CORPORATE GOVERNANCE AND ACQUISTIONS Recent acqs:

During March 2007, the Indian steel company Hidalco bought American rival Novelis for a mere $6 Billion. This made it the worlds largest aluminum -rolling company. Vodafone's 67% acquisition of Hutchison Essar for $13.66 billion Idea Cellular-AT&T deal British brewer SABMIllers buy of Fosters Australias Indian arm Fosters India. Global acquisition of S&N by the Heineken-Carlsberg consortium, involving a 37.5% stake held by S&N in UB group. Ford Motor Cos sale of its British luxury brands Jaguar and LandRover to Tata Motors for over $2 billion. Following are some major overseas acquisitions by Tata Group companies in recent years: o Feb 2000 - Tata Tea Ltd acquires UK's Tetley for $432 million, becoming the world's No. 2 packaged tea company - Feb 2004. o Tata Motors signs a deal to buy the commercial vehicle unit of South Korea's Daewoo Group for $102 million in Aug 2004. o Tata Steel Ltd buys Singapore's lone steel miller, NatSteel Ltd, for $286 million o June 2005 - Tata Coffee buys US-based Eight O'Clock Coffee Co for $220 million from Gryphon Investors in July 2005. o Telecom firm Videsh Sanchar Nigam Ltd buys US-based Teleglobe International Holdings Ltd for $239 million and completes the $130 million purchase of Tyco International's global undersea fibre optic cable network unit in Aug 2006. o Tata Tea buys 30 per cent of US enhanced water firm Energy Brands Inc for $677 million. It sells the stake less than a year later to Coca-Cola for $1.2 billion in Jan 2007. o Tata Steel acquires Anglo-Dutch steelmaker Corus Group for $13 billion, India's biggest overseas takeover yet - March 2007. o Tata Power buys stakes in Indonesian PT Bumi Resources Tbk's two coal mines for $1.3 billion in Jan 2008.

o Tata Chemicals buys US soda-ash producer General Chemical Industrial Products Inc for $1.01 billion. o Tata Steel, Indias largest private producer of steel purchased the Dutch firm Corus for $13.2 billion. This price tag was 9 times larger than any foreign acquisition by an Indian organization before this. In one of the largest ever deal in the Indian pharma industry; the third largest Japanese drug firm Daiichi Sankyo announced the acquisition of over 50% stake in Indias largest pharmaceutical major Ranbaxy for a consideration of US$4.6 billion. AAA Project Ventures acquired warrants convertible into a 15.38% stake in Reliance Energy, an electric utility company, for a total value of US$1.9 billion in a privately negotiated transaction. Dublin based CRH Plc, the worlds second-biggest maker and distributor of building materials , acquired a 50% stake in a Indian cement manufacturer, My Home Industries, for a consideration of US$456 million. This is one of the most expensive acquisitions of a cement unit in India by a foreign major. Thomas Cook UK acquired 75% stake in Thomas Cook India for US$380 million. This is two years after Thomas Cook AG sold Thomas Cook India to the Dubai Financial Group. Acquisition of Escotel and RPG. The worlds largest drug maker Pfizer will be among the top eight firms in the domestic market once its integration with Wyeths India arm gets over. Pfizer agreed to buy Wyeth for $68 billion in January this year. Punj Lloyds international acquisitions like Singapore-based SembCorp and Technodyne Sun Pharma has been one of the fastest growing companies in the Indian pharma space. Acquisition of loss making US-based Caraco marked Suns first overseas acquisition in 1996. Acq. Of Belgium-based Hansen Transmission and Germany-based Repower by Suzlon Energy, it has grown to be the fifth largest wind power equipment manufacturer in the world

Here are the top 10 acquisitions made by Indian companies worldwide:

Target Acquirer Company Tata Steel Corus plc Group

Deal Country value targeted ($ ml) UK Canada Korea 12,000 5,982 729

Industry Steel Steel Electronics Pharmaceutic al Energy Oil and Gas Pharmaceutic al Steel Electronics Telecom

