becg report1

8/14/2019 BECG REPORT1

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A REPORT

ON

COMPARATIVE ANALYSIS

OF BEST PRACTICES OF

CORPORATE GOVERNANCE

Submitted by:

SOURAV KUMAR MUDI

(08BS0003947)

Submitted to:

Prof. Amit MajumderICFAI Business School,

Kolkata

Date of Submission: 07/01/10

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INTRODUCTION

CORPORATE GOVERNANCE

Corporate Governance is typically perceived by academic literature as dealing with

problems that result from the separation of ownership and control. From this perspective,

corporate governance would focus on: The internal structure and rules of the board of

directors; the creation of independent audit committees; rules for disclosure of information to

shareholders and creditors, and, control of the management.

DEFINITION:

Corporate Governance is the system by which business corporations are directed and

controlled. The corporate governance structure specifies the distribution of rights and

responsibilities among different participants in the corporation, such as, the board, managers,

shareholders and other stakeholders, and spells out the rules and procedures for making

decisions on corporate affairs.

According to the Advisory Board of the National Association of Corporate Directors

(NACD), New YorkCorporate Governance ensures that long-term strategic objectives and

plans are established and that the proper management structure is in place to achieve those

objectives, while at the same time making sure that the structure functions to maintain the

corporations integrity, reputation and responsibility to its various constituencies.

RELEVANCE OF CORPORATE GOVERNANCEDifferent economies have systems of corporate governance that differ in the relative strength

exercised by the stakeholders and how they influence managements. Good corporate

governance means governing the corporation in such a way that the interests of shareholders

are protected whilst ensuring that other stakeholders requirements are fulfilled as far as

possible.

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OBJECTIVES OF CORPORATE GOVERNANCE

Good governance is integral to the existence of a company. It inspires and strengthens

investor confidence by ensuring companys commitment to higher growth and profits. It aims

at the following:-i. Installation of a properly structured board which is capable of taking independent and

objective decisions.

ii. Ensuring a properly balanced board having representation of an adequate number of

nonexecutive independent directors capable of taking care of the interests of all the

stakeholders.

iii. Adoption of transparent procedures and practices in decision making by an informed

comity of board members.

iv. Effective and regular monitoring of management functioning by the Board.

v. Disclosures to shareholders with a view to help become informed of the relevant of

the relevant developments impacting the company.

vi. Exercise of effective control on corporate affairs by the board at all times.

The overall objectives of governance should be to maximize long-term value and

shareholders wealth.

NEED AND IMPORTANCE

Corporate Governance is needed to create a corporate culture of consciousness, transparency

and openness. It refers to a combination of laws, rules, regulations, procedures and voluntary

practices to enable companies to maximize shareholders long-term value. It should lead to

increasing customer satisfaction, shareholder value and wealth.

BENEFITS

Creation and enhancement of a corporations competitive advantage

Enabling a corporation perform efficiently by preventing fraud and malpractices

Providing protection to shareholders interests

Enhancing the valuation of an enterprise

Ensuring compliance of laws and regulations

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On the board of directors, CII has made the following recommendation:

A simple board structure can maximize shareholders as well as to tier board.

The full board must meet six times a year, preferably at an interval of two months and

meeting must have an agenda of at least half days meeting.

Listed companies with a turnover in a excess of rupees two hundred crores and above

should have professionally competent and acclaim non executive directors.

Non-executive directors should account for at least thirty percent of board, if the

chairman is a non-executive director.

No single director should hold directorship in more than ten companies.

Non-executive directors to play an important role in maximizing long term

shareholders value, should become active participants and not be passive advisors.

Pay a commission over and above sitting fees and offer stock option as incentives.

Director who doesnt attend fifty percent or more of meetings must not be considered

for reappointment, generally.

All key permission players must be placed before the board of directors.

Audit committee must be appointment to assist the BOD of the company and must

have full access to all financial information.

Companies with paid up capital of more than rupees 20crs should provide the same

information towards domestic investors which they provide to GDR investor.

Companies with a turnover of rupees 100crs or a paid up capital of rupees 20crs

should set up audit committees with in 2years.

The member of board should have clear responsibilities.

