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Table of Contents
Acknowledgement ................................................................................................................................... 2 List of tables and figures .......................................................................................................................... 3 Abbreviations .......................................................................................................................................... 4 Executive Summary ................................................................................................................................. 5 Introduction to Corporate Governance .................................................................................................... 5 Objective ................................................................................................................................................. 5 Scope of the Study ................................................................................................................................... 6 Limitations of the Study ........................................................................................................................... 6 Methodology ........................................................................................................................................... 6 Need for Corporate Governance in India.................................................................................................. 6 Good governance................................................................................................................................. 7 Characteristics of good governance: .................................................................................................... 7 Social Reporting in Corporate Governance ............................................................................................... 9 Principles of Good Governance .............................................................................................................. 10 Social Performance of Business in India ................................................................................................. 11 Introduction of Media............................................................................................................................ 13 Types of media .................................................................................................................................. 13 Response for media in India:.................................................................................................................. 17 Role of media ........................................................................................................................................ 18 Theoretical Framework .......................................................................................................................... 22 Other Institutional Factors ..................................................................................................................... 32 Empirical Results ................................................................................................................................... 33 A case in Russia ..................................................................................................................................... 37 Findings ................................................................................................................................................. 42 Recommendations/suggestions ............................................................................................................. 42 Conclusion ............................................................................................................................................. 42 References............................................................................................................................................. 44



I hereby convey my deep acknowledgement to all those who made it possible for me to complete this independent study, by extending their support and continuous co-operation.

I would like to acknowledge the consistent encouragement extended by Dr. Kamal Ghosh Ray, Director and Dr. Ch. S. Durga Prasad, Dean-Academic Planning of Vignana Jyothi Institute of Management. I would also like to thank my faculty members and my coordinator Col. (Retd.) Saeed Ahmad. Finally I would like to thank all my friends, batch mates and staff members without whom this project work would not have been successfully completed



List of tables and figures
Names ««««««««««««««««.«.page 1) Characters of good governance«««««««««.7 2) Response of media in India«««««««««........17








Executive Summary
In this paper, we discuss the role of the media in pressuring corporate managers and directors to behave in ways that are ³socially acceptable´. Sometimes this coincides with shareholders¶ value maximization, others not. We provide both anecdotal and systematic evidence that media affect companies¶ policy toward the environment and the amount of corporate resources that are diverted to the sole advantage of controlling shareholders. Our results have important consequences for the focus of the corporate governance debate and for the feasibility of reforms aimed at improving corporate governance around the world with the help of media.

Introduction to Corporate Governance
Corporate Governance has emerged as a response to many of corporate failures and widespread dissatisfaction about the functioning of the corporate sector. They are powerful system by which corporate bodies are directed and controlled. Primarily concerned with Power and Accountability of Corporate. The Corporate Governance refers to relationship between Owners, Directors and Managers. BODs are the Centre of Corporate Governance. Serves not only the company¶s interest but also the society at large. Distribution of Rights And Responsibilities among different participants-Board, Manager, Shareholders, Stakeholder It covers issues like- The legal issues of investors, The system of Electing the BODs, The Composition of Board and its various Committees, System of Checks and balances, Ethics, Maximization of Owners wealth by Managers, The ability of the board to maintain Surveillance.

Is to study the role of media in ensuring corporate governance in the present world and to study the what is the power of media in ensuring media especially in India.


Scope of the Study
The study deals with the role of media in ensuring corporate governance which is a vast subject. So the scope of the study mainly focus on guidelines of various areas like Media, Environment, Human Rights, Shareholders value, Case etc. What will be its impact on corporate governance? Due to time constraint it was able to meet some media consultants of Hyderabad and secundrabad only.

Limitations of the Study
1) The main limitation of this study is that the media people will not provide any type the information. 2) Now a days every big company is coming with there own channel, newspapers, or any other type of media. So they are not ethical and wont provide correct information.

The methodology adopted for this study is exploratory using the open-ended approach. This open ended questions are posed to media persons and other industry persons. The primary data collected would be complemented by secondary data such as Articles, Journals books,
magazines, corporate governance text book and data collected from official web sites.

Need for Corporate Governance in India
Post liberalization period (1993-1995) was a boom period, Capital through Public issues, Many Fake companies came in, which are now nowhere, Indian companies getting Global thus more transparency demanded by Foreign investors, Collaborators, buyers. Stories of Accounting Juggleries, Family owned business (family leaders appointed directors which are teethless), Growing awareness towards Good Corporate Governance, Improving Ethical climate, Shadow Directors.



Good governance
Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. It assures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. It is also responsive to the present and future needs of society.

Characteristics of good governance:

Participation by both men and women is a key cornerstone of good governance. Participation could be either direct or through legitimate intermediate institutions or representatives. It is important to point out that representative democracy does not necessarily mean that the concerns of the most vulnerable in society would be taken into consideration in decision making. Participation needs to be informed and organized. This means freedom of association and expression on the one hand and an organized civil society on the other hand.



Rule of law
Good governance requires fair legal frameworks that are enforced impartially. It also requires full protection of human rights, particularly those of minorities. Impartial enforcement of laws requires an independent judiciary and an impartial and incorruptible police force.

Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations. It also means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media.

Good governance requires that institutions and processes try to serve all stakeholders within a reasonable timeframe.

Consensus oriented
There are several actors and as many view points in a given society. Good governance requires mediation of the different interests in society to reach a broad consensus in society on what is in the best interest of the whole community and how this can be achieved. It also requires a broad and long-term perspective on what is needed for sustainable human development and how to achieve the goals of such development. This can only result from an understanding of the historical, cultural and social contexts of a given society or community.

Equity and inclusiveness
A society¶s well being depends on ensuring that all its members feel that they have a stake in it and do not feel excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, have opportunities to improve or maintain their well-being.

Effectiveness and efficiency


Good governance means that processes and institutions produce results that meet the needs of society while making the best use of resources at their disposal. The concept of efficiency in the context of good governance also covers the sustainable use of natural resources and the protection of the environment.

Accountability is a key requirement of good governance. Not only governmental institutions but also the private sector and civil society organizations must be accountable to the public and to their institutional stakeholders. Who is accountable to whom varies depending on whether decisions or actions taken are internal or external to an organization or institution. In general, an organization or an institution is accountable to those who will be affected by its decisions or actions. Accountability cannot be enforced without transparency and the rule of law.

Social Reporting in Corporate Governance
As a result of pressure from public interest groups , mandatory social disclosure requirements and management¶s motivation to improve the firm¶s image more and more corporations of developed countries are disclosing social information in some form or another. This trend has also started in developing countries like India. Will social information be disclosed regularly by all firms? An answer to this question will depend either upon the mandatory requirements or upon the demand for social information by investors and other financial statement users. Until disclosure of social information becomes mandatory, firms would be encouraged to disclose this information only if the users of annual statements demand this information and management is convinced that such a disclosure would be in their best interest. According to Keith Devis , ³social responsibility begins where the law ends. Social responsibility refers to businessmen¶s decisions and action taken for reasons at least particularly beyond the firm¶s direct economic or technical interest. Thus social responsibility has two rather different faces.



On the one hand, businessmen recognize that since they are managing an economic unit in society, they have a broad obligation to the community with regard to economic development affecting public welfare (such as full employment, inflation and maintenance of competition). On the other hand, a businessman¶s obligation to nature and developing human values (such as moral cooperation, motivation, and self-reliance in work). Accordingly, the term µsocial responsibility¶ refers to both socio- economic and socio human obligation to others.

Objectives of Corporate social Reporting
The objectives for corporate social reporting can be derived from the rationale for corporate social responsibility, which is supported by the following two arguments: Social contract argument and quality of life argument.

