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corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principalagent problem. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs. Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.


Issues involving corporate governance principles include:

Internal controls and internal auditors The independence of the entity's external auditors and
the quality of their audits

Oversight of the preparation of the entity's financial statements Review of the compensation arrangements for the chief executive officer and other senior executives

As mentioned earlier, the term corporate governance is related to the extent to which the companies are transparent & accountable about their business. Corporate governance today has become a major issue of interest in most of the corporate boardrooms, academic circles & even governments around the globe. In the 19th century, state corporation laws enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance more efficient. Since that time and because most large publicly traded corporations in the US are incorporated under corporate administrationfriendly Delaware law and because the US's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for corporate governance reforms. In the 20th century, in the immediate aftermath of the Wall Street Crash of 1929, legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. Means pondered on the changing role of the modern corporation in society. From the Chicago school of economics, Ronald Coase's "The Nature of the Firm" (1937) introduced the notion of transaction costs into the understanding of why firms are founded and how they continue to behave. Fifty years later, Eugene Fama and Michael Jensen's "The Separation of Ownership and Control" (1983, Journal of Law and Economics) firmly established agency theory as a way of understanding corporate governance: the firm is seen as a series of contracts. Agency theory's dominance was highlighted

CORPORATE GOVERNANCE in a 1989 article by Kathleen Eisenhardt ("Agency theory: an assessement and review", Academy of Management Review). The expansion of US after World War II through the emergence of multinational corporations saw the establishment of the managerial class. Accordingly, the following Harvard Business School management professors published influential monographs studying their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth MacIver (organizational behaviour). According to Lorsch and MacIver "Many large corporations have dominant control over business affairs without sufficient accountability or monitoring by their board of directors." Since the late 1970s, corporate governance has been the subject of significant debate in the U.S. and around the globe. Bold, broad efforts to reform corporate governance have been driven, in part, by the needs and desires of shareowners to exercise their rights of corporate ownership and to increase the value of their shares and, therefore, wealth. Over the past three decades, corporate directors duties have expanded greatly beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. The California Public Employees' Retirement System (CalPERS) led a wave of institutional shareholder activism (something only very rarely seen before), as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e.g., by the unrestrained issuance of stock options, not infrequently back dated). In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and WorldCom, as well as lesser corporate debacles, such as Adelphia Communications, AOL,

CORPORATE GOVERNANCE Qwest, Arthur Andersen, Global Crossing, Tyco, etc. led to increased shareholder and governmental interest in corporate governance. Because these triggered some of the largest insolvencies, the public confidence in the corporate sector was sapped. The popular perception was that corporate leadership was fraught with greed & excess. Inadequancies & failure of the existing systems, brought to the fore, the need for norms & codes to remedy them. This resulted in the passage of the Sarbanes-Oxley Act of 2002, (popularly known as Sox) by the United States. In India however, only when the Securities Exchange Board of India (SEBI), introduced Clause 49 in the Listing Agreement, for the first time in the financial year 2000-2001, that the listed companies started embracing the concept of corporate governance. This clause was based on the Kumara Mangalam Birla Committee constituted by SEBI. After these recommendations were in place for about four years, SEBI, in order to evaluate & improve the existing practices, set up a committee under the Chairmanship of Mr. N.R. Narayana Murthy during 2002-2003.At the same time, the Ministry of Corporate Affairs set up a committee under the Chairmanship of Shri. Naresh Chandra to examine the various corporate governance issues. The recommendations of the committee however, faced widespread protests & representations from the industry, forcing SEBI to revise them. Finally, on the 29th October, 2004, SEBI announced the revised Clause 49, which was implemented by the end of the financial year 2004-2005. Apart from Clause 49 of the Listing Agreement, corporate governance is also regulated through the provisions of the Companies Act, 1956. The respective provisions have been introduced in the Companies Act by Companies Amendment Act, 2000.



SEBI had constituted a Committee on May 7, 1999 under the chairmanship of Shri Kumarmangalam Birla, then Member of the SEBI Board to promote and raise the standards of corporate governance. Based on the recommendations of this Committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreements (Listing Agreements). The recommendations of the Kumarmangalam Birla Committee on Corporate Governance (the Recommendations) are set out in Enclosure I to this report.

Report of the Committee on Corporate Governance Financial reporting and disclosures

Financial disclosure is a critical component of effective corporate governance. SEBI set up an Accounting Standards Committee, as a Standing Committee, under the chairmanship of Shri Y. H. Malegam with the following objectives: To review the continuous disclosure requirements under the listing agreement for listed companies; To provide input to the Institute of Chartered Accountants of India (ICAI) for introducing new accounting standards in India; and To review existing Indian accounting standards, where required and to harmonise these accounting standards and financial disclosures on par with international practices. SEBI has interacted with the ICAI on a continuous basis in the issuance of recent Indian accounting standards on areas including segment reporting, related party disclosures, consolidated financial statements, earnings per share, accounting for taxes on income, accounting for investments in associates in consolidated financial statements, discontinuing operations, interim financial reporting, intangible assets, financial reporting of interests in joint ventures and impairment of assets. With the introduction of these recent Indian accounting standards, financial reporting practices in India are almost on par with International Accounting Standards.



Corporate governance practices are a set of structural arrangements that ire emerging in free-market economies to align the management of companies with the interests of their shareholders (in particular) and other stakeholders, and society at large. Corporate governance addresses three basic issues:

Ethical issues

Efficiency issues, and

Accountability issues

Ethical issues are concerned with the problem of fraud, which is becoming wide spread in capitalist economics. Corporations often employ fraudulent means to achieve their goals. They form cartels to exert tremendous pressure on the government to formulate public policy, which may sometimes go against the interests of individuals and society at large. At times corporations may resort to unethical means like bribes, giving gifts to potential customers and lobbying tinder the cover of public relations in order to achieve their goal of maximizing long-term owner value.

Efficiency issues are concerned with the performance of management. Management is responsible for ensuring reasonable returns on investment made by shareholders. In developed countries, individuals usually invest money through mutual, retirement and tax funds. In India, however, small shareholders are still an important source of capital for corporations as the mutual finds industry is still emerging. The issues relating to efficiency of management is of concern to shareholders as there is no control mechanism through which they am control the activities of the management whose efficiency is detrimental for returns on their (shareholders) investments.

CORPORATE GOVERNANCE The management of a corporation is accountable to its various stakeholders. "Accountability issues" emerge out of the stakeholders' need for transparency of management in the conduct of business. Since the activities of a corporation influence the workers, customers and Society at large, some of the accountability issues tire concerned with the social responsibility that a corporation must shoulder.

The growing scale of corporations and their style of functioning have raised many new issues that must be addressed by corporate governance. Some of these issues are: The growth of private companies Tire magnitude and complexity of corporate groups The importance of institutional investors Rise in hostile activities of predators (take over.) Insider trading Litigations against directors Need for restructuring of boards Changes in auditing practices

The emergence of private companies and the growing complexity of corporate groups is one of the main concerns of corporate governance. Initially, limited liability companies were incorporated to raise outside capital. Later, these corporations used their powers as a legal person under law to acquire shares in other companies. This resulted in the formation of new companies that took over the assets and liabilities of the original companies before winding them up. This led to a spate of mergers and acquisitions in the late nineteenth and twentieth centuries.

Corporate governance is also concerned with the growing influence of institutional investors on the corporations. Issues concerning hostile takeovers particularly management buyouts, tire also addressed by corporate governance. Insider trading, imbalanced boards and compliance with international accounting standards the other issues that are addressed by corporate governance.

CORPORATE GOVERNANCE Jenson feels that corporations should incur some cost to ensure management compliance. These costs result from setting up of monitoring mechanisms like boards, which require appointment of outside independent directors to carry out checks like audits to evaluate the performance of top management. These theories of corporate governance laid the foundations for further studies in corporate governance.

