ZERO TO MASTERY IN CORPORATE GOVERNANCE: Become Zero To Hero In Corporate Governance, This Book Covers A-Z Corporate Governance Concepts, 2022 Latest Edition

By Kayla Curtis

This Corporate Governance Book Covers Each And Every Topic Of The Corporate Governance. With The Help Of This Corporate Governance Book, You Can Learn Corporate Governance Very Easily, You Don't Need To Learn Corporate Governance The Hard Way. This Is One Of The Best Corporate Governance Book For Beginners To Advanced Because It Takes You From The Basic Level Of Corporate Governance To High-Level Corporate Governance. You Can Become Corporate Governance Zero To Hero In Very Less Time!!! The Concepts In This Corporate Governance Book Are Explained Very Beautifully With Examples. This Is The Only Book You Need For Expertise In Corporate Governance.

• Language: English
• Publisher: VAYU EDUCATION OF INDIA
• Release date: May 30, 2022
• ISBN: 9789394962101

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ZERO TO MASTERY IN CORPORATE GOVERNANCE

By Kayla Curtis

ISBN- 9789394962101

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PART-I

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CHAPTER-1 CORPORATE GOVERNANCE

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WHY CORPORATE GOVERNANCE -

After 1990’s the entire world turned careful in the area of Corporate Governance. This all happened due to unethical and dishonest practices adopted by the guardians of Corporate Governance at different levels of the organization. Sudden collapse of several giant Corporates around the world attracted the attention of each and every organization and all of them turned careful about the systems adopted or to be adopted for a satisfactory and better Corporate Governance. Failure of giants like Enron, world.com Global crossing, A delphia etc of United States and large scale corrupt practics and collapse in the United Kingdom are some indicators of need for a scientific and loophole proof corporate Governance around the world. To tackle the problems Cadbury Committe was set up during 1996. The Harmpel Committee was set up during 1997. The exact terms of study did differ but the core objective was to find out the major causes of failures of these corporates as also to find out the remedial majors to avoid in future such occurrences. The technique of minimising or to some extent total elimination of wrong practices and fraudulent acts was to be tabled.

In India also several scandals and irregularities did took place mainly in the areas of finance and misappropriation of funds in corporation, stock markets, defence deals etc. Life Insurance Corporation of India scam of 1957, Harshad Mehta’s one of the largest Banks vis-a-vis Raj Sethia’s Scandal of 1985, etc are the burning episodes of poor governance.

During the year 2001, Ketan Parekh vis-a-vis Unit Trust of India’s fraud and misappropriation of huge fund resulted into losing the big name of leading UTI in stock market and in public eyes as well.

During the year 2004, Telgi Stamp Paper fraud and global trust bank’s scams are indicators of poor or say bad Corporate Governance in India.

During this year 2008, a general study was conducted in India about the corporate governance and the findings were published in the newspapers on the 11 th day of Dec. 2008 which again tells the story of corruption and poor corporate governance in the world. The outcome of the survey were—

INDIAN COS. PREFER TO BRIBE LOW-LEVEL OFFICIALS: SURVEY

• TIMES NEWS NETWORK New Delhi: Companies in India prefer to bribe low-level public officials to speed things upwhich has a higher result than of foreign bribery assessed.

• The other types of bribery assessed were bribery of highranking politicians or political parties and the use of personal of familiar relationship to win public contracts.

• The report ‘Bribe Payers Survey’ (BPS) rates India amongst the worst five corrupt countries along with Russia and China. Even amongst sectors, companies involved in public works, construction,

real estate, property development, oil and gas, heavy manufacturing and mining were seen to bribe officials most frequently.

• The findings of the 2008 BPS and the sectoral rankings show that many of the world’s most influential economies, and some key industrial sectors

• The report prepared by Transparency International 'Bribe Payers Survey' (BPS) rates India amongst the worst five corrupt contries along with Russia and China.

• About 30% of respondents, surveyed by Transparency Inter-to be viewed as greatly compromised by international corruption.