Principles of Good Governance
During the past decade, campaigns, lobbying, and research promoted by desires to stabilize capital markets, protect investors, and promote higher financial, social, and ethical standards have emerged. Dozens of organizations now represent institutional and individual investors, social advocacy groups, corporate officers and directors, and company auditors. Their activities have spawned advocacy centers, research centers, consultants, and newsletters, magazines, and journals devoted to corporate governance. These groups, as well as stock exchanges, chambers of commerce, and regulatory organizations have issued guidelines and regulations to promote practices of good corporate governance.

An investor that has been particularly active in promoting good corporate governance practices for many years is the California Public Employees Retirement System (CalPERS), one of the world¶s largest institutional investors. It has been particularly active in setting out both U.S. and international corporate guidelines and other principles and practices for effective governance (CalPERS, 2004).



The Organization for Economic Co-Operation and Development identified 12 key standards as principles of corporate governance five years ago (OECD, 1999) and recently revised and clarified principles in response to contemporary events and comments by relevant parties (OECD, 2004). OECD is comprised of 30 member countries from developed market economies in Europe, North America, and Asia. In the wake of accounting and corporate governance scandals, the U.S. Congress enacted the Sarbanes-Oxley Act (2002) that required changes in public disclosure and independence of audit committees and auditors.

Approaches to governance have traditionally been diverse in national law among developed nations and there have been differences in Anglo, Anglo-American, Latin, and Germanic approaches relating to shareholder primacy, board structure, director duties, and takeover protections. If one considers the range of views represented by investors, managers, regulators, and advocacy groups, however, there is general consensus on some basic principles of good corporate governance. These include the desire that companies have clear corporate governance principles or guidelines of their own, that there be appropriate internal and external audit functions and that auditors be independent, that transparency about governance processes and decisions be evident, that conflicts of interests are controlled, that shareholders have equitable rights, that there should be members of boards of directors that are independent from the management, and that compensation choices of managers be recommended by a committee with independence from the management.

Social Performance of Business in India
Many business organizations in India have also contributed greatly in the area of social responsibility. Associated cement companies (ACC) has been rendering social service for over four decades. The company has set up the schools, health centers, bunds, local countryside and agro- based industries, and cooperative societies in village with the sole objective of providing employment and improving the quality of rural life. Following help from ACC, farmers in Andhra Pradesh have doubled their per acre yield of rice, whereas those in Bihar began to raise a crop of protein- rich soyabeans as a matter of routine.


ACC is spending approximately Rs. 6 lakh annually on its staff, which works for rural development programmes with direct investment. The Mafatlal Group follows a slightly different line in social performance. It spends a huge fund on rural welfare programmes for helping the poor. It constructs homes for the homeless, provides drinking water, and distributes book, stationery and scholarships in rural areas.

The Tata Iron and Steel Company is the first industrial organization in the country to have carried out a social audit of its performance in the year 1979. In the public sector, Bharat Heavy Electrical Ltd. (BHEL) is endeavoring to play a prominent role in the area of social responsibility. All division of BHEL, are aware of their social role and have drawn comprehensive scheme for the welfare of their employees in social role and have drawn comprehensive scheme for the welfare of their employees in township and for those living in nearby areas. The company is engaged in identifying specific problems of communities and in coordinating the efforts with the local bodies, authorities and voluntary agencies in providing speedy relief to them. The active involvement of BHEL and its employees in the welfare of the surrounding communities is helping the organization to earn the goodwill of the local population and to have a better understanding of their problems. Jobs done by BHEL units in this respect include provision of drinking water facilities, construction of external sewers, roads and culverts, providing health facilities, improving the quality of life by redesigning jobs, improving educational facilities and so-on.

Many Indian companies have given µValue Added Statement¶ in their annual reports in place of a social reporting. This statement exhibit the contribution and surplus made by them through their business activities and also disclosure as to how the same has been distributed to different segment of the society such as employees, government and shareholders, etc. Beside, Social Income Statement and Social Balance Sheet given by some Indian companies in their annual reports would prove very useful to the users and other interested persons. The government should make it obligatory on the part of the companies to report their µSocial Performance¶ during the year through statements and/or other means of disclosure.



Introduction of Media
In general, "media" refers to various means of communication. For example, television, radio, and the newspaper are different types of media. The term can also be used as a collective noun for the press or news reporting agencies. In the computer world, "media" is also used as a collective noun, but refers to different types of data storage options.

Types of media and history
Media especially refers to two main divisions, the print media such as Newspapers & Magazines and the electronic media such as Radio and Television. The role of the media in a democratic country is to relay the facts to the people. Media especially categorized in to two main divisions. One is Print Media and another one is Electronic Media. 1) Print Media would be Newspapers and Magazines. 2) Electronic Media would be Radio and Television.

Different Types of Media in broad:
1)Advertising media: various media content buying and placement for advertising 2)Electronic media: communications delivered via electronic or electromechanical energy 3)Digital media: electronic media used to store, transmit, and receive digitized information 4)Electronic Business Media: digital media for electronic business 5)Hypermedia; media with hyperlinks 6)Multimedia: communications that incorporate multiple forms of information content and processing 7)Print media: communications delivered via paper or canvas 8)Published media: any media made available to the public 9)Mass media: all means of mass communication 10)Broadcast media, communications delivered over mass electronic communication networks 11)News media: mass media focused on communicating news



12)Recording media: devices used to store information 13)Social media: media disseminated through social interaction

History of newspapers:
Media in India initiated since the late 1700s with print media started in 1780, radio broadcasting initiated in 1927, and the screening of Auguste and Louis Lumière moving pictures in Bombay initiated during the July of 1895, is among the oldest and largest media of the world. Indian media are private media in particular has been free and independent throughout most of its history. The period of emergency (1975±1977), declared by Prime Minister Indira Gandhi, was the brief period when India's media was faced with potential government retribution. The country consumed 99 million newspaper copies as of 2007 making it the second largest market in the world for newspapers. By 2009, India had a total of

81,000,000 Internet users comprising 7.0% of the country's population, and 7,570,000 people in India also had access to broadband Internet as of 2009 and making it the 12th largest country in the world in terms of broadband Internet users. As of 2009, India is among the 4th largest television broadcast stations in the world with nearly 1,400 stations. James Augustus Hickey is considered as the "father of Indian press" as he started the first Indian newspaper from Calcutta, the Calcutta General Advertise or the Bengal Gazette in January, 1780. In 1789, the first newspaper from Bombay, the Bombay Herald appeared, followed by the Bombay Courier next year (this newspaper was later amalgamated with the Times of India in 1861). The first major newspaper in India is The Bengal Gazette was started in 1780 under the British Raj. Other newspapers such as The India Gazette, The Calcutta Gazette, The Madras Courier (1785), The Bombay Herald (1789) etc. soon followed. These newspapers carried news of the areas under the British rule. The Times of India was founded in 1838 as The Bombay Times and Journal of Commerce by Bennett, Coleman and Company, a colonial enterprise now owned by an Indian conglomerate. The Times Group publishes The Economic Times (launched in 1961), Navbharat Times (Hindi language), and the Maharashtra (Marathi language).



During the 1950s 214 daily newspapers were published in the country.[2] Out of these, 44 were English language dailies while the rest were published in various regional languages.[2] This number rose to 2,856 dailies in 1990 with 209 English dailies.[2] The total number of newspapers published in the country reached 35,595 newspapers by 1993 (3,805 dailies). The main regional newspapers of India include the Malayalam language Malayala Manorama (published from: Kerala, daily circulation: 673,000), the Hindi-language Dainik Jagran(published from: Uttar Pradesh, daily circulation in 2006: 580,000), and the Anandabazar Patrika (published from: Kolkata, daily circulation in 2006: 435,000).[9] The Times of India Group, the Indian Express Group, the Hindustan Times Group, and the Anandabazar Patrika Group are the main print media houses of the country. Newspaper sale in the country increased by 11.22% in 2007. By 2007, 62 of the world's best selling newspaper dailies were published in China, Japan, and India. India consumed 99 million newspaper copies as of 2007²making it the second largest market in the world for newspapers.

