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INTRODUCTION

Corporate Governance may be define as a set of rule, regulation, procedure and practices

be adopted by a firm management to manage its affairs in the best interest of its stokehold

-der, especially the share holder.

Corporate governance as the acceptance by management of inalienable right of share holder as

the true owner of the corporation and of their own role as trustees on behalf of the shareholder. It

is about commitment to values, about ethical business conduct and about making a distinction

between personal and corporate funds in the management of the company.

Corporate Governance has also been defined as a system of low and

sound approaches by which corporation are directed and controlled focusing on the internal and

the external corporate structure with the intention of monitoring the action of management and

thereby mitigating agency risk which may stem from the misdeeds of corporate officers


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A%pet o! Corporate Governane

'irst ther is no uni(ue structure of corporate governanace in the developed world.the

corporate governance code of each country has to be designed keeping in view the

peculiarities of the country. second company will have to greater disclosures more

tansparent explanation for maor decision and better corporate value.

Rea%on% !or orporate governane

The assertion of right by the shareholder

The new growth apportunities brought about by changes in the business environment resulting

from globali$ation

The singnificant presence of foreign financial investors,who have high expectation about the

(uality of management.

The greater accountability on the part of the financial institution.

The international standerds of disclosures and practices.

The need to comply with the statutory authorities such as )*+I in india.

Corporate Governane Report"

The item to be included in corpoated governance report are

brief statement on companys philosophy on code of governance

Composition and catrgory of board of directors

ole of committee

ole of shareholder committee


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/etails of general body meetings

/iclosure relating to promoters and directors interest that may conflict with the interest of the

company at large.

PRINCIPP&ES OF CORPORATE GOVRNANCE

!-En%'r$ng the #a%$% !or an E!!et$ve Corporate Fra(e)ork

The corporate governance framework should developed with a view to its impact on overall

economic performance ,market integrity and the incentives it creates for markets participants

and the promotion of transparent and efficient market.

The legal and regulatory re(uirement that affect corporate governance practices in a urisdiction

should be consistent with the rule oflaw, transparent and enforceable

The division of responsibilities among different authorities in a urisdiction should be clearly

articulated and ensure that the public interest is served.

*"The R$ght o! Shareholder and ke+ O)ner%h$p !'nt$on

!-The basic shareholder right should include the right

secure methods of wnership registration

convey or transfer share

obtain relevant and material information on the corporation on a timely and regular basis

participate andvote in general shareholder meeting

elect and remove member of the board


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%-shareholder should have the righanges.t to participate in,and to be sufficient informed

on,decision concerning fundamental corporate changes.

mendments to the statutes,or articles or incorporation or similar governing documents of the

company.the authori$ation of additional shares

0-shareholder should have th apportunity to participate effective and vote in general shareholder

meeting and should be inform of the rules including voting procedures that govern general

shareholder meeting

1-marketing for corporate control should be allowed to function in an efficient and transparent

manner.

0-The E,'$ta#le Treat(ent o! Shareholder

!-ll shareholder of the same series of a class should be treated e(ually

%-Insider trading abusive self- dealing should be prohibited

0-2embers of the board and key executives should be re(uired to disclose to the board whether

they directly,indirectly or on behalf of third parties,have a material interest in any tansaction or

matter directly affecting the corporation

1"The Role o! Stakeholder $n Corporate Governane

!3The right of stakeholder that are establishe by low or through mutual agreement are to be

respected.

%3"here stakeholder interests are protected by low,stakeholder should have the apportunity to

obtain effective redress for violation of their right.


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034erformance-enhancing mechanisms for employee participation should be permitted to

devlop.

13The corporate governance framework should be complemented by an effective insolvency

framework and by effective enforcement of credited right

-"D$%lo%'re and tran%pran+

!3/isclosure should include, but not be limited to, material information

-the financial and operating result of the company

-company obectives

-maor share ownership and voting rights

%3information should be prepared and disclosed in accordance with high (uality standards of

accounting and financial, non financial disclosure

03n annual audit should be conducted by an independent, competent and (ualified ,audit in

order to provide and external and obective assurance to the board and shareholder.

