Corporate Governance and Ethical Business Strategy

1. Corporate Governance
and Ethical Business
Strategy
Presented by Bimisha karattil

2. History of corporate governance
 The topic of corporate governance is a vast subject that enjoys a long and rich
history. It’s a topic that incorporates managerial accountability, board structure and
shareholder rights. The issue of governance began with the beginning of
corporations, dating back to the East India Company, the Hudson’s Bay Company,
the Levant Company and other major chartered companies during the 16th and
17th centuries.
 While the concept of corporate governance has existed for centuries, the name
didn’t come into vogue until the 1970s. It was a term that was only used in the
United States. The balance of power and decision-making between board
directors, executives and shareholders has been evolving for centuries. The issue
has been a hot topic among academic experts, regulators, executives and
investors.

3. Concept of corporate governance
Corporate refers to the most common form of business organisation, one which is
chartered by a state and given legal rights as an entity separate from its owners. This
form of business is characterised by the limited liability of its owners. The process of
becoming a corporation, called incorporation gives the company separate legal
standing from its owners and protects those owners from being personally liable in the
event that the company is sued.

4. Corporate governance
 Corporate governance in the business context refers to the systems of rules,
practices, and processes by which companies are governed. In this way, the
corporate governance model followed by a specific company is the distribution of
rights and responsibilities by all participants in the organization.
 Governance ensures everyone in an organization follows appropriate and
transparent decision-making processes and that the interests of all stakeholders
(shareholders, managers, employees, suppliers, customers, among others) are
protected.
 The purpose of corporate governance is to help build an environment of trust,
transparency and accountability necessary for fostering long-term investment,
financial stability and business integrity, thereby supporting stronger growth and
more inclusive societies.

5. Objective of corporate governance
The fundamental objective of corporate governance is to boost and maximize
shareholder value and protect the interest of other stake holders. Corporate
governance has various objectives to strengthen investor's confidence and intern
leads to fast growth and profits of companies.
 A properly structured Board proficient of taking independent and objective
decisions is in place at the helm of affairs.
 The Board is balanced as regards the representation of suitable number of non-
executive and independent directors who will take care of the interests and well-
being of all the stakeholders.
 The Board accepts transparent procedures and practices and arrives at decisions
on the strength of adequate information.

6. Objectives of corporate governance
 The Board has an effective mechanism to understand 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.

7. Importance of corporate governance
The Organisation for Economic Cooperation and Development (OECD) highlights the
significance of good corporate governance in the global and domestic economic
environment. According to OECD, if countries are to reap the full benefits of the global
capital market, and if they are to attract long-term “patient” capital, corporate
governance arrangements must be credible and well understood across borders. Even
if companies do not rely primarily on foreign sources of capital, adherence to good
corporate governance practices will help to improve the confidence of domestic
investors, may reduce the cost of capital, and ultimately induce more stable sources of
financing (Principles of Corporate Governance, 1990).

8. Corporate governance in India
 Corporate Governance in India is a set on internal controls, policy and procedures
which form the framework of a company’s operations and its dealings with various
stakeholders such as customers, management, employees, government and
industry bodies. The framework of such policies should be such as to uphold the
principles of transparency, integrity, ethics and honesty. Corporate Governance is
the soul of an organisation and must be adhered to while indulging in any business
practises.
 The Indian corporates are governed by the Company’s Act of 1956 that follows
more or less the UK model. The pattern of private companies is mostly that of
closely held or dominated by a founder, his family and associates.
 The organizational framework for corporate governance initiatives in India consists
of the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board
of India (SEBI).

9. Corporate governance in India
 SEBI monitors and regulates corporate governance of listed companies in India
through Clause 49. This clause is incorporated in the listing agreement of stock
exchanges with companies and it is compulsory for listed companies to comply
with its provisions.
 MCA through its various appointed committees and forums such as National
Foundation for Corporate Governance (NFCG), a not-for-profit trust, facilitates
exchange of experiences and ideas amongst corporate leaders, policy makers,
regulators, law enforcing agencies and non- government organizations.
 The Companies Act, 2013 provides a formal structure for corporate governance by
enhancing disclosures, reporting and transparency through enhanced as well as
new compliance norms.

10. Corporate governance in India
 In addition to various acts and guidelines by various regulators, non-regulatory
bodies have also published codes and guidelines on Corporate Governance from
time to time.
 fter enactment of the Companies Act, 2013, SEBI has amended Clause 49 in 2013
to bring it in line with the new Act.

11.  Business ethics comprises the principles and standards that guide behaviour in the
conduct of business.
Business Ethics

12. Business Ethics
 Ethics means the set of rules or principles that the organization should follow.
While in business ethics refers to a code of conduct that businesses are expected
to follow while doing business.
 Through ethics, a standard is set for the organization to regulate their behavior.
This helps them in distinguishing between the wrong and the right part of the
businesses.
 The ethics that are formed in the organization are not rocket science. They are
based on the creation of a human mind. That is why ethics depend on the
influence of the place, time, and the situation.
 Business ethics compromises of all values and principles and helps in guiding the
behavior in the organizations. Businesses should have a balance between the
needs of the stakeholders and their desire to make profits.
 While maintaining these balances, many times businesses require to do tradeoffs.
To combat such scenarios, rules and principles are formed in the organization.