The board should not be boll dozed by the nominees of management.

FIs should divest there stake in companies where they have less than 10% stake: or

progressively smaller role for the FIs expect in the case of habitual defaulters.

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Creditors should desist from appointing a nominee on a company board if its loan

interests are being paid in time.

Companies should not accept for the deposits if they have defaulted on fixed deposits.

The key information such as annual operating plans and budgets, quarterly results,

internal audit reports etc must be regularly reported to the board.

The takeover board should be modified to reflect international norms.

The triggers should increase to 30% and the minimum bid should reflect at least 50%

takeover.

OBJECTIVE

To study the comparative analysis for the understanding of commonalities and differences in

corporate governance practices among two companies Ford Motor and Hero Honda

Motor, through a comparative analysis of corporate governance codes and on the basis of the

CGS (Corporate Governance Score) following different parameters.

METHODOLOGY

Research is totally based on secondary data, which also can be used for the reference.

Secondary data has been collected basically, from the Annual Reports of the companies and

moreover, from the company own websites. Corporate Governance Score (CGS) has been

calculated through by given structured questionnaire collecting data from the company

brochures, annual reports, sustainability reports, corporate governance reports and websites.This is an exploratory type of research. And this research needs further study also Research is

a kind of pilot study.

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FORD MOTOR COMPANY(More products people want)

Ford motor company a global automotive industry leader based on Dearborn, Mich.,

manufactures or distributes automobiles across six continents. With about 2,13,000

employees and about 90 plants worldwide, the companys wholly owned brands include

Ford, Lincoln, Mercury and Volvo. The company provides financial services through Ford

Motor Credit Company.

Offering consumers more fuel efficient vehicle choices, including improving and

increasing our hybrid vehicle offerings, is part of Fords broad plan to deliver technology

solutions for affordable fuel economy for millions.

Derrick Kuzak, Ford Group Vice-president, Global product Development

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HERO HONDA(DRIVEN BY PASSION)

Over the course of two and half decades, both the partners Hero and Honda, have fine-tuned

and perfected their roles. As the largest motor cycle producer in the world, Honda has been

able to consistently provide technical knowhow, design specifications and R&D innovations

to its most prolific affiliate in the world, Hero Honda. This has led to the development of

world class, value-for-money motorcycles and scooters for the Indian market.

Since both partners are completely focus on their respective skills, they have been able not

just to complement each other, but also draw from each other strengths. Today every second

motor cycle sold in the country is a Hero Honda. There are more Hero Honda bikes on this

countrys roads than the total population of some European countries put together.

Hero Honda has built two world class manufacturing facilities at Dharuhera and Gurgaon inHaryana. These two units two churn out over 3 million bikes per year. The companys third,

and its largest and most sophisticated plant at Haridwar has also gone on-stream. All this

happened in the span of just of two and half decades.

Not surprisingly, the company is in no mood to take its hand and off the throttle. As

Brijmohan Lal Munjal, the chairman, Hero Honda Motors succinctly puts it, We pioneered

Indias Motorcycle Industry, and its our responsibility to now to take the industry to the

next level. Well do all it takes to reach there.

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COMPARATIVE ANALYSIS OF FORD

MOTOR AND HERO HONDA

Dimensions Ford Motor Hero Honda

Board Composition ED 3 ED - 4

NED 10 NED - 4

ID 10 , by default they are NED ID - 8

1. Audit Committee 1. Audit Committee2. Nominating and Governance 2. Remuneration Committee

Board Committees 3. Finance Committee 3. Shareholders Grievance

4. Compensation Committee 4. Share Transfer

5. Sustainability Committee 5. Committee of Directors

1. BOD meetings 11 times 1. BOD meetings 4 times

2. Environment & Public 4 times 2. Audit Committee 7 times

3. Audit Committee 4 times 3. Remuneration Comm. 2 times

Frequency of Meetings 4. Nominating Governance 4 times 4. Shareholders Grieve. 4 times

Annually 5. Finance Committee 4 times 5. Share Transfer As per requirement

6. Sustainability Comm. 3 times 6. Committee of Directors 2 times

7. Compensation Comm. 4 times

1. No director who is an employment 1. No director can be independent if he or

or a former employee of the company, she is, or in the past 3 years, has been,

can be independent until 3 years part of an interlocking directorship

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after termination of such employment. which an executive officer, of the

Independence of 2. No director who is or in the past 3 yrs. company serves of the compensation

Directors has been, affiliated with or employed committee of another company that

by, the companys present or former employs the director.

independent auditor can be independent 2. No director can be independent if he or

until 3 years after the end of the affilia- she is receiving or in the last 3 years

tion, employment or auditing. has received more than $100,000

during any 12 month period in direct

compensation from the company.