History of Radio and Television:
Radio broadcasting was initiated in 1927 but became state responsibility only in 1930. In 1937, it was given the name All India Radio and since 1957 it has been called Akashvani. Limited duration of television programming began in 1959, and complete broadcasting followed in 1965. The Ministry of Information and Broadcasting owned and maintained the audio-visual apparatus including the television channel Doordarshan in the country prior to the economic reforms of 1991. The Government of India played a significant role in using the audio-visual media for increasing mass education in India's rural swathes. Projected television screens provided engaging education in India's villages by the 1990s. Following the economic reforms satellite television channels from around the world including BBC, CNN, CNBC, PTV, and other foreign television channels gained a foothold in the country. 47 million household with television sets emerged in 1993, which was also the year when Rupert Murdoch entered the Indian market. Satellite and cable television soon gained a foothold. Doordarshan, in turn, initiated reforms and modernization. With 1,400 television


stations as of 2009, the country ranks 4th in the list of countries by number of television broadcast stations.

History of Indian cinema:
The history of film in India begins with the screening of Auguste and Louis Lumière moving pictures in Bombay during the July of 1895. Raja Harishchandra a full-length feature film was initiated in 1912 and completed later. Alam Ara (released 14 March 1931) directed by Ardeshir Irani was the first Indian movie with dialogs. Indian films were soon being followed through out Southeast Asia and the Middle East where modest dressing and subdued sexuality of these films was found to be acceptable to the sensibilities of the audience belonging to the various Islamic countries of the region. As cinema as a medium gained popularity in the country as many as 1,000 films in various languages of India were produced annually. Hollywood also gained a foothold in India with special effects films such as Jurassic Park (1993) and Speed (1994) being specially appreciated by the local audiences. Expatriates throughout the United Kingdom and in the United States continued to give rise to an international audiences to Indian movies, which according to The Encyclopedia

Britannica (2008) entry on Bollywood continued to be formulaic story lines, expertly choreographed fight scenes, spectacular song-and-dance routines, emotion-charged melodrama, and larger-than-life heroes.



Response for media in India:
Official Country Name: Population: Literacy rate: Number of Daily Newspapers: Total Circulation: Circulation per 1,000: Number of Nondaily Newspapers: Total Circulation: Circulation per 1,000: Total Newspaper Ad Receipts: As % of All Ad Expenditures: Number of Television Stations: Number of Television Sets: Television Sets per 1,000: Number of Cable Subscribers: Cable Subscribers per 1,000: Number of Radio Stations: Number of Radio Receivers: Radio Receivers per 1,000: Number of Individuals with Computers: Computers per 1,000: Republic of India 1,029,991,145 52.0% 398 30,772,000 50 98 7,774,000 13 35,624 (Rupees millions) 50.40 562 63,000,000 61.2 39,112,150 38.5 312 116,000,000 112.6 4,600,000 4.5

Number of Individuals with Internet Access: 5,000,000 Internet Access per 1,000: 4.9



Role of media
Media role can be seen as key to creating awareness of Corporate Governance in business houses. Communication between Media and Corporate bodies directly and through efficient public relations or mass communications can be vital to ensure good governance and human rights. Media must be on the front line in disseminating impartial news for ensuring transparency in the Corporate sector. Media have a watchdog role to ensure accountability and transparency of corporate sector. Media also need to improve their capacity to play the watchdog role. The Media can play a role in Corporate Governance by affecting reputation at least 3 ways that Anyone seeing the ad would read it, Anyone reading the ad would understand it, Anyone understanding it would feel free to ask questions of any board members they encountered

Media attention can drive politicians to introduce Corporate Law reforms in the belief that inaction would hurt their future political careers or shame them in the eyes of Public opinion In the Traditional understanding of Reputation, Managers wages in the future depend on Shareholders¶ and Employer¶s belief that how much advantage they are going to take of the situation that they are not monitored. Thos concern about Monetary Penalty that they may have to face they always behave like good managers Image in the eyes of the Public. As given in the first example, Robert Monk said bout the Advertisement.

Role of Media in pressuring corporate managers and directors to behave in ways those are socially acceptable. Sometimes this coincides with Shareholder¶s value maximization. Media affects companies¶ policy toward the environment and the amount of corporate resources that are diverted to the sole advantage of controlling shareholders. Here I have quoted two examples though not Indian but will very well explain the effect of Media on corporate governance.

EXAMPLE 1. In April 1992, the Wall Street Journal published a strange advertisement. It was a full-page picture of a silhouette (outline) of the board of directors of Sears Roebuck with the title ³The nonperforming assets of Sears´ This advertisement was paid for by shareholders


activist Robert Monks. He exposed all the directors, identified them by name that were responsible for the poor performance of Sears Stock. The Directors greatly embarrassed by the advertisement chose to adopt many of the proposals which were given by Robert Monks even though he had received only 12% of the votes in the previous election for board members and had failed to get a seat on the board.

EXAMPLE 2. On March 8 1988, all the major US networks broadcast a tape of a Panamanian tunaboat ± the Maria Luisa, killing hundreds of dolphins while fishing for tuna. Building on Public outrage, the Earth Island Institute, GREENPEACE and the Humane Society launched a boycott of Tuna. The Restaurant chains took tuna off the menu and many stopped using tuna until it was ³dolphin safe´ i.e. fished with nets that were not killing dolphins. On April 12, 1990, Heinz announced that it would sell dolphin safe tuna .Within hours the two other largest tuna producers made a similar commitment. These episodes suggest that the Media may play a role in shaping corporate policy

EXAMPLE 3: Dhaka, Oct 1 (BDNEWS) - Media's role is crucial to create awareness about corporate governance in business houses, speakers said at a roundtable in Dhaka Saturday. Communications between media and corporate bodies directly and through efficient public relations (PR) or Mass Communications (MC) personnel can be vital to ensure good governance and human rights, they told the roundtable titled "Corporate Governance: Bridging Corporate Sector and Media". Management and Resources Development Initiative (MRDI) organized the roundtable with support from Manusher Jonno at a city hotel, which was participated by business association leaders, chief executives/representatives of insurance, mobile phone, cement, hospitality companies and newspaper editors. Moazzem Hossain, editor of the Financial Express, moderated the roundtable. Jamal Uddin Ahmad, managing director of Jaroms Industries Ltd said, CSR is (Corporate Social Responsibility) the vehiclet serve humanity.



Media must be at the frontline in disseminating impartial news for ensuring transparency in the corporate sector, said Ahmed, also the former deputy prime minister of Bangladesh. Dewan Sultan Ahmed, vice president of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), told that the business people should focus on business, not politics. Mohiudding Babar, communication manager of Lafarge Surma Cement Ltd, said media have a watchdog role to ensure accountability and transparency of the corporate sector. Media also need to improve their capacity to play the watchdog role, he added. Nasir A Choudhury, managing director of Green Delta Insurance Company Ltd., said government should introduce incentives for companies that practice corporate social responsibilities. He sought media role to promote corporate governance and social responsiveness. Shyamal Dutt, acting editor of the daily Bhorer Kagoj, said business interest of media overshadows role towards social responsiveness. He also stressed on governance in media to ensure accountability.

Media do affect Corporate Policy
The extent of Diffusion of the Press also affects the role it has. Press cannot be important if it is not read. Press freedom and Independence also has some impact on the effect it has. Countries with a large newspaper circulation have better environmental responsiveness on average. Religion is major factor affecting literacy of the country and its propensity to read.

Shareholder Activists and the Press
Shareholder activists such as Robert Monks have found the press useful in their fight with Management in US but some recent events in the Republic of Korea indicate that there is a Strong Shareholders take advantage of their position at the expense of small investors. National Corporate Laws give few rights to outside investors. The strength of protection for minority shareholders and expectations in relation to law enforcement is low. The beginning of efforts to force change in Korea dates back to 1996. The formation of PSPD (People¶s Solidarity for Participatory Democracy) driven by Jang Ha Sung of Korea University As in the US the Investor Activists relied on both one. Legal pressure, 2. On the use of Press.