Hindalco Novelis Daewoo Videoco Electronics n Corp. Dr. Reddys Betapharm Labs Suzlon Energy HPCL

Germany 597 565 500 324

Hansen Group Belgium Kenya Petroleum Refinery Ltd. Kenya Romania

Ranbaxy Terapia SA Labs Tata Steel Natsteel

Singapore 293 France Canada 290 239

Videoco Thomson SA n VSNL Teleglobe

Future happening(s) in the bag:

Cisco, the $33.5 billion technology giant, is bullish on making acquisitions in India as it goes about expanding its array of solutions and products in the area of emerging technologies. Some of its recent acquisitions include companies like Scientific Atlanta and WebEx. Cisco has committed over $100 million as venture capital investment for India. It has so far invested in four Indian companies including Indiagames and Bharti Telesoft. Bharti Airtel's proposed $23 to $29 billion merger with South African operator MTN goes through, India's telecom M&A market will come of age.

HIGHLIGHTS INTO THE ACQS : However, the downturn in the global and domestic economies seems to have impacted Indias M&A scenario. While the total number of transactions fell from 663 in the first half (Q1) of 2007 to 467 in Q1 2008, the total deal value saw a sharp slump, dipping by over 40% from US$38.4 billion in Q1 2007 to US$21.4 billion in H12008. The sectors which have been driving the strategic M&A activity include pharmaceuticals, IT & ITeS , Banking & Financial Services (BFSI) and Real Estate. The outbound investments accounted for US$ 8.2 billion of M&A activity spread over 96 deals. However, corporate Indias overseas acquisitions are continuing to make global footprints Outbound investments by Indian companies continued to grow, touching US$8.2 billion spread across 96 deals. The valuations have fallen globally and have made it easier for Indian firms to acquire businesses overseas. Though, with interest rates hardening, leverage

financing will take a hit, making it difficult to finance large buyouts CORPORATE GOVERNANCE: INTRODUCTION:

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) 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 labor (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. Corporate governance is only part of the larger economic context in which firms operate that includes, for example, macroeconomic policies and the degree of competition in product and factor markets.

The corporate governance framework also depends on the legal, regulatory, and institutional environment. In addition, factors such as business ethics and corporate awareness of the environmental and societal interests of the communities in which a company operates can also have an impact on its reputation and its long-term success. While a multiplicity of factors affect the governance and decision-making processes of firms, and are important to their long-term success, the Principles focus on governance problems that result from the separation of ownership and control. However, this is not simply an issue of the relationship between shareholders and management, although that is indeed the central element. While corporate governance may not state the economic prospects of developing countries, it certainly takes part in shaping them. Good corporate governance is vital because of its role in attracting investors to invest both in the domestic and in the international capital markets Investors primarily consider two variables before making investment decisions in the companies the rate of return on invested capital and the risk associated with the investment. Good corporate governance practices reduce this risk by ensuring transparency, accountability, and enforceability in the capital marketplace. As a result, the investors expect the Board and the Management in the companies to act in their best interests at all times so as to earn a risk adjusted rate of return that is higher than the cost of capital. Practices that the Board of Directors of a listed entity follows to fulfill the expectations of all stakeholders (i. e. Shareholders, employees, creditors, customers, government, regulatory authorities and society at large) is called corporate governance practices. While sound corporate governance practices ensure a companys long-term success, weak practices often lead to serious problems.

