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Corporate governance
Corporate Governance is concerned with holding the balance between economic and social goals and
The corporate governance framework is there to encourage the efficient use of resources and
equally
to
require
accountability
for
the
was not triggered by any serious nationwide financial, banking and economic
collapse
Also, unlike most OECD countries, the initiative in India was initially driven by
In December 1995, CII set up a task force to design a voluntary code of corporate governance
Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors independence
Enhancement of Shareholder Value, keeping in view the Interests of other Stakeholders CG a Way of Life rather than a Code
The Management
To act on the direction of the BoD To provide requisite information to the BoD for decision making To implement and monitor control systems
(control) INSIDER
Equity market Share ownership Voting power Main shareholder Corporate control market Information Composition of BoD few listed company concentrated high concentration (pyramids, non-voting shares, multiple voting) families, banks, other companies, government
(market) OUTSIDER
wide market Dispersed low concentration, separation between ownership and control institutional investors, individual shareholders high activity in corporate control market public presence of outside directors Low
Control on Management
OECD
The Organisation for Economic Co-operation and Development (OECD; French: Organisation de coopration et de
OECD
Contd.
The OECD originated in 1948 as the Organisation for European Economic Co-operation (OEEC), led by Robert Marjolin ofFrance, to
Europe after World War II, where similar efforts in the Economic
Cooperation Act of 1948 of USA, which stipulated the Marshall Plan that had also taken places elsewhere in the world to war-torn Republic of China and post-war Korea, but the American recovery program in Europe was the most successful one
OECD
for Economic Co-operation
Contd
and Development by
theConvention on the Organisation for Economic Cooperation and Development and membership was
extended to non-European states. Most OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as developed
countries.
The OECDs (Organisation for Economic Cooperation and Development) Corporate Governance Principles
Also, adopting good CG practices leads to a better system of internal control, thus leading to greater accountability and better profit margins.
Good CG practices can pave the way for possible future growth, diversification, or a sale, including the ability to attract equity investors nationally and from abroad as well as reduce the cost of loans/credit for corporations. Many businesses seeking new funds often find themselves obliged to undertake serious corporate governance reforms at a high cost and upon the demand of outsiders, often in a time of crisis. When the foundations are already in place investors and potential partners will have more confidence in investing in or expanding the companys operations.
If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country suffer the consequences.
------ (Arthur Levitt, former chairman of the US Securities & Exchange Commission)