The most imp successful challenge to date has been the battle to stop insider dealings in SK Telecom
SK Telecom has been an extremely profitable company but its financial results did not show it up because the company used transfer pricing to benefit two companies (almost 100% owned by the Chairman of SK Telecom and his relatives). The PSPD draw attention to these Policies. After the London based Newspaper Financial Times picked up the Story, a media campaign ensued to attract proxy votes. This campaign involved publishing advertisements in newspapers and using television and Radios. In March 1998 ± SK Telecomµs Directors capitulated and agreed to the PSPD¶s request.

Institutional Investors
While institutional investors have many legal mechanisms to encourage change in corporate policies, the presence of an active Press increases their influence. It provides cheap way to impose penalties on companies and to coordinate the response of other investors.

CalPERS (The California State Pension Fund for Public Employee)
Policy of CalPERS ± Identifying underperforming firms and generating widespread media attention as an important tool in its efforts to change corporate policies to increase their returns. Under performance is judged through various parameters. CalPERS give a threat that they will conduct a proxy contest and reveal the firm in Focus List. CalPERS found that when it removed the Publicity threat than its strategy did not work. Thus, Single most important corrective mechanism against Misgovernance is Press. Through Press Media¶s attention of Management Failures. Press reporting can put institutional investors to shame and do good actions. Press reporting can also shame Politicians and Managers who care about their international reputation to act to improve policies in firms. As William Browder reported, ³The Press is one of the reasons why we pursue lawsuits. We have pursued 24 lawsuits so far and lost 23. But the advantage is Publicity´



Private and Govt Regulations
Public opinion pressures generated by an active press are very important to improve Corporate Governance. Two Countries are given as examples. 1. United Kingdom, 2. China

U.K ± Approach of U.K to the range of financial scandals of 1980s including the collapse of Bank of Credit and Commerce International and Maxwell group. U.K pursued self regulation enforced through disclosure. The Cadbury commission was the first initiative to reform by means of Disclosure and Public Pressure (The 19 key recommendations included enhanced role for independent directors, a minimum no. of independent Directors, Separation of the role of CEO)

China - In Hongkong (China the Stock Exchange has historically not had the legal authority to impose penalties on companies that misbehave).The Threat is usually enough. Shaming is both a Personal penalty and a Financial Penalty.

Theoretical Framework
While the reliable evidence is useful in documenting the existence of this phenomenon and illustrating how this influence takes place, more systematic evidence is needed to prove its importance. For this reason, we turn to a cross-country analysis of the effects of the media on corporate policy. Before doing so, however, we need to be more specific about the channels through which this influence occurs. A first channel of influence is that media attention can drive corporate law reforms or the enforcement of corporate laws. The likely motivation for such changes is politicians¶ belief that inaction would hurt their future political careers or shame them in the eyes of public opinion, both at home and abroad. This is an important dimension of the media¶s impact that Besley and Prat (2001) and others have explored.

We focus on the links between the media and managers¶ and directors¶ reputations. Consider a model of reputation building like that presented in Diamond (1989). Agents can be of two types, good or bad, which differ in their cost of taking a certain action. In our case, an environmentally friendly manager will find polluting more painful than somebody who does not care about the environment.


Let us assume, as it is likely, that the environmentally sensitive decision carries a higher cost for the manager, it requires more effort. Thus, the good (environmentally friendly) manager will not pollute while the bad manager will pollute. Let us now assume, consistent with our previous discussion that being identified as an enemy of the environment carries a cost. If we really want to incorporate this cost in the typical career concern models (see, for example, Harris and Holmstrom 1982), we can say that this cost arises from the possibility that the manager might move into politics, where a bad environmental record represents a genuine liability.

More broadly, we can think of this cost as the personal disutility of a dent on the manager¶s public image. The social norm is that managers should be environmentally friendly, therefore being identified as a bad environmental manager produces social shaming. People simply dislike being singled out as ³bad´ people. If the payoff of being recognized as environmentally conscious is large enough (or the disutility of being identified as a polluter is significant enough), even bad managers can be induced to take the ³right´ action by their desire to mimic the good type, and in so doing being recognized as environmentally friendly (see Diamond 1989). As only the bad manager will want to pollute, polluting immediately identifies a manager as bad. Hence if the payoff of being identified as a polluter is sufficiently negative, the bad manager will choose to disguise himself or herself as environmentally conscious by not polluting.

This type of reputation model is based on the assumption that the information about the manager¶s action is revealed to the public with probability 1. In practice, this is not the case. Information does not descend on individuals: they acquire it at a cost that is affected by the media. Governments, firms, and interest groups generate and aggregate information that the media then process and selectively communicate. The broader the media coverage, the more likely that the public at large will acquire this information. Similarly, the more attention the media command, the more widely this information will travel. In our empirical analysis, we will use the second dimension, and as a measure of the attention the media command we use newspaper readership normalized by population. Clearly in this type of reputation model, if we introduce the idea that outsiders learn of managers¶ actions only with a certain probability, then the higher this probability is, the higher


the likelihood that managers will behave in an environmentally-conscious way. In particular, if a higher diffusion of the press leads to a higher probability of detection, then the higher the diffusion of the press, the more that likely managers will behave in an environmentallyconscious way. This is the proposition we will test.

Similarly, we will test the proposition that the higher the diffusion of the press, the more likely managers are to protect minority shareholders¶ interests. The foregoing discussion can be recast in these terms simply by substituting ³shareholder friendly´ for ³environmentally conscious.´ The only difference is that in this latter case we do not have to appeal to managers caring about their public image to obtain the results, but could simply have talked about managers¶ reputation in the labor market. Nevertheless, in most countries managers are appointed by majority shareholders, thus whether their career opportunities are enhanced by acting in the interests of minority shareholders is not clear. We should try to understand the channels through which media effects the Corporate Policy. The first channel of influence is that media attention can drive enforcement of corporate laws. The second channel is the link between Media and Manager¶s and Directors reputation. An environmentally friendly mgr will find polluting more painful than somebody who does not care about the environment. Even bad managers can be induced to take the ³right´ action by the desire to mimic the good type. In addition, in so doing being recognized as environmentally friendly. Reputation Model is based on the assumption that information about the manager¶s action is revealed to the public with probability. The broader the Media coverage the more likely that the public at large will acquire this information.

Similarly the more attention the media command the more widely this information will travel. In particular, if a higher diffusion of the Press leads to a higher probability of Detection then the higher the diffusion of the Press the more likely mgrs will behave in an environmentally conscious way.



Where Do the Media Get Their Information?
The previous discussion highlighted the role of the media in aggregating, certifying, and diffusing crucial information, but where do the media get their information? For the media to collect their own information about managers¶ actions is costly, thus they often rely on information provided to them. An important source is the government, either directly, or indirectly through mandated disclosure, for instance, required financial or environmental disclosures. Government-mandated information is the most reliable, because it is not affected by selectivity and is not provided in exchange for something. With greater government-mandated disclosure, such as the toxic release inventory, it is easier for interest groups to aggregate the information and for journalists to use this aggregated information when they communicate to the public.

Journalists also obtain information directly from the source, that is, managers, employees, and so on. Not only is this information selective, it is often provided to the journalist on a quid pro quo basis, such as favorable treatment in the news story. In the long run, the use of this channel will undermine the credibility of the media. A similar problem arises with the third potential source of information, namely, interest groups such as the shareholder activists, institutional investors, and environmental activists described earlier.

