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CG-P13
PGDM 2013-15: Term-IV

Course Title: Corporate Governance: Principles and Practice (Elective)
Area: General Management
Credit: 3

Faculty: Dr. Bibhu Prasan Patra

Objective: Growing financial scandals and rapid fall of trustworthiness of corporations required that immediate attention should be given to process, mechanism and principle of corporate governance.
So, corporate governance as an area of study has been growing very rapidly for last decade. Since the collapse of Enron and WorldCom in 2001, Lehman Brothers in 2008, Satyam Computers in 2009 and the subsequent financial problems of other companies in different countries corporate governance has become the center of attention for every one. Lack of transparency accountability, disclosure, control and care for human dignity at the highest level of governance process are considered to be the root cause of down fall of many corporations. To ensure confidence in financial market and to ensure that such collapses do not take place good governance is required. Thus it is essential that corporations ought to have transparency, accountability, empowerment, and respect for stake holders.
In a sense, corporate governance looks at the mechanisms put in place inside companies to guide their actions and monitor their performance. Most writing and thinking about corporate governance focuses on the role of the board of directors, the group of people who sit at the top of the enterprise, deciding what direction it should take, what strategies it should adopt, hiring a team of managers and then holding them to account for the performance they deliver.
Another aspect of corporate governance looks at how those boards of directors relate to their owners, the investors who bought shares in the corporation and claim, through the legitimacy of their property rights, to have some sort of say over the affairs of the corporation. Presently two areas the relationship between boards and managers and the relationship between investors, other stakeholders and board is dominating the thinking and writing about corporate governance.

Definition of corporate governance:
A broader definition is provided by the Organization for Economic Cooperation and Development (OECD 1999), which describes corporate governance as “A set of relationships between a company’s board, its shareholders and other stakeholders.” It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives, and monitoring performance. Similarly Sir Adrian Cadbury (1999) said: ‘Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals…the aim is to support individuals, corporations and society.’ These definitions serve to illustrate that corporate governance is concerned with both the internal aspects of the company, such as internal control, and the external aspects, such as an organization’s relationship with its shareholders and other stakeholders. Corporate governance is also seen as an essential mechanism helping the company to attain its corporate objectives and monitoring performance is a key element in achieving these objectives.

Some of the important learning from the curse will be as follows:
This course is designed to illustrate the importance of corporate governance for stability and long term sustainability of corporations. The main objective of the course is to clearly understand the role and responsibility of directors to shareholders and other stakeholders and community.

Corporate governance is important for a number of reasons; it is fundamental to built robust corporations and it ensures that they operate at optimum fairness and efficiency.
· It helps to ensure that an adequate and appropriate system of controls operates within a company and hence assets may be safeguarded;
· It prevents any single individual having too much powerful and influence;
· It is concerned with the relationship between a company’s management, the board of directors, shareholders, and other stakeholders;
· It aims to ensure that the company is managed in the best interests of the shareholders and the other stakeholders;
· It tries to encourage both transparency and accountability, which investors are increasingly looking for in both corporate management and corporate performance.
The first point refers to the internal control system of a company whereby there are appropriate and adequate controls to ensure that transactions are properly recorded and that assets cannot be misappropriated. Each year, a company has an annual audit and a key part of the auditor’s job is to assess whether the internal controls in a business are operating properly. Of course, the auditor has to exercise a certain degree of judgment regarding the assurance given by the directors, the directors being ultimately responsible for the implementation of an appropriate internal control system in the company. The directors are also responsible for ensuring that there are risk assessment procedures in place to identify the risks that companies face in today’s business environment, including , for example, exposures to movements in foreign exchange and risks associated with business competition.

As well as being fundamental to investor confidence, good corporate governance is essential to attracting new investment, particularly for developing countries where good corporate governance is often seen as a means of attracting foreign direct investment at more favorable rates. As the emphasis on corporate governance has grown during the last decade, we have seen a sea change in many countries around the world. The codes emphasize the importance of transparency, accountability, internal controls, board composition and structure, independent directors, performance related executive pay and respect for individual dignity.. There is much emphasize on the rights of shareholders and an expectation that shareholders, especially institutional investors, will take a more proactive role in the companies in which they own shares and actually start to act more as owners rather than playing a passive shareholder role. Corporate governance is an exciting area, fast developing to accommodate the needs of a changing business environment where investor expectations are higher than ever before; the cost to companies that ignore the benefits of good corporate governance can be high and, ultimately, can mean the collapse of the company.

The course structure:
The course is structured in four major parts:
Part one contains the development of corporate governance and look at the various theoretical aspects, including the frameworks within which corporate governance might be developed, and the development of corporate governance codes in various countries.
Part two contains the role of shareholders and stakeholders, how to identify the various stakeholders groups, and discusses their role in companies and in corporate governance.
Part three concentrates on various aspects of directors and board structure such as: role of directors, their duties, their responsibilities, and looks at the important areas of boards and board sub-committees and non-executive directors.
Part four concentrates on directors’ remuneration and looks at the ways in which directors’ performance and remuneration may be effectively linked. It will also focus on development of corporate governance in various continents around the world.

Relevant case studies will be discussed in the class

Text book: Christine A. Mallin, (2010 ), Corporate Governance 2nd edition, Oxford , Indian ed. New Delhi

References:

Nordberg Donald (2011) Corporate Governance,sage , New Delhi

Cadbury, Sir Adrian (199), Corporate Governance Overview, World Bank Report. OECD (1999), principles of corporate governance, OECD, Paris

Shleifer, A. and Vishny, R. (1997), ‘ A Survey of Corporate Governance’, Journal of Finance, Vol. LII, No.2.

Created By: Alora Kar on 03/08/2014 at 12:13 PM
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