Proposed Research Work for Major Research Project On A STUDY ON INDIAN CORPORATE GOVERNANCE PRACTICES Submitted to University Grants

Commission NewDelhi

A STUDY ON INDIAN CORPORATE GOVERNANCE PRACTICES INTRODUCTION: Corporate Governance is a weapon to safeguard the interests of the stakeholders. During the past ten years, it got tremendous importance when all most all countries joined in the WTO. All the member countries opened their economies to the MNCs to operate in their countries. Some of the firms could not compete with the competition and slowly disappeared from the market. Some of the firms indulged into mal practices by violating the rules and regulations. For the past ten to twenty years, number of firms particularly in the financial and manufacturing sector failed to meet the requirements of the law. Enron, US based firm is one of the examples for non compliance of International Accounting Standards. Like Enron, some many firms in various economies violated the Law and became insolvent. Corporate firm when they become insolvent, shareholders will be severely affected. Shareholders are the real owners of the corporate firms, the Board of Directors and Management should be responsible for the management of funds invested by the shareholders. There is a division of ownership in the corporate world, shareholders who are real owners of the firm invests funds, but never participate in the day to day affairs of the firm. The Board of Directors, who is elected by the equity shareholders, will take the responsibility of managing the firm on behalf of the shareholders. Its not a new concept; it was implemented earlier also to safeguard the interest of the stakeholders. As we are aware, Corporate Governance, as a subject of significance for both public policy and markets, is of recent origin. it is useful to recognize that it is a dynamic concept, in terms of scope, thrust and relevance. The issue is approached very differently today compared to original view of the Cadbury Committee on the subject. East Asian crisis gave a new dimension to Corporate Governance in the context of financial stability. In the USA, the regulatory regimes, post corporate scandals are very different from those of the early 90s. The OECD set out its Corporate Governance principles in 1999 but revised them in 2004. The formal policy announcement in regard to Corporate Governance was first made by distinguished Former Governor of RBI, Dr Bimal Jalan in the mid term review of the Monetary and Credit Policy on 21 st October, 2001. Pursuant

to this announcement, a Consultative Group was constituted in November, 2001 under the Chairmanship of Dr. A.S. Ganguly; basically, with a view to strengthen the internal supervisory role of the Boards. An advisory Group on Corporate Governance under the chairmanship of Dr R.H. Patil had earlier submitted its report in March, 2001 which examined the issues relating to Corporate Governance in Indian Firms and made recommendations to bring the governance standards in India on par with the best international standards.

ORIGIN OF THE RESEARCH PROBLEM: There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large corporations, most of which involved accounting fraud. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., and India these include Enron Corporation and MCI Inc. (formerly WorldCom), Satyam, Lehman Brothers etc,. So the Research problem would be To Study the existing Corporate Governance Practices and suggest the best practices in Corporate Governance to Indian Firms inorder safeguard the interests of the stakeholders.

INTERDISCIPLINARY RELEVANCE: All economic activity requires good corporate governance to maximize the benefits to society. Corporate governance encompasses the relationships between all stakeholders in determining the strategic direction and performance of organizations.

Corporate Governance is Interdisciplinary in nature . These disciplines include accounting, financial economics, management and law. The sum of these disciplines is an appreciation of the economic, legal, financial, managerial and social aspects of

governance. Corporate governance entails how organizations are controlled; how they respond to various stakeholders (e.g. owners, employees, customers, regulators); how they are financed; and how they report on their financial and social performance. The multi-disciplinary approach will make a unique and innovative contribution to economic, social and legal debate about what constitutes sound corporate governance in the development of socially and economically beneficial organizations. Financial aspects of corporate governance, including the economic impact of outside directors and auditors is being addressed and Corporate governance in financial institutions, especially its role in effective risk management, Legal and ethical aspects. Social aspects of governance, including an examination of unresolved political and social issues that arise from notions of stakeholder relations and triple bottom line reporting.Corporate Governance focuses upon developing cross-disciplinary participation, addressing key issues of corporate governance on several dimensions:

Corporate governance and economic activity Corporate governance and performance measurement Comparative corporate governance across national and economic boundaries Corporate governance and legal, regulatory and ethical accountability

REVIEW OF RESEARCH AND DEVELOPMENT IN THE SUBJECT:

** Greer Lesley and Tonge, Alyson (2006) made a note that The Department of Company Affairs had set up a National Foundation For Corporate Governance in partnership with CII, ICAI, ICSI. Ultimately, Corporate Governance in any country can be improved by making corporate operations more transparent, without sacrificing business strategy and secrets. Which are absolutely necessary for success in the Competitive market place.

*** Das and Ghosh (2004) indicate that the adverse effect of regulation on Corporate Governance mechanisms occurs when regulation restricts concentration of ownership.

** Greer Lesley and Tonge, Alyson (2006) Ethical Foundation : A New Frame Work for Reliable Financial Reporting, Business Ethics A European View. July,Vol.15,No.3.