Interest groups both generate information, for instance, the tape of dolphins being killed, and aggregate and synthesize information from other outlets, such as the list of toxic polluters. Other aggregators of information in corporate governance include equity and bond analysts. While the media are important to all these groups, the media are particularly important to activists who seek to mobilize and coordinate the actions of a dispersed set of citizens, such as for a boycott or a proxy fight. For the Media to collect their information about managers action is costly, thus they rely on information provided to them. An important source is Government either directly or indirectly thru Mandated disclosure, For instance required financial or environmental disclosures. Government mandated information is the most reliable. It is easy for the Interest groups and Journalists to collect information and use it when they communicate to the Public. Third


potential source of Information is Interest groups, Shareholders activists, institutional investors, environmental activists

Selective Coverage and Media Credibility
So far, we have treated the media as a single entity that aggregates and then communicates information. A critical issue we have ignored is the credibility of the information the media communicate to the public, which is, of course, extremely important. The fact that the Financial Times reported on the SK Telecom and Gazprom insider deals brought credibility to the stories, because even in Korea and Russia the Financial Times is more credible than local newspapers. Similarly the Business Week ranking of business schools had a much greater impact than the U.S. News and World Report ranking because the former is not only more diffused, but also more authoritative than the latter.

The issue of credibility is particularly delicate because it opens up the question of newspapers¶ incentives to conduct further investigations to establish the validity of the information reported to them and their incentives to report the information they receive accurately. It is precisely when newspapers do have an impact that they have an incentive to enter into side deals with the parties involved and be paid not to reveal damaging information. Threats to increase (or withhold) future advertising revenues in exchange for stories that reflect well (badly) on company management and directors are one example of side deals. Of course, such side deals might hurt the reputation of a newspaper in the long run and hence its credibility. If it as is likely it is more difficult for an individual newspaper to build a reputation of integrity in a market where all the other newspapers are colluding, the possibility for multiple equilibrium arises( occurs) One equilibrium is where newspapers have credibility and thus avoid side deals for fear of losing it. Another is where newspapers do not have credibility and happily accept bribes not to publish damaging information or to publish false damaging information. Important factors that determine which equilibrium prevails are the competitive environment in which newspapers operate the ownership structure of the media, and libel laws. In a competitive market a newspaper agreeing not to publish bad news is likely to be scooped by another newspaper and to lose credibility. Thus the more competitive the environment is, the less likely is the collusive


equilibrium. Similarly, an independent newspaper whose survival rests solely on its own success is less likely to collude with established business interests. By contrast, a newspaper owned by a business group is naturally less likely to publish bad news about the group itself. This in turn affects its credibility in correctly reporting other news, thereby reducing its incentives to build a reputation (and increasing its incentives to collude). More stringent libel laws reduce the likelihood of newspaper publishing information that suggests that managers are ³bad,´ again reducing the information content of the media. Empirically, we lack most of this information. No internationally comparable indicators of the stringency and enforcement of libel laws are available. Djankov and others (2001) reported the fraction of media owned by the government, and Freedom House (1999, 2000) reported the degree to which each country permits the free flow of information. In our case, however, these indicators are not the most important pieces of information.

We would like to know which media are owned by business groups with other important business interests and which ones have fewer ties to nonmedia firms and are independently owned, like the New York Times or the Washington Post. Political freedom of the press is not the same as freedom from economic influences. The extent of newspaper readership that we will be using, however, indirectly gets at the credibility question. In a market where newspapers are more likely to collude, and are thus less credible, they also become a less valuable source of information, and therefore, other things being equal, they are less likely to be read. Hence, our measure of newspaper readership captures both the diffusion of the newspapers and their overall credibility. Financial Times is very credible and Business Week is very reliable and widespread. The Issue of credibility is particularly delicate because it opens up the question of Newspapersµs incentives to conduct further investigations to establish the Validity of the information reported to them. If wrong information¶s they have to pay fine for revealing damaging information. There are newspapers who take bribes. More Stringent Libel laws reduce the Likelihood of newspaper publishing information, which is false.

Consumer Demand and Selective Coverage


The media¶s impact also depends on the entertainment value of news. ³It was all too complicated and boring to interest many mainstream journalists,´ said Ellen Hume of the New York Times to explain the delay in media attention to the U.S. savings and loan crisis (cited in Baron 1996). Similarly, when asked why television had paid relatively little attention to the crisis even after it had made headlines in 1988, the president of NBC news, Michael Gartner, observed that the story did not lend itself to images, and without such images ³television can¶t do facts´ (cited in Baron 1996, p. 62). Environmental issues naturally generate images (the dying dolphins) that can capture the public¶s attention, while corporate scandals do not. For this reason, we expect the print media to be more central to corporate governance issues than broadcast media.

Demand considerations also lead to a selective focus on stories with wide interest, like executive compensation levels, rather than on other elements of good corporate governance, like the composition of boards and the role of auditors, even after scandals such as Enron and WorldCom. Readers may not be able to appreciate the nuances of corporate situations, leading to news stories that simplify firm performance relative to environmental or corporate governance standards in too stark a way. In the United Kingdom, for example, while the recommendations developed in the Cadbury, Greenbury, and Hampel reports are often qualified, they are rarely reported that way. The ³public´ version is a gross oversimplification around bright line rules, producing ³box checking´ and intense pressure to conform to standards different than those intended.

Finally, demand for corporate governance news might depend on the structure of corporate ownership. Thus the extent of coverage and the consequent sanctioning role of the press are likely to be more important when a broad group of citizens have a personal interest in the outcomes, because of their direct or indirect (through pension funds) shareholdings. The important corporate governance role played by the media in Korea and Malaysia described earlier is probably attributable to the widespread dispersion of ownership in publicly traded firms in these two countries.


Reputational Penalties and Social Norms
As noted previously, media activity can hurt managers¶ reputations in the eyes of shareholders and future employers as well as of family, friends, professional associates, and the public at large. Reputational penalties can be long lasting. As Jean Lamierre, the president of the European Bank for Reconstruction and Development said: ³People may not necessarily change,´ in defense of a policy of keeping a secret blacklist of companies and individuals with which the bank will not do business (Wagstyl 2002). The strength and nature of shared social norms influence the impact of the media. Where maximizing shareholders¶ value is the norm, any media account of underperformance has a significant impact. In the United States, for instance, a well developed set of publications, including the Wall Street Journal, the New York Times, the Financial Times, Business Week, Fortune, Forbes, and Harvard Business Review, emphasizes both business heroes and villains. Executives seek to be identified in these publications for the status it brings them. Where such status is valued, the media are particularly powerful because they can both build and destroy reputations.

This power of U.S. and British media to pressure managers transcends domestic borders. After becoming rich, executives in emerging markets seek broader acceptance in the international community by joining the World Economic Forum at Davos, seeking positions on the boards of trustees of prominent international institutions, and so on. While the Russian oligarch Vladimir Potanin was successful in his efforts to join the trustees of the Guggenheim Museum in April 2002, oligarchs such as Oleg Deripaska were ³disinvited´ from participating in the Davos meeting, and Deripaska was stripped of his designation as ³one of the global leaders of tomorrow´ following negative press coverage of civil lawsuits alleging bribery, money laundering, and worse (Financial Times 2001; Wagstyl 2002). Interestingly, these leaders are not as sensitive to their public image in their own country, perhaps because of the lack of credibility of the local media, the lack of shared norms, or both. In any case, these episodes suggest that the U.S. and



British media play a nontrivial role in exporting the Anglo-American model to other countries. We should reiterate, however, that the norms communicated by the media are not necessarily in shareholders¶ interests. In countries like Japan, where lifetime employment is a shared value, the media are likely to describe workers¶ dismissals in a negative light. This sanction might deter firings even when they enhance value from a shareholders¶ perspective.

Media activity can hurt manager¶s reputation. Any Media account of underperformance has a significant impact. The newspapers can make Corporate Business Heroes or Also Villains.

Data on Corporate Policy and the Importance of the Press
In Dyck and Zingales (2001) we analyzed, among other things, the impact of the diffusion of the media on corporate governance. As a measure of corporate governance we used an estimate of the value of control obtained from control block transactions. On average, parties are willing to pay more for control only if they expect to enjoy some private benefits. Private benefits of control represent the wedge between the physical return to investments and the amount external financiers can appropriate. They are therefore a good indicator of how much dispersed shareholders¶ rights are respected.