13*xternal auditor should be accountable to be shareholder and owe a duty to the company to

execise due professional care in the conduct of the audit.

5. The re%pon%$#$l$t$e% o! the #oard%

The corporate governance framework should ensure the strategic guidance of the company, the

effecting monitoring of management by the board , and the board accountability to the company

and the shareholder


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!3+oard member should act on fully informed basis, in good faith, with due diligence and care ,

and in the best interest of the company and the shareholder.

%3"here board decision may affect different shareholder group differently,the board should treat

all shareholder fairly.

03The board should apply high ethical standard. it should take into account the interest of

stakeholder

COMPAN/ AND ITS GOVERNANCE

0hat $% a o(pan+

Company , an association of person who contribute money to a common corpus to carry on abusiness ,has its origin in !566 ./. when a east india company established by way of royal

charter in *ngland. The modern form of company has its genesis in the legislative department in

the mid-nineteen century in the 78. Traditionally called oint stock company. The key concept

of the company is incorporation in the legal entity separate from its owner.

'eatures of accompany are outline as under9

Inorporated a%%o$at$on

Company is an incorporated association of a person created by a low of the country.Inthe

commonwealth countries including India, +ritish law is the basis of the company low under

which companies are formed and registered.


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Independent lagal ent$t+

a company has a legal entity distinct and separate from it: constituent members. The rights and

obligations of a company are different from that of members. )hare holders are not owner or part

of owner or oint owner of the company. ;o member can claim any ownership rights in the assets

of the company during its existence or on its winding up. The corporate personality is clearly

distinguished from the shareholder propery. member cannot have any insurable interest in the

property of the company.

&n account of the independent corporate existence, the creditor of a company are creditors of the

company alone and their remedy lies against the company not against it:s shareholder.

1Separat$on o! o)ner%h$p and Manage(ent

company is owned by a number of shareholder which is too large a body to manage the affairs

of the company .)hareholder set the obectives of the company and appoint their representatives

or agent to manage the affairs of the company on their behalf to pursue their obectives.

&$($ted &$a#$l$t+

The liability of shareholder of a company is different from the liability of the company.

)hareholder generally have limited liability- limited to the extent o unpaid value of share help

us. )hareholder have no obligation to the company once they have paid full amount on the share

held by them. In case of losses, shareholder are not called upon to make good the losses. credited

cannot claim from the personal wealth of the shareholder.

Tran%!era#$l$t+ o! Share%")hare of a company are transferable .&ne can sell one:s share of

ownership rights to an interested buyer ."hile in case of public companies share are freely

transferable which is provided by the low, there are some restriction in the transferability of share

of private companies.


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Theoret$al A%pet o! Corporate Governane

Mean$ng o! orporate governane"

Corporate governance is the act or manner of governing a company. The issue has been a long

standing one over since a company marked by separation of ownership with management was

conceived

)eparation of management and ownership become more focused in the early twentieth century

with the rise of many public companies in the united state and the united kingdom.berle andmeans

property. The pioneering work of berle and means led to the development of corporate

governance a concept. It also promoted a plethora of a research of the subect. The phrase >

corporate governance >came into vogue much later in [email protected] C.;elson, president of the

merican ssembly nated >corporate governance is a fancy term for the various influences that

determine what a company does not do or should or should not doA

Corporate governance, since it evolution as a concept, has diverse approaches and interpretation.

It steel does not have a universally settle meaning and a theoretical base.

T2EORIES OF CRPORATE GOVERNANCE

1Theories of corporate governance may be broadly categori$ed9

gency Theory

)tewardship theory

)takeholder Theory and stakeholder-agency theory


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4OARD OF DIRECTORS

Mean$ng and t+pe% o! d$retor%

/irector is one of a body of person appointed to direct and supervise the affairs of a

company.ny person occupaying the position of the director by whatever name called may be

termed as director.Company law in india and most other countries does not distinguish between

different type of director.;evertheless,type of directors in the board of a company has relevance

for corporate governance and has been emphasi$ed by both researchers and practitioners.