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. 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. It is integral to the very existence of a company and strengthens investor's confidence by ensuring company's commitment to higher growth and profits. Broadly, it seeks to achieve the following objectives: A properly structured board capable of taking independent and objective decisions is in place at the helm of affairs; The board is balance as regards the representation of adequate number of non-executive and independent directors who will take care of their interests and well-being of all the stakeholders;

The board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information;


The board has an effective machinery to subserve the concerns of stakeholders;

The board keeps the shareholders informed of relevant developments impacting the company; The board effectively and regularly monitors the functioning of the management team; The board remains in effective control of the affairs of the company at all times. The overall endeavour of the board should be to take the organisation forward so as to maximize long term value and shareholders'


Evolution of corporate governance in India

Earlier the government was expected to ensure good corporate conduct. Most shareholders believed that stringent government controls would prevent malpractices of the corporations for fear of punishment. However, there was soon a growing realization that government was not always the best guardian of public interest. Shareholders began to feel the need for market driven corporate governance flint would be more democratic and flexible. This led to the birth of self imposed corporate governance within the corporate system. The active participation of various stakeholders like shareholders, financial institutions, etc. have strengthened the corporate governance mechanism and helped it to evolve beyond set of static rules.

Many factors have contributed to the evolution of corporate governance. Some of this are The responsibility for ensuring good corporate conduct shifted from government to a free-market economy. Active participation of individual and institutional investors. Increasing competition in global economy.

With the relaxation of direct and indirect administrative controls by the government, alternative mechanisms became necessary to monitor the performance of corporations in freemarkets. Shareholders believed that market forces could ensure good corporate conduct (self imposed) by way of rewarding success and punishing failures of corporations. Many free-market economies laid down effective regulations to monitor the corporations. However, regulations alone do not ensure good governance. To become effective, they must be enforceable by law.


CORPORATE GOVERNANCE The second factor that boosted corporate governance is the growth of global fund management business. Institutional investors such as insurance companies, pension and tax funds account for more than half the capital in the corporations of USA, This trend is also growing in India. Earlier Institutional investors did not monitor the activities of the corporations in which they invested. But the competition in the fund management business has forced them to take an active role in governance in order to safeguard their investments in the corporations. Now, many institutional investors express their views strongly with regard to various matters such is financial and operational performance, business strategy, remuneration of top-level managers etc. Along with the non-executive directors, these institutional investors monitor the performance of corporations.

The active investor demands good performance in the form of return oil investment and they also expect timely and accurate information regarding the performance of the company. Institutional investors can exert pressure on the management as they own a considerable share in the capital and any criticism from these investors can have a major impact oil the share prices. Investors believe that only strong corporate governance mechanisms and practices can save them from the ever-growing power of corporations, which call influence public policy to the detriment of investors.

The enhanced competition ill the global economy has compelled corporations to perform better by going in for cost-cutting, corporate restructuring, mergers & acquisitions, downsizing etc. All these activities can be carried out successfully only if there is proper corporate governance. Thus, market forces, active individual and institutional investor participation, and enhanced competition have helped corporate governance to evolve beyond a set of static rules.


CORPORATE GOVERNANCE Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse The initiative in India was initially driven by an industry association, the Confederation of Indian Industry In December 1995, CII set up a task force to design a voluntary code of corporate governance. The final draft of this code was widely circulated in 1997. In April 1998, the code was released. It was called Desirable Corporate Governance: A Code. Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others Following CIIs initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan: 2000-01: All Group A companies of the BSE or those in the S&P CNX Nifty index 80% of market cap. 2001-02: All companies with paid-up capital of Rs.100 million or more or net worth of Rs.250 million or more. 2002-03: All companies with paid-up capital of Rs.30 million or more Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees. In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were:

CORPORATE GOVERNANCE Disclosure of related party transactions. Disclosure of segment income: revenues, profits and capital employed. Deferred tax liabilities or assets. Consolidation of accounts. Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors independence.

With the goal of promoting better corporate governance practices in India, the Ministry of Corporate Affairs, Government of India, has set up National Foundation for Corporate Governance (NFCG) in partnership with Confederation of Indian Industry (CII), Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI).

Studies of corporate governance practices across several countries conducted by the Asian Development Bank, International Monetary Fund, Organization for Economic Cooperation and Development and the World Bank reveal that there is no single model of good corporate governance.

The OECD Code also recognizes that different legal systems, institutional frameworks and traditions across countries have led to the development of a range of different approaches to corporate governance. However, a high degree of priority has been placed on the interests of shareholders, who place their trust in corporations to use their investment funds wisely and effectively is common to all good corporate governance regimes.


CORPORATE GOVERNANCE One area of concern is whether the accounting firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the United States in the form of the SarbanesOxley Act (in response to the Enron situation as noted below) prohibit accounting firms from providing both auditing and management consulting services. Similar provisions are in place under clause 49 of SEBI Act in India. The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing. In India, the concept of corporate governance is still in its nascent stage. The recommendations of Kumaramangalam Birla and CII committees' reports are the first steps in India towards ensuring better corporate governance. Prior to these recommendations SEBI has take various steps to strengthen corporate governance in India. Some of these steps are as follows: Strengthening










recommendations of the Committee set up by SEBI under the Chairmanship of Shri Y H Malegam; Providing information in directors' reports for utilization of funds and variation between projected and actual use of funds according to the requirements of the Companies Act ' inclusion of cash flow and funds flow statement in annual reports Declaration of quarterly results; Mandatory appointment of compliance officer for monitoring the share transfer process and ensuring compliance with various rules and regulations;


CORPORATE GOVERNANCE The underlying principles of corporate governance revolve around three basic interrelated segments. These are: Integrity and Fairness Transparency and Disclosures Accountability and Responsibility

The organizational framework for corporate governance initiatives in India consists of the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI). The first formal regulatory framework for listed companies specifically for corporate governance was established by the SEBI in February 2000, following the recommendations of Kumarmangalam Birla Committee Report. It was enshrined as Clause 49 of the Listing Agreement. Thereafter SEBI had set up another committee under the chairmanship of Mr. N. R. Narayana Murthy, to review Clause 49, and suggest measures to improve corporate governance standards. Some of the major recommendations of the committee primarily related to audit committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, codes of conduct and financial disclosures. The Ministry of Corporate Affairs had also appointed 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.



The Main Constituents of Good Corporate Governance are:

Role and powers of Board: The foremost requirement of good corporate governance is the clear identification of powers, roles, responsibilities and accountability of the Board, CEO and the Chairman of the board.

Legislation: A clear and unambiguous legislative and regulatory framework is fundamental to effective corporate governance.

Code of Conduct: It is essential that an organization's explicitly prescribed code of conduct is communicated to all stakeholders and is clearly understood by them. There should be some system in place to periodically measure and evaluate the adherence to such code of conduct by each member of the organization.

Board Independence: An independent board is essential for sound corporate governance. It means that the board is capable of assessing the performance of managers with an objective perspective. Hence, the majority of board members should be independent of both the management team and any commercial dealings with the company. Such independence ensures the effectiveness of the board in supervising the activities of management as well as make sure that there are no actual or perceived conflicts of interests.


CORPORATE GOVERNANCE Board Skills: In order to be able to undertake its functions effectively, the board must possess the necessary blend of qualities, skills, knowledge and experience so as to make quality contribution. It includes operational or technical expertise, financial skills, legal skills as well as knowledge of government and regulatory requirements.

Management Environment: Includes setting up of clear objectives and appropriate ethical framework, establishing due processes, providing for transparency and clear enunciation of responsibility and accountability, implementing sound business planning, encouraging business risk assessment, having right people and right skill for jobs, establishing clear boundaries for acceptable behaviour, establishing performance evaluation measures and evaluating performance and sufficiently recognizing individual and group contribution.

Board Appointments: To ensure that the most competent people are appointed in the board, the board positions must be filled through the process of extensive search. A well defined and open procedure must be in place for reappointments as well as for appointment of new directors.

Board Induction and Training: Is essential to ensure that directors remain abreast of all development, which are or may impact corporate governance and other related issues.

Board Meetings: Are the forums for board decision making. These meetings enable directors to discharge their responsibilities. The effectiveness of board meetings is dependent on carefully planned agendas and providing relevant papers and materials to directors sufficiently prior to board meetings.


Strategy Setting: The objective of the company must be clearly documented in a long term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones.

Business and Community Obligations: Though the basic activity of a business entity is inherently commercial yet it must also take care of community's obligations. The stakeholders must be informed about the approval by the proposed and on going initiatives taken to meet the community obligations.

Financial and Operational Reporting: The board requires comprehensive, regular, reliable, timely, correct and relevant information in a form and of a quality that is appropriate to discharge its function of monitoring corporate performance.

