Professional Documents
Culture Documents
Final Report
Final Report
Research methodology
1) Introduction:
Corporate governance:
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/members, management, and the board of
directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks,
bond holders), suppliers, regulators, and the community at large.
An important theme of corporate governance is to ensure the accountability of certain
individuals in an organization through mechanisms that try to reduce or eliminate the
principal-agent problem.
It is a system of structuring, operating and controlling a company with a view to achieve long
term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers,
and complying with the legal and regulatory requirements, apart from meeting environmental
and local community needs.
Report of SEBI committee (India) on Corporate Governance defines corporate governance as
the acceptance by 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. It is about
commitment to values, about ethical business conduct and about making a distinction
between personal & corporate funds in the management of a company.
Issues involving corporate governance principles include:
The independence of the entity's external auditors and the quality of their audits
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Review of the compensation arrangements for the chief executive officer and other
senior executives
To analyze corporate governance practice of BSE-30 companies for last five years
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3) Research methodology:
Population:
Primary research: Investors invest in stock market, Company secretary
Secondary research: The population of our research is companies listed under the
companies act, 1956.
Sample size:
Primary analysis: 20 investors who are the fundamental analysts
10 company secretary
Secondary analysis: BSE-30 companies.
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4) Data Sources:
Primary Data:
Secondary Data:
Business Articles
Business Magazines
Library Research
Internet Surfing
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Chapter 2
Introduction of Corporate Governance
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The following definition should help us to understand the concept better: Corporate
Governance is not just corporate management; it is something much broader to include a fair
efficient and transparent administration to meet certain well defined objectives. It is a system
of structuring, operating and controlling a company with a view to achieve long term
strategic goals to satisfy shareholders, creditors employees customers and suppliers, and
comply with the legal and regulatory requirements, apart from meeting environmental and
local community needs. When it is practiced under a well laid out system, it leads to building
of a legal, commercial and institutional framework and democrats the boundaries within
which these functions are performed.
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In the year 2000, several American mega corporations collapsed like a pack of cards. The
federal administration of President Bush was quick to slap punitive measures on erring
corporations and initiated preventive steps to avoid corporate frauds in future. The SarbanesOxley Act made it mandatory for senior executives to certify reports under oath with the pain
of severe penalties if proved wrong.
In India, the governance of most of the countrys industrial and business organizations thrived
on unethical practices at the market place and showed scant regard for the timeless human
and organizational values while dealing with their shareholders, employees and other
stakeholders.
An overwhelmingly large number of Indian corporations used several illegal tactics such as
cornering of industrial licenses with a view to keeping away competitors, using import
licenses to make a quick profit, illegally holding money aboard, and indulging into bribery,
corruption and other unethical practices with impunity.
The reasons for the corporate misgovernance in India were many: A closed economy, a
sheltered market, limited need and access to global business, lack of competitive spirit and an
inefficient regulatory framework. These were responsible for poor governance of companies
in India for well over 40 years, between 1951 and 1991.
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Agency theory
Stewardship theory
Stakeholder theory
Sociological theory
Agency theory:
Recent thinking about strategic management and business policy has been influenced by
agency cost theory, though the roots of the theory can be traced back to Adam Smith who
identified an agency problem in the joint stock company. The fundamental theoretical basis of
corporate governance is agency costs. Shareholders are the owners of any joint stock, limited
liability Company, and are the principals of the same. By virtue of their ownership, the
principals define the objectives of the company. The management, directly or indirectly
selected by the shareholders to pursue such objectives, are the agents. While the principals
generally assume that the agents would invariably carry out their objectives, it is often not so.
In many instances, the objectives of managers are at variance from those of the shareholders.
Such mismatch of objectives is called the agency problem; the cost inflicted by such
dissonance is the agency cost. The core of corporate governance is designing and putting in
place disclosures, monitoring, oversight and corrective systems that can align the objectives
of the two sets of players as closely as possible and hence minimize agency costs.
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Stewardship theory:
The stewardship theory of corporate governance discounts the possible conflicts between
corporate management and owners and shows a preference for board of directors made u
primarily of corporate insiders. This theory assumes that managers are basically trustworthy
and attach significant value to their own personal reputations. The market for managers with
strong personal reputations serves as the primary mechanism to control behaviour, with more
reputable managers being offered higher compensation packages.
Stewardship theory can be reduced to the following basics:
The theory defines situation in which managers are not motivated by individual goals,
but rather they are stewards whose motives are aligned with the objectives of their
principles.
Control can be potentially counterproductive, because it undermines the proorganizational behaviour of the steward, by lowering his motivation.
The greatest barrier to the adoption of stewardship mechanism of governance lies in the
risk propensity of principals. Risk taking owners will assume that executives are proorganizations and favour stewardship governance mechanisms. Where executives,
investors cannot afford to extend board power, agency costs are effective insurance
against the self-interest behaviours of agents.
Stakeholder theory:
The stakeholder theory is grounded in many normative, theoretical perspectives including
ethics of care, the ethics of fiduciary relationships, social contract theory, theory of property
rights, and so on. While it is possible to develop stakeholder analysis from a variety of
theoretical perspectives, in practice much of stakeholder analysis does not firmly or explicitly
root itself in a given theoretical tradition, but rather operates at the level of individual
principles and norms for which it provides little formal justification. Stakeholder theory is
often criticized, mainly because it is not applicable in practice by corporations
Sociological theory:
The sociological approach has focused mostly on board composition and implications for
power and wealth distribution in the society. Under this theory, board composition, financial
reporting, and disclosure and auditing are of utmost importance to realize the socio-economic
objectives of corporations.