Shado) d$retor

In addition to those who are formally appointed as directed, any person,other than a professional

adviser, with whose instruction the instruction the director of a company normally comply is a

shadow director.In other words,where a person who is not a director exerts such an influence

over the directors of a company and those directors are accustomed to act in accordance with that

person:s instruction,that persons is ashadow director

De !ato D$retor

de facto director is a person who are formally appointed or who is dis(ualified to be appointed

as directed. +ut who in effect occupies the position of,and act as if he were,a director.

Add$t$onal D$retor

Constitution of companies may allow their boards to appointment of additional directors to hold

the position of directors till the ensuring annual general meeting of the company .dditional

directors are in addition to the directors of accompany appointed at the annual general

meeting.power,right and duties of additional directors are at par with other directors.


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Alternate D$retor

lternate /irectors is a person who is nominated to act in placeof director during his agreement

of maority of a directors ."hile acting as a directors, the alternate director has the same right

and duties s other directors have under the low.

No($nee D$retor

;ominee director is a person who is nominated to the board a maor shareholder or other

contractual stakeholder such as a bank or financial institution to represent and safeguard their

interest.The nominee directorA appointed by the public financial institution have been widely

prevalent in the boards of most companies in India till recently.

E5e't$ve% d$retor%

*xecutives directors are those directors who are also involved in day to day management of the

company .lso termed as whole time directors .They are in full time employment with the

company .s they are involved in the company they may, in practice, have a specific titles and

managerial responsibilities within the company for example managing director ,finance director,

marketing directors etc.

Non"E5e't$ve% D$retor%

;on-executive director are not involved in day to day management of the company and do not

hold any executives management position within the company .the rationale behind appointing

non executives director is that ,as they are not involved in day to day management, they can

bring an independent voice and perspective to the board..

Role and Re%pon%$#$l$t$e% o! 4oard o! D$retor%

The prime responsibility of board of director is to determine the broad strategy of the company

and to ensure its implementation .The board needs to perform following roles.


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To established corporate obects including vision, mission and value of the company.

To develop, review and guide broad strategy of the company

To establish governance practices of the company and making changes as needed.

To set performance obectives, monitor corporate performanceB oversee capital expenditure,

ac(uisitions and divestitures

)electing compensating, monitoring and when necessary replacing chief executives officers and

other key executives and overseeing succession planning.

To provide and an ultimate direction to the company

To monitor and evaluate the implementation of the policies, strategies and business plan.

To act as custodian of assets of the company and add value to those assets.

To ensure that the company has ade(uate information, internal control and audit system in place

to meet the business obectives. +oard has to ensure the integrity of companies accounting and

financial reporting systems.

To ensures the company:s compliance with all the applicable laws and its own ethical standards.

To ensure that the communication with all the stakeholder is effective.

To monitor the relationship with all the stakeholder by effecting communicating with them and

thereby to enhance the image of the company


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4OARD OF COMMITTEE

Committees of the board are use for various purposes, the main being to assist the dispatch ofbusiness by considering it in more detail than would be convenient for the whole board.

A'd$t Co(($ttee

udit committee, the most important of the board sub-committees was originated in the 7) in

the !=?6s. It was conceived as an interface between the external auditors and the board. To

lessen the dominance of the senior executives in the audit process, the committee was designed

to comprise entirely or predominantly of independent non-executives directors.

Re('nerat$on o(($ttee

Imperative of good governance demand fairness and transparent procedures for setting the

remuneration level of executive directors and other senior executive. llegedly excessive

executive director:s remuneration remains a concern around the worlds. To avoid conflict of

interest, executives direction should not determined their own pay structure.

Co(po%$t$on o! re('nerat$on o(($ttee

To ensure fairness and transparency in determination of remuneration structure of the executives,

it is absolutely vital that remuneration committee consist entirely of independent non-executives

directors. The chairman of the company may be member of the committee provided he meets the

criteria of independent directors.

No($nat$on o(($ttee

s stated earlier, the director of a company are appointed-reappointed by the shareholder of a

company at the annual general meeting of a company. The appointment or reappointment, in

practice takes place on the recommendation of the directors.

The nomination committee is responsible for formulating policy and making recommendation to

the board of directors on nomination, appointments of directors and board succession.


