1.n.1balasubramanian
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This document provides an overview of corporate governance through definitions from various sources and outlines key concepts. It discusses corporate governance as a system for directing and controlling companies, with a focus on power and accountability. The document also examines different models of corporate governance, including those focused on shareholders and stakeholders. It describes the central role of the corporate board in providing leadership, strategic guidance, and oversight between shareholders and managers.
![Some Unique Attributes &
Responsibilities of Bank Boards &
CCG & C Directors
• Ultimate Responsibility for True and Fair
Presentation Rests with the Board
• Poor Leadership Infects.
– Adapted from Guidance for the Directors of Banks, Jonathan Charkham, (2003)
[OECD-World Bank] Global Corporate Governance Forum, Washington
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1.n.1balasubramanian
- 1. re for Corporate Governance & Citizenship Corporate Governance, Bank Boards & Directors ______________________________ Prof N Balasubramanian 1
- 2. Presentation Outline CCG & C Overview of Corporate Governance Unique Dimensions of Banks Governance Bank Boards, Directors, & Governance 2
- 3. re for Corporate Governance & Citizenship Overview of Corporate Governance 3
- 4. Some Definitions CCG & C • “Corporate Governance is the system by which companies are directed and controlled…” – Cadbury Report (UK), 1992 • “…to do with Power and Accountability: who exercises power, on behalf of whom, how the exercise of power is controlled.” • Sir Adrian Cadbury, in Reflections on Corporate Governance, Ernest Sykes Memorial Lecture, 1993 4
- 5. A Canadian Definition CCG & C • “…the process and structure..to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business….” – Where were the Directors? Guidelines for Improved Corporate Governance in Canada, TSE, 1994 5
- 6. An OECD Definition CCG & C • “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders ..also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” – Preamble to the OECD Principles of Corporate Governance, 2004 6
- 7. An Indian Definition CCG & C • “…fundamental objective of corporate governance is the ‘enhancement of the long-term shareholder value while at the same time protecting the interests of other stakeholders.” – SEBI (Kumar Mangalam Birla) Report on Corporate Governance, January, 2000 7
- 8. A Gandhian Definition CCG & C • Trusteeship obligations inherent in company operations, where assets and resources are pooled and entrusted to the managers for optimal utilisation in the stakeholders’ interests. 8
- 9. Some Further Definitions CCG & C Corporate governance is essentially about leadership: – leadership for efficiency; – leadership for probity; – leadership with responsibility; and – leadership which is transparent and which is accountable. - PRINCIPLES FOR CORPORATE GOVERNANCE IN THE COMMONWEALTH 9
- 10. What is Corporate Governance? CCG & C • The Manner in which a Corporation is Run – Achieving its Objectives – Transparency of its Operations – Accountability & Reporting – Good Corporate Citizenship • The Processes & Operating Relationships that Best Achieve Organisational Goals 10
- 11. Some Governance Models CCG & C • Finance or the Principal-Agent Model – Markets for Capital, Managerial Talent and Corporate Control, Key determinant – In general, profit-maximisation goal is co- functional with social-welfare-maximisation – Shareholders as Residual Claimants have superior control rights 11
- 12. Exclusive Accountability to CCG & C Shareholders • Risk-bearing Entrepreneurs • Residual Claimants • Winding-up Ranking: Last in Pecking Order • Boards Appointed by Shareholders • Non-congruence of Stakeholder Interests 12
- 13. Residual Claimant Theory CCG & C • “…shareholders … residual claimants to the firm’s income. Creditors have fixed claims and employees’ remunerations … negotiated in advance of performance .. Gains and losses from abnormally good or bad performance .. The lot of shareholders, who stand last in the queue .. Shareholders make discretionary decisions and bear consequences .. As such, .. Owners of business with important control rights…” – The Economic Structure of Corporate Law, Frank H Easterbrook and Daniel R Fischel (1991) OUP 13
- 14. The Stakeholder Case CCG & C • Firm Objective must be defined more widely than just shareholder-value-maximisation, since risk capital is not the only, or even the major input • Residual Claimant Rights Not Universally Valid, eg, Circumscribed in case of pre-bankruptcy (US Chapter XI) Situations • Other Such: Employees with Firm-specific Specialised Skills, Customers/Vendors with Substantial Stake in the Business, etc 14
- 15. Towards an Integrated Model CCG & C • One-Size does not Fit All Circumstances • A Combination of Shareholder/Stakeholder Models Necessary • Some Argue, While Shareholder Claim Well Established, Stakeholder Claims Need to be Proved • Tailor Model to Suit Unique Circumstances 15
- 16. The Corporate Board CCG & C • Central to Corporate Governance – Juxtaposed between Shareholders on the one hand, and on the other, Managers of the Entity (Cadbury) – Follows Distancing between Ownership and Control (Berle and Means) – Trustee for All Shareholders – Loyalty & Commitment – Always to Company 16
- 17. Board Role & Responsibility CCG & C • Provide/ Exercise – Leadership and Strategic Guidance – Objective Judgement Independent of Management – Control over the Company • Direct and Control the Management of the Company • Be Accountable at all times to All Shareholders 17
