Corporate GovernanceA draft framework

Conceived–Developed by:

PKS Management ConsultantsBangalore

Service Tax Regd. No. AYMPS8310HSD001

Index

• Corporate Governance Primer• Our framework• Approach

What is Governance

• The word derives from Greek• Means to steer • Was used for the first time by Plato

What is Corporate Governance

• A system by which corporations are directed and controlled

• Focusing on the internal and external corporate structures

• With the intention of monitoring the actions of management and directors

• And thereby mitigating risks

Why Corporate Governance

• Corporate scandals of various forms– Enron Corporation– WorldCom– Satyam

Stakeholders

• Internal stakeholders:– Board of Directors– Executives– Other employees

• External stakeholder groups:– Shareholders, debt holders, trade

creditors, suppliers, customers

– Communities affected by the corporation’s activities.

Genesis of Corporate Governance

• The Cadbury Report • The OECD Principles of Corporate Governance• The Sarbanes-Oxley Act • The Cadbury and OECD reports present general

principals • The Sarbanes-Oxley Act, United States, legislation, based on several of the principles in Cadbury and OECD reports

Principles of Corporate Governance

• Rights and equitable treatment of shareholders• Interests of other stakeholders• Role and responsibilities of the board• Integrity and ethical behaviour• Disclosure and transparency

OECD Principles

• Auditing• Board and management structure and process• Corporate responsibility and compliance• Financial transparency and information

disclosure• Ownership structure and exercise of control

rights

Corporate Governance across world

• Different models of corporate governance • The Anglo-American "model" tends to

emphasize the interests of shareholders. • The Model associated with Continental Europe

and Japan also recognizes the interests of workers, managers, suppliers,

customers, and the community

Corporate Governance in India

• SEBI Committee on Corporate • Drawn from the Gandhian principle of

trusteeship • And the Directive Principles of the Indian

Constitution

Codes and guidelines

• As a rule, compliance with these governance recommendations is not mandated by law

• Although the codes linked to stock exchange listing requirements may have a coercive effect

Internal controls

• Monitoring by the board of directors• Internal control procedures and internal

auditors• Balance of power • Remuneration • Monitoring by large

shareholders/Banks /Creditors

External controls

• Competition• Debt covenants• Demand for and assessment of performance

information (especially financial statements)• Government regulations• Managerial labour market• Media pressure• Takeovers

Benefits of corporate governance

• Corporate success and economic growth• Raises investor's confidence• Helps in attaining operational excellence• Enhances the brand image

• Winning with applause

Our Framework

Holistic

ConscienceBusiness Skills

Levels

Objectives

Processes

Execution

Compliance

Growth

Principles of Corporate GovernanceContinuous improvement from within

Description of our framework

• Three interdependent and interacting components

Foundation

ImplementationResults

Foundation

Conscience

• Character / Honesty / Integrity and above all, conscience is THE Cornerstone of corporate governance

• From Chairman to entry level employee

Business Skills

• Education , Experience, Managerial &

Leadership Skills• At all levels

Corporate Governance Principles

• Existing corporate governance principles to be adopted

• And beyond

Continuous improvement from within

• Assimilate best practices and work on

• But ultimately you are the competitor for yourself

Implementation

Levels

• Internal– Board– Management– Operations

• Stakeholders– Customers– Suppliers– Financial institutions– Govt.– Society at large

• Contextual– Industry specific

Objectives

• Develop suitable objectives corresponding to each level

Processes

• Develop suitable processes and systems corresponding to objective

Execution

• Execute the processes and systems

Compliance

• Put in place compliance structure for each level

Results

• Holistic Growth

Approach

Problem solving approach

• Corporate governance flows from top to down

Define the level

• Work out the levels at which corporate governance need to be implemented in phases

Board

Management

Operations

Phases

• At each level define the processes, SLAs and compliance

Level of automation

• Define the level of automation

Example for department • Each department

interacts with other departments

• And other External stakeholders and agencies

Stakeholders

Agencies

External

Getting the correct picture

• Department has internal view and external view

• Both combined together forms the reality of the department

Internal view

External view

Reality

Internal view

• Department should make a list of all activities and corresponding process flow and gaps

• After internal deliberations, gaps need to be filled

• Here internal view is up-to-date

External view

• Departments / stakeholders interacting with the department should follow the same process and suggest the measures to fill-in the gaps.

• It completes the external view

Mix

• The individual department works on both internal and external views and updates its processes.

General pointers

• Adopt the best practices available at National / International levels

• Culture of the company is interlinked with corporate governance

Corporate governance.. not a milestone

• it is a continuous process

An artefact of

PKS Management Consultants+91 – 97411 94285

# 9, Site No. 14/15 B, 1st Vivekanda LayoutOuter Ring Road, Marathalli

Bangalore -560037

pramod@pksmanagementconsultants.comwww.pksmanagementconsultants.com

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