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Committee develops selection procedures for candidates, and considers different criteria of

selection including appropriate professional knowledge and industry experience.

Model% o! Corporate Governane

The comparative corporate governance literature has described corporate governance models

along several dimensions. The important being the ownership structure, role of bank and other

intermediaries, worker participation, legal protection and corporate philosophy are the other

notable dimensions which have attracted the attention span of researchers.

'ollowing four broad models of corporate governance can be distinguished9

Anglo"Sa5on Model

The corporate governance system of the 7.).,7.8, Canada, ustralia and Commonwealth

countries including India is broadly categories as the nglo-)axon model.

+ased on market capitalism, the model is characteri$ed by a well developed stock market with

substantial degree of li(uidity and depth. The market capitali$ation of domestic stock expressed

as a percentage of G/4 is also very high

The striking feature of the nglo-)axon model is the structure of ownership pattern. The

comparative study by Da 4orta et al.

as widely dispersed. Influences of trade union are much less in the nglo-)axon models as

compared with the *uropean model of Germany.

The nglo merican countries have a low and declining rate of unioni$ation as the model does

not allow for labour to participate in strategic management decision.

Ger(an (odel

German model, also known as Continental *urope model, is prevalent in Germanic countries

such as Germany, )wit$erland, ustralia, and ;etherlands. This model is based on the

stakeholder theory of corporate governance. Comparatively less developed financial market,


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closely held large block holding of share, inter-firm cross shareholding, dominant role of bank

and employee representatives in the two tier board of director are the striking feature of

corporate governance system in large parts of the Continental *urope.

key feature of the German model is the dual-board system. ll public limited companies and

private limited companies with more than E66 employees have a supervisory board and

executive:s board. The three organ of corporate governance in German model9

German model is based on the prominent role of bank and an extensive cross ownership link. It

is common for the universal bank in Germany ,ustralia, )wit$erland to act as suppliers of

bank loan and e(uity capital

6apane%e Model

The classic Fapanese business model is that of the aibastu, which is a totally integrated group

engaged in manufacturing, distribution, trade and finance across a wide range of businesses. The

present Fapanese model comprises a small number of dominant group called 8eiretsu. 2ost of

thes group are diversified and vertically integrated by cross #shareholder and relationship with

number of small businesses. This group is close to the governance as group often employ retired

civil servant and work together on government sponsored committees also.

The government plays an important role of supervision and control over the corporate activities.

etired government officers are placed on the board of the companies to seek preferential

treatment from the government. The retired bureaucrats also ensure effective implementation of

the government policies.

The main source of fund of Fapanese companies is mostly banks and other financial institutions

which provide debts as well as e(uity capital by a consortium led by a maor bank called main

bank.

Fa($l+"#a%ed (odel

'amily based model of corporate governance is prevalent in many emerging as well under

developed country of the world, particularly in *ast sia, )outh merica, 2iddle *ast and India.

The model has not received much attention in the west dominated corporate governance


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Initiatives in India on the development of the corporate governance code are reviewed separately

for a detailed analysis.

Code $n the Un$ted 7$ngdo(

The movement for better corporate governance evolved in response to the failure of big

corporation. 7.8. was once the first countries in the worlds to take a nationwide initiative in this

direction conse(uential to the collapse of corporation such as the 2axwell publishing group,

+CCI +ank and policy peck. The Dondon )tock *xchange and +ank of *ngland set up a

committee in !==! under the chairmanship of sir drian Cadbury to look in to the financial

aspect of corporate governance.

Code $n the U8S8A8

The need for good corporate governance dawned even earlier in the 7.).. the stock market

crash of !=%= did considerable damage to investor confidence. The main reason for the crash was

analysed to be lack of understandable information to shareholder, and diversity in accounting

practices due to absence of national regulation. )ecurities and *xchange Commission, a federal

regulatory agency was conse(uently set up in !=01. gain way back in!=?@ the ;ew Hork )tock

*xchange was the first to re(uire every listed company to have audit committee comprising

solely of independent directors. 2ost of suggestion of the Commission focused on the audit

committee.