Mechanism: (1) Companies pool capital from a large investor base both in the domestic and in the international capital markets. (2) In this context, investment is ultimately an act of faith in the ability of a companys management. In order to manage the affairs of a company and to act in the best interests of all at all times, there must be a system whereby the directors are entrusted with responsibilities and duties in relation to the direction of the company affairs. (3) Corporate governance is a system of making Management accountable towards the stakeholders for effective management of the companies. (4) Corporate governance is also concerned with the morals, ethics, values, parameters, conduct and behavior of the company and its management. (5) The underlying principles of corporate governance revolve around three basic interrelated Segments. These are:

 Integrity and Fairness Transparency and Disclosures Accountability and Responsibility (6) According to the Confederation of Indian Industry (CII), corporate governance deals with laws, procedures, practices and implicit rules that determine the ability of the company to make managerial decisions vis-vis its claimants in particular, its shareholders, creditors, customers, the State and employees. (7) Corporate governance mainly consists of two elements i.e., A long-term relationship, which has to deal with checks and balances, incentives of managers and communications between Management and investors. The second element is a transactional relationship involving matters relating to disclosure and authority. In other words, 'good corporate governance' is simply 'good business'. (8) Practices that the Board of Directors of a listed entity follows to fulfill the expectations of all stakeholders (i.e. Shareholders, employees, creditors, customers, government, regulatory Authorities and society at large) is called corporate governance practices.

NEED, IMPORTANCE GOVERNANCE

AND

OBJECTIVES

OF

CORPORATE

(9) In order to overcome the under noted serious concerns within the business community, there is a need to introduce a system of corporate governance that will ensure the transparency, integrity and accountability of Management including non-executive directors. Concentration of greater financial power and authority in a lesser number of individuals, Violations of foreign exchange rules and regulations, Large scale diversion of funds to associate companies and risky ventures, Unfocussed business decisions leading to losses, Preferential allotment of shares to promoters at low prices, Exploited the weaknesses in the Accounting Standards to inflate profits and understate liabilities, Frequent changes in Board structures, Spinning off profitable business operations to subsidiary companies, and Charging of royalty for use of brand name by the parent company by leading companies. (10) In an open financial market, investors choose from a variety of investment vehicles. The existence of a corporate governance system is likely a part of this decision-making process. In such a scenario, companies that are more open and transparent, and thus well governed, are

more likely to raise capital successfully because investors will have the information and confidence necessary for them to lend funds directly to such companies. Moreover, well-governed companies likely will obtain capital more cheaply than companies that have poor corporate governance practices because investors will require a smaller risk premium for investing in well-governed companies. Thus, in an efficient capital market, investors will invest in companies with better corporate governance frameworks because of the lower risks and the likelihood of higher returns. Good corporate governance practices also enable Management to allocate resources more efficiently, which increases the likelihood that investors will obtain a higher rate of return on their investment. (11) Moreover, Good corporate governance practices ensure: Adequate disclosures and effective decision making to achieve corporate objectives; Transparency in business transactions; Statutory and legal compliances; Protection of shareholder interests; Commitment to values and ethical conduct of business. Long-term survival of the companies. (12) Corporate governance in a developing country setting takes on additional importance. Good corporate governance is vital because of its role in attracting foreign investment. The extent of foreign investment, in turn, shapes the prospects for economic growth for many developing countries. Generally developing countries that have good corporate governance structures consistently outperform developing countries with poor corporate governance structures. Moreover, corporate governance can play a role in reducing corruption, and decreased corruption significantly enhances a countrys development prospects. Ultimately, the concept of corporate governance is not just one of those imported western luxuries; it is a vital consideration to be enforced successfully. (13) The aim of "Good Corporate Governance" is to ensure commitment of the board in managing the company in a transparent manner for maximizing long-term value of the company for its shareholders and all other partners. It integrates all the participants involved in a process, which is economic, and at the same time social. (14) The fundamental objective of corporate governance is to enhance shareholders' value and protect the interests of other stakeholders by improving the corporate performance and accountability. Hence it harmonizes the need for a company to strike a balance at all times between the need to enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other stakeholders in the company. Further, its objective is to generate an

