INRODUCTION

The customers, banks, the environment and the community at large are the
other stakeholders. Accountability of individuals and economic efficiency of
the corporation are the important aspects of corporate governance. The
stakeholder view and the corporate governance models are also the topics of
concern of corporate governance. Thus corporate governance is a multi-
faceted subject.
Donovan defines corporate governance as "an internal system encompassing
policies, processes and people, which serves the needs of shareholders and
other stakeholders, by directing and Corporate governance refers to the set
of processes, customs, policies, laws and institutions influencing the
administration of a corporation.
Corporate governance includes the relationships among the many players
and the goals of the corporation.
The shareholders, management and the board of directors are the principal
players. The employees, suppliers controlling management activities with
good business savvy, objectivity and integrity. Sound corporate governance
is reliant on external market place commitment and legislation, plus a
healthy broad culture which safeguards policies and processes".
According to SEBI, corporate governance is the acceptance by the
management of the inalienable rights of shareholders as the true owners of
the corporation and of their own role as trustees on behalf of the
shareholders. Corporate governance is considered as ethics and a valuable
duty
 PRINCIPLES OF CORPORATE GOVERNANCE
Honesty, trust, openness, performance orientation, responsibility,
accountability, mutual respect and commitment are the key elements of
corporate governance.
The important principles of corporate governance can be stated as follows:
(1) Rights of shareholders:
Corporations should respect the rights of shareholders and help the
shareholders to exercise their rights.
(2) Equal treatment for shareholders:
Equal treatment should be given to all the shareholders. All the shareholders
are to be equal Encouraged The interests of all the stakeholders have to be
protected.
(4) Role of the Board of Directors:
The Board of Directors should be dynamic, efficient and capable of
developing a range of skills. It should be capable of meeting all the
challenges. It should be sufficient in size and a good level of commitment to
fulfill its responsibilities and duties. There should be a good mix of
executive and non-executive directors. The key positions of chairman and
CEO should not be held by the same person.
(5) Ethical behavior :
Corporations should develop a code of conduct for the directors and
executives to organization promote ethical and responsible decision making.
Many corporations have established Compliance and Ethics Programmes to
minimize the risk that the firm steps outside of ethical and legal boundaries.
(6) Disclosure and transparency:
There should be the timely and balanced disclosure of matters related to the
all investors have access to clear and factual information.
Issues involved in corporate governance principles:
• Effective internal controls and independence of auditors.
• Correct preparation of financial statements arrangements for CEO and
other Directors.
• Nomination of members of the Board.
• Management of risk.
Rights of corporation:
A corporation is a legal
Corporate governance with the following rights:
(i) The ability to sue and be sued.
(ii) The ability to hold assets in its own name.
(iii) The ability to hire agents.
(iv) The ability to sign contracts.
(v) The ability to make by-laws to govern its internal affairs.

Need for corporate governance:

(1) It is reducing the risk of the investor.
(2) It increases the mobilization of capital.
(3) It enhances the value of the companies.

The companies have to be evaluated on the basis of commitment to good

corporate governance, shareholders' rights, nature of Board of Directors as
well as transparency and disclosure.
Most of the Indian companies are a hybrid of family owned and publicly
listed companies with the following problems:
(a) Ownership and management are not separated.
(b) Governance policies are informal.
(c) The controls are inadequate.
(d) Absence of professional management.
(e) The rights of shareholders are not fully protected.
(f) Absence of adequate transparency and disclosure.
 TATA GROUP
Corporate governance in Tata group is fair and civic minded, fulfilling its
duties to the stakeholders.
Integrity is an article of faith across all its operations. Jamsetji Tata gave
importance to the means and ends.
Tata wrote: "We do not claim to be more unselfish, more generous or more
philanthropic than other people, but we think we started on sound and
straightforward business principles, considering the interests of the
shareholders our own, and the health and welfare of the employees the sure
foundation of our success.
The 'leadership with trust' is the philosophy of Tatas. Tata Business
Excellence Model is a framework which helps Tata companies to achieve
their business objectives through specific process.