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This is also known as unitary board model, in which all directors participate in a single board
comprising both executive and non-executive directors in varying proportions. This approach
to governance tends to be shareholder oriented. It is also called the Anglo-Saxon approach
to corporate governance being the basis of corporate governance in America, Britain, Canada,
Australia and other Commonwealth law countries including India.
Companies are typically run by professional managers who have negligible ownership
stake. There is a fairly clear separation of ownership and management.
Most institutional investors are reluctant activists. They view themselves as portfolio
investors interested in investing in a broadly diversified portfolio of liquid securities.
If they are not satisfied with a companys performance, they simply sell the securities
in the market and quit.
The disclosure norms are comprehensive, the rules against insider trading tight, and
the penalties for price manipulations stiff, all of which provide adequate protection to
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the small investors and promote general market liquidity. They also discourage large
investors from taking an active role in corporate governance.
German model
Corporate governance in the German model is exercised through two boards, in which the
upper board supervises the executive board on behalf of stakeholders and is typically societal
oriented. In this model, although shareholders own the company, they do not entirely dictate
the governance mechanism. They elect 50 percent of members of supervisory board and the
other half is appointed by labour unions, ensuring that employees and labourers also enjoy a
share in governance. The supervisory board appoints and monitors the management board.
The Japanese model
This is the business network model, which reflects the cultural relationships seen in the
Japanese keiretsu network, in which boards tend to be large, predominantly executive and
often ritualistic. The reality of power in the enterprise lies in the relationships between top
management in the companies in the keiretsu network. In this model the financial institution
has accrual role in governance. The shareholders and the main bank together appoint board of
directors and the president.
The distinctive features of the Japanese corporate governance mechanisms are as follows:
The president who consults both the supervisory board and the executive management
is included.
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Indian corporate is governed by the Companys Act 1956 which follows more or less the UK
model. The pattern of private companies is mostly that of closely held or dominated by a
founder, his family and associates. India has adopted the key tenets of Anglo-American
external and internal control mechanisms after economic liberalization.
Obligation to society at large
A corporation is a creation of law as an association of persons forming part of a society in
which it operates. Its activities are bound to impact the society as the societys value would
have an impact on the corporation. Therefore, they have mutual rights and obligations to
discharge for the benefit of each other.
National interest: A company (and its management) should ne committed in all its
actions to benefit the economic development of the countries in which it operates and
should not engage in any activity that would militate against such an objective.
Political non-alignment:
functioning democratic constitution and system with a transparent and fair electoral
system and should not support directly or indirectly any specific political party or
candidate for political office.
Legal compliances:
applicable government laws, rules and regulations. Legal compliance will also mean
that corporations should abide by the tax laws of the nations in which they operate
and these should be paid on time and as per the required amount.
Rule of law: Good governance requires fair, legal frameworks that are enforced
impartially. It also requires full protection of rights, particularly those of minority
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Honest and ethical conduct: Every officer of the company including its directors,
executives and non executive directors, managing director, CEO, CFO and CCO
should deal on behalf of the company with professionalism, honesty, commitment and
sincerity as well as high moral and ethical standards.
Social concern: The Company should have concerns towards the society. It can help
the needy people & show its concern by not polluting the water, air & land. The waste
disposal should not affect any human or other living creatures.
Competition: A company should market its products & services on its own merits &
should not resort to unethical advertisements or include unfair & misleading
pronouncements on competitors products & services.
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Timely responsiveness: Good governance requires that institutions & processes try to
serve all stakeholders within a reasonable time frame.
Obligation to investors
The investors as shareholders and providers of capital are of paramount importance to a
corporation. A company has following obligations to investors:
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Financial reporting and records: A company should prepare and maintain accounts
of its business affairs fairly and accurately in accordance with the financial and
accounting reporting standards, laws and regulations of the country in which it
conducts the business affairs.
Wilful material misrepresentation of and/or misinformation on the financial accounts
and reports shall be regarded as the violation of the firms ethical conduct and also
will invite appropriate civil or criminal action under the relevant laws.
Obligation to employees
In the context of enhanced awareness of better governance practices, managements should
realize that they have their obligations towards their workers too.
Fair employment practices: An ideal corporate should provide equal access and fair
treatment to all employees on the basis of merit; the success of the company will be
improved while enhancing the progress of individuals and companies. The applicable
labour and employment laws should be followed wherever it operates.
Humane treatment: Companies should treat employees as their first customers and
above all as human. They have to meet the basic needs of all employees in the
organization. There should be a friendly, healthy and competitive environment for the
workers to prove their ability.
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Obligation to customers
A companys existence cannot be justified without its catering to he needs of its customers.
The companies have an obligation to its employees, without whose assistance they cannot
realize their objectives.
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Products at affordable prices: Companies should ensure that they make available to
their customers quality goods at affordable prices while making normal profit is
justifiable, profiteering and fattening on the miseries of the poor consumers is
unacceptable. Companies must constantly endeavour to update their expertise,
technology and skills of manpower to cut down costs and pass on such benefits to
customers. They should not create a scare in the midst of scarcity or by themselves
create an artificial scarcity to make undue profits.
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Managerial obligations
Protecting companys assets: The assets of the company should not be dissipated or
misused but invested for the purpose of conducting the business for which they are
duly authorized. These include tangible as well as intangible assets.
Gifts and donations: The Companys employees should neither receive nor make
directly or indirectly any illegal payments, remuneration, gifts, donations or
comparable benefits which are intended to or perceived to obtain business or
uncompetitive favours for the conduct of its business.