environment of trust and confidence amongst those having competing and conflicting interests. (15) There is a global consensus about the objective of good corporate governance: maximizing long term shareholder value. Since shareholders are residual claimants, this objective follows from a premise that, in well performing capital market, whatever maximizes shareholder value must necessarily maximize corporate prosperity and best satisfy the claims of creditors, employees, customers, shareholders and the State. TESTS OF CORPORATE GOVERNANCE (16) Broadly, the test of corporate governance should cover the following aspects: Whether the funds of the company have been deployed for pursuing the main objects of the company as enshrined in the Memorandum? Whether the funds acquired from financial institutions and the capital market have been utilized for the purpose for which they were intended? Whether the company has the core competence to effectively manage its diversifications? Whether there has been proper diversion of funds by way of loans and advances or investments to subsidiary? Whether the provisions of the Companies Act, the Foreign Exchange Management Act, the Factories Act and other statutes are complied with in letter and in spirit? Whether the practices adopted by the company and its Management towards its shareholders, customers, suppliers, employees and the society at large are ethical and fair? Whether the directors are provided with the information on the working of the company and whether the institutional and non-executive directors play an active role in the functioning of the companies? Whether the internal controls in place are effective? Whether there is transparent financial reporting and audit practices and the accounting practices adopted by the company are in accordance with Accounting Standards of The Institute of Chartered Accountants of India (ICAI)?

CONSTITUENTS OF CORPORATE GOVERNANCE (17) The three key constituents of corporate governance are the Board of Directors or Board, the Shareholders and the Management. These can further be detailed as: Role and Powers of Board Composition of Board Legislation Code of Conduct Board Independence Board Skills Role and Powers of Shareholders Board Appointments Board Meetings Board Induction and Training Monitoring the Board Performance Management Skills and Environment Business and Community Obligations Audit Committee Financial and Operational Reporting Risk Management

FRAMEWORK OF CORPORATE GOVERNANCE

(A) Organizational

Framework: The organizational framework for corporate governance initiatives in India consists of the Ministry of Corporate Affairs (MCA), the Confederation of Indian Industry (CII) and the Securities and Exchange Board of India (SEBI).

(18) In 1998, the Confederation of Indian Industry (CII), "India's premier business association," unveiled India's first code of corporate governance. However, since the Code's adoption was voluntary, few firms embraced it. Soon after, SEBI appointed the Kumar Mangalam Birla Committee to fashion a code of corporate governance. In 2000, SEBI accepted the recommendations of the Kumar Mangalam Birla Committee and introduced Clause 49 into the Listing Agreement of Stock Exchanges. Clause 49 outlines requirements vis-a-vis corporate governance in exchange-traded companies. In 2003, SEBI instituted the N.R. Narayan Murthy Committee to scrutinize India's corporate-governance framework further and to make additional recommendations to enhance its effectiveness. SEBI has since incorporated the recommendations of the N.R. Narayan Murthy Committee, and the latest revisions to Clause 49 became law on January 1, 2006 (SEBI, vide circular SEBI/CFD/DIL/CG/1/2006/13/1 dated 13th January, 2006). The main provisions of Clause 49 as inserted vide SEBI F.No. SMDRP/Policy Cir 10/2000 dated 21.02.2000 in the Listing Agreement of Stock Exchange are:

I. Board of Directors; II. Audit Committee; III. Remuneration of Directors; IV. Board Procedure; V. Management; VI. Shareholders; VII. Report on Corporate Governance; and VIII. Compliance Certification (19) The Ministry of Corporate Affairs (MCA) had appointed a Naresh Chandra Committee on Corporate Audit and Governance in 2002 in order to examine various corporate governance issues. It made recommendations in two key aspects of corporate governance: financial and nonfinancial disclosures: and independent auditing and board oversight of management. (20) The Ministry of Corporate Affairs (MCA) had also set up a National Foundation for Corporate Governance (NFCG) in association with the CII, ICAI and ICSI as a not-for-profit trust to provide a platform to deliberate on issues relating to good corporate governance, to sensitize corporate leaders on the importance of good corporate governance practices as well as to facilitate exchange of experiences and ideas amongst corporate leaders, policy makers, regulators, law enforcing agencies and nongovernment organizations. The foundation has been set up with the mission to: 1. Foster a culture for promoting good governance, voluntary compliance and facilitate effective participation of different stakeholders; 2. Create a framework of best practices, structure, processes and ethics; and 3. Make significant difference to Indian corporate sector by raising the standard of corporate governance in India towards achieving stability and growth. (B) Legal Framework: (21) An effective legal framework is indispensable for the proper and sustained growth of the company. In rapidly changing national and global business environment, it has become necessary that regulation of corporate entities is in tune with the emerging economic trends, encourage good corporate governance and enable protection of the interests of the investors and other stakeholders. The Legal framework for corporate governance consists of the Company Laws and the SEBI Laws. Company Laws: The Ministry of Corporate Affairs (MCA) is the main authority for regulating and promoting efficient, transparent and accountable form of corporate governance in the Indian corporate sector. The important legislations governed by MCA for regulating the entire corporate structure and for dealing with various aspects of governance in companies are Companies Act, 1956 and Companies Bill, 2004. These laws have been introduced and amended, from time to time, to bring more transparency and accountability in the provisions of corporate governance. That is, corporate