Global Reporting Initiative (GRI) is an independent body affiliated to UNO.

GRI has a triple bottom approach, financial, social and environmental. Tata
group has the appreciation of GRI.
 THEORIES OF CORPORATE GOVERNANCE

I. Agency theory:
This theory is based on the principal-agent framework. One party, namely,
the principal delegates work to another party, the agent. The agent has to
work for the principal.
The managers are supposed to be the agents of a corporation's owners. at the
same time, the managers must be monitored and checks and balances have to
be implemented. The costs resulting from managers are called 'agency costs'.
Both the principal and manager should have a clear and correct
understanding. Both should have correct access to information.
There is the separation of ownership and control. All the shareholders,
including minority
Shareholders have to be protected. There is a drive for effective
shareholders. The need for improved transparency and disclosure are also
emphasized.
II. Transaction cost economics:
This theory was developed by Williamson and is closely related to agency
theory. The firm is considered as a governance structure. The marketing
costs have to be saved. The ideas of economies of scale and scope have to be
introduced. Good governance can reduce the cost and increase the profit. A
mere operation of incentives is not good in the long run.
In terms of this theory, there is a justification for the growth of large firms
and conglomerates. it states that the costs may be reduced by judicious
choice of governance.
III. Stakeholder theory:
Good governance should take care of the interests of all the stakeholders.
There are many
Stakeholders like shareholders, employees, suppliers, customers, local
communities and government.
A good corporate governance should increase the long-term enhancement of
the various stakeholders. The corporate governance should recognize the
rights of the stakeholders established through mutual agreements and
encourage active co-operation between corporations and stakeholders. This
will result in the good co-operation of all the stakeholders.

IV. Stewarding theory:

There should be a unity of command in the corporate governance. The
managers should be empowered to take autonomous executive action. The
share holders should facilitate. The authority to exercise managerial
opportunism by the board.
 ROLE OF INDEPENDENT DIRECTORS:
There is an urgent need to minimize corporate frauds and scams.
An effective tool is the reinforcement of the institution of audit. audit
committees should play an important role through the guidance of
independent directors. It should be noted that independence should be
combined with competence.
The corporations should appoint competent independent directors to achieve
higher standards of governance. The independent directors should be able to
offer wise inputs for the companies. Naturally, the remuneration for
independent directors should be of decent standards. Globalizations require
high standards of governance.
The non-executive or independent directors should have proper competences
and enough time. They should meet appropriate independence criteria. They
should be appointed for specified terms subjected to re-election. They should
have required diversity of knowledge, judgment and experience to properly
complete their tasks. The independent director should be independent from
any business, family or other relationship with the company.
Independent directors are invited to join the board for their specialization
and expertise in achieving a balance of knowledge, skills and attitudes of
other directorial resources. Neutrality of views and the quality of debate at
the board level are necessary for good governance.
Iran Committee (2005) has recommended the important advisory role of
independent directors. The independent directors should be independent in
their thinking, approach and actions.
An independent director should be independent of judgment with no
pecuniary relationship.
An independent director is required because of independent judgement,
technical expertise and to build investor confidence.
Duties of independent director:
(i) To reduce potential conflict between specific interests of the management
and wider interests of the company and shareholders.
(ii) To demand financial transparency.
(iii) To safeguard the interests of minority shareholders.
(iv) To protect the interests and welfare of the employees.
(v) To make independent assessment of evaluating business plans.
(vi) To make the use of technical and financial expertise and experience for
the development of the corporation.
(vii) To make useful communication between management and shareholders.
Power of independent directors:
(i) Power to demand the necessary information.
(ii) Power to exercise the vote.
(iii) Power to govern.
Independent directors are the cornerstones of good corporate governance.
Their duty is toprovide an independent unbiased and experienced
perspective to the Board of Directors. One third of company's directors are
required to be independent. The independent directors should be really
independent. The independent directors are the only hope to instill some
discipline in the murky world of corporate finance.

