Key Components of Corporate
Governance
(Unit – I)
Dr. Parveen Kumar
School of Business
1. Board of Directors
• Composition and Independence:
The number of directors can vary depending on the size of the company. The
board of directors must have a minimum of three directors if it is a public
company, two directors if it is a private company, and one director in a
one-person company. The maximum number of members a company can
assign as directors is fifteen.
At least one director, who has lived in India for a minimum of 182
calendar days of the previous year, shall be appointed by every company’s
board. It is a mandatory rule.
At least, one woman director must be appointed by the company. All listed
companies must have at least one-third proportion of their board of
directors as independent (non-executive) directors.
Continued…..
• Board Committees:
Board committees are sub-groups of the board of directors that are
formed to focus on specific areas of responsibility. Not every board
of directors has committees, but they are common in larger
organisations.
Some of the most common board committees include audit
committees, compensation committees, and nominating
committees.
2. Shareholders and Stakeholders
• Rights and Responsibilities:
Shareholders have the right to vote on important company
decisions, such as electing the board of directors, approving
mergers and acquisitions, and making changes to the
company’s articles of incorporation.
They also have the right to receive dividends and to inspect the
company’s books and records.
Continued…..
• Minority Shareholder Protection:
Minority shareholders are shareholders who own less than 50% of
a company’s shares and do not have full control over the
corporation.
However, they still have the right to vote and can hold
directors and officers accountable for their actions, which
ultimately leads to greater efficiency and increases financial returns.
3. Disclosure and Transparency
• Financial Reporting:
Financial reporting is the process of disclosing financial information
to stakeholders. It includes the preparation of financial
statements, such as balance sheets, income statements, and
cash flow statements.
Financial reporting is governed by various accounting standards,
such as Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS).
Continued………
• Non-Financial Disclosure:
• Non-financial disclosure refers to the disclosure of information that
is not directly related to a company’s financial performance. This
can include information about a company’s Environmental,
Social, and Governance (ESG) practices.
Environmental, Social and Governance (ESG) Goals
ESG goals are a set of standards for a company’s operations that force
companies to follow better governance, ethical practices,
environment-friendly measures and social responsibility.
Environmental criteria consider how a company performs as a
steward of nature.
Social criteria examine how it manages relationships with
employees, suppliers, customers, and the communities
where it operates.
Governance deals with a company’s leadership, executive pay,
audits, internal controls, and shareholder rights.