• According to senior business executives interviewed around the world, companies from Belgium and Canada were least likely to engage in bribery when operating abroad.

• These two countries are followed closely by the Netherlands and Switzerland.

At the other end ofthe spectrum, respondents ranked companies from Russia as those most likely to engage in bribery national, indicated that companies from India are likely to bribe low level public officials to speed things up, which gave a higher result than the other two types doing business aborad.

• In the 26 countries where the Bribe Payers Survey was carried out, two-thirds of senior business executives surveyed expressed the view that governments are ineffective in the flight against corruption.

• This result shows that senior, representatives of the business community in many countries do not feel that governments are adequately addressing the issue of bribery and corruption.

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In Japan the national heads were replaced twice on account of dishonesty and their involvement in misappropriation of funds. In Japan itself the bad governance by key executives Toyota Company, the major Car manufactures which was termed as Toyota Bank of Japan ‘due to its cash reserve of more than $ 25 billion dollars faced very awful days during 1985. The selfish men or the top executives brought the Toyota Company's financial position to a sick level. Also during the year a study was conducted by Harward University which termed the corporate very poorly telling the top CEOs of big corporate use their corporation as ATM installed in their bed room and this was an extreme finding.

Considering these facts the importance of corporate governance does not need any further explanation.

Based on these experiences several committees then were set up in India by the Government of India to study the causes of dishonesty, scams, and also determine the measures to tackle these problems which may help in misutilising the fund, by dishonesty, unethical practices and overall corruption. Under today’s fast changing globalization, creation of MNCs, mergers and acquisitions etc, the need of corporate governance and use of honest and ethical practices are very much warranted.

Defining Corporate Governance

Corporate governance is a new subject and took a leading seat in organizational system and there is not even a single definition which covers the total character of the subject. Up to 90’s the corporate's were less in number and the total involvement in terms of value and number was also less. After introduction of Information Technology and fast mechanization the changes were very fast and the entire globe which has turned into a small village, due to which the speedy expansion and adoption of international business Adam Smith’s 332 years older theory has multiplied the Corporate's operation in number, countries, value etc. the governance has become important to cater to the needs of multi directional expansion.

Earlier the Corporate governance based on ‘Agency theory’ was having a narrow and limited description which was a relationship between the corporate and the share holders. In modern prospective this definition has turned wider and broad considering the need of the day. All the guardians of governance have been covered and their inter-relation turns more important than only share holders and the corporate.

Thus it is a relationship and activities performed between the corporate and stake holders, employees, customers, board of directors, CEO; managers (agents) holding key positions, suppliers, and all those who are accountable and responsible to bridge the social and economical responsibilities of a Corporate.

This has been accepted all over the world, mainly among United States and UK investors and corporates.

Defining Corporate Governance (Scholars)

The corporate governance has been defined widely and in different ways by different scholars. Age wise various definitions are:

( a) In 1984, Tricker defined corporate governance as The governance role is not concerned with the running of the business of the company per se, but with giving overall direction to the enterprise, with overseeing and controlling the executive actions of management and with satisfying legitimate expectations of accountability and regulation by interest beyond the corporate boundaries

( b) During 1992 the Cad Bury report-defined corporation governance as-the companies are directed and controlled.

( c) During 1993 Kersey and Wright defined corporate governance as— the structures, process cultures and systems that endanger the successful operation of the organization.

( d) In 1994 Common defined corporate governance as the govemance of an enterprise is the sum of these activities that make up the internal regulation of the business to comply with the obligations placed on the firm by legislation, ownership, and control. It incorporates the trusteeship of assets, their management and their deployment.

( e) Again during the year 1994 Parkinson defines the corporate governance as the process of supervision and control intended to ensure that the company management acts in accordance with the interests of share holders.

( f) During 1996 the Corporate Governance Hand Book defined Corporate Governance as... the relationship between shareholders and their companies and the way in which shareholders act to encourage best practices (e.g. by voting at AGMS and by regular meetings with companies senior management). Increasingly, this includes shareholders ‘activism’ which involves a campaign by a shareholder or a group of shareholders to achieve change in companies.