The independent directors bring to the corporation a wide range of

experience, knowledge and judgment from their proficiencies in finance,
housing, management, law, accounting and corporate strategy. The
corporations should be immensely benefited from their inputs. In fact, the
audit committee and compensation committee should be consisting of
independent directors
The independent directors should safeguard the interests of the company
during difficult times.

BOARD STRUCTURE
An ideal board structure is necessary for good corporate governance. Recent
research has shown that effective boards must be legitimate and credible. It
should be legitimate in the sense that stakeholders perceive the board to
represent all significant interests and perspectives. It should also be
creditable in the sense the board is viewed as knowledgeable and fair and
that the board process is considered rational.
The combined code of best practices was given by Cadbury code.
The board is the link between managers and shareholders. The board is
essential to good corporate governance and excellent investor relations.
(a) Strategic guidance for the growth and prosperity of the company.
(b) Accountability to all the stakeholders.
(c) Provision of a highly qualified team to manage the company.

Role of duties and responsibilities:

The board's role is to provide entrepreneurial leadership of the company
within a framework of effective controls. The risks have to be assessed and
managed. Decisions have to be taken in an objective way and the interests of
the company have to be protected.
The boards should have regular meetings with an agenda. There should be
appropriate reporting procedures. The roles of chair and CEO should
preferably be split to ensure that no one individual is too powerful. There
should be a balance between executive and non-executive directors.
All the directors should have access to the company secretary. They can also
take independent professional advice.

The following are the duties of directors:

(a) To act in accordance with the company's constitution.
(b) To promote the success of the company.
(c) To exercise independent judgment.
(d) To exercise reasonable care, skill and diligence.
(e) To avoid conflicts of interest.
(f) Not to accept benefits from third parties.
(g) To declare an interest on proposed transactions or arrangements.

It is not possible for the directors to please all shareholders at all times.
Directors should have access to reliable information regularly. The board
should be accountable to shareholders and provide them the relevant
information.

CHIEF EXECUTIVE OFFICER

The CEO has the executive responsibility of running the business. The CEO
should not become the chairman of the company.
Chairman:
The chairman is responsible for the effective running of the board. The
board should meet frequently and the directors should have access to all
information and all the directors should have an opportunity to give their
views at board meetings.
Senior Independent Director:
There should be an appointment of a Senior Independent Director (SID) who
should be one of the independent non-executive directors. The SID should
be available to the shareholders if they have concerns to be resolved.
The non-executive directors should meet without the chairman present at
least annually in order to appraise the performance of the chairman. The SID
will lead these meetings.
Company secretary:
The company secretary should facilitate the work of the board by providing
the necessary information to all the directors. The company secretary can
advice the board, via the chairman, on all governance matters. The company
secretary will assist the professional development needs of directors and
induction requirements for new directors. The company secretary must act in
good faith and avoid conflicts of interest. The dismissal of the company
secretary should be a decision of the board as a whole and not the CEOor
chairman.

Audit committee:
It is a most important subcommittee. It should review the scope and outcome
of the audit. It should ensure that the objectivity of the auditors is
maintained. It provides a bridge between both internal and external auditors
and the board. The board should be fully aware of all relevant issues related
to the audit. It should be able to assess the financial and non-financial risks
of the company.
Remuneration committee:
This committee should make recommendations to the board on the
company's framework of executive remuneration and its cost. It should
determine remuneration packages for each of the executive directors,
including pension rights and any compensation payments.
The establishment of a remuneration committee has prevented the executive
directors from setting their own remunerations. The remuneration of non-
executive directors should be decided by the chairman and the executive
members of the board.
Nomination committee:
Directors were appointed on the basis of personal contacts in the past. At
present there is a formal, rigorous and transparent procedure for the
appointments and recommendations to the board. A majority of members of
the nomination committee should be independent non-executive directors.
This committee should evaluate the existing balance of skills, knowledge
and experience on the board. It should throw its net as wide as possible for
the search of suitable candidates.