laws have been simplified so that they are amenable to clear interpretation and provide a framework that would facilitate faster economic growth. The Companies Act, 1956 is the central legislation in India that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Companies Act, 1956 has elaborate provisions relating to the Governance of Companies, which deals with management and administration of companies. It contains special provisions with respect to the accounts and audit, directors remuneration, other financial and non-financial disclosures, corporate democracy, prevention of mismanagement, etc. The main two Sections of this Act related to the corporate governance are Section 292A and Section 211. Section 292A: (22) The concept of Corporate Governance receives statutory recognition, with the insertion of Section 292A in the Companies Act, 1956 with an amendment made to it through the Companies (Amendment) Act 2000. The New Section 292A made it obligatory upon a public company having a paid-up capital of Rs. 5 crores or more to have an audit committee comprising at least three directors as members. Two-thirds of the total number shall be nonexecutive directors. Section 211: (23) As per this Section, every Profit and loss account and Balance sheet of the company shall comply with the Accounting Standards, issued by the Institute of Chartered Accountants of India as may be prescribed by the Central Government in consultation with National Advisory Committee on Accounting Standards, and the Statutory auditors of every company are required to report whether the Accounting Standards have been complied with or not. The Securities Exchange Board of India (SEBI) has added a new clause in the Listing Agreement to provide that listed enterprises shall compulsory comply with all the Accounting Standards issued by ICAI from time to time. (24) The Companies Bill 2004 has been introduced to provide the comprehensive review of the company law. It contained important provisions relating to corporate governance, like, independence of auditors, relationship of auditors with the management of company, independent directors with a view to improve the corporate governance practices in the corporate sector. It is subjected to greater flexibility and self-regulation by companies, better financial and non-financial disclosures, more efficient enforcement of law, etc. This amendment to the Companies Act 1956 mainly focused on reforming the audit process and the board of directors. It mainly aimed at :(i) laying down the process of appointment and qualification of auditors, (ii) prohibiting non-audit services by the auditors; (iii) prescribing compulsory rotation, at least of the Audit Partner; (iv) requiring certification of annual audited accounts by both CEO and CFO; etc.