Code% o! A'%tral$a

Corporate governance system of ustralia is on the lines of the nglo )axon model. In!=@?,

ustralia )tock *xchange was formed by amalgamating six independent stock exchanges which

were functioning since the nineteen century. ) corporate governance Council was formed

in%66% by bringing together %! diverse shareholder and investment group. The council chaired

by the ustralian )tock *xchange 2arket is mandated to developed principle- best corporate

governance framework for the ustralian listed companies.


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Code $n Ger(an+

The German corporate governance model is best on the dual board system comprising of a

supervisory board and an executive board. The governance the companies in Germany is based

on the co- determination principle which provides for compulsory board level participation of

employees. &ne #third to one half of the directors on the supervisory board is elected by the

employees. The supervisory board consist of both full time employees and of non-executives

outsiders such as professional advisors to the company, representatives from bank and other

firms with which the corporation has a relationship.

Code% $n So'th A!r$a

)outh frica, although an emerging economy, has some of the most advanced corporate

governance principles and practices in the world. Corporate governance was institutionalised in

)outh frica with the formation of the 8ing Committee on corporate governance in !==% under

the auspices of the Institute of the directors.

Code% $n Mala+%$a

Corporate governance system in 2alaysia is broadly based on the nglo-)axon model. The main

legislation concerned with corporate activity in 2alaysia in the companies act, !=5E which is

based on 78 companies ct of !=1@. The securities Commission under the 2inistry of 'inance

regulate the capital market.

Code% $n So'th 7orea

Corporate governance system in )outh 8orea is pre-dominantly family based. The chaebols, the

descendant of the individual who founded 8orean business group, wield considerable control in

various companies through both direct e(uity holding and cross holding of shares. *ast sian

financial crisis of !==? brought the issue of corporate governance to the fore #front in )outh

8orea. 2any analysts including the world bank pointed to weak corporate governance

characteri$ed by the lack of disclosure and transparency, ineffective boards and family

dominance as the maor factors behind the financial and economic collapse of the affected sian

economies.


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In the wake of liberali$ation and globali$ation process as part of the structural adustment

programme unleased in India!==!, the key tenets of the nglo-merican model of corporate

governance were adopted. The Indian companies act,!=E5 which was already in line largely with

the basic nglo-merican model was revamped to reduced its complexity and bureaucratic

interferences. The capital issue control act,!=1? was scrapped removing the control of the

government over the issue of securities. The securities and exchange board of India was set up

ininin!==%.

Reg'lator+ Fra(e)ork o! Corporate Governane $n Ind$a

Indian corporate sector consist of private and public limited companies both in the governmentand non-government sector. There were @1?!5E companies registered in India as on %6!6.these

@!5%0 were the public limited companies in the non government sector and !!== in the

government sector. lthough India has %! recognised stock exchanges have emerged as the

nation-wide stock exchanges contributing more than == percent of the total turnover of the Indian

stock market.

The legal framework in India is base on the +ritish common law. The corporate sector is

governed by the companies: act of !=E5 as amended. The companies act aims to achieve a

minimum standard of good behaviour and conduct by the company management. It is a

substantive law for corporate business in India which provides a legal framework for regulating

the corporate activities including governance and administration of companies, rights of

shareholder and directors, disclosure of shareholder of information relevant for shareholder. The

companies act,!=E5 closely parallels the nglo-merican model wherein a single-tier board:s

role is that of governance, while management is responsible for day to day operation of the

company.

The ct is administered by the ministry of corporate affairs and enforced by the Company Daw

+oard and the courts.

The )ecurities and *xchange +oard of India regulates the stock exchanges, stock brokers,

share transfer agents, merchant banks, portfolio managers, other market intermediaries collective


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investment scheme and primary issues. It prohibits fraudulent and unfair trade practices, and

regulates the substantial ac(uisition of shares and takeovers.

Reg'lator+ Prov$%$on $n re%pet o! the Pr$n$ple% o! Corporate Governane

The R$ght o! Shareholder%

)hare &wnership9- In India shares may be held in physical form or in demateriali$ed form.

egistration in a depositoryJ share Certificate is proof of ownership of shares

Transferability of )hares-9 )hares are freely transferable in case of a public company

&btaining relevant information-9 nnual and half yearly statement are mailed to shareholder

(uarterly account are published in newspapers and posted on the websites of the companies and

stock exchanges.

