This document discusses the history and development of corporate governance. It defines corporate governance as systems and procedures to ensure management acts in shareholders' best interests. It describes key players like shareholders, boards of directors, and management and the need to balance their interests. The document outlines corporate governance developments in countries like the UK, US, Germany, and Japan. It advocates for a judicious, indigenous mix of approaches suited for India that evolves over time with support from different experts and management.
1. Jayashree Sadri and Sorab Sadri
CORPORATE GOVERNANCE
Genesis and International Developments
Professor Jayashree Sadri
And
Dr Sorab Sadri
2. Jayashree Sadri and Sorab Sadri
Basis
This presentation is largely based on the
Sadri, Jayashree and Ajgaokar work of 2002
as well as the Jayashree, Sadri and Dastoor
work of 2008.
Inputs from Dr S N Tara, Dr Bindi Mehta and
Prof. J. Oke are acknowledged.
This has all culminated in the Sadri and
Jayashree work of 2009.
3. Jayashree Sadri and Sorab Sadri
What is Corporate Governance ?
Concept originated with the separation of
ownership and management
Corporatist business and increasing scales of
operation
Origin can be traced back to “Agency Theory”
propounded by Berle and Means
4. Jayashree Sadri and Sorab Sadri
A Suggested Definition
…… Systems, procedures and institutions
that ensure that management acts in the best
interests of the owners (shareholders)
Ongoing debate about whether it should be
shareholders’ interest or all stakeholders’
interest (including employees, customers
environment and community at large) that the
management should serve
5. Jayashree Sadri and Sorab Sadri
Corporate Governance Further
Defined
Shareholder Versus Stakeholder debate
continues……….
Moot point is the timeframe
Interests of both / all are bound to converge
in the long run
In the long run, sustainability of the enterprise
is important
6. Jayashree Sadri and Sorab Sadri
Corporate Governance Systems
CG systems and structure differ in historical and
local condition specific contexts -
Forms of Organizations in enterprises
Entrepreneurial form
Banking dominated form
Managerial form
Institutional form
Democratic corporate form
7. Jayashree Sadri and Sorab Sadri
Corporate Governance Tripod
Three key players or pillars of CG are:
Shareholders or owners
Board of Directors
Management
Interests may not coincide and balancing
divergent and conflicting interests becomes
crucial.
A responsible role of the Fourth Estate can
and does work wonders.
8. Jayashree Sadri and Sorab Sadri
Why is CG Imperative for India ?
Immediate Factors
Closely on the heels of corporate
debacles
Vanishing companies
Corporate frauds
Ratings downgrades
9. Jayashree Sadri and Sorab Sadri
CG…. Why is it an Imperative for
India ?
Structural Factors:
Globalization of markets
Indian companies are tapping global
markets for resources
Stock markets are getting institutionalized
These factors are fast forwarding the Indian
companies into adopting international
standards and best practices
10. Jayashree Sadri and Sorab Sadri
CG….. Developments in U.K.
Cadbury Committee Report 1992
A baseline consensus in UK’s financial
community
Primarily focusing on accountability aspects
Improved information to shareholders
Strengthening auditor’s independence
11. Jayashree Sadri and Sorab Sadri
CG…… Developments in UK
Greenbury Committee Report 1995
Focuses on Executives &
Directors’ Role & Compensation
Myner Committee Report 1995
Winning partnerships between owners and
management
Role of institutional investors
12. Jayashree Sadri and Sorab Sadri
CG…….. Developments in USA
California Public Employees Retirement Systems
(CalPERS) - Largest public pension plan in the USA,
World’s 3rd largest
CG through shareholder activism
“Global Governance Principles” Accountability,
Transparency, Equity, Voting method improvements
and Long term vision
13. Jayashree Sadri and Sorab Sadri
CG……. German Model
A Unique System of Two Tier Boards
Supervisory Board
Managerial Board
No official codes, but many provisions
in company legislation
Of late, demand for professionalising
supervisory boards and importance to
individual shareholders
14. Jayashree Sadri and Sorab Sadri
CG…. Developments in Japan
CG Forum of Japan (consisting of
corporations, institutional investors &
academia)
Short / medium term suggested measures
are -
Size of Japanese boards to be reduced
Truly independent auditors
Reduction in cross shareholding
15. Jayashree Sadri and Sorab Sadri
CG………. OECD Principles
Organization of Economic Co-operation and
Development (OECD) Principles
Intended to assist member governments in
evaluating their legal, institutional and
regulatory framework
Shareholders’ Rights
Board Responsibilities
Disclosures & Transparency
16. Jayashree Sadri and Sorab Sadri
CG…… Implementation
Modalities
Available Options are -
Through general legislation
Through stock exchanges
Through independent & well publicized ratings
Through institutional activism & nominee
directors
Through Self Regulation
17. Jayashree Sadri and Sorab Sadri
Implementation Choices
Most experts are averse to generally
applicable standards & legal intervention
Internationally, self- regulation, linked to
openness and accountability, seems to
generate the maximum support
Self - regulation may not work in India in the
foreseeable future - A judicious mix of all the
four approaches (UK, USA, German and
Japanese) may be required
18. Jayashree Sadri and Sorab Sadri
Therefore
The judicious mix has to be indigenous and
founded on business ethics.
It has to evolve over a period of time.
The inputs of People Management experts
and Business Strategists must combine with
those of Company Secretaries and Chartered
Accountants to generate this mix.
Must have the implicit and explicit support of
top management.