Monitoring the Board Performance: The board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals, using key performance indicators besides peer review.

Audit Committee: Is inter alia responsible for liaison with management, internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures, reporting to the board on the key issues.


CORPORATE GOVERNANCE Risk Management: Risk is an important element of corporate functioning and governance. There should be a clearly established process of identifying, analysing and treating risks, which could prevent the company from effectively achieving its objectives. The board has the ultimate responsibility for identifying major risks to the organization, setting acceptable levels of risks and ensuring that senior management takes steps to detect, monitor and control these risks. Good corporate governance recognizes the diverse interests of shareholders, lenders, employees, government, etc. The new concept of governance to bring about quality corporate governance is not only a necessity to serve the divergent corporate interests, but also is a key requirement in the best interests of the corporates themselves and the economy. Also, irrespective of the model, there are three different forms of corporate responsibilities which all models do respect:

Political Responsibilities: The basic political obligations are abiding by legitimate law; respect for the system of rights and the principles of constitutional state.

Social Responsibilities: The corporate ethical responsibilities, which the company understands and promotes either as a community with shared values or as a part of larger community with shared values.

Economic Responsibilities: Acting in accordance with the logic of competitive markets to earn profits on the basis of innovation and respect for the rights/democracy of the shareholders which can be expressed in terms of managements' obligation as 'maximizing shareholders value'.




1] Anglo - American Model
Many models of corporate governance try to involve various stakeholders like shareholders, employees and financial institutions in the governance of the company. In this section we will discuss the Anglo -American, German Japanese, and Indian models of corporate governance.

In this model of corporate governance, shareholders elect the board of directors. They take up the advisory role. Shareholders usually control a private corporation through the board of directors. The board of directors performs three functions on behalf the shareholders: representation, direction and oversight. The Board appoints and supervises the officers (managers) who take care of the daily activities of the organization.

The structural framework of the Anglo-American model as laid down by the legal system is shown in the Figure below. Employees, suppliers and creditors are stakeholders in the corporation. The creditors have a lien on the assets of the corporation The Board of Directors designs the policy of the corporation, which is then implemented by the management, using a well-designed information system the board monitors the implementation of this policy in the organization. This model is most suitable for a production or manufacturing organization as it facilitates efficient monitoring of production, exchange and performance.



2] German model of corporate governance

In the Gentian model of corporate governance, even though the shareholders own the corporation, they do not directly control the governance mechanism. Half of the members on the supervisory board are elected by file labor unions while the remaining are elected by the shareholders (owners). In this model the employees are not just stakeholders, but also have a say in the governance mechanism.

Thus, employees become responsible for the policies that are to be implemented by them for attaining the objectives (profit, market share, high volumes ... etc) of the organization. Tire supervisory board, which is appointed jointly by the shareholders and the labor unions (employees), appoints and monitors the management board. This management board conducts the day-to-day operations of the organization independently. But, it has to report to the supervisory board. One of the Unique features of this model is that the labor relations' officer finds a place on the management board, This ensures workers participation in the governance mechanism This model of corporate governance and the relationship between various constituents is as shown in Figure below.



3] Japanese Model
In the Japanese model of corporate governance, the financial institutions have a major say in the governance mechanism. The shareholders, along with the banks, appoint the members of the board. In this model even the president is appointed on the basis of a consensus between the shareholders and the banks. The president consults the board and their relation is hierarchical in nature. Usually the board ratifies whatever decisions the president takes. The financial institutions that finance the business have a crucial role in it even though the shareholders are the owners of the business. In this model, the executive management (board of directors) carries out file management function. Sometimes the financial institutions monitor the management function by nominating the managerial personnel. The banks even have the power to suspend the board in case of an emergency. This model is as shown in the Figure below.



4] Indian Model
The Indian model of corporate governance is a mix of the Anglo-American and German models. Corporations in India can be grouped into three categories: private companies, public companies, banks and other corporations.

The founder, his family, and associates closely hold the private companies and they exercise maximum control over the activities of the company The businesses of private companies like that of the Tata group, the Reliance group, or the Birla group, are financed by retained earnings or/and debt. The role of external equity finance is minimal.

In the case of public enterprises, the central and state governments choose tile members of the board. Even after the disinvestment of some public sector companies, the government continues to have a considerable hold over the activities of the company. Here the interests of the stakeholders are given low priority, large public sector enterprises are run to serve the interests of the government rather than aiming for efficiency and maximizing long-term owner value.




A director assumes two roles while governing the activities of an organization. They are: The performance role The conformance role

Performance Role
In this role, the director performs various activities that are aimed at improving [fie overall performance of the corporation. Firstly, a director act as a source of knowhow, expertise and external information, secondly, he caters to needs of the corporation for networking, representing and adding status.

The director brings into the corporation the knowledge and experience required to solve the problems that the board faces, Outside directors sometimes play the role of -specialists," drawing upon their expertise, knowledge and skills in different areas such as finance marketing, law, and engineering. The outside directors appointed by the corporations on their boards usually play the role of specialists. The outside directors act as the eye of the board to the external world. They bring in information related to international markets, the financial or technological environment etc, which is not readily accessible to the corporation.

The directors represent the company on public forums or committees. They act with the media on behalf of the corporation. The presence of outside directors who are renowned in various fields enhances the status, reputation and credibility of the board. This boosts customer/shareholder confidence in the company.



Conformance Role
In this role the director is concerned with ensuring that the company follows the policies and procedures laid down by the board. Directors usually accomplish this by questioning and supervising the executive management. Conformance role is a very tricky role as it involves, monitoring and evaluating their own performance, (in case of majority/All-executive boards.

What Should a Board Do?

1. Exercise leadership, enterprise, integrity and judgment in directing the corporation so as to achieve continuing prosperity for the corporation and to act in the best interests of the business enterprise in a manner based on transparency, accountability and responsibility.

2. Ensure that through a managed and effective process board appointments are made that provide a mix of proficient directors, each of whom is able to add value and to bring independent judgment to bear on the decision-making process;

3. Determine the corporation's purpose and values, determine the strategy to achieve its purpose and to implement its values in order to ensure that it survives and thrives, and, ensure that procedures and practices are in place that protect the corporation's assets and reputation;

4. Monitor and evaluate the implementation of strategies, policies, management performance criteria and business plans;

5. Ensure that the corporation complies with all relevant laws, regulations and codes of best business practice;


CORPORATE GOVERNANCE 6. Ensure that the corporation communicates with shareholders and other stakeholders effectively;

7. Serve the legitimate interests of the shareholders of the corporation and account to them fully;

8. Identify the corporation's internal and external stakeholders and agree on a policy, or policies, that indicate how the corporation should relate to them;

9. Ensure that no one person or a block of persons has unfettered power and that there is an appropriate balance of power and authority on the board which is, inter alia, usually reflected by separating the roles of the chief executive officer and Chairman, and by having a balance between executive and non-executive directors,

10. Regularly review processes and procedures to ensure the effectiveness of the board's its internal systems of control, so that its decision-making capability and the accuracy of its reporting and financial results are maintained;

11. Regularly assess its performance and effectiveness as a whole, and that of the individual directors, including the chief executive officer,

12. Appoint the chief executive officer and at least participate in the appointment of senior management, ensure the motivation and protection of intellectual capital intrinsic to the corporation, ensure that there is adequate training in the corporation for management and employees, and a succession plan for senior management;

13. Take care that all technology and systems used in the corporation are adequate to properly run the business and ensure that it remains a meaningful competitor;



14. Identify key risk areas and key performance indicators of the business enterprise and monitor these factors;

15. Ensure annually that the corporation will continue as a going concern for the next fiscal year. Independent outside directors is in good position to analyze issues that are brought to the notice of the board from a perspective that is different from that of the executive directors. This independent evaluation of the top management's performance overcomes the danger of adoption of a narrow vision of the executive board.



The company law lays down the duties and responsibilities of the board of directors. Directors also have certain duties and responsibilities, which are embedded in the laws of insolvency, consumer protection, employment act, mergers and monopolies, and other securities and stock exchange rules. The responsibilities of the directors may differ from country to country, but there are some responsibilities that are common to directors all over the world.

These are: Responsibilities to shareholders Obligation to maintain honesty and integrity.