For reforming the boards, the bill included that remuneration of nonexecutive directors can be fixed only by shareholders and must be disclosed. A limit on the amount which can be paid would also be laid down. It is also envisaged that the directors should be imparted suitable training. However, among others, an independent director should not have substantial pecuniary interest in the companys shares. SEBI Laws: (25) Improved corporate governance is the key objective of the regulatory framework in the securities market. Accordingly, Securities and Exchange Board of India (SEBI) has made several efforts with a view to evaluate the adequacy of existing corporate governance practices in the country and further improve these practices. It is implementing and maintaining the standards of corporate governance through the use of its legal and regulatory framework, namely, The Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India Act, 1992 and the Depositories Act, 1996. REASONS FOR CORPORATE GOVERNANCE FAILURES (26) If the Board is in awe of the family executive, it makes it difficult for the Board sometimes to ask tough questions or at other times the right questions at the right time in order to serve the interests of the shareholders better. As a result truly independent directors are rarely found in Indian companies. (27) Serving on multiple boards is problematic because doing so can overburden directors, thus hampering their performance, and increase the potential for directors to experience conflicts of interest between the various corporations they serve. (28) It is admitted that contribution of the independent directors is limited because the average time spent in Board meetings by these directors is barely 14 to 16 hours in a year. In some cases, it has been found that no proper training and orientation regarding the awareness of rights, responsibilities, duties and liabilities of the directors is provided to an individual before appointing him/her as a director in the Board. (29) Also there is unseen but the active participation of political class. (30) The directors on the board are largely reliant on information from the management and auditors, with their capacity to independently verify financial information being quite limited, while auditors, as this case suggests, have also been equally reliant on management information. The relevant issue here is the extent and the depth of auditors effort in their exercise of due diligence. Excessive reliance on information from the management is symptomatic of the ownership or control of companies in India by business families, and that poses a particular challenge for corporate governance in India. (31) The greatest drawback of financial disclosures in India is the absence of detailed reporting on related party transactions. In addition, poor quality of consolidated accounting and segment

reporting leads to misrepresentation of the true picture of a business group. (32) Although India's investor-protection laws are sophisticated, litigants must wait a long time before receiving a judgment. (33) Delays in the delivery of verdicts, high costs of litigation and the lengthy judicial appointment process in courts make the legal enforcement mechanism ineffective. (34) According to the OECD, the credibility and utility of a corporate governance framework rest on its enforceability. (35) In India, the two audit-related issues which are commonly recognized are that of auditor independence (which is a problem worldwide) because of the large if segmented market in accounting services, and the perceived powerlessness of auditors in the face of corporate pressure. In many cases, they are ill-equipped to handle the needs of large companies, because in the face of an audit failure, it is very difficult to discern whether the auditors were complacent or they were pressurized by the concerted efforts of the insiders. There is no proper system to monitor the work of audit firms or to review the accounts prepared by the companys statutory auditors. However, (36) in the aftermath of the Satyam case, the SEBI has decided to introduce a peer review mechanism to review the accounts prepared by a companys statutory auditor. In addition, the SEBI has also decided to constitute a panel of auditors to review the financial statement of all BSE Sensex and NSE Nifty companies. Also there is no statutory compliance for the companies to obtain a report on Corporate Governance Rating by the Credit Rating Agencies in India.

REQUIREMENTS TO STRENGTHEN CORPORATE GOVERNANCE To promote or to increase awareness among entrepreneurs adoption of good corporate governance practices, which are the integral element for doing and managing business. To ensure the quality of audit that is at the root of effective corporate governance by making the Auditor accountable for the disclosure of financial information. To make the Board of Directors as well as the CEOs and CFOs accountable for the discharge of their duties with the proper use of their rights within the powers. To form an appropriate system in order to check the Directors independence in the board and to monitor the work of Audit firms. To pay special attention in the quality and effectiveness of the legal, administrative and regulatory framework.

To increase the shareholder activism i.e. the exercise and enforcement of rights by minority shareholders with the objective of enhancing shareholder value over the long term