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OECD Principles
The Organization for Economic Co-operation and Development (OECD) was one of the
earliest non-governmental organizations to work on and spell out principles and practices that
should govern corporate in their goal to attain long-term shareholder value. The OECD
Principles were oft-quoted and have won universal acclaim, especially of the authorities on
the subject of corporate governance. Because of the ubiquitous approval, the OECD
Principles are as much trendsetters as the Codes of Best Practices associated to the Cadbury
Report. A useful first step in creating or reforming the corporate governance system is to look
at the principles laid out by the OECD and adopted by its member governments. They include
the following elements:
regarding transactions.
The role of stakeholders in corporate governance: the OECD recognizes that there
are other stakeholders in companies ion addition to shareholders. Banks, bondholders
and workers, for example, are important stakeholders in the way in which companies
perform and make decision. The OECD guidelines lay out several general provisions
The responsibilities of the board: The OECD guideline provides a great deal of
details about the functions of the board in protecting the company and its
shareholders. These include concerns about corporate strategy, risk, executive
compensation and performance as well as accounting and reporting systems.
The OECD guidelines are somewhat general, however, there is growing pressure to put more
enforcement mechanisms into those guidelines. The challenge will be to do this in a way
consistent with market oriented procedures by creating self enforcing procedures that do not
impose large new costs on firms. The following are some ways to introduce more explicit
standards:
Countries should be required to establish independent share registries. All too often,
newly privatized or partially privatized firms dilute stock or simply fail to register
shares purchased through foreign direct investment.
Standards for transparency and reporting of the sales of underlying assets need to be
spelled out along with enforcement mechanisms and procedures by which investors
can seek to recover damages.
Internal company audit functions and the inclusion of outside directors on audit
committees need to be made explicit. The best practice would be to require that only
outside, independent directors be allowed to serve on audit committees.
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SEBI Guidelines
All companies are required to submit a quarterly compliance report to the stock exchanges
within 15 days from the end of a financial reporting quarter. The report has to be submitted
either by the Compliance Officer or by the Chief Executive Officer of the company after
obtaining due approvals. SEBI has prescribed a format in which the information shall be
obtained by the Stock Exchanges from the companies. The companies have to submit
compliance status on eight sub-clauses namely:
Board of Directors;
Audit Committee;
Remuneration of directors;
Board procedures;
Management;
Shareholders; and
Stock exchanges are required to set up a separate monitoring cell with identified personnel, to
monitor compliance with the provisions of the recommendations. Stock exchanges are also
required to submit a quarterly compliance report from the companies as per the Schedule of
Implementation. The stock exchanges are required to submit a consolidated compliance
report within 30 days of the end of the quarter to SEBI.
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He has the right to have the certificate of shares held by him within 3 months of the
allotment.
He has the right to transfer his share or other interests in the company subject to the
manner provided by the articles of the company.
He has a right to appeal to the Company Law Board if the company refuses or fails to
register the transfer of shares.
He has the right to apply to the Company Law Board for the rectification of the
register of members.
He has the right to apply to the court to have any variation or abrogation to his rights
set aside by the court.
He has a right to inspect the register and the index of members, annual returns,
register of charges and register of investments not held by the company in its own
name without any charge.
He is entitled to receive notices of general meetings and to attend such meetings and
vote either in person or by proxy.
He is entitled to receive copies of the annual report of directors, annual accounts and
auditors report.
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He has the right to participate in the appointment of auditors and the election of
directors at the annual general meeting of the company.
He has the rights to make an application to Company Law board for calling annual
general meeting, if the company fails to call such a meeting within the prescribed time
limits.
He has the right to participate in the declaration of dividends and receive his
dividends duly.
He has a right to remove the director before the expiry of the term of his office.
He has a right to make an application to company Law Board for relief in case of
oppression and mismanagement.
He can make a petition to the High Court for the winding up of the company under
certain circumstances.
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To receive the share certificates on allotment or transfer, as the case may be, in due
time.
To receive copies of abridged annual report, the balance sheet and the Profit & Loss
account and the auditors report.
To apply to Company Law board (CLB) to call or direct the convening the annual
general meeting.
To inspect the minute books of the general meetings and to receive copies thereof.
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To apply for winding up of the company if the company fails to pay its debts.
Shareholders responsibilities:
While a shareholder may be happy to note that one has so many rights as a stakeholder in the
company, it should not lead one to complacency because one also has certain responsibilities
to discharge, such as
To remain informed
To be vigilant
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Trade unions: Trade unions alone can represent the collective interests of employees
and fight for what is rightly due to them from the organization. They could use this as
a platform to negotiate agreements between the organization and labour.
Profit sharing: Profit sharing motivates the individual worker to put in his best as his
efforts are directly related to the profits of the organization, in which he gets a share.
Profit sharing could be done in many ways, such as
-
cash based sharing of annual profits where the annual cash profits of the
organization are shared among the employees,
Deferred profit sharing where the deferred profits of the organization are
shared among the employees.
companies shares, identify themselves with, and thus become the owners of the
organization. There are various way sin which equity sharing could be done: employees
share
1) Ownership plans, 2) stock bonus plans, 3) stock option plans, 4) employee buyout,
and 5) worker cooperatives.
Team production solution: Team production solution is a situation where the boards of
directors must balance competing interests of various stakeholders and then arrive at
decisions that are in the best interest of the organization.