The E,'$ta#le Treat(ent o! %hareholder

2inority shareholder and redressal of grievances9 The companies act confer right to shareholder

in matters of oppression by the maority of management. The lesser of the!66 shareholder or

those holding!6 percent of voting rights can apply to the CD+ for redress.

Insider trading and self dealing9 )*+I egulation, !==%, criminali$es insider trading and abusive

self dealing. nybody in possession of price sensitive information is considered an insider.

Role on %takeholder $n Corporate Governane

4rotection of rights of stakeholder 9 Creditor can petition the CD+, )*+I, 2C, +oard for

Industrial and 'inancial econstruction, civil and high courts, as well as dept recovery tribunals

for violation of their rights. *mployees and environmental group can seek redress through the

civil and high courts.

ccess to relevant information 9 Company is re(uired to post the relevant information on the

company and stock exchange websites.


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Prov$%$on o! the Co(pan$e% 4$ll *9::onern$ng Corporate Governane

The companies: bill %6!!, introduced in the parliament in /ecember %6!! is expected to

overhaul the corporate law of the country to strengthen corporate governance and increased

transparency. The new law proposes to make it mandatory for big companies to adopt corporate

social responsibility policy and set aside fund for it. The provisions of the +ill concerning

corporate governance are as under9

D$%lo%'re o! Pro(oter%; 2old$ng

*very listed company shall file a return in the prescribed form with the egistrar with respect to

change in the number of shares held by promoters and top ten shareholder of such company,

within fifteen days of such changes

Vot$ng #+ Eletron$ (ean%

The central government may prescribe the class or the classes of companies and manner in which

a member may exercise his right to vote by the electronic means.

Nat$onal F$nan$al Report$ng A'thor$t+

1The central Government may constitute a ;ational 'inancial eporting uthority to provide for

matters relating to accounting and auditing standard.

2onitor and enforce the compliance with accounting and auditing standards recommended by it

in such manner as may be prescribedB

perform such other function as may be prescribed.

Corporate So$al Re%pon%$#$l$t+

*very company having net worth of rupees five hundred corer or more, during any financial year

shall constitute a Corporate )ocial esponsibilities Committee of the +oard consisting of three

of more directors, out of which at least one director shall be an independent director.


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The +oard:s report shall disclose the composition of the Corporate )ocial esponsibility

Committee.

A'd$t and A'd$tor%

*very company shall, at the first annual general meeting, appoint and individual or a firm as an

auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth

annual general meeting and thereafter till the conclusion of every sixth meeting and the manner

and the procedure of selection of procedure of auditor by the member of the company at such

meeting shall be such as may be prescribe.

;o listed company or a company belonging to such class or classes of companies as may be

prescribed shall appoint of re-appoint9

The central government may, by rules, prescribe the manner in which the companies shall rotate

their auditors.

A'd$t o(($ttee

The +oard of /irectors of every listed company and such other class or classes of companies, as

may be prescribed, shall constitute an audit Committee.

The audit Committee shall consist of a minimum of three directors with independent directors

forming a maority. *very audit committee of a company existing immediately before the

commencement of this act shall, within one year of such commencement, be reconstituted in

accordance with sub section

No($nat$on and Re('nerat$on Co(($ttee

The board of director of every listed company and such other class classes of companies, as may

be prescribed shall constitute the ;omination and emuneration Committee consisting of three

or more non- executive director out of which not less than one half shall be independence

directors. The ;omination and remuneration Committee shall identify person who are (ualified

to become directors and who may be appointed in senior management in accordance with the

criteria laid down, recommend to the board their appointed and removal and shall carry out

evaluation of every director:s performance.


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Cla%% At$on

)uch number of member, of members, depositor or depositors or any class of them, as the case

may be as are indicated in sub section may, if they are of the opinion that the management or

conduct of the affair of the company are being conducted in a manner preudicial to the interest

of the company or its member or depositors for seeking all or any of the following orders,

namely.

