Corporate governance is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). It involves regulatory and market mechanisms, and the roles and relationships between a company’s management, its board, its shareholders and other [Stakeholder (corporate)|stakeholder]]s, and the goals for which the corporation is governed.In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees. India's SEBI Committee on Corporate Governance defines corporate governance as the "acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company." It has been suggested that the Indian approach is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution, but this conceptualization of corporate objectives is also prevalent in Anglo-American and most other jurisdictions. The Cadbury and OECD reports present general principals around which businesses are expected to operate to assure proper governance

Rights and equitable treatment of shareholders:Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. Interests of other stakeholders:Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. Role and responsibilities of the board The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment Integrity and ethical behavior Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. Disclosure and transparency:Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide

stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

YES Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behavior, an independent third party (the external auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability. Internal corporate governance controls Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:

Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance.[37] Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria. Internal control procedures and internal auditors: Internal control procedures are policies implemented by an entity's board of directors, audit committee, management, and other personnel to provide reasonable assurance of the entity achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an organization who test the design and implementation of the entity's internal control procedures and the reliability of its financial reporting Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can veto the changes, and a

third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behavior, and can elicit myopic behavior. Monitoring by large shareholders and/or monitoring by banks and other large creditors: Given their large investment in the firm, these stakeholders have the incentives, combined with the right degree of control and power, to monitor the management.

In publicly-traded U.S. corporations, boards of directors are largely chosen by the President/CEO and the President/CEO often takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). The practice of the CEO also being the Chair of the Board is known as "duality". While this practice is common in the U.S., it is relatively rare elsewhere. In the U.K., successive codes of best practice have recommended against duality. External corporate governance controls External corporate governance controls encompass the controls external stakeholders exercise over the organization. Examples include:
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competition debt covenants demand for and assessment of performance information (especially financial statements) government regulations managerial labour market media pressure takeovers

Systemic problems of corporate governance

Demand for information: In order to influence the directors, the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting. Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors.

Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

The chairman is the highest officer of an organized group such as a board, committee, or deliberative assembly. The person holding the office is typically elected or appointed by the members of the group. The chairman presides over meetings of the assembled group and conducts its business in an orderly fashion.[1] When the group is not in session, the officer's duties often include acting as its head, its representative to the outside world and its spokesperson. The Chairman plays an important role in the public relations of the corporation, and is usually the face of the Company to the outside world. Additionally, he may convene meetings whenever necessary. The powers and rights of the Chairman are usually mentioned in the constitutional documents of the Company.

BASIC FUNCTION The Chairman of the Board is responsible for the management, the development and the effective performance of the Board of Directors, and provides leadership to the Board for all aspects of the Board’s work. The Chairman acts in an advisory capacity to the President and Chief Executive Officer (CEO) and to other officers in all matters concerning the interests and management of the Corporation and, in consultation with the CEO, plays a role in the Corporation’s external relationships. RESPONSIBILITIES The Chairman of the Board: (a) Plans and organizes all of the activities of the Board of Directors including: (i) the preparation for, and the conduct of, Board meetings; (ii) the quality, quantity and timeliness of the information that goes to Board members; (iii) the formation of Board committees and the integration of their activity with the work of the Board; (iv) the evaluation of the Board’s effectiveness and implementation of improvements; (v) the development of the Board, including Director recruitment, evaluation and compensation, and (vi) the ongoing formal and informal communication with and among Directors. (b) Chairs annual and special meetings of the shareholders. In conjunction with the CEO, the Chairman may meet with various groups (such as major shareholder groups), governments, the financial press, industry associations etc.

