GOOD CORPORATE GOVERNANCE AN IDEA WHOSE TIME HAS COME

Submitted in Partial Fulfillment of the requirements for Masters in Financial Management (MFM) 2008-2011.
By Suresh Shama Devadiga Batch : MFM Roll No. 9 2008-2011

LALA LAJPATRAI INSTITUTE OF MANAGEMENT MAHALAXMI, MUMBAI

Good Corporate Governance an Idea whose time has come.

CERTIFICATE
I, NADIRSHAW K. DHONDY, ADVOCATE SUPREME COURT, have examined the thesis of Suresh Shama Devadiga who is enrolled in LALA LAJPATRAI INSTITUTE OF MANAGEMENT of Unique Roll No. 9 for the academic year 2008-2011 in the course content Good Corporate Governance an Idea whose time has come. He has done the thesis in part fulfillment of final exams evaluation.

He has been rated to receive ………………..marks out of forty [40].

(Signature of the Candidate) Suresh S. Devadiga

Signature Nadirshaw K. Dhondy Advocate Supreme Court

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Good Corporate Governance an Idea whose time has come.

ACKNOWLEDGEMENTS

One of the pleasant aspects of preparing a Thesis is the opportunity to thank to those who have contributed to make the project completion possible.

I am extremely thankful to Professor Mr. NADIRSHAW K. DHONDY, Advocate Supreme Court, whose active interest in the project and insights helped me formulate, redefine and implement my approach to the project.

Last but not certainly the least, I would like to extend my gratitude to the faculty of Lala Lajpat Rai Institute of Management (LLIM), Mumbai and the Library staff for equipping me with the basics that helped me throughout the making of this project.

I am also thankful to Vidya my friend and my sister and all those seen and unseen hands & heads, which have been of direct or indirect, help in the completion of this project.

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Good Corporate Governance an Idea whose time has come.

PROLOGUE
Corporate Governance (CG) has emerged as one of the key elements of public policy reforms individuals. It is still in its infancy; it has been around only for the last three to four years. It is however not a foolproof concept as it relies heavily on data available from insiders. But it has specific and special role to play to enhance the strength of a particular unit and of the entire corporate sector. Corporate Governance is to be maintained or observed as effective tool to assure the stakeholders of their long-term interests without prejudice to public interest. Corporate Governance is the term given to the management practices followed by the business organizations. We believe that good business practices, transparency in corporate financial reporting and the highest levels of corporate governance must be maintained. These channels in turn are activated through several structural and institutional factors pertaining to the corporation. They are as follows: [1] The ownership structure of the organization. [2] The financial structure of the corporation. [3] The structure and functioning of the company boards and the associated internal control systems. [4] The legal, political and regulatory environment within which the Corporate functions Thus Corporate Governance (CG) is the way the firm ought to be run, managed and controlled. It is related with supervision and holding the responsibility of those who direct and control the management.
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 Corporate Governance Practices in ITC Ltd.Good Corporate Governance an Idea whose time has come. Page 5 . CASE STUDY INDEX  Corporate Governance Practices in INFOSYS TECHNOLOGIES Ltd.

it is a leading species of large genus namely. PRIME TIME MATTER INTRODUCTION Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general. However. he defined good corporate governance as “important for overall market confidence. shareholders and other stakeholders”. its Board of directors. The framework for corporate governance is not only an important component affecting the long-term prosperity of companies. the efficiency of international capital allocation. enhancement of productivity and optimal use of available resources by corporate sector. value can be added by achievements of technological achievement. the renewal of countries’ industrial bases. However. the concept of corporate governance is poorly defined because it potentially covers a large number of distinct economic phenomenons. In a broader sense. As a result different people have come up with different definitions that basically reflect their special interest in the field.Good Corporate Governance an Idea whose time has come. economic governance and political governance. It is hard to see that this 'disorder' will be any different in the future so the best way to define the concept is perhaps to list a few of the different definitions rather than just mentioning one definition. societal governance. National Governance. It is to be noted that new Page 6 . Humane Governance. Government provides necessary conditions or environment to Corporates to operate. OBJECTIVE To attain highest standard of procedures and practices followed by the corporate world so as to have transparency in its functioning with an ultimate aim to maximise the value of various stakeholders. (OCED) described “corporate governance as a set of relationships between a company’s management. and ultimately nation’s overall wealth and welfare”. What is Corporate Governance Joanna Sheiton.