To restraint the company from committing an act which is ultra vires the articles of

memorandum of the company.

To restrain the company from committing breach of any provision of the companies

memorandum of article.

Spe$al Co'rt%

The central government may, for the purpose of providing speedy trial of offences under

this ct, by notification, established or designate as many special courts as may

necessary.

special court shall consist of a single udge who shall be appointed by the central

government with the concurrence of the chief ustice of high court whose urisdiction the

udge to be appointed is working.

&$a#$l$t+ !or Fra'd

"ithout preudice to any liability including repayment of any debt under this ct or any other

law for the time being in force, any person who is found to be (uilt of fraud , shall be punishable

with imprisonment for a term which shall not be less than six month but which may extent to ten

years and shall also be liable to fine which shall not be less than the amount in the fraud, but

which may extent to three time the amount involved in the fraud. "here the fraud in (uestion

involves public interest, the term of imprisonment shall not be less than three years.

Corporate Governane Prat$e% $n Ind$a


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In the nglo-)axon countries # 7.), 7.8, ustralia and Canada- the primary corporate

obectives is maximi$ing the shareholder:s value, although there is a growing recognition to

address the other stakeholders: interest to maximi$ed shareholder value over the long-term. The

;arayana 2urty Committee also affairs the aim of good corporate governance: as enhancement

of long term value for its shareholder and all other partner. The key obective of good corporate

governance of most of companies in India as stated in their philosophy statement is enhancement

of long #term shareholders: value keeping in view the interest of other stakeholder. )ome cases

in point are9

Role o! 4oard o! d$retor

2ost corporate governance guideline and codes affirm the board of directors as the focal point of

corporate governance being collectively responsible for the success of the company. The board

of directors is the central mechanism for oversight and accountability in the corporate

governance system entrusted with the direction of corporation, including responsibility for

deciding how the board itself should be organi$ed, how it should function, and how it should

order priorities. The responsibilities of the board include setting the company:s strategic aims,

providing the leadership to put them into effect, supervising the management of the business and

reporting to shareholder on their stewardship.

4oard (eet$ng Fre,'en+

;umber of meeting of board of directors of a company is an indicator of board:s efforts in

discharging its role and its involvement in the effective government of the company. "hile most

of code of best practice world over lay down that the board should meet sufficiently regularly to

discharge its responsibilities effectively, )ection %@E of the Indian companies act !=E5 and also

the clause 1= re(uire a company to hold at least 1 board meeting in a year with a gap not more

than 0 month between the consecutive meeting.

4oard %$


30/35

To accommodate family member and associates. nother important factors was the presence of

nominees directors: appointed on the board of assist companies by the financial institution. "ith

the statutory Codes of Corporate Governance being in vogue, the board si$e has become more

important an issue as the re(uirement of non-executives directors and independent directors on

the board of the companies are linked with the total number of directors.

4oard Co(po%$t$on= Independent D$retor%

Composition of directors has undergone a rapid transformation worldwide following the

publication of corporate governance guideline and code of best practice which call for a maority

of the board to be comprised of independent directors. /efinition of independence varies. The

Cadbury Code, for example , states non executives directors should bring an independent

udgment to bear on issue of strategy, performance, resources, including key appointment, and

standard of conduct. The maority. The maority should be independent of management and free

from any business or other relationship which could materially interfere with the exercise of the

their independent udgment, apart from their fees and shareholding

4oard Co(po%$t$on Prat$e%

s pointed out earlier, traditionally Indian companies were by and large one family controlled

and in a si$able proportion of listed companies, the board of director comprises of all non-

executive director. s per the gupta:s study covering the period !=@%-@0, the proportion of

executive director was only !E.? percent out of %66? directorship in %%E companies surveyed.

The study of kapur

of executive director to total director ranged between !6-06 percent. This was owing to the

compulsion of families controlling many companies. La family firm moving into the second

generation may find that, whilst some family members continue to be directly involved in themanagement of the firm, other where now outside the firm and shareholder only. Calls for non-

executive director to represent the non-management family shareholder on the board may now

ries Lin India, the nominees of promotes are non-executive director continue to wield

considerable power over the companies since the managing agency days.


