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BUSINESS ETHICS ANDCORPORATE GOVERNANCE

Models of CG

MODULE # 03

Prof.Madhura Tilak-PIMR-Parul group of mgmt. Institute

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Provisions for corporate governance factually

refers to a set of company practices, rules,

relations, processes and system designed for fair

and efficient management of the enterprise andare meant as a system of earning benefit among

the potentially differing interest of many

stakeholders, including minority shareholder and

the directors and employees of a company.

MODELS OF CORPORATE GOVERNANCE

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Different models of corporate governance around

the world and they differ according to

Economic style,

Social practices, and

Business philosophy of the country or the state in

which the company operates.

There is no one-size-fits-all corporate governancemodel.

MODELS OF CORPORATE GOVERNANCE

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The Anglo-American Model

The Coordinated Model

The Family-Owned Company Model

MODELS OF CORPORATE

GOVERNANCE

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Anglo British or English

This is a typical liberal model of governance, which is

prevalent in the US, UK, and many English speakingcountries of the erstwhile (former) British Empire.

THE ANGLO-AMERICAN MODEL

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This model calls for governance by the board of

directors, which has the power to choose the CEO.

While the CEO has the power delegated by the board

to manage the company on a daily basis, he or she

needs board approval for certain major decisions.

THE ANGLO-AMERICAN MODEL

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Decisions like,

Senior level appointment,

Fund raising

Acquisition bids

Expansion, etc.

Will be taken by CEO

THE ANGLO-AMERICAN MODEL

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Duties of the board may include policy making,

decision making, monitoring, management

performance and corporate control, besides

facilitating CEO to functions under set policy andguidance.

Largest share holder may have the influence over the

board.

THE ANGLO-AMERICAN MODEL

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Individual share holder many not have the

opportunities to elect their nominees despite the

fact that their total holding if put together mayexceed the shareholding of largest shareholder,

which is contrary to the interest of Corporate

governance.

THE ANGLO-AMERICAN MODEL

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Often, responsibility of board are marginalized

(demoted) & interest of share holders are

compromised.

CEO and board may take the decision according to

their choice and may violate the corporate norms.

THE ANGLO-AMERICAN MODEL

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However, this model give priority to shareholders

interests and which translate into strong pressure of

management to innovate, compete and grow

profitably,

This models places less emphasis on the interest of

managers, employees, customer, suppliers and

community in general.

THE ANGLO-AMERICAN MODEL

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US scandals in 90s have introduced great concern for

oversight responsibilities beyond their traditional

stewardship that were before the scandals .

Financial crisis of 2008 in UK and US requires

effective Corporate governance.

THE ANGLO-AMERICAN MODEL

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This model, prevalent in Europe and Japan,

acquiesces (agree) to shareholder interest but

also gives priority to the interests of managers,

employees, customers, suppliers and thecommunity in general.

The coordinated model encourages innovation

and profit on a more incremental level.

THE COORDINATED MODEL

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Companies less likely to suffer from ethical and

moral failure

Not like Anglo-American model, - demand of for

grater and grater profit.

Combination of this two may provide a right answer

for social and democratic countries like India.

THE COORDINATED MODEL

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Asian and Latin America.

Company owned by small family dominate the

market

Small number of powerful families controls largenumber of public companies.

THE FAMILY OWNED MODEL

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Example,

The Reliance Group of Industries in India, is termed

by as many as a family owned business because

majority of share holding over 51% - closelyrelated family member.

Family has controlling stake and governance in

their listed companies.

THE COORDINATED MODEL

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Family-owned companies do not necessarily harm

the interests of shareholders because they

themselves are major beneficiaries of their dividend

policy or related benefits.

Shareholding exceed 51%

Neither fully open nor fully transparent to disclosure

norms.

Many company complying with clause 49 of listing

agreements,

Doing social and development works.

THE COORDINATED MODEL

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Both governments and regulators have to recognize

corporate governance as a corner stone of economic

reforms.

Asian crisis of 1997 having its roots in poorgovernance.

Both national and international governments

increase importance to Corporate governance.

India mixture of A-AM a CM.

CONT..

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Corporate governance began with managing agency

system pre-independence era

Then promoter system in the early 90s

Then after Indian companies act acted as mainanchor of Corporate governance.

HISTORY

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Corporate governance Standards across UK and US

are trying to adjust with the contemporary business

situation and stock market bubbles.

Ownership concentration Separation of management and control

Increasing importance of stake holders

Concerns are increasing in UK and US.

THE COORDINATED MODEL

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THANK YOU

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