g. Managing well depends on internal and external factors. technological advancement. Information Technology thereby improving the speed of communication and dearth of distance. The very definition of corporate governance stems from its organic link with the entire gamut of activities having a direct or indirect influence on the financial health of corporate entities. cost effectiveness. the latter include availability. Government and society at large. context and culture of the organisation. Ethical leadership is good for business as the organization is seen to conduct its business in line with the expectations of all stakeholders. ethical dilemmas arise from conflicting interests of the parties involved. managers make decisions based on a set of principles influenced by the values. Corporate governance is about ethical conduct in business. and investors. In this regard. It is known fact that vital needs of success of any organization lingers on its ability to mobilize and utilize all kinds of resources to meet the objectives clearly set as part of the planning process. What constitutes good Corporate Governance will evolve with the changing circumstances of a company and must be tailored to meet these circumstances. Further. So far as corporate governance is concerned. technologies are on the anvil e. The acceptance of the concept gave rise to ‘Corporate Governance’.Good Corporate Governance an Idea whose time has come. and therefore. select from alternative courses of action. It influences how the objectives of the company are set and achieved. The Cadbury Report (1992) simply describes Corporate Governance as ‘the system by which companies are directed and controlled’. This would mean that the directors and all concerned should be open and straight/forthright about issues where there is Page 7 . it is financial integrity that assumes tremendous importance. ‘Corporate Governance’ encompasses commitment to values and to ethical business conduct to maximize shareholder values on a sustainable basis. employees. revelations of deterioration in quality and transparency. Corporate Governance is the system by which companies are directed and managed. Sound Corporate Governance is therefore critical to enhance and retain investors’ trust. how risk is monitored and assessed and how performance is optimized. Ethics is concerned with the code of values and principles that enables a person to choose between right and wrong. have called for adoption of internationally accepted ‘Best Practices’. while ensuring fairness to all stakeholders including customers. vendors. Increasingly.

When it comes to even the purchase/procurement procedures. customers and suppliers. Existing laws. The Business Roundtable states: “Good corporate governance is not a ‘one size fits all proposition. they are not set in concrete and must be adjusted to reflect the specific circumstances and needs of individual organizations. which. Although the general principles are widely accepted. corporations must innovate and adapt their corporate governance practices so that they can meet new demands and grasp new opportunities”. flexibility and adaptability in corporate governance. Prof. a corporation’s practices will evolve as it adapts to changing situations. there is no single model of good corporate governance. Kenneth Scott of Stanford Law School described. Despite the various attempts to define corporate governance and its elements. the regulations and the statutes. rules and controls did not adequately address the issues related to the failures caused by deficient or intentional fraudulent managements. Moreover. the firm’s decisions are powerfully affected by competitive conditions in the various markets in which it operates. achieve quality governance and restoring ‘investor’ confidence. Notwithstanding the contributions. The Securities and Exchange Commission of Page 8 . that would encompass not only the control rights of stockholders. ‘corporate governance’ as to include every force that bears on the decision-making of the firm. The Corporate system and diverse ownership did contribute in a substantial measure to prosperity. employment potential and living standards of the subjects across the globe.Good Corporate Governance an Idea whose time has come. The OECD has recently reinforced this view and stated that ‘to remain competitive in a changing world. there is need for greater transparency. the failures too caused concerns among the regulators. instead. and a wide diversity of approaches to corporate governance should be expected and entirely appropriate. In addition. In USA. conflict of interest involved in financial decision making. the commitments towards employees. the Sarbanes-Oxley Act 2002 was passed to address the issues associated with corporate failures.” The “one size fits all” approach has also been rejected by the OECD. but also the contractual covenants and insolvency powers of the debt holders. has advocated the need for pluralism.

This would imply greater responsibilities. the enterprises will not do anything illegal or unethical. It is the increasing role of foreign institutional investors in emerging economies that has made the concept of corporate governance a relevant issue today. Competition brings in its wake weakness in standards of reporting and accountability. Why Corporate Governance? a) The liberalization and de-regulation world over gave greater freedom in management. USA initiated action against multinational accounting firms for failure to detect blatant violation of accounting standards. d) The failure of corporates due to lack of transparency and disclosures and instances of falsification of accounts/embezzlement and the effect of such undesirable practices in other companies. This involves the rapid migration of four elements across national borders. In other words.Good Corporate Governance an Idea whose time has come. removal of barriers/reduction in duties. In fact. (iii) Technology. from certain multinational consultancy firms. the expression was hardly in the public domain. In this. This need for re-assurance is felt by the FIIs due to the fact that there have been cases of dramatic collapse of enterprises which were apparently doing well but which were not observing the principles of corporate governance. and penalities running to several million dollars were recovered. India could really take a step forward to Page 9 . (ii) Financial capital. b) The players in the field are many. c) Market conditions are increasingly becoming complex in the light of global developments like WTO. In the increasingly close interaction of the economies of different countries lies the process of globalisation. if the respective players in the field were to adopt healthy principles of good corporate governance and avoid corruption in their transactions. These are (i) Physical capital in terms of plant and machinery. In India corruption is an all embracing phenomenon. and (iv) Labour The increasing concern of the foreign investors is that the enterprise in which they invest should not only be effectively managed but should also observe the principles of corporate governance.