We found that private benefits of control are lower, and thus governance is better, in countries where the press is more diffused. This is true even after controlling for the degree of legal protection offered to minority shareholders, for the quality of accounting standards, and for the level of economic development as measured as GDP per capita. The effect is also economically significant. One standard deviation increase in the diffusion of the press reduces the average value of private benefits by 5 percentage points, 18 percent of their standard deviations. In this paper, we perform a similar analysis with respect to environmental practices.

Dependent Variable: Private Sector Responsiveness to Environmental Issues As an indicator of the importance private sector firms place on environmental issues we use an index of private sector responsiveness to environmental concerns developed through the collaboration of the World Economic Forum and researchers from Columbia and Yale universities. This index is


based on five variables: the number of ISO 14001 certified companies per million dollars of GDP, the number of World Business Council for Sustainable Development Members per million dollars of GDP, Innovest¶s EcoValue rating of firms¶ environmental performance, the Sustainable Asset Management rating of the environmental sustainability of firms in the Dow Jones global index, and the levels of environmental competitiveness based on firm surveys.

Each variable is based on firm-level data and assigned equal weight in the index. It describes and defines all the variables used in this paper and shows their sources. Private sector responsiveness is clearly related to per capita income. The five highest ranked countries are Switzerland, Japan, Germany, the United Kingdom, and New Zealand, while the five lowest ranked countries are Venezuela, Indonesia, Greece, Colombia, and the Philippines. However, responsiveness is not driven solely by per capita income. Italy and the United Kingdom, for example, have similar per capita incomes, but very different measures of private sector responsiveness: Italy¶s index is ±0.35, ranking it 35th in our sample, while the United Kingdom¶s index is 1.02, ranking it 4th.

Measures of the Importance of the Press
We focus on two principal measures of the press that recent studies have highlighted. The first measure, and the focus of the analysis, is a measure of the diffusion of the press based on the circulation of daily newspapers in the country normalized by the country population. This measure captures, to some extent, the possibility for the press to affect public opinion, because it provides one measure of the reach of the press. It also captures, to some extent, the presence of an active and competing press, because wider circulation is presumably accompanied by more intense competition among competing firms. Cross-country variation in the diffusion of the press is significant. The five economies in our sample with the highest readership are Hong Kong (China), Norway, Japan, Finland, and Sweden. The five lowest countries in our sample are Kenya, Zimbabwe, Pakistan, South Africa, and Egypt. Again, income explains much of the variation, but even for countries with similar incomes great disparities are apparent, for instance, in the United Kingdom the average circulation is 331 per 1,000 inhabitants, while in Italy it is 104. The press measures used more often in the literature are derived from Freedom House (see examples cited


in Besley, Burgess, and Pratt (2002)). We focus on three measures: the freedom of the press, the frequency of violations against broadcast media, and the frequency of violations against print media. The freedom of the press is an index that measures the "degree to which each country permits the free flow of information" (Freedom House 1999). The frequency of violations against the media be they broadcast media or print media, is an index based on "actual violations against the media, including murder, physical attack, harassment and censorship" (Freedom House 1999). A clear relationship between diffusion and the rating of press freedom is apparent, with a correlation of 0.55. However, the variables do capture different components of the press, and for countries with similar levels of freedom quite significant differences in readership can be noted, for instance, Spain and the United Kingdom have similar levels of press freedom, but Spain has less than one-third the readership. We do not look at other possible press measures, such as the measure of ownership of the media used by Djankov and others (2001). They focused on what fraction of the media is owned by the government, but our sample has too few countries where ownership of the press is in other than private hands.

Other Institutional Factors
As we already pointed out, countries where the press is very diffused are also countries with a higher GDP per capita and better law enforcement. To reduce the likelihood that we are attributing to the influence of the press the role of some other institutional factors, correlated with press diffusion, our regressions control for the most important ones. LEGAL

ENVIRONMENT. Our claim is that the media have an impact on corporate behavior beyond any legal requirement. Therefore when studying the private sector¶s responsiveness to environmental issues we should control for the extent of environmental laws and regulations. As an indicator of the stringency of legal and regulatory restrictions on firms we use the 2001 environmental sustainability index (Yale Center for Environmental Law and Policy 2001), which is based on four variables: the stringency and consistency of environmental regulations, the degree to which environmental regulations promote innovation, the percentage of land area under protected


status, and the number of sectoral guidelines on environmental impact assessments. Each variable has equal weight and has been normalized.

INFORMATION ENVIRONMENT. More disclosure can have an effect independent of the role of the press. For this reason, we want to control separately for the degree of disclosure. When we examine the private sector¶s responsiveness to environmental issues we control for environmental disclosure. As we lack firm based measures of environmental disclosure, we instead use the extent of environmental disclosure as captured by the index of environmental information compiled for the 2001 environmental sustainability index.

Empirical Results
We start by analyzing the link between the diffusion of the press and the indicator of private sector responsiveness to environmental issues. We first use univariate analysis and then turn to multivariate analysis to try to control for the other important institutional factors. Panel A of table 3 shows a strong positive correlation between the diffusion of the press and private sector responsiveness to environmental issues. The diffusion of the press alone explains 42 percent of the cross-country variation, slightly more than the explanatory power of per capita income (38 percent). Not surprisingly, the private sector¶s responsiveness to environmental issues is also positively correlated with the level of environmental regulation environmental information and per capita income. We combine readership with the legal and disclosure variables and

readership continues to have a statistically significant impact: including readership increases the explanatory power from 45 to 58 percent. Of course, there is the possibility that readership is just picking up the impact of some third omitted variable. To attempt to capture a possibility we also include the level of per capita income, but readership continues to have a significant effect. Finally we include other institutional variables, such as the rule of law and ownership concentration, but the diffusion of the press continues to be significant. An interesting finding is that ownership concentration has a negative and statistically significant effect on the private sector¶s responsiveness to environmental issues. Where large


shareholders run firms they feel freer to ignore the public opinion pressure in favor of the environment, another piece of evidence that this is not a course of action that maximizes value. In panel B we substitute the diffusion of the press with the freedom of the press, the frequency of violations against broadcast media, and the frequency of violations against print media. In a univariate setting all three of these variables help explain a significant amount of the crosscountry variation. In a multivariate analysis, however, the statistical significance is reduced, and in the case of violations against broadcast media it drops below conventional standards. The traditional indicators of press freedom thus have an effect similar to the diffusion of the press, but statistically weaker. This is not surprising, because these other indicators are meant to capture freedom from political influences rather than the credibility of reporting about corporations.

What Determines the Diffusion of the Press?
Our cross-country regressions suffer from two problems that are common to this genre of regressions. First, there are so many institutions that differ across countries and so few degrees of freedom that one always wonders whether the results are due to an omitted variable that drives both press diffusion and environmental responsiveness. We have tried to address this problem by controlling for the most obvious determinants of environmental responsiveness, but we can never be sure that we have controlled for all the important factors. The second problem, which is less of an issue here, is one of reverse causality. Is the press more diffused because companies are more sensitive to environmental policies?

To address both these problems we resort to instrumental variables. A good instrument is one that is correlated with our variable of interest (the diffusion of the press), but is not correlated with the error in our regressions of the diffusion of the press on corporate behavior. One precondition for the diffusion of the press is the diffusion of education, and we could use the average level of school attainment as a determinant. However, the same factors that determine schooling policy could also be correlated with environmental responsiveness. For this reason we prefer to use historically predetermined factors that have caused these differences in the level of education. We introduce two, the degree of linguistic fractionalization and the dominant religion in a country.


The more languages are spoken in a country, the more fragmented the newspaper market. In a more fragmented market fewer newspapers can survive, and it is more difficult for them to acquire reputation and credibility. Ethno linguistic fractionalization should therefore have a negative impact on the diffusion of the press.