The investors view about the definition was gathered and they ranked the definitions in the under noted orders:

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Considering all these views about Corporate Governance the outcome is that the governance must satisfy the stake-holders and share holders and the company must be accountable to the share holders and stake holders.

It is also a truth that those companies, which bind and keep their shareholders and stake holders with satisfaction on ROI and dividends, declared along with nice performance should be termed as a well governed corporate.

This was the theoretical explanation of yesterdays. Today the corporate need to go further and look into a broader concept. They have their social responsibilities also. The major role of corporate governance results into—

( a) Satisfaction of stake holders.

( b) Satisfaction of employees.

( c) Satisfaction of venders-suppliers.

( d) Satisfaction of users of products or services.

( e) Satisfaction of society-people around it.

( j) Increase in ethical value of the company.

MECHANISM AND NEEDS OF CORPORATE GOVERNANCE

The major need of the Corporate Governance is to help restore investor confidence in market. Through a good governance the share holders are happy and they are retained with the corporation in which they have invested their hard earned money. The other needs are to keep the controllers ethically perfect. As an outcome of good corporate governance, the employees are also happy, Last but not the least the society as a whole is also served by carrying out social responsibilities of the corporations. In other words the good corporate governance keeps everyone happy and satisfied who so ever is involved in the business, from the core to outer circle of the corporation.

OECD has defined key elements of good Corporate/Governance, which are listed as under:

• Shareholder’s rights and obligations.

• Shareholder’s equitable treatment.

• Audit transparency and disclosure.

• Stake holder’s role in Corporate Governance.

• Role of Board of Directors.

• Nominated and non executive directors-members.

• Compensation for executive.

These individual elements shall be covered in the codes defined by OECD.

Mechanism

Usually, the shareholders are concentrated locally and due to speed of development, globalization and creation of more and more MNCs the spread of ownership and shareholders has expanded geographically and even globally. Here for greater and proper governance the Board has to keep in mind three things.

1. Keeping shareholders happy and to retain them with the company.

2. Providing adequate compensation and care for top executives and key persons CEO and others.

3. Care for stake holders.

The board of directors may lack contacts with the day to day functioning of the company. For a broader governance they need to exert and take extra care to broaden the governance base. For this two important areas need to be looked into more effectively.

1. A key guardian inside the corporation (insider) This includes firms CEO’s and managers.

2. Key outsiders—stake holders—this includes individuals who are involved in the company’s day-to-day work. This includes suppliers, dealers, creditors, auditors etc.

The entire good Corporate Governance mechanism relates to following factors.

1. Honest competent board of directors,

2. Ethical approach by board of directors and executives.

3. Transparency and integrity.

4. More and more independent directors.

5. Proper compensation and remuneration for board members, and employees/executives.

6. Looking within the boundaries of the law of the land.

7. Using code of corporate governance as explained by various countries and organizations.

8. Meeting shareholders expectation.

9. Caring for other stake holders.

10. Fixing accountability of management and thus an environment of trust .

The details of corporate governance process including report of various committees shall be dealt within paras which follows.

Corporate Governance Principles

The primary elements of Corporate Governance are:

• Ethical practices by key persons.

• Honesty

• Integrity

• Trust and belongingness

• Selflessness.

Ethical practices are measured by evil for one is ‘good’ for several.

Honesty: The decision maker should not turn selfish and should not turn desirous to satisfy his own-interests.

Integrity: It is the application of decisions as an important part of his duty and the decision should be praised or accepted by many.

Trust and belongingness: The decisions should be trustworthy, people should have belief in the person, organization and system. The belongingness again is to measure a decision as if it belongs to the person who is taking the decision. There again, belongingness is feeling as if he was an owner of the corporation and not a servant etc.