The shareholders of a company appoint the directors. Hence, the basic responsibility of the directors is towards the shareholders. Directors fulfill this responsibility by providing strategic direction to the company by setting appropriate policies and monitoring the performance of the top management. Directors are also accountable to the shareholders. They have to give the shareholders regular reports and accounts, which are duly audited, Directors are expected to be honest in their dealings with the shareholders and to take decisions that will benefit the organization as a whole. All the shareholders must be given adequate and accurate information regarding every issue that could affect their interests.




The Companies Act makes directors liable for the following: Misrepresentations in offer documents and annual accounts Failure to refund subscription money to investors Contravention of the law

Duties of Directors
Exercise care in the discharge of functions as directors. Attend board meetings and devote sufficient time and attention to the affairs of the company. Not to be negligent and not to commit or let others commit tort-liable acts Act in the best interest of the company and its stockholders and customers Not to misuse power Protect interests of creditors Maintain confidentiality Not to make secret profits and make good loss, if accrued due to breach of duty, of negligence. Not to exercise powers for a collateral purpose. Not to waste company assets.




The role of the chairman is to manage the board and ensure that its policies are put into practice by the management. He also has to work closely with the company secretary to address legal issues. The chairman must have a good understanding of the financial standing of the company. He must keep a strict watch on the company's actual performance. The chairman should have a clear idea of where the company stands and where it is headed.

He should also have clear understanding of the way in which a company is managed He must identify shortcomings and see that the board discusses these. A chairman should play a proactive role and should be in a position to identify a problem even before the CEO recognizes or senses it. By being proactive the chairman can help the CEO take corrective action before things get out of hand, The chairman also plays crucial role in maintaining good relations between the board and the company' stakeholders. In the process of maintaining such relations lie ensures that the board makes decisions in accordance with the interest of shareholder and all other stakeholders of the company.

The primary responsibility of the chairman lies in catering to the internal needs of the board and its conduct. He has to handle people from varied fields who serve the board A chairman must have good interpersonal relations. For ensuring functioning of it board a chairman should forge good relationships with the CEO, executive and not executive directors.

Relationship with the CEO

The chairman must have a good relationship with the CEO. This will not only give him broad understanding of 'what is going on in the organization, but also allow him determine whether the CEO is working towards achieving the set targets or not. Strained relations between the CEO and chairman may turn out to be detrimental the company. Differences with the chairman may compel the CEO to withhold information from him.


Relationship with Executive Directors

It is the responsibility of the chairman to ensure that the executive directors report the activities of the organization in an honest way. The information presented to the executive directors determines the effectiveness of the contribution of the no executive directors.

Relationship with non-executive Directors

Cordial relations with the non-executive directors enable the chairman to motivate, them to make decisions that are beneficial to the company. A good chairman should have the ability to attract and maintain good non-executive directors on his board.




Some of the functions of a chairman, apart from the roles and responsibilities discussed above are: To set standards and ensure that policies and practices are in place. To ensure that the directors take good decisions. To make sure that directors are continuously upgraded to the levels required investors to meet the current and future needs of the company. To act decisively in times of crisis To act as a representative of the company.




The primary role of a CEO is to run the organization in an efficient manner to produce the desired results. Apart from running the business effectively, the CEO is expected to have a constructive working relationship with the chairman and the directors.

Relation with the Chairman

The CEO should establish a constructive working relationship with the chairman. This requires a high degree of trust, respect, and an ability to communicate openly with each other. When the CEO and chairman know each others strengths and weakness they can work closely, complementing each others strengths to set the future course of the company.

Relation with Directors

The CEO should maintain cordial relationships with the directors to ensure that they Act in the interest of the whole organization instead of pursuing the narrow interests of the owners (shareholders, employees, banks, government etc.) The CEO can use his good relations with the directors to motivate them to participate actively in improving the performance of various departments of the organization.



Functions of the CEO

In addition to the roles discussed above, a CEO is expected to be able.

To assist the executive directors in Formulating strategic proposals that have to be endorsed by the board. To provide leadership and direction to all his executive directors. To develop a plan for implementing the strategy formulated by the board and/or Management. To act as representative of the executive directors when interacting with the nonexecutive directors. To present the company to major investors, the media and government. To be a source of inspiration, leadership and direction to the employees, customers and suppliers. To be able to identify the situations that requires intervention.


The primary function of the Board of directors is to take responsibility for the performance of the corporation and work to promote its interests on behalf of the shareholders, to whom it is accountable. Corporate boards oversee the performance of the corporation, its CEO and the top-level managers. The board ensures that timely and accurate reports are provided oil corporate performance, including the financial conditions and non-financial indicators of the corporation. It monitors corporate performance by closely following the progress of the corporation towards the pre-set goals and targets. The board provides strategic guidance to the corporation; it studies the future trends so that the corporation has the necessary and adequate resources to secure its long-term position.

The board has to maintain good relations with the stakeholders and try to keep the shareholders happy. Apart from carrying out the above functions, the board enacts various performance and conformance roles.



Kumarmangalam Committee Recommendations - Composition of Audit Committee

The composition of the audit committee is based on the fundamental premise of independence and expertise. The Committee therefore recommends that The audit committee should have minimum three members, all being non executive directors, with the majority being independent, and with at least one director having financial and accounting knowledge; The chairman of the committee should be an independent director. The chairman should be present at Annual General Meeting to answer shareholder queries; The audit committee should unite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the Committee but on occasions it may also meet without the presence of any, executives of the company, Finance director and head of internal audit and when required, a representative of the external auditor should be present as invitees for the meetings of the audit committee; The Company Secretary should act as the secretary to the committee. (These are mandatory recommendations.)



Strategic Role of the Board:

The primary role of the board is to supervise the quality of strategic thinking of the executive committee. When necessary, the board can take corrective measures to guide the top management to develop strategies to achieve corporate goals.

The board has a final say in the strategy that decides the fate of the company. The board has the right to either pass the decisions taken by the executives or question the effectiveness of these strategies. Hence it is the responsibility of the executives to come up with proposals for the board to agree on, to improve oil using their collective experience and expertise in various fields of business, The board, therefore, plays key role & in leading and directing the organization. Effective boards are familiar with the activities of the organization and can, as a result, play a major role in guiding the strategic decision making process of the company. At times, nonexecutive director on the board identify and warn the CEO about operational issues that may lead to crisis situation. The board performs its role in strategy development in the following levels.

Systematic level strategy Structural and portfolio strategy Implementation strategy Systematic level strategy

Systematic level strategy, formulation is based on the board's understanding of what is happening in the national, international and global environment. The board's knowledge about the external environment extends too many areas: socio-political environment, potential market trends, the impact of changes in technology and the international competitive forces that have in effect on the company. Since the board members scan the external environment regularly, they can provide the executives/management crucial inputs for effective decision-making.

Structural and portfolio strategy is concerned with decisions regarding the structure of the company and the businesses that it should enter into. The board addresses issue like what changes can be done in the structure of the company to achieve the growth aspirations of the

CORPORATE GOVERNANCE board. This level of strategic thinking involves discussions among the board of directors and the management, relating to acquisitions, mergers, strategic alliances or sale of a part of the business.

Implementation strategy is concerned with the board's role in ensuring that the strategy is feasible. 'The board ensures that a broad game plan for implementing the policies and strategies is in place, so that the management can deliver the desired results.

Policy Making Role of the Board The board of directors frames guidelines or policies to ensure that the business plans and management decisions conform to the corporate strategy. These policies cover all the key areas like marketing, finance, personnel, operations, customer relations and research and development. The board develops broad policies for the above areas and the executives of the organization draw up derived policies (pricing, advertising, sales and distribution in the marketing field). These policy statements are usually, published and made available to employees.

Monitoring and Supervisory Role The board monitors and supervises the corporation to ensure that it adopts the right strategic direction. It regularly checks whether the business is following the policies laid down for achieving the goals and inquires into the causes of deviations, if any. The board reviews the plans, policies and strategies of the corporation in the light of the changing competitive environment. If necessary it makes changes in the corporations' strategies. For effective executive supervision, a board has to monitor all the activities or the company that are crucial for ensuring consistent growth and building market share. For example, the board of a manufacturing company may have to monitor the activities concerned with financial performance, market performance, product and services performance, technological

performance, management and organizational performance, employee relations, acquisitions and divestments, corporate social responsibility etc.