- 18. Dimensions of Board CCG & C Responsibility • Direction involves – Formulation & Review of Company Policies, Strategies, Budgets and Plans, Risk Management Policies, Top Level HR Policies, etc – Setting Objectives & Monitoring Performance – Oversight of Acquisitions, Divestitures, Projects, Financial and Legal Compliance, etc 18
- 19. Dimensions of Board CCG & C Responsibility • Control Involves – Prescribing Codes of Conduct, – Overseeing Disclosure & Communication Processes, – Ensuring Control Systems to Protect Company Assets – Reviewing Performance & Realigning Action Initiatives to Achieve Company Objectives 19
- 20. Dimensions of Board CCG & C Responsibility • Accountability Involves – Creating, Protecting and Enhancing Company Wealth and Resources – Timely and Transparent Reporting – Good Corporate Citizenry including Discharge of Stakeholder Obligations and Societal Responsibilities without Compromising the Shareholder Wealth Maximisation Goal 20
- 21. Corporate Governance & Capital Market Drivers: A Conceptual Framework CCG & C REGULATION & LEGISLATION Regulators Government Stock Exchanges (SEBI/RBI) Legislation Listing Agreements Lenders Shareholders/ (Banks/ Listed Corporations Stakeholders Depositors) (The Board & the Executive) Market Operators Institutional Investors Press/Media (Rewards) (Pension Funds/Insce Cos) (Opinion Makers) Market Operations, Critique & Monitoring 21
- 22. re for Corporate Governance & Citizenship Is There More to Business than just the Financial Numbers? 22
- 23. An Enterprise’s Triple Effect on Society Sustainable Development Equal Opportunities Waste Control Education & Culture ent Soc Emissions nm ial Community i ro Regeneration nv Business E Impact Energy Use Human Rights Economic Product Employee Life-cycle Volunteers Product Wealth Productive Ethical Value Generation Employment Trading
- 24. The Triple-Bottomline Impact CCG & C economics Business Impact environment society 24
- 25. Governance Orientation Matrix CCG & C 25
- 26. Governance Orientation & CCG & C Sustainable Profits A G E N C SUSTAINABLE PROFIT LINE Y STEWARDSHIP 26
- 27. re for Corporate Governance & Citizenship Unique Dimensions of Bank Governance 27
- 28. Unique Dimensions in Bank CCG & C Governance • Bank Role in Good Governance Two-fold: – Governance Within – Governance at Clients’ • As Fund-Providers, Banks Generate Multiplier Impact on Economy • Confidence & Trust Key – Bank Distress, Failure, Dis-Repute Impacts Economy, Erodes Country Standing Globally 28
- 29. Unique Dimensions in Bank CCG & C Governance • Stakeholder Dimension Very Strong in Banks- – Depositors – Borrowers – Employees – Community – Regulators – Government 29
- 30. Unique Dimensions in Bank CCG & C Governance • Banking Risk Potential – Internal Fraud & External Fraud, Highly Likely, since cash/cash equivalents closest in grab-chain – Employment Practices/ Workplace Safety – Product, Process, Business Practices – Damages to Physical Assets & IPR/Brands – Business Disruption Major Threat 30
- 31. Unique Dimensions in Bank CCG & C Governance • Non-Compliance (Intentionally or Otherwise) with Laws, Rules, Regulations • Consequences of (Non) Compliance Risk in Banks – Legal or Regulatory Sanctions – Financial or Reputational Loss 31
- 32. Unique Dimensions in Bank CCG & C Governance • Banks as Promoters of Good Governance – Prescribing Governance Standards at Borrowers (IFC, CalPERS, FIs) – Encourage by Preferential Lending Rates, Other Terms – Discourage by Adversarial Lending Rates, Other Terms – A Measure of Strengthening Protection of Bank Assets, Hence Good for Bank’s Own Governance 32
- 33. Some Unique Dimensions of Public Sector Bank Governance in Developing CCG & C Economies • Political & Bureaucratic Interventions • Banking as a Policy Instrument • Supervisory Interventions, Micro-Managing • Captive Resource of First Resort • Suspect Independence of Supervisory Institutions • Lack of Accurate/ Timely Accounting & Disclosure Practices 33
- 34. re for Corporate Governance & Citizenship Bank Boards, Directors, & Governance 34
- 35. Some Unique Attributes & Responsibilities of Bank Boards CCG & C &Directors • Assume Responsibility for Effective & Efficient Management, through Oversight Mechanisms • Integrity is Indivisible; Role Model Director is the Most Persuasive Statement of Ethical values • Consider Transparency as the Norm. Confidentiality should not lead to Opacity – Continued 35
- 36. Some Unique Attributes & Responsibilities of Bank Boards & CCG & C Directors • Ultimate Responsibility for True and Fair Presentation Rests with the Board • Poor Leadership Infects. – Adapted from Guidance for the Directors of Banks, Jonathan Charkham, (2003) [OECD-World Bank] Global Corporate Governance Forum, Washington 36
- 37. Some Closing Thoughts CCG & C • Right-Size the Board and its Composition • Complementary Skill-Sets & Financial Acumen Essential • Fit & Proper Criteria for Membership • More Focus on Oversight, Less on Micro- Management • Contribution as Important as Surveillance 37
- 38. Some Closing Thoughts CCG & C • Minimise Conflict of Interest Potential • Respect Minority / External Shareholders’ Rights (Listed Public Sector Banks) • Bank Boards to Go That Extra Mile: Go Beyond What is Prescribed to What is Appropriate – That Way lies Greater Valuations & Better Reputations 38
- 39. re for Corporate Governance & Citizenship Thanks for Your Attention 39