(37). To infuse Indias Business Culture with a Spirit of Corporate Governance in order to maintain sustainable and effective corporate governance (38). To implement more robust Bankruptcy Laws which are a key component of any corporate governance system (39). To eliminate Regulatory Arbitrage i.e. to establish a clear mandate for each regulatory Authority for the enforcement of Clause 49 of the Listing Agreement, thereby improving Indias corporate governance enforcement mechanism (40). To resolve the conflict between the dominant shareholders and the minority shareholders by improving the rights of minority shareholders. To make a statutory compliance for the listed companies to compulsorily obtain a report on Corporate Governance Rating (CGR) from a Credit Rating Agency in India. FUTURE PROSPECTS FOR CORPORATE GOVERNANCE To highlight the frauds and irregularities in the corporate sector (41) The issues of governance, accountability and transparency in the affairs of the company, As well as about the rights of shareholders and role of Board of Directors have never been as prominent as it is today. With the integration of Indian economy with global markets, industrialists and corporations in the country are being increasingly asked to adopt better and transparent corporate practices. The degree to which corporations observe basic principles of good corporate governance is an increasingly important factor for taking key investment decisions. If companies are to reap the full benefits of the global capital market, capture efficiency gains, benefit by economies of scale and attract long term capital, adoption of corporate governance standards must be credible, consistent, coherent and inspiring. (42) Hence, in the years to come, corporate governance will become more relevant and a more acceptable practice worldwide. This is easily evident from the various activities undertaken by many companies in framing and enforcing codes of conduct and honest business practices; following more stringent norms for financial and non-financial disclosures, as mandated by law; accepting higher and appropriate accounting standards; enforcing tax reforms coupled with deregulation and competition; etc. but we cannot eliminate the possibility of frauds and scams as seen in the recent Satyam case. (43) Scams are an integral part of corporate history. They come to light only when the going gets rough. Only when the tide goes out we see all those

swimming naked. Such scams are an opportunity for self-renewal; neither self-denial nor blame game. The frequency and scale of such scams has been far more in the West than in India. We need to take such types of scams as an opportunity in future for overhauling the system of corporate governance in India. CONCLUSION (44) Good corporate governance may not be the engine of economic growth, but it is essential for the proper functioning of the engine. (45) The investors both National and International would be loyal to invest in the Indian companies if they follow all the standards of corporate governance practices. (46) Further, to nurture and strengthen this loyalty, our companies need to give clear-cut signal that the words your company have real meaning. That requires well functioning Board, greater disclosure, better management practices, and a more open, interactive and dynamic corporate governance environment. Quite simply, share holders and creditors support are vital for the survival, growth and competitiveness of Indias companies. (47) Effectiveness of corporate governance system cannot merely be legislated by law neither can any system of corporate governance be static. As competition increases, the environment in which companies operate also changes and in such a dynamic environment the systems of corporate governance also need to evolve. Failure to implement good governance procedures has a cost in terms of a significant risk premium when competing for scarce capital in today's public markets. Thus, the essence of corporate governance is in promoting and maintaining integrity, transparency and accountability in the management of the company as well as in manifestation of the values, principles and policies of a corporation. In order to make an honest and objective assessment on corporate governance practices we do need more laws but better enforcement because the effectiveness and the utility of good corporate governance practices rest on its enforceability. Ultimately, good corporate governance practices in India will be shaped by our administrative and regulatory authorities like SEBI, MCA, etc. by implementing transparent and effective corporate governance laws.

FRAMEWORK OF CORPORATE GOVERNANCE

RECENT NEWSMAKERS: (can be considered as case studies)