By doing this project we will be able to understand:

1. The meaning of CORPORATE GOVERNANCE 2. LAUSE 49 OF LISTING AGREEMENTS 3. Initiatives, regulations, and policy developments with regard to the evolution of corporate governance practice in India 4. Whether reporting in the ANNUAL REPORTS of the companies are in accordance with the provisions of clause 49 of CORPORATE GOVERNANCE. 5. This project will enhance our capability of summarizing and to get conclusion and providing recommendations about the effective working of CORPORATE GOVERNANCE in the companies.




The study has following limitations Non availability of certain data with the department, like statutory compliance and shareholders compliances. There may be approximations. Lack of reliability Incompetence Errors in rating Stereotyping Central tendency Constant error Personal bias Spillover effect




The meaning of research as a careful investigation or inquiry specially through search for new facts in any branch of knowledge. Redman and Mory define research as a systematized effort to gain new knowledge. Some people consider research as a movement, a movement from the known to the unknown. It is actually a voyage of discovery. 0-The study is descriptive research study. The main purpose of descriptive research is description of the state of affairs as it exists at present. In the present study, descriptive method is used to know the level of employees engagement with the organization.


The primary data was collected through a well structured questionnaire with close-ended questions measures at 5-point liker type scale and suggestion questions. Secondary data required for the project was collected from the company records and Internet.



CHAPTER SCHEME Chapter I deals with the meaning introduction to the topic
Chapter II presents the profile of the industry and Review of Literature

Chapter III analyses and interprets the collected secondary data

Chapter IV Findings and Suggestions

Chapter V Conclusion.




"Corporate governance is a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation. This is often limited to the question of improving financial performance, for example, how the corporate owners can secure/motivate that the corporate managers will deliver a competitive rate of return", Mathiesen [2002]. Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. -The Journal of Finance, Shleifer and Vishny [1997].

"Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance". OECD April 1999. OECD's definition is consistent with the one presented by Cadbury [1992, page 15].


CORPORATE GOVERNANCE "Corporate governance - which can be defined narrowly as the relationship of a company to its shareholders or, more broadly, as its relationship to society". From an article in Financial Times [1997]. -

"Corporate governance is about promoting corporate fairness, transparency and accountability". - J. Wolfensohn, (President of the Word bank, as quoted by an article in Financial Times, June 21, 1999).

Some commentators take too narrow a view, and say it (corporate governance) is the fancy term for the way in which directors and auditors handle their responsibilities towards shareholders. Others use the expression as if it were synonymous with shareholder democracy. Corporate governance is a topic recently conceived, as yet illdefined, and consequently blurred at the edgescorporate governance as a subject, as an objective, or as a regime to be followed for the good of shareholders, employees, customers, bankers and indeed for the reputation and standing of our nation and its economy Maw et al. [1994].

Sir Adrian Cadbury in his preface to the World Bank publication Corporate Governance: A framework for implementation, said, Corporate governance is holding the balance between economic & social goals and between individual & community goals. The aim is to align as nearly as possible, the interests of individuals, corporations & society.

The Cadbury Committee U.K, defined corporate governance as follows: It is a system by which companies are directed & controlled.



The literature on the theory of the firm, corporate governance, and information theory attributes different meanings and nuances to a number of words in common usage. As words are the tools of thinking, they need to be clearly defined to provide a basis for clear communication and rigourous analysis.

Ambiguity exists in the meaning of key words such as 'control', 'regulate', 'manage' 'govern' and 'governance'. Both the ambiguities and circular dictionary definitions need to be resolved to develop rigour in the study of corporate governance.

Tannenbaum (1962) defined control as 'any process in which a person or group of persons or organization of persons determines, i.e., intentionally affects, what another person or group or organization will do'. This definition provides a word to describe a situation where no standard of performance is required. Other writers (Etzioni, 1965:650; Downs, 1967:144) use the word control in the sense of meeting some standard of performance. In these situations, the word 'regulate' will be used whether or not the 'regulator' is a manager of the organisation concerned or an external bureaucrat. Defining 'control' and 'regulate' in these ways provides a common language with the science of information and control described as 'cybernetics' (Ashby 1968). This facilitates the use of information theory in corporate governance analysis.

The word control, as defined above, infers that a person or group possess power to determine what actions are taken. Self-control then means that not all the power available is used to further the self interest of the controller(s). Self-control simply becomes the avoidance of using power in some degree, rather than meeting a given result.


CORPORATE GOVERNANCE The word 'manage' will be used to communicate the responsibility for executive action. It could be ambiguous to mean either control or regulate. The word 'govern' is likewise ambiguous. 'Governance' will be used to describe a system of control or regulation which includes the process of appointing the controllers or regulators.

Self-regulation means that the standards of performance are established by those being regulated. Self-governance means that the system of control or regulation includes the appointment of the controllers by the governed. By this means, self-regulation can be introduced through self-governance. Self-governance involves a political process within institutions to appoint the controllers responsible for regulation. Self-governance in a political context means 'government of the people, by the people for the people'. This describes democracy. The introduction of elements of self-governance into institutions involved in productive activities would enrich democracy. There are arguments and evidence that this produces operating advantages (Turnbull 1997c,e).

In discussing systems of corporate control, economists frequently use the word 'capital' in different ways. In their 'Corporate Governance Survey', Shleifer & Vishny (1996) used the word in four different ways to indicate: (i) the means of production (p.6); (ii) an investment which may not be represented by the means of production (p.3); (iii) finance (p.2) and 'external capital' (p.6); or even (iv) just credit created by contract; ('bank debt' and 'junk bonds').

The problem introduced by such ambiguity is illustrated by their reference to 'the people who sink the capital' (p.3). It is not clear if these 'people' are: (i) investors subscribing for new shares; (ii) shareholders who purchase existing shares from others; (iii) bankers who lend money; or (iv) the managers/'entrepreneurs' who purchase the means of production or what Moulton (1935:7) describes as 'procreative assets'. The agency costs, benefits and risk, change according to the various meanings of the word capital.


CORPORATE GOVERNANCE Clarity of the Shleifer & Vishny statement is fundamental for their survey as they define corporate governance as 'the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment' (p. 2). With this perspective of considering the moral and other hazards of investors obtaining satisfactory returns, Shleifer & Vishny provide a comprehensive literature review.

Confusion about the word capital can be compounded by accountants who introduce their own professional meanings which can also be ambiguous. Clear analysis and communication would be advanced with less ambiguous words, especially when the context does not make the meaning clear. In an interdisciplinary topic like corporate governance it may be safer simply not to use the word 'capital'.

However, ambiguous words can be useful. Alchian & Demsetz (1972: note 1) use the word 'meter' in the sense of both measuring and control. In other words, they are discussing regulation as defined above. Ambiguity in the words 'manage' and 'govern' can likewise be useful. However, care needs to be taken not to use ambiguous words un-necessarily. The term 'governance' is often used when the word 'control' or 'regulate' would be more appropriate or provide greater clarity of the process involved. The study by Porter (1992) rarely uses the word governance.

If the term 'management' is reserved to describe processes which involve executive action then it describes a subset of governance processes. However, the kudos perceived by some writers in corporate governance matters has resulted in the word governance being over used. Many board activities are subject to management processes such as establishing sub-committees. Greater clarity and focus would be achieved by using terms such as 'board management', 'board conduct', 'corporate management', 'corporate organisation', or 'corporate conduct', rather than the less specific, more ambiguous and ambitious phrase 'corporate governance'.


CORPORATE GOVERNANCE A useful definition for the word 'stakeholder' has been provided by Donaldson & Preston (1995). 'Stakeholders are identified through the actual or potential harms and benefits that they experience or anticipate experiencing as a result of the firm's actions or inactions'. In 1963, the Stanford Research Institute defined as stakeholders 'those groups without whose support the organisation would cease to exist' (Freeman 1984:31). This class of stakeholders are described by Turnbull (1997c,e,f) as 'strategic stakeholders' as strategic issues concern the ability of a firm to exist. Strategic issues transcend discounted cash flow analysis based on a relative performance measure of an 'opportunity rate of return'.