The important aspects. in brief. The Kumar Mangalam Committee made mandatory and non-mandatory recommendations. Clause 49 Stock Exchange Listing Agreements (“Listing Agreements”). a new clause 49 was incorporated in the Stock Exchange Listing Agreements (“Listing Agreements”). becoming a less corrupt country and improving its rank in the Corruption Perception Index listed by the Transparency International.Good Corporate Governance an Idea whose time has come. which could have been avoided with better and more transparent reporting practices. The committee observed that there are companies. Studies in India and abroad show that markets and investors take notice of well managed companies respond positively to them and reward such companies with higher valuations. While there were enough rules and regulations to take care of grievances. are: (i) (ii) Boards of Directors are accountable to shareholders. SEBI ACT Securities and Exchange Board of India constituted a Committee on Corporate Governance under the Chairmanship of Mr. affecting minority holders’ interests. Companies raise capital from market and investors suffered due to unscrupulous managements that performed much worse than past reported figures. Based on the recommendations of this Committee. Bad governance was also exemplified by allotment of promoters’ share at preferential prices disproportionate to market value. which have set high standards of governance while there are many more whose practices are matters of concern. Kumar Mangalam Birla. Board controls are laid down code of conduct and accountable to Page 10 . There is increasing concern about standards of financial reporting and accountability especially after losses are suffered by investors and leaders in the recent past. yet the inadequate implementation and the absence of severe penalty left much to be desired. Many corporates did not pay heed to investors’ grievances.

. (viii) Nominee directors to be treated on par with any other director. (ix) Qualified independent Audit committee to be setup with minimum of three all being non-executive directors with one having financial and accounting knowledge. Report of the SEBI Committee on Corporate Governance recommended that the mandatory recommendations on matters of disclosure of contingent liabilities. Subsequent recommendations by Naresh Chadra Committee Naresh Chandra Committee recommendations relate to the Auditor-Company relationship and the role of Auditors. to be included. independence of Audit Committee and independent director Page 11 . (vi) Sufficient compensation package to attract talented non-executive directors. (v) Laying emphasis on calibre of non-executive directors especially independent directors. protecting and enhancing wealth and resources 5 of the Company reporting promptly in transparent manner while not involving in day to day management. shareholders for creating.Good Corporate Governance an Idea whose time has come. to disclose in Annual Report. CEO/CFO Certification. (iii) Classification of non-executive directors into those who are independent and those who are not. (iv) Independent directors not to have material or pecuniary relations with the Company / subsidiaries and if had. definition of Independent Director. (vii) Optimum combination of not less than 50% of non-executive directors and of which companies with non-executive Chairman to have at least one third of independent directors and under executive Chairman at least one half of independent directors. (x) Corporate governance report to be part of Annual Report and disclosure on directors’ remuneration etc.

including selection. Affairs of Subsidiary Companies.Good Corporate Governance an Idea whose time has come. Related party transactions. ensure that organization fulfills its responsibilities to the larger community. Whistle Blower Policy. • • • • • Page 12 . compensation to Non.Executive Directors. Analyst Reports and other non-mandatory recommendations. including succession planning. assume fiduciary responsibility. Ensure adequate resources to achieve the mission. Represent the MFI to the community and the public. Oversee management performance. monitor achievement of strategic goals. be implemented by SEBI. DIRECTORS RESPONSIBILITY The following major responsibilities of the board of directors reflect the broad purposes of governance: • • Define and uphold the mission and purpose of the MFI. Foster effective organizational planning. support and evaluation of CEO. Develop and approve strategic directions (with management). Ensure that the MFI manages risks effectively. Risk management. relating to corporate governance. exemptions in the report of the Naresh Chandra Committee. including assisting in raising of equity and debt. Subsequent recommendations by Narayan Murthy Committee Narayana Murthy Committee recommendations include role of Audit Committee.

