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Corporate governance - Performance and Measurement. T.V.Mohandas Pai Member of the Board and CFO Infosys Technologies Limited. Corporate Governance.

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corporate governance performance and measurement

Corporate governance - Performance and Measurement

T.V.Mohandas Pai

Member of the Board and CFO

Infosys Technologies Limited

corporate governance
Corporate Governance

A system of checks and balances between the board, management and investors to produce an efficiently functioning corporation, ideally geared to produce long-term value

  • The Conference Board
issues in corporate governance
Issues in Corporate Governance
  • Asymmetry of power
  • Asymmetry of information
  • Interests of shareholders as residual owners
  • Role of owner management
  • Theory of separation of powers
  • Division of corporate pie among stakeholders
current status on corporate governance
Current status on corporate governance
  • Insistence on forms and structures
  • Overarching regulations
  • Regulatory overkill
  • Lack of adequate number of strong, independent directors
  • Large liabilities for companies and officers
  • Has the pendulum swung too far?
  • For the first time in the decade-long history of the Index of Economic Freedom, the U.S. is no longer among the top ten “most free” countries
    • Wall Street Journal and the Heritage Foundation “Index of Economic Freedom”
current status on corporate governance5
Current status on corporate governance

Source: Crisil Report on Corporate Governance

governance and performance
Governance and performance
  • Good governance leads to good performance
  • It creates an open and transparent system
  • It improves communication and breaks down systematic barriers to flow of information
  • Good governance allows decision making based on data. It reduces risk
  • Good governance helps in creating a brand and creates comfort for all stakeholders and society
does performance depend on governance
Does performance depend on governance
  • Short term performance does not necessarily depend on governance
  • Market asymmetries are responsible for this. However, this increases risk. This also creates barrier to long term growth
  • We all know what happened to Enron?
does performance depend on governance8
Does performance depend on governance
  • Medium to long term performance requires governance
  • Most companies which have grown in the last 25 years have outstanding performance and have good governance structure
  • A good governance structure treats all stakeholders fairly
  • Governance alone cannot ensure performance
governance and performance issues
Governance and Performance - issues
  • Is governance a luxury that can be afforded only by the performing companies?
  • Do strategies and tactics need to change to accommodate governance with performance?
  • Is there a time-lag between governance and performance?
  • Are stakeholders concerned about “performance” or “promised performance” ?
governance and performance measurement issues
Governance and Performance measurement - issues
  • Is governance behavior motivated by legislation?
    • Do standards vary with jurisdictions or do you adopt the best option?
    • Do you choose the right thing to do irrespective of whether it’s mandatory or not?
  • Is performance evaluation limited to valuation metrics?
    • Is it only ROE, Net margin, growth, shareholder wealth creation?
  • Do performance measures need to be holistic?
    • We need to encompass all stakeholders
    • Governance is an enabler for holistic performance
  • How do managers better understand governance requirements?
    • Do we need market research for governance requirements?
investing in corporate governance
Investing in Corporate Governance
  • Companies need to invest in good governance
    • Corporate governance has a direct bearing on business performance and thereby ROI
    • Leverage the power of IT
  • On average, businesses with superior governance practices generate 20 percent greater profits than other companies
    • Astudy based on 256 companies conducted at the MIT Sloan School of Management