31/35

Independent D$retor%= prat$e% $n Ind$a

Indian companies began to induct independent director on their board from the year %666-6!

largely to meet the re(uirement of the mandatory provision of the statutory code. lthough, a few

company such as Infosys, ;icholas piramal


32/35


33/35

Corporate Governane $n Ind$a= I%%'e and Conern%

Role o! Independene D$retor%

ole of independent directors in the board of the companies is an issue which is of concern in

India especially after the debacle of the )atyam. Independent directors were imposed by the

regulators on the Indian board which were accustomed to work as a Lco$y club: or Lrubber stamp

at times showering bou(uets of praises on the moves including antics of the promoters of the

companies who usually happened to be the established Lindustrial families:. It seems not much

has changed in most of the companies in India with the advent of Lindependent directors:. The

promoters have learned to live with them slightly adusting the way boards were functioningbefore.

Role o! A'd$tor

The companies act in India contains provision directed at independence of the auditors of the

companies. It provides for appointments of a company auditors by the shareholders of the

company in the annual general meeting. udit committee of the company has the mandate to

recommend the appointment of the auditors. In practice, however, the auditors is appointed by

the company management, and in most cases the auditors are retained year after year for many

years. This creates conflict of interest-perverse incentives, which heightens the risk of lack of

over-sight and fraud. udit firms compete fiercely to bag big corporate assignment.

Role o! In%t$t't$onal Inve%tor%

The Lapathetic: behavior of the institutional investors reported by several surveys and studies is a

cause of concern in India. 2ost corporate codes worldwide including the &*C/ 4rinciple of

corporate governance advise the institutional investors to intervene, state their voting policies

and exercise voting power at the general meeting of the companies. The 7.8. combined code

recommends that the institutional institutional shareholder should enter into a dialogue with

companies based on the mutual understanding of obectives


34/35

Part$$pat$on and Protet$on o! Reta$l? M$nor$t+ Shareholder%

etail shareholder or individual shareholders, although contribute to the e(uity capital of

companies they have a little influence and power in the functioning of companies. the legal

framework and policy initiatives of the regulators are geared towards protection of the interest of

investors including minority shareholder. In practice, however they have no real effective right

and at times have to bear the brunt of unscrupulous promoters. The views of individual

shareholder are seldom taken seriously and their votes have virtually no impact.

Corporate Fra'd% and Corr'pt$on

It is widely that a culture of greed and self-interest in organi$ation in variably lead to fraud and

inimical to corporate governance. In resent year India has seen a market increase in the number

of scams that have surfaced both and private and public sectors.

)ome cases of corporate scams which rocked the country are given9

)atyam )cam


35/35

Corporate Governane $n Un" l$%ted Co(pan$e%

Corporate governance practices in India have gained impetus after the adoption of the )ecurities

nd *xchange +oard of India appointed 8umar 2angalam +irla Committee eport on corporate

governance. The report was a timely intervention to keep a check on the uninhibited corporate

misdememeanors rampant in India.

S(all and (ed$'( Enterpr$%e%

)mall and medium enterprises play and important role in the Indian economy. +esides acting as

an entrepreneurial engine, they are also the largest employment generators. The maority of

companies in India are small- to- medium enterprises which often view corporate governance

with skepticism only relevant to large companies.

Corporate Governane Rat$ng

Corporate governance rating is the assessment by independent agencies, of corporate governance

practices being followed in a company. )uch a rating may contribute to the process of open,

transparent and timely information sharing in a market characteri$ed by the information

asymmetry. The market participant cans guage the level and (uality of corporate governance of

the rated companies. This could bring down the risk premium associated with the e(uity

investment and may lower down the price volatility.

M'lt$pl$$t+ o! Reg'lator+ Agen$e%

The regulatory framework in India places the oversight of listed companies partly with the

2inistry of Company ffairs, partly with the )ecurities and *xchange +oard of India and partly

with the stock exchanges. In addition, in case of banking companies, eserve +ank of India, and

insurance egulatory and /evelopment uthority exercise power of supervision over insurance

companies.

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