The term 'compound board' will be used to describe the existence of two or more control centres whether or not they are required by law, the constitution of the firm or are created by relationships external to the firm. Compound boards are commonly found in Anglo cultures although they may not be recognised as such. Publicly traded corporations controlled by a parent company, control group, relationship investor or family shareholder create a compound board. Two and three tiered boards may be required by law in Europe (Analytica 1992) and are found in Japanese firms where the shareholders elect 'statutory auditors' to oversee the conformance role of the board described as Kansayaku(Charkam 1994:93). A Keiretsu Council creates a third control centre.




Company Secretaries play a predominant role in Corporate Management, Corporate Litigations and resolution of Shareholder Disputes, Directorial Complaints, rendering Legal Advisory Services and carrying out Due Diligence, advising, organizing and implementing Mergers, Demergers, compromises and arrangements, capital issues, public offer, acquisition of shares, acquisition of control, setting up of Companies, Partnership Firms, Limited Liability Partnerships, Holding companies, Subsidiary companies in India and abroad, Transaction Advisory and Documentation, Compliance Management Services, drafting Share Subscription Agreements, Shareholder Agreements, Joint ventures and Foreign collaborations, Registration and protection of Trademarks, passing off and infringement suits, appearance before Company Law Board, National Company Law Tribunal, Debts Recovery Tribunals, Trademarks Tribunals, Arbitral Tribunals, Intellectual Property Appellate Tribunals, Securities Appellate Tribunals and other quasi-judicial forums, winding up of companies, creditor voluntary arrangements, advising and assisting in dealing with offences and prosecution under the Companies Act, SEBI Act, FEMA, Competition Act, Securities Contracts Regulation Act, compounding of offences, answering show cause notices, handling inspections and investigations, obtaining relief and advising on remedial action to be taken. The Partners and the senior professional staff and counsels of KSR&Co, a firm of Company Secretaries, in Bangalore in Karnataka and Coimbatore, and Chennai in Tamilnadu with more than 17 years of rich and unique experience render the above basket of services to individuals, firms, trusts, societies, corporate and non-corporate entities and beyond.


CORPORATE GOVERNANCE Dr.K.S.Ravichandran, M.Com, Managing Partner He is a Fellow Member of the Institute of Company Secretaries of India, with a Master's Degree in Commerce and Bachelor's Degree in Law. He was awarded the Doctorate of Philosophy by Alagappa University in the Faculty of Management for his research on the Effectiveness of the Trial Procedure for Offences under the Companies Act in India and UK. He holds a Diploma in Electronics and Radio Communication Engineering awarded by the Indian Air Force (IAF) and has over nine years technical experience in IAF. He was a lecturer in Commerce in the Department of Education, Government of Arunachal Pradesh. He is a member of the International Association for the Protection of Intellectual Property (AIPPI). He is a member of Chartered Institute of Arbitrators. He is a member of the core group constituted for developing ICSI Vision Plan 2020. He is a member in subgroup of PMQ Course in Corporate Insolvency and Restructuring. He is the founder member and one of the Vice Presidents of the Society of Insolvency Practitioners of India (SIPI). He is a member of the Expert Advisory Group to provide advisory services to the members of ICSI. He is an advisory partner of M/s.S.Chandrasekaran Associates, a firm of Company Secretaries, in Delhi. He has 15 years practical experience and is a specialist in Company Law, FEMA and other Economic Legislations focusing mainly in Mergers and Acquisitions, Corporate Restructuring, Joint Ventures and Foreign Collaborations, Due Diligence Audits, Transaction Documents, Capital Market Issues, Protection of Intellectual Properties and Domestic and International Alternative Dispute Resolutions. He is a prolific writer and speaker. He has participated in more than 200 seminars, workshops, and conferences. He has about 100 published articles to his credit. He is the author of the books "Secretarial Audit", "Prosecution of Directors and Officers under Company Law - Relief and Remedies" and "A Treatise on Corporate Lending, Charges, Debts Recovery, Enforcement of Security Interest and Winding up." LL.B, FCS, Ph.D.,


CORPORATE GOVERNANCE Mr.C.V.Madhusudhanan, B.Sc., Partner He is a Fellow Member of the Institute of Company Secretaries of India, with a Bachelor's degree in Law. Also holds a Bachelor's degree in Science. He has over a decade experience in practice and specializes in Corporate Laws, Economic Legislations, Securities Laws, SEBI, FEMA, Banking Laws, Intellectual Property Laws, Joint Ventures and Documentation. He heads the firm's operations at Bangalore. He speaks regularly in workshops and seminars on various subjects in the areas of Corporate Laws, Economic Legislations, Securities Laws, Intellectual Property Laws, Mergers and Amalgamations, Demergers and spin-offs, Legal Due Diligence Audits. Mr.Madhusudhanan is a visiting faculty at Southern India Banks Staff Training College, Bangalore. B.L., FCS

Senior Management Executives of the firm Mr.V.R.Sankaranarayanan, B.Com, Associate He is an Associate member of the Institute of Company Secretaries of India with a Bachelors degree in Commerce. He is also doing CA-Final. He has more than 11 years of experience, involved in Compliance Management Services with regard to Company Law, Securities Laws, Industries (Development and Regulation) Act, 1951. ACS.,

Mr.R.Valluvan, AGM - Compliance Management & Public Relations He takes care of all the registration works with the Ministry of Corporate Affairs, Service Tax Registration, Partnership Firm Registration and Sales Tax Registration. He is very shrewd man having more than 16 years of experience and he takes care of public relation functions and external security matters.


CORPORATE GOVERNANCE Mrs.S.Shilpa, B.Com., AGM Administration & Accounts She holds a Bachelor's Degree in Commerce. She maintains the accounts of the Firm and ensures payment of taxes and duties and she also manages the office administration. She has 12 years of experience. She is the CM Administration and Accounts of our Firm. She is multi-tasking specialist with varied expertise in all administrative and general management works.

Ms.S.Manjula Devi, B.A.B.L., Senior In-house Counsel She is an In-house Counsel of our firm. She holds a Bachelor's degree in Law. She handles matters coming under Corporate Laws / IPR Law / Debt Recovery Laws and other matters of Civil in nature. She has got around 5 years of experience.

Mrs.Meera Elizabeth, B.A., B.B.L., Chief Manager IPR Compliances & Updates She holds a bachelor degree in Economics and a bachelor degree in Business Laws. She is an expert in various matters including Computer Operations and Maintenance, Company Law Compliances, IPR Registration Matters, preparation of applications and petitions for mergers and demergers. She has got around 14 years of rich experience.

Mr. N.Subrahmanian, M.A., P.G.D.L.L., DGM Compliance Management He holds a Masters degree in Political Science and has done postgraduate diploma in Labour Laws. He has more than 15 years of experience, looking after the Chennai Branch.


CORPORATE GOVERNANCE Mrs.G.Sarojini, B.B.A., Manager Systems & Data She holds a bachelor degree in Business Administration. She is an expert in matters like hardware and software maintenance, email maintenance, database security and a solution provider for security threats. She has around 7 years of experience in the firm.

Officers of the firm

Mrs.G.Indhumathi, B.Sc., Manager MIS She is the Welfare Officer of our Firm carrying on welfare measures for staff members. She has around 7 years of experience in the firm.

Mr.K.S.Kumaresan, Relationship Officer He is handling charge matters and liaisoning with various banks for the same. He has got around 14 years of experience.

Mrs.R.Yamuna, Secretarial Officer She holds a bachelors degree in Commerce. She is doing Final CS. She is handling all corporate compliance management jobs. She has around 1 year experience in the firm.