Religions differ in their approach to education and to the extent; they encourage the development of critical judgment by their followers. Catholicism, for instance, traditionally did not encourage education among its followers except for the clergy. Catholics were not encouraged to read the Bible, nor were they supposed to develop an individual capacity to interpret it. The Catholic Church saw itself not only as the intermediary between God and individual believers, but also as the only official interpreter of the word of God. By contrast, the Reformation, with its emphasis on individual reading and interpretation of the Bible, favored individual education. Martin Luther translated the Bible into German and promoted the literacy of his followers. Hence, we would expect Protestant countries to have a better level of schooling and exhibit a higher diffusion of the press. Our third and fourth categories are Islam and other Religions, which includes Judaism and Buddhism.

We test these conjectures as a dependent variable we have the diffusion of the press. As independent variables, we have three indicator variables for the dominant religions (Catholic, 29 Protestant, and Muslim) and an indicator of ethno linguistic fractionalizaiton used in the literature (see Easterly and Levine 1997). The latter is based on the probability that two randomly selected people from a given country will not belong to the same ethno linguistic group. All our explanatory variables have the expected impact on the diffusion of the press. In all the cases except for the Catholic dummy, these coefficients are statistically significant.

Most important, from the point of view of their quality as instruments, they together explain 41 percent of the variation in press diffusion. Hence, they appear to be good instruments. We use these instruments to re-estimate by instrumental variables our basic specifications for the determinants of environmental policy. The environmental policy regressions, produce similar results to the ordinary least squares estimates.


The instrumental variable point estimate of the impact of the diffusion of the press is actually larger than the ordinary least squares counterpart, rejecting the hypothesis that the result is due to omitted variables. Thus far, we have limited our search of the determinants of press diffusion to factors that (a) are likely to be uncorrelated with the determinants of environmental pressure and protection of minority shareholders; and (b) are predetermined, and as such are legitimately exogenous. However, the question of what drives the diffusion of the press is of independent interest. If the diffusion of the press plays a role in corporate governance, then from a policy point of view we are interested in finding out what factors under the control of the government play a role in spreading newspapers¶ readership.

For this reasons, we consider the empirical significance of other potential determinants of the diffusion of the press. First we consider the average degree of schooling measured as the log of school attainment for those over the age of 25 taken over five year periods (1960-1965, 19701975, 1980-1985) (Barro and Lee 1993). As expected, countries with a higher level of schooling have a more diffused press. All the other variables except the Muslim dummy maintain their predicted effect, although the statistical significance of the religion dummies decreases, as is to be expected if they affected the diffusion of the press mainly through their effect on education. We also insert the market share controlled by state-owned newspapers.

The more newspapers the government controls, the less credible they are, the less they will be read, and perhaps the harder it will be for competitors to enter the market. We take the market share of state-owned newspapers as a percentage of the total market share of the top five newspaper outlets from Djankov and others (2001). As expected, the impact of government ownership of the media is negative and statistically significant. All the other variables maintain their predicted effect. Finally, we want to make sure that the effects we have described are not just due our failure to control for any indicator of the level of economic development of a country. While the cause-effect relationship is more ambiguous here, seeing that the estimated effects are similar once we insert the log of per capita income, is reassuring (column 4).



A case in Russia:
If enforcement is effective and/or legal punishments are severe, the manager has expected cost of violating minority shareholders¶ rights is such that they will never do so. For this reason, it would be very difficult to try to identify any effect of the media in a country with highly effective corporate governance rules. The same is true, however, if the media have a long record of accomplishment of imposing reputational penalties on managers who violate investors¶ rights. The fear of such penalties will dissuade any manager from committing a violation. Ideally, therefore, we would need a country that has very little or no legal enforcement and where, at the time a decision is made, the reputational costs of a decision are perceived to be very low. Russia during the late 1990s/early 2000s period scores ³well´ on both of these dimensions. During this period the standard instruments to redress corporate violations were either nonexistent (derivative suits) or completely ineffective (for example, courts were easily corruptible; see Slink, Yakolev, and Zhuravskaya (2004)). As a result, corporate governance violations were very extreme, very common, and very visible. Hence, we can relatively easily assemble a sample of objectively bad governance decisions and follow them over time. Note that Russian managers were just starting to learn how to deal with the press, and in particular with the foreign press, during the sample period. Having been raised in an environment (Soviet Russia) where the media had reported only what the party establishment wanted, Russian managers were unlikely to factor into their decisions the reputational cost the media could inflict. No one illustrates this learning process better than Khodorkovsky, the former CEO of Yukos. At the beginning of his career, Khodorkovsky hated the press and kept it at a distance. After one of his rare meetings with journalists, he declared: "It would be more pleasurable to meet a bunch of our unpaid workers in Siberia."7 In August 1999, however, when the Bank of New York was accused of laundering money for several Russian companies, Yukos changed strategy because it was concerned that "despite the absence of specific data, U.S. officials have taken the publications quite seriously ± a U.S. Congress hearing is scheduled for mid-September. A possible result of this hearing could be a decision to refuse Russia the financial aid of international financial institutions.´8 Such attention spurred Yukos to hire a Western public relations agency and to start to fight back against the allegations in the media. Explaining Yukos decision to keep his company public and to pay more attention to investors and public relations,


Khodorkovsky said, "First, there are not many very big private companies - and we want to be very big. Second, we need access to cheap capital and that means openness. Third, a big oil company has lots of workers, lots of ecological responsibilities. If it is opaque it is not going to be popular. Finally, there is the issue of nationalisation, which we can never ignore. A private company is a lot easier to nationalise than a public one."9 Following this public relations campaign, Yukos started to be praised by the Western media as a model of financial transparency and Khodorkovsky became the darling of the Western press. While this strategy was not sufficient in preventing Putin from seizing Yukos, it certainly made it more costly for him to do so. As the Khodorkovsky quotes suggest, Russians care about their reputation vis-àvis the international community for three reasons. First, they might want to access international markets (for financing, joint ventures, and even sales contracts). Second, a good reputation may act as an insurance policy, both to protect the legitimacy of their holdings and to facilitate an asylum request in case they become persecuted in Russia. Third, a good reputation my lead to personal satisfaction. After becoming rich, executives in many developing countries seek broader acceptance in the international community by joining the World Economic Forum at Davos, seeking positions on the boards of trustees of prominent international institutions, and so on. Negative news reported in international media can have the effect of ostracizing the executives from these desired social circles. While the Russian oligarch Vladimir Potanin was successful in his efforts to join the trustees of the Guggenheim Museum in April 2002, Oleg Deripaska was ³disinvited´ from participating in the Davos meeting, and was stripped of his designation as ³one of the global leaders of tomorrow´ following negative press coverage of civil lawsuits alleging bribery, money laundering, and worse (Financial Times 2001; Wagstyl (2002)).

B. Can We Identify an Exogenous Shift in News Coverage?
In addition to the two factors mentioned above, Russia provides an excellent environment to identify the impact of the press on governance because there exists a fund that consciously plays a media strategy: the Hermitage Fund. Founded in 1996 as a generic hedge fund with a Russian focus, the Hermitage Fund changed its strategy and focus after the 1998 Russian crisis. In the words of its chairman, ³Our basic approach is to thoroughly research and understand where the corporate malfeasance is


taking place and then go to great pains to simplify the story so the average person can understand what is going on. One of the reasons that certain companies have gotten away with various violations in the past is that no one really understood what was happening because the stories were so complicated. We then share the stories with the press. By doing so, we want to inflict real consequences ± business, reputational and financial´ (Dyck (2002)). In explaining why his strategy is successful in increasing coverage, he says: You have to understand that the press doesn¶t know about the stories, have the ability to understand some of these complicated activities, or can¶t afford to do research. We have a lot of money invested. We are affected. We can devote the resources to do what it takes to truly understand what is going on. Our goal is to frame the issue so that it is clear to everyone what has happened. We do talk to the Russian press, but our focus is on the international press. (Dyck (2002), emphasis added) Since the Hermitage Fund focuses on generating coverage in those companies where it owns shares, the presence of the Hermitage Fund among the shareholders of a company should represent an exogenous shift in news coverage, which can be used to identify the causal mechanism between news coverage and governance outcomes.