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On 15th March 1962, President John F. Kennedy declared four rights of consumers- the right
to satisfaction of basic needs, the right to safety, the right to be informed, and the right to
choose. In 1983, the United Nations recommended that world governments develop,
strengthen and implement a coherent consumer protection policy. In India, the Consumer
Protection Act 1986 was passed and the country embarked on strengthening the consumer
protection regime.
The explosion of interest in consumer matters is a very recent phenomenon. The reason is
twofold- a combination of new business methods and changing attitudes. The all pervasive
exaggerated and often false claims, made for services and goods, emphasize the imperative
need for Consumer Protection Legislation and creation of awareness about it among the
general public.
The rights of the consumer are as follows:
The right to safety: The rights to be protected against the marketing of goods and
services which are hazardous to life and property.
The right to be informed: The consumer has the right to be informed about the
quality, quantity, potency, purity, standard and price of goods or services so as to
protect them against unfair trade practices.
The right to choose: The right to be assured, wherever possible, access to variety of
goods and services at competitive prices.
The right to be heard: The right to be assured that consumers interests will receive
due consideration at appropriate forums.
The right to seek redressed: the right against unfair trade practices or restrictive
trade practices or unscrupulous exploitation of consumers.
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The financial institutions, such as IFCI, ICICI, IDBI, the State Financial
Corporation, etc.
All banks
While an investor decision is under consideration, the key factors to be taken into
consideration are
Financial results and solvency: This is the most important factor among the factors
such as an upward trend in earnings per share and profits, a healthy cash flow and a
reasonable level of dividend payment. All these are considered major indicators of a
companys financial health and are indicated in the financial results. However, a
consistent dividend policy is less significant.
Financial statements and annual reports: There are two important aspects under
this head.
o Extent of disclosure: The quality of the financial statements is the next most
influential factor when it comes to investment decisions. Institutional investors
consider the level of disclosure of the companys strategies, initiatives and
quality of managements discussion and analysis of the years results.
Financial position in the annual report is equally important. This is a strong
indication of the investing publics emphasis and preference for clear
disclosures in a companys annual report, in excess of regulatory requirements.
o Comparability with international GAAP: a significant5 proportion of
institutional investors do not invest in a company if the financial statements
are non-comparable to International Generally Accepted Accounting
Principles. Implicitly, this could mean that comparability of financial
statements of companies with International GAAP is important in the eyes of
the investor.
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Composition and quality of the board: The most important aspect within this factor
is the quality and experience of the executive directors on the board. In contrast,
investors would consider investing even though they are dissatisfied with the quality,
qualification and experience of independent non-executive directors and their role in
board meetings. In addition, many investors are not too concerned if there are
insufficient independent non-executive directors on the board.
Corporate image: The image of the company in the community is also considered
when an institutional investor is called on to take an investment decision. The image
of the organization should not be bad.
Share price: This is the last factor that is considered by an institutional investor when
an investment decision is made. If the shares of the company enjoy continuously
rising prices in the bourses, investors could be encouraged to invest in them.
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Creditor incentives: The second requirement for debt to serve a control function is
the existence of appropriate market based incentives for creditors, be they banks, trade
creditors or government. These incentives may be in the form of higher margin of
profit, high interest charges from customers and sometimes even reduction in the
quantum of Non-Performing Assets.
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In India the real history of corporate governance dates back to the year 1992, following
efforts made in many countries of the world to put in place a system suggested by the
Cadbury Committee. The Confederation of Indian Industry framed a voluntary code of
corporate governance for listed companies in 1998. This was followed by the
recommendations of the Kumar Mangalam Birla Committee set up in 1999 by SEBI
culminating in the introduction of Clause 49 of the standard Listing Agreement to be
complied with all the listed companies in stipulated phases. The Kumar Mangalam Birla
committee divided its recommendations into mandatory and non-mandatory. Mandatory
recommendations included such issues as the composition of board, appointment and
structure of audit committees, remuneration of directors, board procedures, and additional
information regarding management, discussion and analysis as a part of annual report. Its
non-mandatory recommendations included issues concerning the chairman of the board,
setting up of remuneration committee, half yearly information to shareholders and
appointment of nominee directors.
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In the year 2002, the committee was asked to examine various corporate governance issues
and to recommend changes in diverse areas such as:
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The Company Law Amendment Bill, 2003 envisaged many amendments on the basis of
reports of the Naresh Chandra Committee and the subsequently appointed N R Narayan
Murthy committee. Both the committees have done an excellent job to promote corporate
governance practice in India.
Clause 49
Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31
December 2005. It has been formulated for the improvement of corporate governance in all
listed companies.
In corporate hierarchy two types of managements are envisaged: i) companies managed by
[board of directors]; and ii) those by a [managing director], whole-time director or manager
subject to the control and guidance of the board of directors.
As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the
board should comprise independent directors. In the case of a company with a non-executive
Chairman, at least one-third of the board should be independent directors.
It would be necessary for chief executives and chief financial officers to establish and
maintain internal controls and implement remediation and risk mitigation towards
deficiencies in internal controls, among others.
Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to
stock exchange in the prescribed form. The clause also requires that there be a separate
section on corporate governance in the annual report with a detailed compliance report.
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A company is also required to obtain a certificate either from auditors or practicing company
secretaries regarding compliance of conditions as stipulated, and annex the same to the
director's report.
The clause mandates composition of an audit committee; one of the directors is required to be
"financially literate". It is mandatory for all listed companies to comply with the clause by
December 31, 2005.