A) HIRANANDANIS MAY NOW WALK INTO A CORPORATE GOVERNANCE CONTROVERSY

Hirco, the AIM-listed real estate fund of the Hiranandani group, finds itself in the midst of a corporate governance controversy. Several shareholders are likely to oppose Hircos proposal to acquire two estate projects owned by the group. Case insight:
On December 18, the Hirco board had approved the acquisition of two special purpose vehicles (SPVs) owned by the Hiranandani family. These two companies are carrying out township developments at Panvel near Mumbai and Chennai. The merger, once implemented, would take the Hiranandani groups holding in Hirco to over 50% from the existing 20%. Hirco had listed on the AIM in 2006 and raised more than 380 million for investing in residential properties in India. Hirco has called an Top of Form 2 Bottom of Form 2 extraordinary general meeting on January 16 in Mumbai to enable the shareholders to vote on the restructuring proposal. It will begin roadshows for investors early next week. British media reports on Wednesday had suggested that some shareholders were opposed to the restructuring plan on the ground that it would dilute shareholding interests and effectively cede control to the Hiranandanis. A section of Hircos investors, led by Laxey Partners, an activist shareholder whose holdings exceeds 10%, have termed the restructuring plan as shocking and illconceived. In a letter dated 30 December a copy of which is with ET Laxey urged the other shareholders to vote against the plan, which involves, injecting loss-making development vehicle owned by the Hiranandani family into Hirco, and handing the family an equity stake of up to 50.6% in Hirco. As part of the proposal, shareholders will lose their preferential claim on 350.8 million of shares that pay an annual dividend of 12%. Earlier in October, Laxey Partners had demanded a relook at the Hirco funds corporate strategy and asked its management to bridge the gap between the companys listed price and the NAV. Many foreign funds own large stakes in Hirco, including the UKs Standard Life (13.11%), HSBC Holdings (10.13%), Laxey Partners (10.05%), Halbis Capital (7.84%), Fortress Investment (4.57%) and Lazard AM (4.57%). The Hiranandani group is unlisted in India. On October 28, ET had reported that Indias sagging real estate story has sent negative signals to the Londons AIM, where at least five India-focused real estate funds are listed. Investors in other funds have called for new corporate and investment strategies following a 50% dip in their net asset value (NAV) over the past few months. B) SATYAM-MAYTAS DEAL QUESTIONS CORP GOVERNANCE

Besides rattling investor confidence, Satyam computer services fizzled $1.6 billion acquisition of Maytas Infra and Maytas Properties has raised the issue of corporate governance for a company which has bagged a number of excellence awards over the years. As recently as September 2008, Satyam was awarded the coveted Golden Peacock Global Award for Excellence in Corporate Governance, an honor bestowed on companies for following best practices. Late Tuesday, Satyam announced the acquisition of the privately held Maytas Properties for $1.3 billion and increasing its stake in Maytas Infra to 51 per cent for $300 million. However, the company had to eat humble pie and withdrew its proposal due to strong opposition from shareholders. The hasty retreat has dealt a severe blow to Satyam's credibility and made it the laughing stock of the investor fraternity. Analysts said the deal was unethical as it aimed to bail out firms owned by promoter and chairman Ramalinga Raju's sons. According to them, the company grossly overvalued the real estate and infrastructure firms, especially at a time when the two sectors were not in a good shape.
This raises the issue of corporate governance and it will take some time to regain investor confidence. When the chairman himself is not proactive and confident of his bread-and-butter business, it does not augur well for the stock. I believe it is time for the company to hire professional management services just as Bill Gates stepped down from his position as CEO of Microsoft to become chief mentor. Probably, such a move could help revive investor sentiment," said Chintan Mewar, head of research at Finquest Securities. Analysts questioned the motives of Satyam's top executives, saying there was a potential conflict of interest because they hold stakes in both companies. Chairman Ramalinga Raju and others hold 36 percent in Maytas Infra and 35 percent in Maytas Properties. They also said the acquisitions made little sense at a time when technology outsourcing companies are preserving cash to help weather the global economic slowdown. Analysts were also not convinced by Raju's argument that the acquisition would help Satyam diversify its business and tap the growing opportunities in infrastructure and real estate sectors. Anita Gandhi, head-institutional business at Arihant Capital, said, "Even though Satyam's deal with Maytas has been called off, it has completely shattered investor confidence, which is clearly seen in the way the stock is

being pounded. Although the company may have no malified intentions in the acquisition, this is definitely not a good strategic move to enter into a sector like infrastructure, which is itself in bad shape. The justification by the chairman is not satisfying. After all, the funding of this deal would have been from its core business which is information technology." Naushil Shah of Anand Rathi Securities said, "The episode will still raise concerns regarding Satyam's corporate governance for a while to come. It will also raise questions regarding the financial health of the Maytas entities, their promoters and its impact on Satyam finances ahead."

REFERENCES: http://economictimes.indiatimes.com/Infosys_will_not_go_for_hostile _takeover_CEO/articleshow/3975232.cms http://economictimes.indiatimes.com/articleshow/msid3892605,prtpage-1.cms nd odrs