1. Protect the companys nonpublic In compliance with SEBI guideline

information. on prevention of Insider Trading,

2. Do not buy or sell stock based on the company has instituted code of

nonpublic information. conduct for its management, staff

Insider Trading 3. Do not tip others about nonpublic and relevant business associates.

information so they can buy or sell stock. The code lays down guidelines,

which advises them on procedures to

be followed and disclosures to be

made, while dealing with shares of

the company and cautioning them onconsequences of non-compliances.

1. Contacts from a government including any The company has regularly sent, both

Police or any other law enforcement By post as well as fax the annual

Agencies. audited as well as quarterly un-audited

Means of 2. Legal enquiries : forward to the office of the results to both the Stock exchanges,

Communication General Counsel or local legal office. BSE & NSE, after they are taken on

3. The media: Forward to public affairs. record by the Board of Directors.

4. Financial enquiries: Forward to investor

relations or public affairs.

5.Vehicle to dealer complaints: Forward to Ford

Customer Service Division (FCSD).

Vienot II Separation of the offices of chairman and CEO Same.

Committee is clearly defined as per the committee.

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Norby Committee No such rule is in here. The annual report should contain

information about the age of the

individual directors and directors

should retire from the board in the

year they turn 70 at the latest.

Appointments to the audit committee should be No such appointments would be

Audit Committees, made by the board on the recommendation of the done.

Smith Report nomination committee, in consultation with the

Audit committee Chairman.

An infrastructure that allows for the reporting There has neither been any non-

Of any potential violations of Policies and compliance of any legal provision

Directives, and any violations of laws which of applicable law nor any penalty,

Compliances by the are related to the business.It assessthese stricture imposed by SEBI or any

Company compliances with companies ethical stands other authorities, on any matters

through regular legal audits that cover a range related to capital market during the

of topics relating to legal requirements and the last three years.

Internal Policies.

J. J. Irani Committee 1/3rd of the board consist of Independent This is not applicable in here.

Directors.

Attendance Records Chairman of audit, finance committee, Chairmen of all the Board

Nominating Committee, Compensation Committees are present in AGM.

Committee and other committees are present

in AGM.

NEDs payment NEDs cant be pay in ESOPs. NEDs cant be pay in Employee

Stock Options (ESOP).

Disclosure of Execut. There is no disclosure of the executives pay In the annual report, there is a

Pay in Fixed part & in fixed or variable part in the annual report. Clear disclosure of the executives

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Variable part pays in the fixed part as well as in

the variable part.

RESULTS OF ANALYSIS

Case 1: Hero Honda

CGS = 44 out of 61.

It means %CGS = 72%

Case 2: Ford Motor

CGS = 49 out of 61.

It means %CGS = 81%

Result shows, that among the two major automobile companies, one foreign,

Ford Motors and another Indian, Hero Honda, the most effective company in

terms of the best practices of Corporate Governance isFord Motor.

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BIBLIOGRAPHY

1.BOOKS AUTHORS

Practices of Corporate Governance A.C.Fernando

Business Ethics & Corporate Governance ICMR

Corporate Governance Practices Taxmans

2. JOURNAL

Annual Report 09 , Ford Motors

Annual Report 08, Ford Motors

Sustainability Report 09, Ford Motors

Sustainability Report 08, Ford Motors

Annual Report 09, Hero Honda

Corporate Governance Report 09, Hero Honda

Annual Report 08, Hero Honda

Corporate Governance Report 08, Hero Honda

3. WEBSITES

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www.fordmotors.com

www.herohonda.com

www.google.com

www.wikipedia.com

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