CORPORATE GOVERNANCE AND STRATEGIC ANAGEMENT

 Corporate governance, refers to how an organization is governed.  It ensures effective interaction among the different stakeholders, that is the shareholders, the management, and the board of directors.  Corporate governance helps in formulating strategic decisions and defining the future direction of the organization.  Corporate governance also deals with looking after complete governance of various organizations with respect to financial disclosures, transparency, legal practices, organizational structure, and social welfare. CONCEPT OF CORPORATE GOVERNANCE

THEORETICAL BASIS OF CORPORATE GOVERNANCE  There are four basic corporate governance theories, which are:  Agency Theory The agency theory is built upon the presumption that the interests of managers often clash or are divergent from that of shareholders.  Stewardship Theory The stewardship theory supports the view that the managers are considerate about their personal reputation and value their integrity.  Stakeholder Theory The stakeholder theory supports the view that an organization should maximize stakeholders’ benefits and follow an ethical code of conduct.  Sociological Theory The sociological theory mainly focuses on the distribution of wealth and power in the society.

 Rights of Shareholders: Means shareholders have a right to approve and voice their opinion when major organizational changes take place.  Equitable Treatment of Shareholders: Means that all shareholders must be considered as equal by an organization.  Stakeholder Benefits: Refers to the significant relationship of stakeholders with the director of an organization.  Disclosure and Transparency: Refers to the degree to which information is freely available to employees.  Responsibilities of the Board of Directors: Refers to the obligations that the board of directors has towards an organization. GUIDELINES OF CORPORATE GOVERNANCE

 The need for good corporate governance is felt because of the following reasons:  Creating Competitive Advantage: Refers to building a core competency that works as an edge over the rivals of a particular organization.  Preventing Fraud and Malpractices: Refers to precluding misconducts and fraudulent practices so as to ensure sound and trustworthy corporate environment.  Bringing in Transparency: Refers to meeting investor’s expectations by creating an open system that aims at providing accountability and transparency in all organizational operations.  Legal Compliance: Refers to adhering to the laws and regulations as per the legal machinery of a country. ROLES OF CORPORATE GOVERNANCE

 Indian organizations became aware about corporate governance around the year  The effective implementation of corporate governance started in India in year It started with a voluntary code that was designed by Confederation of Indian Industries (CII).  A tremendous amount of change was brought about in the corporate environment due to increased competition in the Indian market in 1990s.  A few renowned organizations, such as Infosys and Wipro, have developed sound governance policies. CORPORATE GOVERNANCE IN INDIA

 International Corporate Governance Network (ICGN), established in 1995, aims at creating a supportive organizational environment for investors, organizations, and other parties that are in favor of corporate governance practices.  ICGN has recommended that the main objective of corporate governance practice should be the timely payment of returns to investors.  ICGN has also recommended that the strategic decisions cannot be taken without the approval of shareholders in an organization. CORPORATE GOVERNANCE: A GLOBAL SCENARIO

BOARDS OF DIRECTORS  Board of Directors (BOD) refers to a body of elected members or directors in an organization. They are responsible for overseeing the management activities and taking long-term decisions in an organization.  The Companies Act states that the directors of an organization together are called BODs or board.  The BODs play a very crucial role in the strategic management process of an organization. They control, monitor, and supervise the process of strategic management. The BODs also reassess the mission, goals, and strategies of the organization with respect to the competitors.

 Lead Director: Refers to an individual who performs the roles and responsibilities of both a chairperson and CEO.  Managing Director: Refers to the senior most director of an organization who manages the routine operations of an organization, its employees, and various resources.  Nominee Director: Refers to a director who is appointed by shareholders, creditors, and other interest groups of an organization.  Nonexecutive Director: Refers to the director who is appointed by the shareholders to govern the organization on their behalf.  Shadow Director: Refers to a director who is not appointed formally but whose functions are strictly supervised by the board of directors. TYPES OF DIRECTORS (CONTD.)

 Alternate Director: Refers to a kind of director who is selected by one of the directors of the board. He/she has to fulfill the duties of a regular director and attend the meetings on behalf of the director who appoints him/ her.  Chairperson: Refers to a director who is selected by the board to play a lead role in the board’s meetings.  De Facto Director: Refers to an individual who performs the duties of a director but is not formally appointed as a director.  Executive Director: Refers to an individual who has dual responsibilities of a director as well as of a senior executive of an organization.  Independent Director: Refers to the kind of director who is free from organizational restrictions and acts independently. TYPES OF DIRECTORS

 Personal Liability: Refers to the conditions in which the directors may be held responsible for personal liability.  Liability towards the Organization: Refers to a situation or condition when the director is liable to the organization  Liability towards Legal Duties: Refers to the liability of a director in case he/she fails to maintain the accounts and other legal formalities in a proper manner.  Liability towards Co-directors: Refers to the accountability of a director when he/she is responsible for fraudulent activities. LIABILITIES OF A DIRECTOR

 The following are some of the responsibilities of BODs:  Determining the vision, mission, and purpose of the organization.  Selecting the executives of the organization.  Supporting the executives and reviewing their performance.  Ensuring the effective planning of the organization.  Ensuring the adequacy of financial resources that are available to carry out routine operations.  Ensuring the effective use of resources.  Monitoring the organizational activities.  Enhancing the public image of the organization.  Assessing the overall performance of the organization. RESPONSIBILITIES OF A DIRECTOR