Corporate Governance may be defined as A set of systems, processes and principles which
ensure that a company is governed in the best interest of all stakeholders. It ensures
Commitment to values and ethical conduct of business; Transparency in business
transactions; Statutory and legal compliance; adequate disclosures and Effective decisionmaking to achieve corporate objectives. In other words, Corporate Governance is about
promoting corporate fairness, transparency and accountability. Good Corporate Governance
is simply Good Business.
Clause 49 of the SEBI guidelines on Corporate Governance as amended on 29 October, 2004
has made major changes in the definition of independent directors, strengthening the
responsibilities of audit committees, improving quality of financial disclosures, including
those relating to related party transactions and proceeds from public/ rights/ preferential
issues, requiring Boards to adopt formal code of conduct, requiring CEO/CFO certification of
financial statements and for improving disclosures to shareholders. Certain non-mandatory
clauses like whistle blower policy and restriction of the term of independent directors have
also been included.
The term Clause 49 refers to clause number 49 of the Listing Agreement between a
company and the stock exchanges on which it is listed (the Listing Agreement is identical for
all Indian stock exchanges, including the NSE and BSE). This clause is a recent addition to
the Listing Agreement and was inserted as late as 2000 consequent to the recommendations
of the Kumarmangalam Birla Committee on Corporate Governance constituted by the
Securities Exchange Board of India (SEBI) in 1999.
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Clause 49, when it was first added, was intended to introduce some basic corporate
governance practices in Indian companies and brought in a number of key changes in
governance and disclosures (many of which we take for granted today). It specified the
minimum number of independent directors required on the board of a company. The setting
up of an Audit committee, and a Shareholders Grievance committee, among others, were
made mandatory as were the Managements Discussion and Analysis (MD&A) section and
the Report on Corporate Governance in the Annual Report, and disclosures of fees paid to
non-executive directors. A limit was placed on the number of committees that a director could
serve on.
In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of
current corporate governance practices and to suggest improvements. Based on the
recommendations of this committee, SEBI issued a modified Clause 49 on October 29, 2004
(the revised Clause 49) which came into operation on January 1, 2006.
The revised Clause 49 has suitably pushed forward the original intent of protecting the
interests of investors through enhanced governance practices and disclosures. Five broad
themes predominate. The independence criteria for directors have been clarified. The roles
and responsibilities of the board have been enhanced. The quality and quantity of disclosures
have improved. The roles and responsibilities of the audit committee in all matters relating to
internal controls and financial reporting have been consolidated, and the accountability of top
managementspecifically the CEO and CFOhas been enhanced. Within each of these
areas, the revised Clause 49 moves further into the realm of global best practices (and
sometimes, even beyond.
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Chapter 3
Analysis of Fundamental Analysts
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100%
90%
80%
70%
Services
60%
Liquidity
50%
weitage
Diversification Benefit
40%
Capital Appriciation
30%
Tax Benefit
20%
High return
10%
Flexibility
1s
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2n nk
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3r nk
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4t nk
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8
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safety
Rank
Result:
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Analysis:
From analysis we can say that at 1st rank investors give highest importance to High return.
45% investor selects high return as most preferred criteria for investment.
While 35% investors give preference to capital appreciation at 1st rank. And 20% investor
gives preference to safety at 1st rank.
At 2nd most preferred criteria investors select capital appreciation. 30% investors select
capital appreciation at second most preferred criteria.
While 25% investors give preference to high return at 2nd rank.15% investors give
preference to flexibility and liquidity. 20% investors give preference to safety at 2nd rank.
And 5% investors give preference to tax benefit.
At 3rd most preferred criteria investors select tax benefit.30% investors select tax benefit at
3rd most preferred criteria.
While 25% investors give preference to high return at 3rd rank.15% investors give
preference to flexibility and capital appreciation at 3rd rank.10% investors give preference
to safety at this rank. Only 5% investor gives preference to diversification at 3rd rank.
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At 4th most preferred criteria investors select safety.35% investors select safety as 4th most
preferred criteria for investment.
While 25% investors prefer tax benefit at 4th rank.15% investors select liquidity as 4th most
preferred criteria.10% investors select capital appreciation and flexibility at 4th rank. Only
5% investor gives preference to diversification at 4th rank.
At 5th most preferred criteria investors select liquidity.35% investors select liquidity at 5th
most preferred criteria.
30% investors prefer flexibility at 5th rank.15% investors prefer safety at 5th rank.10%
investors select diversification at this rank. While 5% investors select high return and tax
benefit at 5th rank.
At 6th rank 30% investor select diversification.15% investors select flexibility, tax benefit
and services at 6th rank.10% investors select safety and liquidity at this rank. And only 5%
investors select capital appreciation at 6th rank.
At 7th most preferred criteria investors select diversification.40% investors select
diversification at 7th rank.
20% investors select tax benefit at 7th rank.10% investors select safety, flexibility, liquidity
and service at 7th most preferred criteria for investment.
At 8th most preferred criteria investors select services.75% investors select services at 8th
rank.
10%investors select diversification and liquidity at 7th most preferred criteria for
investment. And 5% investors select safety at 8th rank.
45 | P a g e
46 | P a g e
Preference of investor
5%
10%
10%
IPO
Delivery
Intraday
Future & Option
75%
Analysis:
Investors give highest preference for deliveries of shares.75% of investor prefer delivery of
shares while investing in stock market.
Investors prefer regular trading rather than invest in IPO and Intraday. Only 10% investors
prefer IPO and Intraday while investing.
And in India market of Future & option is not growing up till today. So, only 5% Investors
prefer future & option for trading.