Services Provided

Compliance Management Services (CMS)

All matters connected with Company Law, Rules and Regulations including Incorporation of Companies, Board of Directors Compliances, Shareholders

Compliances, Charge Management, Liquidation and Winding Up and all other compliances, Advisory and other services under the said law Approvals and Licences under various Corporate Legislations Consultancy and Compliance Management in relation to Foreign Direct Investment, External Commercial Borrowings, Joint Venture / Wholly Owned Subsidiaries in India and abroad Consultancy on Foreign Exchange Management related approvals and compliances Consultancy on Takeover Code, Insider Trading Regulations and other SEBI guidelines, rules and regulations

Management Consultancy Services (MCS)

Joint Ventures and Foreign Collaborations Mergers and Acquisitions Corporate Strategic Planning and Structuring Introduction of Management Principles in SMEs and Devising Mindset Changes and Growth Strategies Issue and Listing of Securities in India and other Countries Valuation of Shares, Brands and Goodwill Implementing and Monitoring the Corporate Governance Systems Private Evaluation and other Joint Venture Proposals



Legal Management Services (LMS)

Drafting/Vetting of Legal and Commercial Contracts, Agreements, Undertakings, declarations and all documents on any subject

Legal, Financial and Managerial Due Diligence Preparation of Transaction Documentation, Analysis, Negotiation and Settling of Terms in respect of various transactions including Property Deals

Preparation, Scrutiny and negotiating terms contained in Shareholders & Share Subscription Agreements

Property Evaluation and other Joint Venture Proposals

Legal Representation Services (LRS)

Case Study, Analysis & Advisory Services for devising strategies. Representing litigants on matters falling under Corporate Laws, Securities Laws, IPR Laws and Debts Recovery Law and Appearance before Company Law Board, Debts Recovery Tribunal, Securities Appellate Tribunals, Intellectual Property Appellate Board and Monopolies and Restrictive Trade Practices Commission, Competition Commission of India and other Tribunals

Intellectual Property Rights (IPRs)

Registration of Trademarks and Brands, Copyrights, Patents and Industrial Designs in India and abroad

Global IPR Adoption Advisory Services, Comprehensive Search Services, Registration, services relating to Licensing, Assignment of Trademarks and other Intellectual Property Rights, Services relating to managing Infringements and Passing off and other threats to IPRS

Alternative Dispute Resolution (ADR)

Domestic and International Commercial Arbitration, Mediation and Conciliation with an analytical, commercial and legal approach for removal of deadlocks and resolution of disputes.




Chapter III Analysis of Fundamental Analysts

Investors prefer to invest in stock market due to:

This chart illustrates the preference of the investors in stock market such as the stocks that provide high return, the stocks which considers the capital appreciation.

Different Criteria for Investment

100% 90% 80% 70% weitage 60% 50% 40% 30% 20% 10% 0% 1st rank 2nd rank 3rd rank 4th rank 5th rank 6th rank 7th rank 8 th rank Services Liquidity Diversification Benefit Capital Appriciation Tax Benefit High return Flexibility safety





Return Capital Appriciation Tax Benefit Safety Liquidity Flexibility Diversification Benefit Services

From analysis we can say that at 1st rank investors give highest importance to High return. 45% investor selects high return as most preferred criteria for investment. While 35% investors give preference to capital appreciation at 1st rank. And 20% investor gives preference to safety at 1st rank. At 2nd most preferred criteria investors select capital appreciation. 30% investors select capital appreciation at second most preferred criteria. While 25% investors give preference to high return at 2nd rank.15% investors give preference to flexibility and liquidity. 20% investors give preference to safety at 2nd rank. And 5% investors give preference to tax benefit.


CORPORATE GOVERNANCE At 3rd most preferred criteria investors select tax benefit.30% investors select tax benefit at 3rd most preferred criteria. While 25% investors give preference to high return at 3rd rank.15% investors give preference to flexibility and capital appreciation at 3rd rank.10% investors give preference to safety at this rank. Only 5% investor gives preference to diversification at 3rd rank. At 4th most preferred criteria investors select safety.35% investors select safety as 4th most preferred criteria for investment. While 25% investors prefer tax benefit at 4th rank.15% investors select liquidity as 4th most preferred criteria.10% investors select capital appreciation and flexibility at 4th rank. Only 5% investor gives preference to diversification at 4th rank. At 5th most preferred criteria investors select liquidity.35% investors select liquidity at 5th most preferred criteria. 30% investors prefer flexibility at 5th rank.15% investors prefer safety at 5th rank.10% investors select diversification at this rank. While 5% investors select high return and tax benefit at 5th rank. At 6th rank 30% investor select diversification.15% investors select flexibility, tax benefit and services at 6th rank.10% investors select safety and liquidity at this rank. And only 5% investors select capital appreciation at 6th rank. At 7th most preferred criteria investors select diversification.40% investors select diversification at 7th rank. 20% investors select tax benefit at 7th rank.10% investors select safety, flexibility, liquidity and service at 7th most preferred criteria for investment. At 8th most preferred criteria investors select services.75% investors select services at 8th rank. 10%investors select diversification and liquidity at 7th most preferred criteria for investment. And 5% investors select safety at 8th rank.



Investors Preference for investment:

Here the investors preference for investment in which option is analysed.

Preference of investor

5% 10%


IPO Delivery Intraday Future & Option


Investors give highest preference for deliveries of shares.75% of investor prefer delivery of shares while investing in stock market. Investors prefer regular trading rather than invest in IPO and Intraday. Only 10% investors prefer IPO and Intraday while investing. And in India market of Future & option is not growing up till today. So, only 5% Investors prefer future & option for trading.



Different criteria investors analyse for investment:

This shows the investors criteria for the investment. The various factors such as market capitilisation, Board of Directors, Dividend, Share price fluctuation, company name, industry etc are considered

Criteria Analysed before Investment

100% Market capitalisation 80% Weitage 60% 40% 20% 0% 1st rank 2nd rank 3rd rank 4th rank 5th rank 6th rank Rank Board of Director Dividend Share price fluctuation Company Name Industry

From Analysis we can say that investor gives highest importance for company name before investing in any company.35% investor gives most importance to company name. Than 25% investor gives most importance to industry.15% investor gives most importance to share price fluctuation and market capitalisation. 10% investors give most importance to dividend payout by companies.


CORPORATE GOVERNANCE Investors give 2nd most preference to Share price fluctuation.35% investors give preference for share price fluctuation at second rank. 15% investor gives preference to Industry, Dividend and market capitalization at second rank. 10% investors give preference to company name and Board of director at second rank for investment in any company. At 3rd rank 35% investor gives preference to company name.15% investor gives preference to share price fluctuation, dividend and market capitalisation at 3rd rank. 10% investors give preference to industry and board of director at 3rd rank. At 4th preferred criteria 25% investors gives preference to board of director and industry. 15% investors give preference to dividend and market capitalisation at 4th rank. 10% investors give preference to company name and share price fluctuation at 4th rank. 30% Investors give 5th most preferred criteria to dividend and board of director.15% investors give preference to market capitalisation at 5th rank. 10% investors give preference to share price fluctuation and company name at 5th rank. 5% investors give preference to industry at this rank. 25% investors give 6th most preferred criteria to market capitalisation and board of director.20% investor prefer share price fluctuation at 6th rank.10% investor preferred dividend, company name and industry at 6th rank.



Type of company investors prefer for investment.

The chart illustrates that the investors prefers on what type of company and the companies are classified as BSE-30 and NIFTY-50, Sector Specific, Local Companies and Any company.

Type ofCompanies Prefered for investment


BSE-30,NIFTY-50 22% Sector Specific Local Companies 65% 0% Any Company

From analysis investor gives highest preference to any company for investment.65% investor gives preference to any company for investment. 22% investor gives preference to sector specific company. 13% investors give preference to BSE-30 and NIFTY-50 companies.



Reasons for investing in any company:

-Return on investment and price changes are important for majority investor -Brand name attracts investors and it can be any company.

Reasons for investing in BSE-30 companies

-Most important reason is security in these companies because of regulation by SEBI.



Analysis of annual report of the companies:

The annual report of the companies are analysed by various investors as regular, occasional, sometimes and never.

Analysis of Annual report of companies



35% Regularly Occastionaly Sometimes Never


From analysis 35% investors analyse annual report regularly and occasionally (quarterly). 25% investors analyse annual report sometimes. 5% investors not analyse annual report. We can say that ratio of the investors who analyse the report regularly is less.



Efficiency of Indian regulatory system for security of shareholder:

This shows that the efficiency on the Indian regulatory system as efficient, moderate and inefficient
Efficiency of indian regulatory system


Efficient 45% Moderate Inefficient 55%

From analysis we can say that majority of investors believe that Indian regulatory system is moderate efficient.55% investor think Indian regulatory system is moderate efficient. 45% investors think that Indian regulatory system is efficient. But many investors believe that Indian regulatory system is not efficient enough in implementation of law which are in favour of investors.