Selflessness: The decision maker should avoid rather eleminate selfishness and only then he shall be able to take an honest decision. An organization is made of human elements and for a human being it is very difficult to bring his selfishness to a zero level. Here it means that one who is able to bring his selfish motive nearer to zero level is a really honest and ethically a correct person. It is said that ‘God’ (if believed) is the only element, which has selflessness.

The principle of good Corporate Governance (Organizational) Being a human component the corporate governance principle can not be exactly defined and it is a difficult task. However the principles of corporate governance accepted widely are:

Rights of shareholders

Share holders invest fund and on the basis of these investments the corporate functions, as such the shareholders are the primary and most important link to an organization, whether large, medium or small. In light of this the corporate must respect the rights of the shareholders and give opportunity to use their rights, as and when required.

Equitable treatment of shareholders

Each and every shareholder, whether small or big, must be treated equitably. Their right should also be equal in proportion to their holding. Also there should be similar norms of participation or proxy in the general body meeting. The suggestion and complaint of each shareholder should be taken in equal spirit by a corporation.

Stake holders treatment

The stake holders also invest and each stake holder must be treated well with their legal right to apply as and when needed. They are an important financial link in running corporate and must be treated with honour and their right must be accepted and implemented.

Maintaining integrity and follow ethics

The key guardians of a corporate should not adopt unethical practices to help maintain their integrity. All key operators including CEO and boards of directors must maintain integrity and ethics.

Board of Directors-Roles and Responsibilities

Board of directors are the resource system of the organization and major decisions are taken by them.

On the Board lies the highest responsibilities and major roles to play. Hence in the principle of corporate governance the roles and responsibilities of the directors should be well defined and the board members must act accordingly. The board of directors should be independent and preferably should not act as CEO. This helps in taking a neutral decision. The board’s competence and its size should be adequate enough to guide and direct the business of the corporation as effectively as needed. Experts of different fields like finance, marketing, HR should be incorporated. Also the accountability of the board of directors and their responsibilities must be fixed.

Auditor’s independance

The auditors of account should be persons who are in no way related to corporate as a major share holder or have any closely related person as key employee (CEO, GM etc) or as board member and he must be an independent person and his role should be well documented. He should be an auditor of repute and should be appointed for a limited term.

Disclosure and Transparency

The corporate should disclose the roles and responsibilities of board of directors, CEO and key managers.

There must be a clear transparency in terms of account, audit, financial statement, divident declared.

profit-plough back for taking place for expansion, operation and projection. These principles, if adopted properly help to a great extent.

Principles adopted by OECD

Organization for Economic Cooperation and Development which is an international body of very high importance for corporate governance guidance and decision making for the world as a whole. In OECD’s council meeting held on the 2nd Sept. 1998 in which persons of ministerial level and government representatives of several countries represented. Also several representatives of important international corporate did participate. The principles were agreed in 1999. Again a ministerial level meeting was held in 2002 and decisions took concrete shape as "principles of corporate governance''. World bank, the bank for international settlements, and IMF also represented as observers in the meet. The priaciples of corporate governance was a non binding-approach due to different legal, cultural and economic environments prevailing in various parts of thc globe. The countries may select and implement based.on their convenience. The OECD principle was made available to OECD member countries and also non-OECD states.

Broadly the principles are:

• Ensuring the basis for an effective Corporate Governance.

• Role of shareholders and stake holders.

• Equitable treatment of shareholders

• Role of stake holders

• Disclosure and transparency

• Responsibilities of Board of Directors (BOD)

There are vast sub principles in detail for micro controls, planning and modify the principle to become operational.

Analogies of Public Governance and Corporate Governance Public Governance is electing a good government, and group of ministers headed by prime minister or president (varies from country to country) and giving them the reins of country’s governance. It will not be out of the way to mention that good public governance is a good government which helps in creating good corporations and their proper governance as well. A government which works ethically and has honest practices helps in fearless Corporate Governance. Also positive laws of the land are very much helpful in creation and governance of corporate, whether big or small. Most suitable examples shall be that if a government provides relief to farmers, the agro activity shall get a boost and similarly if a government provides reliefs for export and import, excise and taxes, the corporate shall be a better performer.