47 | P a g e
100%
90%
80%
70%
Market capitalisation
Board of Director
Dividend
Company Name
60%
Weitage
50%
40%
30%
Industry
20%
10%
0%
1st rank
2nd rank
3rd rank
4th rank
5th rank
6th rank
Rank
Analysis:
From Analysis we can say that investor gives highest importance for company name
before investing in any company.35% investor gives most importance to company
name.
Than 25% investor gives most importance to industry.15% investor gives most
second rank.
10% investors give preference to company name and Board of director at second rank
for investment in any company.
48 | P a g e
At 3rd rank 35% investor gives preference to company name.15% investor gives
preference to share price fluctuation, dividend and market capitalisation at 3rd rank.
10% investors give preference to industry and board of director at 3rd rank.
At 4th preferred criteria 25% investors gives preference to board of director and
industry.
15% investors give preference to dividend and market capitalisation at 4th rank.
10% investors give preference to company name and share price fluctuation at 4 th
rank.
30% Investors give 5th most preferred criteria to dividend and board of director.15%
49 | P a g e
13%
BSE-30,NIFTY-50
Sector Specific
22%
Local Companies
Any Company
65%
Analysis:
From analysis investor gives highest preference to any company for investment.65%
50 | P a g e
5%
25%
35%
Regularly
Occastionaly
Sometimes
Never
35%
Analysis:
From analysis 35% investors analyse annual report regularly and occasionally
(quarterly).
25% investors analyse annual report sometimes.
5% investors not analyse annual report.
We can say that ratio of the investors who analyse the report regularly is less.
51 | P a g e
Efficient
45%
55%
Moderate
Inefficient
Analysis:
From analysis we can say that majority of investors believe that Indian regulatory
system is moderate efficient.55% investor think Indian regulatory system is
moderate efficient.
45% investors think that Indian regulatory system is efficient.
But many investors believe that Indian regulatory system is not efficient enough in
implementation of law which are in favour of investors.
52 | P a g e
Yes
50%
No
50%
Yes
No
45%
55%
53 | P a g e
Yes
No
45%
55%
Most Efficient
10%
Efficient
40%
Moderate
Below Moderate
Least Efficient
50%
22%
22%
Most Efficient
Efficient
Moderate
Below Moderate
Least Efficient
56%
54 | P a g e
Most Efficient
11%
11%
33%
Efficient
Moderate
Below Moderate
Least Efficient
44%
Analysis:
From analysis we can say that 50% investors do the analysis of grievance
committee. Out of these 50% investor 50% replied that grievance committee is
moderate efficient.
While 40% replied that grievance committee is efficient. And 10% replied that this
committee is below moderate efficient. So, from analysis we can say that grievance
and efficient.
From analysis we can say that 45% of investors do the analysis of audit committee.
Out of these 45% investors, 45% investor replied that audit committee is moderate
efficient.
While 33% investors replied that audit committee is efficient, and 11% investors
replied that audit committee is below moderate efficient and least efficient.
Thus from analysis we can say that investors are less satisfied with the work of audit
55 | P a g e
Efficient
Moderate
42%
Below Moderate
42%
Least Efficient
Trasparency
Most Efficient
5%
16%
26%
Efficient
Moderate
Below Moderate
Least Efficient
53%
10% 10%
Efficient
Moderate
40%
40%
Below Moderate
Least Efficient
56 | P a g e
Ethics
26%
16%
Most Efficient
Efficient
Moderate
Below Moderate
21%
37%
Least Efficient
Analysis:
Grievance settlement:
From analysis of charts we can say that 42% investors replied that grievance
Transparency:
40% investors replied that legal code of conduct in companies are moderate efficient
and below moderate efficient. While 10% investors replied that legal code of
conduct in companies are least efficient and most efficient.
Ethics:
57 | P a g e
enough effective and positive reply as per investors view. All requests are time based.
While some investors are not satisfied with the respond they get. Specifically they
dont get replied within short time. Its take long time
Actually it is Change Company by company. Some companies are efficient enough to
solve the investors queries. And some are not good in that.
From analysis we found that very few investors are concern about selection of
directors.
So, majority of investors do not have knowledge about the procedure for selecting
director.
Even majority of the investors not attend the annual general meeting of the
companies.
Majority of the investor only concern with the monitory return they get from the
investment.
And those who replied for this question they said directors are selected in meetings of
the companies, but they dont know procedure of selection.
58 | P a g e
Chapter 4
Analysis of company secretary
59 | P a g e
affairs.
At present, corporate governance is made compulsory for all listed companies so it
implementation efficient.
Current status of corporate governance is much more efficient than past. SEBI,
corporate and Investors have become more active on this.
Efficiency of SEBI
Most Efficient
20%
30%
Efficient
Moderate
Below Moderate
Least Efficient
50%
60 | P a g e
Analysis:
From analysis we can say that 50% respondent select efficient regulation by SEBI.
While 30% respondent select most efficient regulation by SEBI for corporate
governance.
Only 20% respondent select moderate regulation by SEBI for corporate governance.
Most of respondent says that SEBI works efficiently because of, Disclosure by SEBI
are helpful to the investors and in also does not reveal any confidential data from
company side.
61 | P a g e
62 | P a g e
Chapter 5
Analysis of BSE-30 companies for
Corporate Governance
63 | P a g e
Disclosures:
ND
64 | P a g e
65 | P a g e
66 | P a g e
1) ACC:
ACC
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No. of disclosure 10
5
0
Year
Not Disclosed:
Top 10 share holders of the company and Transcript of the meetings were not disclosed by
ACC every year.
Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all
important disclosure for investor.