**** Arun and Turner(2004) describes the Corporate Governance in banks has heightened interest and is a result of (a) an overwhelmingly dominant position in Indian Financial Systems, and being an important engine of economic growth (b) banks being the most important source of finance, and (c) banks has the main depositories for the economys savings.

***** Nagarajan (2006) made a note that Liberalization and deregulation of industry and business demanded a new corporate ethos to satisfy various types of stakeholders along with a paved social development.

****** Bhasin(2008) made a note that Corporate Governance being a complex issue dealing with cultural, political, technological and market valuations cannot find a strong footing unless the banks set a sound strategic objective in values and Ethics . ===========================================================

***** Nagarajan (2006) Corporate Governance-Current Scenario in India , The Management Accountant , November 2006, Pg:864-866.

****** Bhasin(2008) Using Dharma in Corporate Governance : Problem of increasing Transparency in the Asian Countries , GITAM Journal of Management , Vol.6 ,No.4, Oct-Dec, Pg: 52-81.

INTERNATIONAL STATUS: Corporate Governance is an international matter. This is seen especially with the current initiatives by many countries around the world to investigate the reasons for the global economic crisis and to identify how to avoid them in the future. . Topics like diversity, board member education and board effectiveness are discussed in many industrial nations as well as on regional and global level. Taking a look at corporate governance developments in other countries is not only interesting for those responsible for corporate governance in multinational companies. German corporate governance rules and regulations tend to follow global trends, so that taking a look at a global level can indicate further developments in the German corporate governance landscape. The European Commission has adopted a Green Paper on European corporate governance which launches a public consultation on options to improve existing corporate governance mechanisms. The Green Paper contains three chapters: boards,

shareholders and the comply-or-explain principle. It allows all interested parties to see which areas the Commission has identified as relevant in the field of corporate governance. It is also an opportunity for the public to express their views on the questions raised, and to provide any relevant material. The period of consultation ends on July 22, 2011. NATIONAL STATUS: According to Milton Friedam, corporate governance is to conduct the business in accordance with owners or shareholders desires, which generally will be to make as much money as possible but this context is based on marked maximization that underpins shareholder capitalism. But this context was further expanded by J.Wolfensohn, president, World Bank, has said that corporate governance is about promoting corporate fairness, transparency and accountability.

Even the Experts at Organization of Economic Co-Operation and Development (OECD) have defined corporate governance as the system by which business corporations are directed and controlled, it means according to them it is a structure which specifies the distribution of rights and responsibilities among different participants in the corporation.

But today the concept of corporate governance has taken a new dimension and it runs as follows, Corporate governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.

ave put the spotlight on corporate governance practices of Indian companies. A key aspect that is being

SIGNIFICANCE OF THE STUDY: Corporate Governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate Governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators and the community at large. Corporate Governance (CG) can be viewed from two angles. One being transparency in the corporate functioning, thus protecting the investors interests and the other being concerned with having a sound risk management system in place. Though various accepted definitions of CG finds reference, the standard definition stemming from agency theory defines it as to how equity and debt holders can influence managers of a firm to act in the best interest of those who provided capital. With the advent of competition and globalization, MNCs role is vital in developing an economy. It is obvious that Indian Companies are playing significant role in developing a nation and with the entry of foreign and domestic players in our country, the degree of competition has been rapidly increasing and the st

OBJECTIVES OF THE STUDY Though the present Corporate Governance principles are much helpful in safeguarding the interests of the stakeholders a lot but there are some firms in our country still could not comply the requirements of the law this motivated me to study the pros and cons of existing structure of Corporate Governance. The primary objective of the study is to examine the various Corporate Governance practices in India .However the detailed objectives are as follows: To Study the Corporate Governance mechanisms in Indian Firms. To study the role of stakeholders in Corporate Governance. To study the impact of scams on retail investors in Corporate Governance. To study and discuss Corporate Governance practices in other countries. To study the impact of Corporate Governance practices on Corporate Social Responsibility (CSR) in Indian Firms.

RESEARCH METHODOLOGY Sources of Data The study makes use of Primary and Secondary sources of data. The Primary data collection methods include the following: Observational studies A well structured questionnaire will be administered on the respondents and Interviewing the stakeholders like board of directors, management, employees.

The Secondary data collection methods consists of News papers Journals Internet Annual Reports of banks

Corporate Governance Reports of banks

Data Analysis The data will be analyzed with the help of percentages, means, bar charts, pie diagrams, correlation, regression and other appropriate statistical tools and techniques. Scope of the Study The Scope of the study is wide from a Concept point of view, because it covers major aspects of Corporate Governance Practices. However from an empirical point of view the study is narrow. On the aspect of Corporate Governance Practices and, the study confines to different firms in India. The study confines to select Companies in India to identify the practices of Corporate Governance. Period of Study The time period of the Study 2 years.
Limitations of the Study

The proposed study has some limitations. They are . It is confined to Indian Firms . . Time & Cost factors could be mentioned as other limiting factor