Risk committee:
Business operations involve risks and this committee should comprehend the
risks involved in the business. The competitive advantages have to be
analysed. This committee should be consisting of more of non-executive
directors.

Non-executive directors:
Non-executive directors are essential for good governance. They cannot be
under the pressure of the Board of Directors as executive directors. The non-
executive directors can add to the overall leadership and development of the
company.
The non-executive directors should be independent in the presentation of
their views. They should scrutinize the performance of the management in
meeting agreed goals and objectives. The added value of a non-executive
director may be experience, knowledge, public life and reputation. The non-
executive directors should bring an independent judgment to bear on issues
of strategy, performance, resources and standards of conduct.

DIRECTOR'S REMUNERATION
The company nor the performance of an individual. The size of the
company and the experience of the individual are the major deciding factors.
The bonus is linked to the accounting performance of the firm. The stock
options give the directors to purchase .The following are the six elements in
director's remuneration:
(1) Basic salary
(2) Bonus
(3) Stock options
(4) Restricted share plans
(5) Pension
(6) Benefits like car and health care
The basic salary is in accordance with terms of contract. It is neither related
to the performance of the shares at a specified exercise price over a specified
time period.
Performance measures:
The following are the important performance measures:
• Shareholder return
• Share price
• Profit related measures
• Return on capital
• Earnings for share
• Performance of individual director

Training and development of Directors:

The directors who are elevated from managerial roles find it difficult to
understand their roles.
It is more than a change of responsibility. The newly inducted directors
should know the answers for the following questions:
(a) What are the challenges of the new role?
(b) What are the expectations of the company, customers, and investors?
(c) How to handle the change of status and relationships?
The directors should be given training in the following areas:
(1) Diversity managing training.
(2) Understanding the basics of economy and industry.
(3) Orientation to the company.
(4) Finance for non-financial directors.
(5) Marketing strategies.
(6) Negotiation skills.
(7) Management of HR issues.
(8) Leadership.
(9) Mergers and acquisitions.
(10) Effectiveness of the Board.

ACCOUNTING STANDARDS
Accounting standards regulate accounting policy so as to use the suitable
accounting principles and methods. Accounting standards also ensure
adequate disclosures in financial statements. The use of uniform accounting
policy improves comparability. Hence the quality of financial report is
determined by the quality of accounting standards and the level of
compliance.
In 1977, the Institute of Chartered Accountants of India (ICAI) constituted
the Accounting Standards Board (ASB). ASB organised a workshop in 1983
to hold a dialogue with the industry on the implementation of the accounting
standards.
The following methods were approved for implementation of standards:
• Approaching banks and financial institutions to point out that the adoption
of accounting standards by their borrowers would be of great use to them.
• Approaching authorities for making compliance with the standards as a
necessary condition for listing companies at the various stock exchanges in
the country.
• Making request to apex bodies of trade and industry like FICCIand
ASSOCHAM to issue directives to their associates to follow the accounting
standards.
At present nearly fifty items of disclosure are available. The nature of
business, size of the company, accounting standards, profit data, strategies
and investment pattern are important.
The value of brand equity, the economic value added (EVA) and the value
of human assets are the most popular disclosures.

Reserve Bank of India has suggested the following disclosures:

• Characteristics of underlying assets.
• Procedure for administration and servicing.
• Purpose and contents of legal documents.
 SUMMARY
(1) Meaning of corporate government - It refers to the set of processes,
customs, policies, laws and institutions influencing the administration of a
corporation.
(2) Principles of corporate governance.
(3) Issues involved in corporate governance principles.
(4) Rights of corporation.
(5) Need for corporate governance.
(6) Theories of corporate governance - Agency theory - Transaction cost
economies -Stakeholder theory - Stewardship theory.
(7) Role of independent directors.
(8) Board structure.
(9) Training and development of Directors.
(10) Accounting standards.