67 | P a g e
2) Bharti:
Bharti
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No. of disclosure 10
5
0
Year
Not Disclosed:
Top 10 share holders of the company, Transcript of meetings and status of project were not
disclosed by Bharti every year.
Comment:
Their performance in disclosed of data is consistent in every year. Company has not disclosed
all disclosure for investor and performance improvement was also not found.
68 | P a g e
3) DLF
DLF
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No. of disclosure 10
5
0
No of year
Not Disclosed:
Top 10 share holders of the company and transcript of meetings were not disclosed by DLF
every year.
Comment:
They have also not shown any Non-mandatory disclosures in their annual report. Their
performance in disclosed of data is consistent in every year.
69 | P a g e
4) HDIL
HDIL
35
30
25
20
No of disclosure 15
10
5
0
Not Disclosed:
Top 10 share holders of the company, Transcript of meetings were not disclosed by HDIL
every year.
Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all
important disclosure for investor.
70 | P a g e
5) Hero Honda
Hero Honda
35
30
25
20
no of disclosure 15
10
5
0
Not Disclosed:
Only Top 10 share holders of the company and transcript were not disclosed by Hero Honda
every year. Otherwise 31 disclosures were there in annual reports.
Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all
important disclosure for investor.
71 | P a g e
6) Hindalco:
Hindalco
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
no of disclosure 10
5
0
Year
Not Disclosed:
Comment:
Their performance in disclosed of data is consistent in every year. Company has not disclosed
all important disclosure for investor.
Hindalco- A Vedanta Group Company has shown Non-mandatory disclosures also. That is
appreciable.
72 | P a g e
7) HUL:
HUL
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
No of disclosure 15
10
5
year
Not Disclosed:
2004-08
Top 10 shareholders of the company
Plant Location
Industry structure
Opportunities and Threats
Transcript of the meeting
2008-09
Top 10 shareholders of the company
Opportunities and Threats
Transcript of the meeting
Comment:
HUL- One of biggest FMCG player in India is surprisingly shocked. It is not following
mandatory disclosures in huge manner.
73 | P a g e
8) ICICI:
ICICI
30
25
20
No of disclosure
15
10
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
Year
Not Disclosed:
Comment:
ICICI has been proved poorest performer in all 30 companies. They are not showing 7-9
disclosures which are also important for shareholders.
74 | P a g e
9) INFOSYS
Infosys
09
20
08
-
20
07
-
08
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No of disclosure
10
5
Year
Not Disclosed:
Top 10 shareholders
Industry structure
Opportunities and threats
Transcript
Comment:
When disclosures were made mandatory, in Initial year Infosys were not following many
disclosures. But it improves its performance in coming years.
Only Top 10 share holders of the company were not disclosed by Infosys in last year.
75 | P a g e
10) ITC
ITC
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No of disclosure
10
5
Year
Not Disclosed:
Comment:
Being one of leading player in FMCG, ITC is also not disclosing importance disclosures in its
Annual report. Though its performance has been improved each year but steel not all the
disclosures are included.
76 | P a g e
11) REL
REL
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No of Disclosure 10
5
0
Year
Not Disclosed:
Only Top 10 share holders and transcript of the meetings were not disclosed by REL every
year. Otherwise 31 disclosures were there in annual reports.
Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all
important disclosure for investor.
77 | P a g e
Reliance Capital
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No of disclosure 10
5
Year
Not Disclosed:
Comment:
In initial years company was not showing important disclosures but in recent years it has
improved its performance.
78 | P a g e
13) Sterlite:
Sterlite
09
08
20
08
-
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No of disclosure
10
5
Year
Not Disclosed:
Only Top 10 share holders of the company, transcript of the meetings were not disclosed by
sterlite every year. Otherwise 30-31 disclosures were there in annual reports.
Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all
important disclosure for investor.
79 | P a g e
Tata Power
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
05
35
30
25
20
15
No of disclosure 10
5
0
Year
Not Disclosed:
Only Top 10 share holders of the company and transcript were not disclosed by TATA power
every year. Otherwise 30-31 disclosures were there in annual reports.
Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all
important disclosure for investor.
80 | P a g e
16) ONGC:
SBI
35
30
25
20
No of disclosure 15
10
5
0
15) TCS:
Not Disclosed:
of
company
the
and
by
TCS
Not Disclosed:
disclosures
Comment:
Their performance in
Comment:
disclosed of data is
consistent in every
year. Company has
disclosed
all
important disclosure
for investor.
17) SBI
81 | P a g e
21) NTPC
26) M & M
M&M
yr
yr
yr
20
08
yr
20
07
yr
20
06
20
05
yr
5 Company
Top ten shareholders
the
NTPC every year. Otherwise 32 disclosures
were there inofannual
Year
20
09
10 by
Only Top 10 share holders of the company were not disclosed
reports.
20
09
20
08
yr
yr
20
07
20
06
20
06
yr
yr
20
2
07
00
7
yr
yr
20
08 20
yr 08
yr
20
09 2
0
yr 09
yr
Year
20
06
20
05
yr
20
05
Not Disclosed:
yr
20
05
30
15
25
35
No of disclosure 10
20
30
5
Not disclosed:
15
0
No of disclosure 25
10
5
20
0
05-07:
no of disclosure 15
Object 35
yr
TATA MOTORS
35
MARUTI
UDHYOG
30
25 M&M Year
35
20
yr
35
30
25
23) Sun Pharma
20
no of disclosure 15
24) Tata Motors
10
5
Year
Status
projects announced/approved/money raised
NotofDisclosed:
Not Disclosed:
Comment:
Comment:
Comment:
Companies
Comment:
over all performance are consistent in every year and
22) L & T
L&T
BHEL
35
30
25
20
15
No of disclosure 10
5
0
35
30
25
No of disclosure 20
82 | P a g e
Not Disclosed:
2005-08
Top ten shareholders of the Company
Industry Structure and Developments
Opportunities and Threats
Product disclosure about segment-wise information-financial as well as operating details
2008-09
Top ten shareholders of the Company
Industry Structure and Developments
Opportunities and Threats
Comment:
Company has improved and disclosed required disclosure in year 09 which ha not disclosed
in year previous years.
