVERNANCE : ISSUES AND CHALLENGES

2. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 A PRESENTATION BY PROF.D. ILANGOVAN 2

3. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 MEANING OF CORPORATE GOVERNANCE Corporate Governance is the system by which businesses are directed and controlled in the best interests of all stakeholders. Corporate Governance lays emphasis on ethics, fair business practices, transparency, disclosures and conduct of business for the benefit of all stakeholders. Corporate governance specifies the rights and liabilities of different group of people like the chief executives, directors of the board, managers of different departments and other stakeholders. This helps to provide the structure through which the objectives of the company formulated and their performance is monitored. Corporate Governance maintains balance among individual goals, societal goals, economic goals and social goals. For example companies like Infosys, Wipro, Reliance, Hindustan Uni Lever Ltd. etc. have implemented corporate governance codes which ensure ethical and efficient conduct leading to their development. 3

4. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 DEFINITION OF CORPORATE GOVERNANCE There are different definitions contributed by There are different definitions contributed by various authors, some important definitions are various authors, some important definitions are as follows as follows. Corporate governance is about promoting fairness, Corporate governance is about promoting fairness, transparency and accountability. transparency and accountability. - - World Bank Corporate governance is defined as the system by Corporate governance is defined as the system by which companies are directed and controlled. which companies are directed and controlled. World Bank - -Cadbury Cadbury committee 4

5. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENEFITS OF CORPORATE GOVERNANCE Balanced economic development is made possible through transparent Balanced economic development is made possible through transparent management under corporate governance. All Stakeholders interests management under corporate governance. All Stakeholders interests are protected and promoted through corporate governance. Some of are protected and promoted through corporate governance. Some of the benefits of corporate governance are as follows the benefits of corporate governance are as follows Good corporate governance enables corporate success and Good corporate governance enables corporate success and economic development. economic development. Ensures stable growth of organizations. Ensures stable growth of organizations. Aligns the interests of various stakeholders. Aligns the interests of various stakeholders. Improves investors confidence and enables raising of capital. Improves investors confidence and enables raising of capital. Reduces the cost of capital for companies. Reduces the cost of capital for companies. Has a positive impact on the share price Has a positive impact on the share price Provides incentive to managers to achieve organizational objectives. Provides incentive to managers to achieve organizational objectives. Eliminates wastages, corruption, risks and mismanagement. Eliminates wastages, corruption, risks and mismanagement. Improves the image of the company. Improves the image of the company. The organization is managed to benefit the stakeholders. The organization is managed to benefit the stakeholders. Ensures efficient allocation of resources Ensures efficient allocation of resources 5

6. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 INTERNATIONAL BENCHMARKS INTERNATIONAL BENCHMARKS Benchmarking Benchmarking is comparing one's business is comparing one's business processes and processes and performance performance metrics to industry bests and best practices from other companies bests and best practices from other companies. There are There are four four primary primary types of benchmarking: internal, competitive, functional, and generic. internal, competitive, functional, and generic. Internal Internal benchmarking benchmarking is a comparison of a is a comparison of a business process to a similar process inside the business process to a similar process inside the organization. Competitive organization. Competitive benchmarking competitor competitor- -to to- -competitor comparison of a product, competitor comparison of a product, service, process, or method. service, process, or method. metrics to industry types of benchmarking: benchmarking is a direct is a direct 6

7. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 HOW BENCHMARKING WORKS: Select a product, service or process to Select a product, service or process to benchmark benchmark. . Identify the Key Performance Indicators Identify the Key Performance Indicators. . Choose companies or internal areas to Choose companies or internal areas to benchmark benchmark. . Collect data on performance and Collect data on performance and practices practices. . Analyze the data and identify Analyze the data and identify opportunities for improvement. opportunities for improvement. I. I. II. II. III. III. IV. IV. V. V. 7

8. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN ASIA BENCH MARKING IN ASIA Independent Directors are a requirement for listed Independent Directors are a requirement for listed companies in all Asian economies, where most companies in all Asian economies, where most require at least 1/3rd of the Board to be require at least 1/3rd of the Board to be independent. independent. The The 2012 Singapore corporate governance code 2012 Singapore corporate governance code recommends a majority of Independent Directors recommends a majority of Independent Directors when the chairman of the Board is not independent. when the chairman of the Board is not independent. Committees of Boards such as audit, remuneration Committees of Boards such as audit, remuneration and Board nomination are required in all Asian and Board nomination are required in all Asian economies except Vietnam. economies except Vietnam. In China, the Audit Committee is to be composed of In China, the Audit Committee is to be composed of Independent Directors only. Independent Directors only. 8

9. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN THE USA BENCH MARKING IN THE USA The Council of Institutional Investors (CII), Corporate Governance Policies state that at least 2/3rd of the directors should be independent. The Nominating and Corporate Governance Committee is one of the three standing committees, along with Audit Committee and Compensation Committee, required by NYSE, to be composed entirely of Independent Directors. G20/ OECD principles encourage formulation of Nomination Committee to ensure proper compliance with established nomination procedures and to facilitate and co-ordinate the search for a balanced and qualified Board. Formulation of various Committees Audit Committee, Advisory Committee, Nomination and Remuneration Committee, Stakeholder Relationship Committee The U.S. National Association of Corporate Directors (NACD), recommends that the Governance Committee should be responsible for ensuring that a process exists for the Board to routinely assess its own performance, and the performance of its Committees as well as individual directors is to conduct self- assessment. 9

10. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN EUROPE BENCH MARKING IN EUROPE European commission urges member states to have sufficient number of independent non-executive or supervisory directors on Board. G20/ OECD: The latest principles encourage the prominent role of independent Board members. It states that, it is a good practice where remuneration policy and contracts for Board members and key executives is handled by a special committee of the Board comprising either wholly or a majority of Independent Directors. Independent Directors Board to have specific proportion of Independent Directors Board to have specific proportion of Independent Directors Independent Directors The UK Corporate Governance Code recommends evaluation of The UK Corporate Governance Code recommends evaluation of the Board of FTSE 350 companies to be externally facilitated at the Board of FTSE 350 companies to be externally facilitated at least every three years (on a comply least every three years (on a comply- -or or- -explain basis) The European Commission has proposed legislation that would European Commission has proposed legislation that would require nonexecutive directors to be 40% women by 2020, up require nonexecutive directors to be 40% women by 2020, up from 16.6% in 2013. from 16.6% in 2013. explain basis) The 10

11. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN JAPAN BENCH MARKING IN JAPAN In early 2014, Japanese Prime Minister In early 2014, Japanese Prime Minister announced the goal of increasing the announced the goal of increasing the percentage of women in executive percentage of women in executive positions at Japanese companies to positions at Japanese companies to 30% by 2020 30% by 2020 11

12. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN THE UK BENCH MARKING IN THE UK The UK businesses had voluntary targets The UK businesses had voluntary targets first set in 2011 i.e. to have 25% first set in 2011 i.e. to have 25% women on FTSE100 (The Financial women on FTSE100 (The Financial Times Stock Exchange) Boards by Times Stock Exchange) Boards by 2015. 2015. Audit Committee, Remuneration Audit Committee, Remuneration Committee, Nomination Committee Committee, Nomination Committee and Share Dealing Code are to be and Share Dealing Code are to be decided by each and every Company decided by each and every Company 12

13. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN CANADA BENCH MARKING IN CANADA At the Federal level, two bills are At the Federal level, two bills are currently being tabled which will currently being tabled which will impose a 40% quota for female Board impose a 40% quota for female Board members of public companies and members of public companies and other regulated entities such as other regulated entities such as banks and insurance companies banks and insurance companies 13

14. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 BENCH MARKING IN BRAZIL BENCH MARKING IN BRAZIL A bill pending in the Brazilian Senate would A bill pending in the Brazilian Senate would impose a 40% female quota on the Boards of state impose a 40% female quota on the Boards of state owned enterprises by 2022. BICG Code of Best owned enterprises by 2022. BICG Code of Best Practices (Brazilian Institute of Corporate Practices (Brazilian Institute of Corporate Governance) recommends: Governance) recommends: A formal evaluation process of the performance A formal evaluation process of the performance of the Board, of individual directors and of the CEO of the Board, of individual directors and of the CEO The process to be conducted by the Chair The process to be conducted by the Chair Participation of the outsider to make the Participation of the outsider to make the process more effective process more effective Evaluation system adapted to each organization Evaluation system adapted to each organization Disclosure of the process of evaluation to the Disclosure of the process of evaluation to the shareholders shareholders 14

15. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 FRANCE FRANCE French parliament adopted a bill French parliament adopted a bill that requires public companies that requires public companies making at least 50 million Euros in making at least 50 million Euros in turnover and employing more than turnover and employing more than 500 workers to have 40% female 500 workers to have 40% female Board representation by 2017. Board representation by 2017. 15

16. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 GERMANY In November 2013, Germany s Christian Democrats and In November 2013, Germany s Christian Democrats and Social Democrats agreed on a gender quota on Social Democrats agreed on a gender quota on supervisory Boards where, issuers would be required to supervisory Boards where, issuers would be required to have women comprise 30% of nonexecutive directors by have women comprise 30% of nonexecutive directors by 2016. 2016. The planned legislation would require firms that don t The planned legislation would require firms that don t meet the 30% mark to leave those seats vacant. The meet the 30% mark to leave those seats vacant. The latest G20/ OECD principles encourages measures such latest G20/ OECD principles encourages measures such as voluntary targets, disclosure requirements, as voluntary targets, disclosure requirements, Boardroom quotas and private initiatives that enhance Boardroom quotas and private initiatives that enhance gender diversity on Boards and in senior management. gender diversity on Boards and in senior management. Woman Director Requirement of at least one woman Woman Director Requirement of at least one woman Director on the Board for listed Companies and public Director on the Board for listed Companies and public companies companies 16

17. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 CG PRACTICES IN INDIA 1. Getting the Board Right 1. Getting the Board Right 2. Performance Evaluation of Directors 2. Performance Evaluation of Directors 3. True Independence of Directors 3. True Independence of Directors 4. Removal of Independent Directors 4. Removal of Independent Directors 5. Accountability to Stakeholders 5. Accountability to Stakeholders 6. Executive Compensation 6. Executive Compensation 7. Founders' Control and Succession Planning 7. Founders' Control and Succession Planning 8. Risk Management 8. Risk Management 9. Privacy and Data Protection 9. Privacy and Data Protection 10. Board's Approach to Corporate Social 10. Board's Approach to Corporate Social Responsibility (CSR) Responsibility (CSR) cont d cont d 17

18. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 CG PRACTICES IN INDIA CONT D BSE has collaborated with the International Finance Corporation (IFC) BSE has collaborated with the International Finance Corporation (IFC) Washington, a member of the World Bank Group for developing a "CG Washington, a member of the World Bank Group for developing a "CG Scorecard" for Indian corporate undertakings: Scorecard" for Indian corporate undertakings: The CG Scorecard is developed on the basis of four OECD principles for Corporate Governance namely: 1. Enforcing rights and Equitable treatment of shareholders 2. Role of Stakeholders 3. Disclosures and Transparency 4. Responsibilities of the Board Evaluation method Evaluation method The quality of Corporate Governance practices referred to in each question shall be recognised on three levels, viz.: 2 points: If the company follows global best practices for that element of Corporate Governance 1 point: If the company follows reasonable practices or meets the Indian standard for that element of Corporate Governance 0 point: If the company needs to improve in that element of Corporate Governance 18

19. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 WEIGHTAGE SYSTEM IN INDIAN CG CATEGORY PERCENTAGE Principle Category weight 30 Rights & Equitable Treatment of shareholders 10 Role of stakeholders 30 Disclosure & Transparency 30 Responsibilities of Board 100 Total 19

20. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 OVERALL ASSESSMENT 1, Corporate governance codes are applicable in 1, Corporate governance codes are applicable in case of MNCs in general case of MNCs in general 2. CG Bench marks are local specific in a country 2. CG Bench marks are local specific in a country 3. The same MNC may have different CG codes/ 3. The same MNC may have different CG codes/ benchmarks while functioning in different benchmarks while functioning in different countries countries 4. The socio 4. The socio- -economic and political factors will economic and political factors will decide the CG codes and bench marks of a nation decide the CG codes and bench marks of a nation 5. However no MNC can escape from certain uniform 5. However no MNC can escape from certain uniform or identical codes and bench marks or identical codes and bench marks 20

21. Prof.D.Ilangovan, Prof & Head, Dept of Commerce Annamalai University 9/13/2024 THANK YOU ALL 21