(c) Works closely with, and through the CEO, to: (i) participate in the development of the Corporation’s vision, strategic agenda, and business plan to facilitate communication and understanding between management and the Board; (ii) ensure operations conform with the Board’s view on corporate policy; and (iii) ensure, in consultation with the Human Resources Committee and the full Board, that succession plans are in place at senior executive levels. (d) In conjunction with the CEO, participates in external relationships which fulfill the Corporation’s obligations as a member of industry and the community. (e) Provides the key link between the Board and management, and as a result, has a significant communication, coaching and team-building responsibility including: (i) maintaining a close ongoing relationship and open communication with the CEO; (ii) representing the shareholders and Board to management and management to the shareholders and Board; and (iii) monitoring and evaluating the performance of the CEO, in coordination with the Human Resources Committee. (f) May attend all Board committee meetings as a non-voting participant provided, however, that, at meetings of the Governance Committee, the Chairman of the Board shall be a voting member. (g) Carries out special assignments in collaboration with the CEO and management or the Board of Directors.

The nominating committee is usually responsible for evaluating and nominating a new director to the board, and it also facilitates the election of the new director by shareholders. The nominating committee is responsible for: (1) reviewing the performance of current directors; (2) assessing the need for new directors; (3) identifying and evaluating the skills, background, diversity, and knowledge of candidates; (4) having an objective nominating process for qualified candidates; (5) assisting in the election of qualified new directors.

Corporate Governance-: Cadbury Code of Best Practices

In December 1992, the Cadbury Committee finally published its long awaited report "The Financial Aspects of Corporate Governance", which is known as the Cadbury Report. At the heart of this Report lies the Code of Best Practice which is directed to boards of all UK listed companies. Since then, UK boards have begun to review thenstructures and systems with a view to full compliance with the Code. The Cadbury Code of Best practices had 19 recommendations. The recommendations are in the nature of guidelines relating to Board of Directors, Non-executive Directors, Executive Directors and those on Reporting and Control. Relating to the Board of Directors these are:
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The Board should meet regularly retain full and effective control over the company and monitor the executive management There should be a clearly accepted division of responsibilities at the head of a company, which will ensure balance of power and authority, such that no individual has unfettered powers of decision. In companies where the Chairman is also the Chief Executive, it is essential that there should be a strong and independent element on the Board, with a recognized senior member. The Board should include non-executive Directors of sufficient caliber and number for their views to carry significant weight in the Board’s decisions. The Board should have a formal schedule of matters specifically reserved to it for decisions to ensure that the direction and control of the company is firmly in its hands. There should be an agreed procedure for Directors in the furtherance of their duties to take independent professional advice if necessary, at the company’s expense. All directors should have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Any question of the removal of Company Secretary should be a matter for the Board as a whole.

Relating to the Non-Executive Directors the recommendations are:

Non-executive Directors should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct. The majority should be independent of the management and free from any business or other relationship, which could materially interfere with the exercise of their independent judgement, apart form their fees and shareholding. Their fees should reflect the time, which they commit to the company.

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Non-executive Directors should be appointed for specified terms and reappointment should not be automatic. Non-executive Directors should be selected through a formal process and both, this process and their appointment, should be a matter for the Board as a whole.

For the Executive Directors the recommendations in the Cadbury Code of Best Practices are:
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Director’s service contracts should not exceed three years without shareholders’ approval There should be full and clear disclosure of their total emoluments and those of the Chairman and the highest-paid UK Directors, including pension contributions and stock options. Separate figures should be given for salary and performancerelated elements and the basis on which performance is measured should be explained. Executive Directors’ pay should be subject to the recommendations of a Remuneration Committee made up wholly or mainly of Non-executive Directors.

And on Reporting and Controls the Cadbury Code of Best Practices stipulate that:
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It is the Board’s duty to present a balanced and understandable assessment of the company’s position. The Board should ensure that an objective and professional relationship is maintained with the Auditors. The Board should establish an Audit Committee of at least three Non-executive Directors with written terms of reference, which deal clearly with its authority and duties. The Directors should explain their responsibility for preparing the accounts next to a statement by the Auditors about their reporting responsibilities. The Directors should report on the effectiveness of the company’s system of internal control The Directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary.

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