insiders abstain from transacting in the securities of the company. To prevent this from happening. Evaluation and commitment for improving their performance. This is being dealt with in a comprehensive manner. and take unfair advantage of the resulting information asymmetry. Page 13 . For example. with transparency and avoidance of conflicts of interest. Corporates are expected to disseminate the material price sensitive information in a timely and proper manner and also ensure that till such information is made public. The principle should be ‘disclose or desist’. However. It is important that insiders do not use their position of knowledge and access to inside information about the company. The further responsibilities address board and board member conduct: • Uphold the ethical standards of the organization. there are rules for reporting of transactions by directors and other senior executives of companies. Intermediaries. • Ensure that the organization changes to meet emerging conditions. especially directors and other senior executives. The rules also cover the dealing in the securities of their companies by the insiders. Financial institutions. code of conduct and specific rules for the conduct of its directors and employees and other insiders. Represent the interests of the MFI as a whole and not those of one shareholder or group of shareholders. reporting requirements. Mutual Funds and concerned professionals who may have access to inside information. as well as for a report on their holdings. during sensitive reporting seasons. This therefore calls for companies to devise an internal procedure for adequate and timely disclosures. the need for such procedures. confidentiality norms. temporarily assume management responsibilities. particularly in times of distress.Good Corporate Governance an Idea whose time has come. activity in their own shares and net year to year changes to these in the annual report. • • INSIDER TRADING Another important aspect of corporate governance relates to issues of insider trading. reporting requirements and rules also goes beyond Corporates to other entities in the financial markets such as Stock Exchanges. in many countries.

by a separate group appointed by SEBI. The shareholders have therefore to necessarily delegate many of their responsibilities as owners of the company to the directors who then become responsible for corporate strategy and operations. Rights and Responsibilities of shareholders The basic rights of the shareholders include right to transfer and registration of shares. and be sufficiently informed on decisions concerning fundamental corporate changes. they should not only be provided information as under the Companies Act. But in reality companies cannot be managed by shareholder referendum. but also in respect of other decisions relating to material changes such as takeovers.Good Corporate Governance an Idea whose time has come. A company’s management must be able to take business decisions rapidly. participating and voting in shareholder meetings. presentation made by companies to analysts may be put on company’s web-site or may be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. This relationship therefore brings in the accountability of the boards and the management to the shareholders of the company. The shareholders are not expected to assume responsibility for the management of corporate affairs. A good corporate framework is one that provides adequate avenues to the shareholders for effective contribution in the governance of the company while insisting on a high standard of corporate behavior without getting involved in the day to day functioning of the company. The Committee recommends that the half-yearly Page 14 . The Committee recommends that information like quarterly results. The Committee therefore recommends that as shareholders have a right to participate in. electing members of the board and sharing in the residual profits of the corporation. SHAREHOLDERS The shareholders are the owners of the company and as such they have certain rights and responsibilities. obtaining relevant information on the company on a timely and regular basis. The implementation of this strategy is done by a management team. sale of assets or divisions of the company and changes in capital structure which will lead to change in control or may result in certain shareholders obtaining control disproportionate to the equity ownership. under the Chairmanship of Shri Kumar Mangalam Birla.

although the formality of holding the general meeting is gone through. It is important that the shareholders use the forum of general body meetings for ensuring that the company is being properly stewarded for maximising the interests of the shareholders.Good Corporate Governance an Idea whose time has come. The Committee believes that the General Body Meetings provide an opportunity to the shareholders to address their concerns to the board of directors and comment on and demand any explanation on the annual report or on the overall functioning of the company. in actual practice only a small fraction of the shareholders of that company do or can really participate therein. It is imperative that this situation which has lasted too long needs an early correction. The effectiveness of the board is determined by the quality of the directors and the quality of the financial information is dependent to an extent on the efficiency with which the auditors carry on their duties. This is important especially in the Indian context. which govern the general shareholder meetings. Currently. The Committee was informed that SEBI has already made recommendations in this regard to the Department of Company Affairs. It follows from the above that for effective participation shareholders must maintain decorum during the General Body Meetings. The company should also keep the shareholders informed of the rules and voting procedures. should be sent to each household of shareholders. This would require changes in the Companies Act. for shareholders who are unable to attend the meetings. A company must have appropriate systems in place which will enable the shareholders to participate effectively and vote in the shareholders’ meetings. there should be a requirement which will enable them to vote by postal ballot for key decisions. The company must also ensure that it is not inconvenient or expensive for shareholders to cast their vote. The shareholders must therefore show a greater degree of interest and involvement in the appointment of the directors and the auditors. Indeed. This virtually makes the concept of corporate democracy illusory. The annual general meetings of the company should not be deliberately held at venues or the timing should not be such which makes it difficult for most of the shareholders to attend. In this context. declaration of financial performance including summary of the significant events in last six-months. Page 15 . they should demand complete information about the directors before approving their directorship.