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Process and Route similarity

In government formation public plays an important role and it is supreme, similarly in a corporate formation the shareholders play a crucial role. The representatives selected by the public select their party leader who turns to be the prime minister (India) and the PM forms the government.

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In corporate the share holders in the general body meeting vote for the selection of board of directors The council of ministers govern the country whereas for the corporate the BOD selects CEO or key persons for positions who run and govern the corporate. In case of bad governance by the government the public (people) change their representatives and government as a new. Similarly when a corporate fails to perform as described, the share holders in the general body meeting change the BOD and can also change CEO arid other key operators. This analysis shows the proximity of functioning of public governance and corporate governance. It is said that a good public governance is a boon for good corporate governance. Dishonesty and unethical practices at government level sometimes compel the corporate to turn dishonest, adopt illegal means and several unethical practices.

GUARDIANS OF CORPORATE GOVERNANCE

In the process of formation of a corporation (refer Chart-Corporate Governance process) different persons are involved and all these key persons are termed as guardians of corporate governance. If all these persons start governing honestly, ethically and confidently the corporate governance should not pose problems but since the human beings are not robot, they have heart and mind and each one has his own way of dealing and decision making, and it is difficult to run the corporate governance with zero percent tolerance. The guardians of corporate governance are seven (refer chart-process) and these are:

• Share holders

• Stake holders

• Board of directors

• Auditors

• CEO, MD, GMs

• Executive Board

• Chairman

In a corporation the role of these should be well defined and made transparent. For convenience of corporate, it will not be an exaggeration to say that these seven guardians are the seven horses of chariot of god 'Sun' and the chariot is the corporation which is run by these seven most dependent horses and their roles and responsibilities are briefly explained.

Share Holders

Share holders are prime persons who invest fund in formation of a corporation. These share holders usually do not participate in running a business but they watch from outside the performance of the companies. The expectation of share holders is a good ROI and in case/these are not met they may fluctuate to some other company. It is why, to hold a share holder for a long period of time, the corporation must look in to their interest first. The share holders have right to vote in the general body meeting or express special meeting and may remove all directors or CEO etc. They should have right to vote, right for proxy and right of information etc.

Stake Holders

Apart from share holders there are other stake holders who need to be governed and served well. The stake holders have different expectations and that must be met by the corporate. The major stake holders like banks, financial institutions, large dealer may nominate or induct their directors to have their say. In case of unethical practices the stake holders have legal right to fight for their cause. Stake holders includes share holders, employees, suppliers, customers, creditors, community in the vicinity of the company’s operations and the general public.

Board of Directors (BOD)

Board of directors are the main committee which decides about the functionary plan, mission and vision of the corporation. Role of BOD is to formulate procedures and principles for running the unit including the appointment of CEO and other key functioneries. Cadbury’s report indicates that CEO should not hold a post in the Board of directors.

Auditors

Auditors role is to audit the financial part of a corporate, see the irregularity, suggest better way of managing finance and also find out the income leakage and irregularities in financial methods. The auditors must be a neutral person with adequate knowledge and competence and should not be related to the corporation in any way, there must be transparency in his functioning.

CEO,MD

Chief executive officer and his team of management are the monitors who rein the show. The CEO must be honest with integrity he should not have any selfish attitude and should not be a closely related person

of any BOD member and he must work with selfless attitude and the performance of the company must be reported to BOD with full truth and transparency.

Executive Board

It is the board which looks in to functioning of corporation and performance of BOD. It suggests means and ways for improvement. The executive board if any should be honest, knowledge based, and ethically strong enough in forcing decisions. The board provides the plan of action.

Chairman

Chairman is a person of respect, dedication and honour who acts as an advisor to the board of director, he creates the ideas and directs the board in smooth and better functioning. The chairman should be honest, self motivated and a person of integrity of short spree.

CODE OF CORPORATE GOVERNANCE

The first code of corporate governance