Analysis of different committees in corporate governance:

The various charts shows the analysis of the different committees such as the grievance, remuneration and audit

Analysis of Grievance Committe

Yes 50% 50% No

Analysis of Remmuneration Committe

45% 55%

Yes No

Analysis of Audit Committe

45% 55%

Yes No



Efficiency of Different Committee:

Efficiency of Grievance Committee
0% 0% 10% 40% Most Efficient Efficient Moderate Below Moderate 50% Least Efficient

Efficiency of Remmuneration Committee

0% 22% 0% 22%

Most Efficient Efficient Moderate Below Moderate Least Efficient


Efficiency of Audit Committee

0% 11% 11% 33% Most Efficient Efficient Moderate Below Moderate Least Efficient 45%



From analysis we can say that 50% investors do the analysis of grievance committee. Out of these 50% investor 50% replied that grievance committee is moderate efficient. While 40% replied that grievance committee is efficient. And 10% replied that this committee is below moderate efficient. So, from analysis we can say that grievance committee is efficient enough. From analysis we can say that 45% of investors do the analysis of remuneration committee. Out of these 45% investor 56% investor replied that remuneration committee is moderate efficient. While 22% investor replied that remuneration committee is below moderate efficient and efficient. From analysis we can say that 45% of investors do the analysis of audit committee. Out of these 45% investors, 45% investor replied that audit committee is moderate efficient. While 33% investors replied that audit committee is efficient, and 11% investors replied that audit committee is below moderate efficient and least efficient. Thus from analysis we can say that investors are less satisfied with the work of audit committee compare to grievance and remuneration committee.


CORPORATE GOVERNANCE Rating of different parameter in context of Indian Companies:

The different parameters in context as the grievance settlement, transparency, legal code of conduct and ethics are illustrated below.
0% 0% Grievance Settelment 16% 42% Most Efficient Efficient Moderate Below Moderate 42% Least Efficient


0% Trasparency



Most Efficient Efficient Moderate Below Moderate Least Efficient



Legal Code of Conduct

10% Most Efficient Efficient Moderate




Below Moderate Least Efficient


0% 16% 26% Most Efficient Efficient Moderate 21% 37% Below Moderate Least Efficient


Grievance settlement:
From analysis of charts we can say that 42% investors replied that grievance settlements in companies are moderate efficient and below moderate efficient.

Only 16% of investors replied that grievance settlements in companies are efficient.
53% of investors replied that transparency in companies is moderate efficient. And 26% investors replied that it is efficient enough. While 16% investors replied that transparency is below moderate efficient. Only 5% of investors replied that transparency is least efficient in companies.

Legal code of conduct:

40% investors replied that legal code of conduct in companies are moderate efficient and below moderate efficient. While 10% investors replied that legal code of conduct in companies are least efficient and most efficient.



CORPORATE GOVERNANCE 37% investors replied that ethical behaviour is moderate efficient in companies.26% investors replied that ethical behaviour is least efficient in Indian companies.21% of investors replied that it is below moderate efficient in Indian companies. While only 16% investors replied that it is efficient enough in Indian companies.

How request from shareholders respond:

From analysis of this question we found mix results. Some investors are satisfied with respond of the companies. Current procedure of the companies for resolved shareholders queries is much more efficient than past. Investors get prompt reply from the company side. And that is enough effective and positive reply as per investors view. All requests are time based. While some investors are not satisfied with the respond they get. Specifically they dont get replied within short time. Its take long time Actually it is Change Company by company. Some companies are efficient enough to solve the investors queries. And some are not good in that.

Awareness about selection process of Director in the companies

From analysis we found that very few investors are concern about selection of directors. So, majority of investors do not have knowledge about the procedure for selecting director. Even majority of the investors not attend the annual general meeting of the companies. Majority of the investor only concern with the monitory return they get from the investment. And those who replied for this question they said directors are selected in meetings of the companies, but they dont know procedure of selection.



4.1 General Finding
1. Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies. 2. As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors. 3. In the case of a company with a non-executive Chairman, at least one-third of the board should be independent directors. 4. It would be necessary for chief executives and chief financial officers to establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls, among others. 5. Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock exchange in the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual report with a detailed compliance report. 6. A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding compliance of conditions as stipulated, and annex the same to the director's report. 7. The clause mandates composition of an audit committee; one of the directors is required to be "financially literate". 8. Clause 49, when it was first added, was intended to introduce some basic corporate governance practices in Indian companies and brought in a number of key changes in governance and disclosures (many of which we take for granted today). 9. It specified the minimum number of independent directors required on the board of a company.

CORPORATE GOVERNANCE 10. The setting up of an Audit committee, and a Shareholders Grievance committee, among others, were made mandatory as were the Managements Discussion and Analysis (MD&A) section and the Report on Corporate Governance in the Annual Report, and disclosures of fees paid to non-executive directors. 11. A limit was placed on the number of committees that a director could serve on. 12. In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of current corporate governance practices and to suggest improvements. Based on the recommendations of this committee, SEBI issued a modified Clause 49 on October 29, 2004 (the revised Clause 49) which came into operation on January 1, 2006. 13. The revised Clause 49 has suitably pushed forward the original intent of protecting the interests of investors through enhanced governance practices and disclosures. 14. Five broad themes predominate. The independence criteria for directors have been clarified. The roles and responsibilities of the board have been enhanced. The quality and quantity of disclosures have improved. The roles and responsibilities of the audit committee in all matters relating to internal controls and financial reporting have been consolidated, and the accountability of top managementspecifically the CEO and CFOhas been enhanced. Within each of these areas, the revised Clause 49 moves further into the realm of global best practices (and sometimes, even beyond. 4


CORPORATE GOVERNANCE .2 Specific Findings 1. The company has optimum combination of executives and non-executive directors with not less than fifty percentage of the Board of directors comprising of non-executive directors. 2. The Audit committee of the board of directors is constituted in compliance with corporate governance. 3. In continuation of practices of good corporate governance, the board has constituted the remuneration committee of Directors of the company. 4. The Shareholders Grievance committee of the board, inter-alia, approves issue of duplicate share certificates and oversees. 5. The Board of directors has delegated the power of approving transfer of securities to the Registrar subject to notification of the same to the company secretary. 6. Company has disclosed the status of total no. of requests/complaints and general shareholders information. 7. The financial results were published in business standards/Financial express and also posted on website. 8. Company has disclosed Directors responsibility statement. 9. Company has received proceeds from public issues, right issues, preferential issues etc. 10. Details of fixed component and performance linked incentives; along with the performance criteria are disclosed. 11. Company has separate policy for human resource department, community services, health and safety.



4.3 Suggestions to improve overall structure of corporate governance

1. Current norms of corporate governance are efficient but at Initial level. There must be improvement in terms of code of conduct of corporate governance. 2. More and more development programmes should be conduct to improve the awareness level of Investors. 3. Implementation of current norms should be made efficient. 4. Company should appoint more internal auditor for audit committee. 5. Cross check step should be implemented for betterment of investors. 6. Stakeholders value enhancement steps should be considered at large. 7. More and More programmes should be arranged to educate shareholder about corporate governance.



Corporate governance is a way of life and not a set of rules, a way of life that necessitates taking into account the stakeholders interest in every business decision. In this project we have demonstrated how corporate governance system has direct correlation with existing business scenario under which the corporate is operating. There is continuous need of alignment and improvement of corporate governance system to maintain and exercise the right control mechanisms.

The vastness of the scope under which the corporate governance operates makes it impossible to subjectively work on areas where improvement is needed. At that instance our Self Rating Framework will not only measure the fitment quantitatively but also will give the indicative directions and task list to work on get the right alignment of Corporate Governance System.

Thus, corporate governance largely depends on the following: The quality of the promoters, the intentions of the promoters, the systems and procedures adopted, the transparency in the activities, and the quality of persons at the helm of day-to-day affairs. Every person associated with the company must appreciate the need for corporate governance, which cannot be achieved by merely asking the company to do various things. Corporate governance is a selfregulation and cannot be imposed.




Corporate governance Arya P. P. Tandon B. B. Vashint A. K. Corporate Governance-New paradigm Gopalsamy N Corporate Governance Putting Investors first Scott C. Newquist, Max B. Russell