The Committee recommends that in case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: • • • A brief resume of the director. 5. Structure the board to add value . Essential Governance Principles A company should: 1.Actively promote ethical and responsible decision-making.Good Corporate Governance an Idea whose time has come. 3. size and commitment to adequately discharge its responsibilities and duties. and Names of companies in which the person also holds the directorship and the membership of Committees of the board. Promote ethical and responsible decision-making . recognise and publish the respective roles and responsibilities of board and management. Lay solid foundations for management and oversight.Have a structure to independently verify and safeguard the integrity of the company’s financial reporting. Nature of his expertise in specific functional areas. 2. 4. Make timely and balanced disclosure Page 16 . Safeguard integrity in financial reporting .Have a board of an effective composition.

Recognise the legitimate interests of stakeholders 11. The first among the above said there is considered more effective Friendly mergers have hardly succeeded to solve the "agency problem". Respect the rights of shareholders . 7. . Basic standards of Corporate Governance structure and processes have been slowly evolving over last two decades."Proxy Contests". Traditionally it was observed only in respect of the operation of market pressure. 8.S. Limited generally to a narrow view of how to ensure the managers follow the interests of shareholders. Remunerate fairly and responsibly 10.Promote timely and balanced disclosure of all material matters concerning the company. In Germany and Japan the system that Page 17 . They largely adopted three main instruments they are. Corporate Governance at Universal Level: Traditionally the matters with corporate sector were involved with esoteric branch of commercial law.Good Corporate Governance an Idea whose time has come.K. In the country like U.Respect the rights of shareholders and facilitate the effective exercise of those rights. and U. Friendly mergers and Hostile takeover.Establish a sound system of risk oversight and management and internal control. While takeover is not appealing strongly on the ground of heavy cost incurred in it and also for want of political will conducive to the policy. there is an active market for corporate control to discipline managers. Recognise and manage risk . 6. Encourage enhanced performance 9. Looking beyond India the scenario in general is different. if they fail to maximize shareholders wealth. Corporate Governance Rating be made mandatory for listed companies.

Do these investors mean what they say? The authors examined 188 companies from India. Composition and Management of Board : (20%) a) Independence of the Board b) Qualifications of the Board 6% 5% Page 18 Weights . Table 1 Following Variables are assessed 1) Structure. Several credit rating agencies have stepped in the market and they are offering services of the kind. (As shown in Table 1).K. Taiwan and Turkey to test the link between market valuation and corporate governance practices. indicating that investors do indeed reward good governance. It is in light of these experiences that innovative approach to the concept is formed. Korea.S. CORPORATE GOVERNANCE SCORES For calculation of corporate governance score the author has used the six major variables. One can relatively easily develop financial market.Good Corporate Governance an Idea whose time has come. Unlike that system there is "Banking Supervision". They found that companies with better corporate governance has higher price-to-book ratios. which are then divided into sub components. The main bank financing the corporate unit acts as an external control mechanism. The CG Score has been calculated by assigning to each variable component points on a 5 to 1 Linker’s Point scale. and with quite a large premium: companies can expect a 10 to 12 percent boost to their market valuations by going from worst to best on any single element of governance(MC Kinsey survey). Institutional investors in companies based in emerging markets claim to be willing to pay as much as 30 percent more for shares in companies that are well-governed. through a determined effort to improve corporate governance practices. Malaysia. Weights are assigned to each of these components. and U. which meets with the Quality of Governance in corporate entities. The variables and weights have been taken after careful study of existing literature. prevails in U. Mexico. In such case very least intervention is found and that only when financial problem arises. is absent.

c) Authority to hire External Consultants d) Board Member Terms and Meetings of the Board e) Presence and implementation of Code of Ethics 2) Board Committees : (20%) a) Audit Committee b) Remuneration Committee c) Nominations Committee d) Other Board Committees 3) Transparency (20%) a) Related Party Transactions b) Executive Compensation 4) Shareholder Rights: (15%) a) Confidential Voting and Proxy Voting b) Voting for Corporate Changes 5) Other Shareholder Rights Issues : (15%) a) Ownership Structure b) Takeover Defences 6) Value Creation and Social Awareness: (10%) a) Credit Rating b) Growth in Number of Employees c) Social Responsibility 4% 3% 3% 9% 6% 7% 8% 10% 10% 6% 6% 5% 3% 2% 4% 3% Total Score Section II : Analysis of Variables Used. 100% Page 19 .Good Corporate Governance an Idea whose time has come.