Chapter 6
Findings and Suggestions
83 | P a g e
84 | P a g e
Findings:
image.
Satyam Computers- before 1 year, it was one of the most desired companies for
investment according to shareholders viewpoint. After the Scam occurred, brand
companies.
Retail investors do not analyze annual report of the companies because of lack of
85 | P a g e
disclosers.
ICICI, HUL, ITC were companies which are not showing major disclosures.
During this research we also came to know that Corporate Governance of the
company is still not consider as one of the important parameter to be taken into
consideration before investing in it.
86 | P a g e
Recommendations:
From our research and observations we give following recommendations.
To improve in current system:
Current norms of corporate governance are efficient but at Initial level.
There must be improvement in terms of code of conduct of corporate
governance.
Lack of awareness is found among investors. More and more development
programmes should be conduct to improve the awareness level of
Investors.
Implementation of current norms should be made efficient.
To Investors:
Main purpose of corporate governance is safety of investors. It must be
87 | P a g e
Chapter 7
Bibliography
88 | P a g e
Websites
Details about corporate governance norms.
http://www.sebi.org
Data regarding BSE-30 Companies.
http://www.bseindia.com
All BSE-30 companies websites for their Annual reports.
Books
Corporate governance
Arya P. P. Tandon B. B. Vashint A. K.
Corporate Governance-New paradigm
Gopalsamy N
Corporate Governance Putting Investors first
Scott C. Newquist, Max B. Russell
89 | P a g e
Annexure
A) Questionnaires for fundamental analysts:
Name: ________________
Gender:
Male [
Female [
1. Age: ___________
2. What is your occupation?
a) Professional b) Business c) Salaried d) Retired
e) Student
b) 150,001 300,000
c) 300.001 500,000
d) Above 500,000
4. What percentage of your total investment do you invest in stock market? (Approx.)
a) 0-25%
b) 26-50%
c) 51-75%
d) >75%
5. You prefer to invest in stock market due to (Please give rank from 1 to 8)
a) Safety
( )
( )
b) Flexibility
c) High returns
( )
( )
d) Capital Appreciation
e) Tax benefits
( )
( )
f) Diversification benefits
g) Liquidity
( )
( )
h) Services
b) Delivery
c) Intraday
b) Company name
d) Dividend
f) Market capitalization
b) Sector Specific
c) Local Companies
d) Any Company
90 | P a g e
Reason:
___________________________________________________________________________
__________________________________________________________________________
9. How frequently do you analyse the annual report of the companies?
a) Regularly b) Occasionally c) Sometimes
d) Never
10. What do you think about efficiency of Indian regulatory system for security of share
holder?
a) Efficient
b) Moderate
c) Inefficient
b) No
12. If Yes, What are the reasons of the Satyam scam according to you?
___________________________________________________________________________
___________________________________________________________________________
13. Do you know about the modification made in rule of share holding pattern by SEBI after
Satyam scam?
a) Yes
b) No
14 Do you analyze the performance of grievance committee of the company in which you
have
invested?
A)
B)
Yes
No
If yes, than rank its efficiency.
1. 2. 3. 4. 5.
1= Most efficient
5=least efficient
If No, Why?
_______________________________________________________________________
15. Do you analyze the performance of remuneration committee of the company in which
you have invested?
a) Yes
b) No
If yes, than rank its efficiency.
1. 2. 3. 4. 5.
1= Most efficient
5=least efficient
If No, why?
___________________________________________________________________________
___________________________________________________________________________
91 | P a g e
16. Do you analyze the performance of audit committee of the company in which you have
invested?
A. Yes
B. No
If yes, than rank its efficiency.
1.
2. 3. 4. 5.
1= Most efficient
5=least efficient
If No, Why?
_______________________________________________________________________
_______________________________________________________________________
17. Rate the following in context of Indian companies?
1=Most efficient
5=Least efficient
a) Grievance settlement
b) Transparency
c) Legal code of conduct
d) Ethics
1
1
1
1
2
2
2
2
3 4 5
3 4 5
3 4 5
3 4 5
Thank you.
92 | P a g e
b) No
c) Cant say
4. Do shareholders analyze the annual report of the companies in which they have invested?
a) Yes
b)No
c) Cant say
5. If No, than what are the reasons for it?
___________________________________________________________________________
___________________________________________________________________________
6. According to you which disclosures amongst following are most important for shareholders?
Dividend payment date
Market Price Data for each Month of last financial year
Change in Equity Capital during the financial year
Distribution of Shareholding
Risks and Concerns
Internal Control systems and their adequacies
Discussion on Financial performance with respect to operational performance
7. If SEBI liberalize in mandatory disclosure of corporate governance than, according to you
how companies will handle the corporate governance?
___________________________________________________________________________
_____________________________________________________________________
8. Give your suggestions to improve the Framework, Efficiency and Effectiveness of Corporate
Governance.
___________________________________________________________________________
_____________________________________________________________________
Thank you
93 | P a g e
Thank You
94 | P a g e