C. Does Hermitage Generate News?
For Hermitage to produce an exogenous shift in coverage, it must not only want to generate coverage, but also be successful in doing so. In talking with its chairman, we identify two mechanisms the fund has used: being a helpful source and becoming news.

C.1. Being a Helpful Source One way Hermitage generates news is by conducting research and then presenting and documenting this information to a selected group of reporters. Becoming a source for information enables Hermitage to provide the specific news it wants to present and to determine the timing of the news release.

To illustrate the impact of Hermitage on news coverage, consider the coverage Gazprom, Russia¶s largest company, received regarding some related-party transactions. While there had


been widespread concerns about Gazprom¶s deals with related parties, this became a focus of attention (and was finally addressed seriously) only when Hermitage provided crucial information to the press. In the words of Bill Browder, head of the Hermitage Fund, My head of research was able to buy the entire Moscow registration database from a hawker on a street corner. With the securities commission database, we knew the names of the companies that stole assets from Gazprom, and with the registration chamber data, we knew which individuals owned the companies. From that we were able to piece together exactly how much was stolen and by which members of management. « [We] decided to share our findings with the world by selectively releasing different examples of the graft to the major Western newspapers in Moscow. (Dyck (2002)) By October of 2000, Hermitage had put this information together in a 41-page PowerPoint presentation that laid out the story they wanted told, and presented the underlying information, including the sources. As Table A1 in the Appendix shows, there is a clear overlap between their information and the resulting stories. Not only did Browder present new information in his continuing campaigns, he also worked hard to time the presentation of information and to ensure continued coverage of stories they cared about: Originally, we would give one reporter the whole story. They would want to check every bit of it out, get the other side¶s point of view, or ignore it, seeing this as too complicated and time consuming to pursue. Now we give a small piece of the story to a journalist and let them know that we¶ll give it to someone else in three days if they don¶t write anything. It seems that journalists are more concerned about losing the story to a competitor than almost anything else. (Dyck (2002)) Suggestive of the success of this strategy, we also see continued coverage of these allegations in the international news, as well as successful outcomes. Concrete steps were taken to limit the dilutions of Gazprom, including new requirements for board approval, new audits of related-party transactions, and the removal of the chief executive at the center of these allegations. Panel C of Table A1 provides a timeline of these outcomes. It also shows that this story, unlike so many other allegations of shareholder violation in Russia, did not die, but rather was repeated again and again over the next six months.



C.2. Becoming News Another channel through which Hermitage generates news is by becoming news, specifically by filing a lawsuit. As Bill Browder argues, We also go to courts. We¶ve been involved in 32 lawsuits. And we win in terms of public attention regardless of the outcome, where we¶ve lost 31 times. I think the proportion of number of words written in the press when a lawsuit is initiated to when it is dismissed is 50 to 1. The court of public opinion is much more effective than the Russian legal system and much fairer. (Dyck (2002)) The case of Sberbank illustrates this channel. At the end of 2000, the Sberbank board announced plans to go forward with a new share issue, which had the potential of diluting the ownership stakes of existing shareholders. It was hard for shareholders to fight against this decision using traditional methods, since there were no representatives of minority shareholders on the board. Hermitage, however, chose to launch 12 different lawsuits against Sberbank and the Central Bank. Although the lawsuits were all dismissed, they generated a large amount of publicity, which came at a time when the Russian Duma was debating a new law on investor protection.11 Not only is a lawsuit news itself, inducing newspapers to write about an issue, but it also allows journalists to write about it without any fear of being sued for libel. If a journalist writes an article about a dubious related-party transaction, he might get sued by the company. But if he reports the same facts as the allegation made in a legal case, he incurs no risk. And this is a concern, since the first reaction of many Russian oligarchs to the bad Western press was to sue the journalists that wrote the articles in the court of London, a court more favorable to the plaintiff in libelous cases.

D. Selection vs. Causality
For marketing purposes, hedge funds have an obvious interest in self-promotion. To justify hefty management and performance fees to their own investors, hedge fund managers have to claim they have a strategy that adds value. For this reason, we have to be suspicious of Hermitage¶s claim that they are so successful in exposing corporate governance violations in the international press. To this purpose in Section V.b we test whether it is indeed true that the presence of Hermitage as a shareholder leads to more coverage, after controlling for a series of company characteristics.


Yet finding such a correlation is not necessarily evidence of a causal link. An equally plausible explanation is that Hermitage buys into companies that are more visible or when it knows they will receive more attention from the press. To minimize this concern, we follow two strategies. First, we include a measure of newsworthiness and in the regression. Second, we choose to use the earliest Hermitage portfolio composition we have available, namely, December 1998. This pre-dates the major wave of corporate governance violations following the Russian crisis, and hence could hardly be thought as the result of an active strategy to pick more media-sensitive companies. It also pre-dates the period when Hermitage actively used the press as part of its strategy to increase returns in its portfolio.

1)Many of large compinies coming up with their own media, which is benefiting their own companies. 2)Media are not ethical in collecting information. 3)Compinies are having more no. of channels and news channels. 4) Compinies are not that much ethical because they are not providing proper information.

1) Government should take necessary steps when giving permission to media. 2) Companies does not have more no. of channels or news papers, which supports to their own companies 3) Government should take necessary steps to make the companies follow ethically practices

Other papers have focused on the important role of the media in affecting the functioning of government institutions, but the media play an equally important role in shaping corporate policy. Our contribution is a first attempt to outline the theoretical channels through which this


influence takes place and to show their practical relevance. We argued that the media selectively reduce the cost of acquiring and verifying information. This information is crucial in shaping the reputation of the key players who determine corporate policy. The reputation that decision makers seem to care about is not just the reputation in the eyes of current and future employers, but more broadly, their reputation in the eyes of the public at large, that is, their public image. Only concerns about their public image would explain the responsiveness of corporate directors to environmental issues, which have a zero or negative impact on the wealth of their ultimate employers, that is, the shareholders.

These effects of the media are not only anecdotal. The more diffuse the press in a country is, the more companies are responsive both to environmental issues and to minority shareholders¶ concerns, even after controlling for the presence of specific laws and regulations and the level of law enforcement. These results suggest that the corporate governance role of the media is more complex than the one we identified in Dyck and Zingales (2001). The media can help shareholders or can hurt them. We conjecture that while the strength of the impact of the media depends on their credibility, the direction of their net effect depends on societal norms and values, but much more research is needed before coming to any definite conclusion on this matter. The only definite conclusion we can draw at this point is that the media are important in shaping corporate policy and should not be ignored in any analysis of a country¶s corporate governance system. From a policy point of view our contribution provides both good and bad news.

The good news is that even countries with inadequate laws and malfunctioning judicial systems can experience some of the benefits of better governance if the pressure of the press is sufficiently strong and the norms support good governance. The bad news is that the direction in which the press exercises its influence depends on societal values, which cannot be easily changed by the legislators or by international policymakers. Moreover, the extent of press influence may be largely outside policymakers¶ control. Our analysis of the ultimate determinants of the diffusion of the press indicates that these lie in a country¶s cultural and ethnic tradition.



1) Corporate Governance of Media Companies by ROBERT G. PICARD (Ed.). 2) The Corporate Governance Role of the Media by Alexander Dyck and Luigi Zingales. 3) The Corporate Governance Role of the Media: Evidence from Russia. 4) ETHICS AND ADVERTISING by Geoffrey Klempner. 5) Social Reporting in Corporate Governance and the role of Media in Corporate Governance by Dr. Alka Singh Bhatt. 6) Types and Role of Print Media Presented by Masautso Phiri to the Media Literacy Workshop held in Solwezi. 7) 8) 9) 10) 11) www.corporate 12) 13) Corporate governance by A.C.FERNANDO.