Good Corporate Governance an Idea whose time has come. PRACTICES IN INFOSYS Infosys was incorporated in 1981 with the vision of building a globally respected corporation – a vision that has translated into a strong organization commitment towards discipline. Infosys was the first Indian company to emphasise on strong corporate governance practices in India. including the authority to hire outside consultants without management’s intervention or approval. This mechanism alone preserves the integrity of the boards independent oversight function. fair play and good corporate governance. • Resources : There needs to be internal mechanisms to support the independent work of the board. refers to the degree to which they are not biased or otherwise controlled be company management or other groups who exert control over management. Case I CORPORATE GOVERNANCE TECHNOLOGIES LTD. this may require specialized expertise by at least some board members. and was the first company to prepare financial Page 20 . Depending on the nature of the business. a) Independence : Independence. • Experience: Board members who have appropriate experience and expertise relevant to the company’s business are capable to evaluate what is in the best interest of shareholders. 1) Structure and Composition of Board : Board members owe a duty to make decisions based on what ultimately is best for the long term interest of shareholders. It voluntarily complied with the US GAAP accounting requirements. as it relates to board members. In order to do this effectively. the board members need a combination of three things: • Independence: A board should be composed of at least a majority of “Independent Board Members” with the autonomy to act independently from management. The company expanded its corporate governance practices significantly beyond what was required by the letter of the law.

Infosys has remained committed to being ethical. lenders and other stakeholders demand more information on the Page 21 .Good Corporate Governance an Idea whose time has come. It has enabled the company to build an organization that is trusted and admired not just in India but also by companies across the world. brand valuation. experience. thus greatly strengthening Board oversight of senior management in the company. the management emphasized continuous dialogue with its investors and placed a high priority on investor relations and feedback. sincere and open in its dealings with all its stakeholders. Infosys is one of the very few companies in India to have a nomination committee. Today shareholders. The senior executives of Infosys have also served on various task forces set up by the Indian government to develop meaningful corporate governance codes and ethical industry practices. including human resources valuation. Where Infosys loses out is on the issue of stock options. which provides training to its non-executive directors and appraises their performance.very important in its space. education levels and gender mix are all elaborated in detail. statements in compliance with the GAAP requirements of eight countries. Infosys believes that good corporate governance must also translate into being a responsible corporate citizen. Infosys focus on corporate governance not only brought global visibility to the company but also created pressure on other Indian firms to raise their governance standards. Its disclosure standards. Over the years. detailed cost break-ups – are among the best in the industry. Infosys emphasizes its commitment to a strong value system and corporate governance practices. Over the last 25 years. presentation of accounts as per GAAP of eight countries. detailed segmental data. Infosys was a pioneer in inducting independent directors to its Board. For example. by making this and integral part of the training of every employee. Age profiles. Infosys also provides the most detailed manpower data. Infosys early investments in stock markets ended as soon as it was apparent that investors felt that these added no value. value-added statement and EVAR report ‘Integrity. institutional investors. high cash levels impacting return ratios and a relatively large board with about 15 board members. Corporate governance has emerged as the foundation of successful companies both in India and globally. fairness and transparency across its operations’ has been the main mantra for Infosys. This led to an encouragement trend of companies across industries scaling up their corporate governance standards and going beyond mandatory requirements. The company was also among the first in the country to incorporate a number of innovative disclosures in its financial reporting.

7. Have a simple and transparent corporate structure driven solely by business needs. Be transparent and maintain a high degree of disclosure levels. about how the Company is run internally. Satisfy the spirit of the law and not just the letter of the law. Disclose. Accordingly. They believe that sound corporate governance is critical to enhance and retain stakeholders' trust. Corporate governance standards should go beyond the law . 4. capability and integrity of boards and management of companies they deal with and the processes these companies follow. Their disclosures always seek to attain best practices in international corporate governance. Communicate externally. 3. they always seek to ensure that they attain their performance rules with integrity.Good Corporate Governance an Idea whose time has come. Comply with the laws in all the countries in which we operate. Their corporate governance philosophy is based on the following principles: 1. 6. Their Board exercises its fiduciary responsibilities in the widest sense of the term. 2. Page 22 . When in doubt. Make a clear distinction between personal conveniences and corporate resources. Management is the trustee of the shareholders' capital and not the owner. 5. They also endeavor to enhance long-term shareholder value and respect minority rights in all our business decisions. in a truthful manner.

2000.Good Corporate Governance an Idea whose time has come. This Governance and Value Creation (GVC) rating indicates capability to create wealth for all our stakeholders while adopting sound corporate governance practices. • It is awarded First position in SAFA ( South Asian Federation of Accountants. • “Best Annual report” award from the Institute of Chartered Accountants of India for the 10th successive year. ICRA : ICRA assigned CGR 1 rating to corporate governance practices of Infosys. • It has also received National award for Excellence in Corporate Governance from the Institute of Company Secretaries of India As a part of their commitment to follow global best practices. Infosys is the first company to be assigned the highest CGR by ICRA.) • Best Presented Accounts Award 2004 in the Communication and Information Technology Sector based on the evaluation of the Annual Report of the company. • Infosys topped the regional rankings for best Corporate Governance in Asia Money’s Corporate Governance Poll. Corporate Governance Ratings. and the recommendations of The Conference Board Commission on Public Trusts and Page 23 . TNS Survey : Ranked 1” in the category of “ Good reputation index “ The financial transparency and disclosure standards of Infosys are the world’s best. they comply with the Euro shareholders Corporate Governance Guidelines. The rating of CGR 1 is the highest on ICRA’s Corporate Governance Rating (CGR) scale of CGR 1 to CGR 6. CRISIL : CRISIL assigned “ CRISIL GVC Level 1 “ rating to Infosys.

To overcome this shortcoming the latest concept is Enterprise Value. total debt added and cash and investments subtracted. and with some companies. Taking into account the above variables and studying the corporate governance of the company in detail we got the following scores for Infosys Technologies Ltd.Good Corporate Governance an Idea whose time has come. Operating Performance.S. But market capitalization ignores debt. Private Enterprises in the U. company’s market capitalization value is taken. 1. They also adhere to the UN Global Compact Programme. which is a modification of market capitalistaion that incorporates debt. CG Score & Company Valuation. debt is substantial enough to change the picture significantly. Market Capitalisation = Current share price times total shares outstanding. Dividend Payout Ratio 3. ( The details of the scores are given in the table below) Corporate Governance Score of Infosys Technologies (2002-2007) Period Corporate Governance score 2007 85% 2006 85% 2005 83% 2004 81% 2003 79% 2002 75% Corporate Governance and Company Valuation : To determine the relationship between Corporate Governance and Market Valuation following three indicators have been considered. It represents a company’s economic value – the minimum amount someone would have to pay to buy it outright. Company Valuation 2. To calculate enterprise value. Debt = long term debt + short term debt Page 24 . It’s an important number to consider when market value of a company is calculated. (Turnover and Profit after Tax) Market capitalization ( the current stock price multiplied by the number of shares outstanding) also serves as a company’s price tag.

Both of these clearly suggest a very high positive correlation between the variables. Corporate Governance and Payout Policy The major objectives of adequate corporate governance practices is the satisfactory payback to company shareholders. Market Capitalization and Enterprise Value of Infosys Technologies Ltd.Good Corporate Governance an Idea whose time has come. we correlate the dividend per share and corporate governance score of the company for the period FY 2002 – 2007. In this section. the rent seeking theory of the effect of agency problems on payout policies seems to be especially relevant in India.83 and between Enterprise value and CG Score is + 0. Period Market Capitalisation (in Rs.82 It is very interesting to note from the above table that with the rise in CG score the Market Capitalisation and Enterprise Value is also on the rise. In that context. Enterprise value = Market Capitalisation – Cash and Equivalents + Debt Following table shows the CG score. a dividend payment guarantees equal treatment to all shareholders. dividend policies are irrelevant for company value and shareholders wealth. because they receive the full benefits but only bear a fraction of the cost. Among the various theories. Cr) Corporate Governance Score 2007 115307 109657 85% 2006 82154 78375 85% 2005 61073 59390 83% 2004 32909 31070 81% 2003 26847 25208 79% 2002 24654 23627 75% Result of correlation : Between Market Capitalisation and CG Score is + 0. Cr) Enterprise Value(in Rs. CG Score and Dividend Payout Ration of Infosys Technologies (2002-2007) Page 25 . Large and controlling shareholders have the incentives and the power to extract private benefits of control at the expense of the minority shareholders. Under the assumptions of the original Modigliani Miller irrelevant theorems.

which in turn is return of brand image.) Income (Turnover in Rs. Turnover and PAT of Infosys Technologies Limited (2002-2007) Period Profit after Tax in Rs. High positive correlation between PAT also suggests that better corporate governance practices result in better operating performance. Therefore.5 83% 2004 29. Improved governance also protects the viability of business by regaining the customer confidence and market trust. “Indeed reputation harm and financial damage that can be caused by conflicts of interest and poor oversight are undeniable” – Bob Stein Improving the performance is related with profitability. CG Score.62 A moderate positive correlation has been established between CG and dividend payout. Turnover proxy of Firm size is positively correlated with good corporate governance practices.86. Corporate Governance and Operating Performance. (Cr. Cr) Corporate Governance Score 2007 3777 13149 85% 2006 2421 9028 85% 2005 1859 6860 83% 2004 1243 4761 81% 2003 958 3623 79% 2002 808 2654 75% Results of Correlation : Correlation with profit after tax is +0. we correlate the profit after tax and turnover with corporate governance score of the company for the period FY 2002-2007.5 81% 2003 27 79% 2002 20 75% Result of Correlation : + 0.83 and with turnover is +0. In this section. the brand is the practical reason for improving the governance.5 85% 2006 15 85% 2005 11.Good Corporate Governance an Idea whose time has come. 2007 Dividend Payout Ratio Corporate governance score 11. It signifies that better CG though leads to better operating performance but does not necessarily mean high payout to shareholders. Coefficient of determination confirms the inferences drawn from the coefficient of Page 26 .

3. we have developed through a comprehensive analysis a very high positive relationship between level of Corporate Governance and market valuations of the company which indicates that superior governance results in better valuations. Summary and Conclusions The relation between corporate governance and organizational performance is of fundamental importance to practitioners. We find that better corporate governance is associated with higher operating performance and higher valuations. which in turn is the return of brand image. Better Corporate Governance leads to value creation for all the stakeholders. imposing disciplinary mechanisms. Therefore. (2001). correlation. which integrates the corporate code of ethics into the day-to-day activities of its managers and workers. selecting well-functioning and independent boards. Assumptions and strongly held beliefs about the importance of governance are shaping the current regulatory climate for the design of governance structures. which find that firms with stronger corporate governance have relatively higher wealth creation in the US. Firms could improve investors wealth and protection rights by increasing disclosure.Good Corporate Governance an Idea whose time has come. academics and policy makers. companies must move from the Page 27 . One can argue that even with the highest estimates of financial fundamentals one can achieve the same growth in value by more than twice sales growth or 35% increase in financial results demands more efforts compared to corporate governance practices improvement leading to the same value growth. In this study. As the sociologists Rossouw and van Vuuren note. 4. These results are consistent with results found in Gompers et al. Companies with high governance rankings enjoy superior market premiums. 2. the brand is the practical reason for improving the governance. But again improving the performance is related with profitability. To sum up: 1. Good governance requires a mindset within the corporation.

Globalisation will not only significantly heighten business risks. to the “integrity mode”.Good Corporate Governance an Idea whose time has come. but will also compel Indian companies to adopt international norms Page 28 . ITC has evolved from a single product company to a multibusiness corporation. among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC's Core Values are aimed at developing a customer-focused. “reactive and compliance mode” of corporate ethics. Each of these businesses is vastly different from the others in its type. Since the commencement of the liberalisation process. India's economic scenario has begun to alter radically. Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine. ITC is rated among the World's Best Big Companies. the state of its evolution and the basic nature of its activity. high-performance organisation which creates value for all its stakeholders. where the functions of the entire organization are completely aligned with its value system. in a study conducted by Brand Finance and published by the Economic Times. Over the years. packaging. CASE II CORPORATE GOVERNANCE PRACTICES IN ITC LTD. all of which influence the choice of the form of governance. ranging from cigarettes and tobacco to hotels. ITC ranks among India's `10 Most Valuable (Company) Brands'.1 Billion. ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 18 billion and a turnover of over US $ 5. Its businesses are spread over a wide spectrum. paper and paperboards and international commodities trading. The challenge of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each of its businesses and yet strengthens the unity of purpose of the Company as a whole.

ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company. of transparency and good governance. but is used Page 29 . the Award for ‘CSR in Emerging Economies 2005’ and ‘Excellence in Corporate Governance' in the same year.Good Corporate Governance an Idea whose time has come. These are : i. in association with the World Council for Corporate Governance and Centre for Corporate Governance DEFINITION AND PURPOSE ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. These Awards have been instituted by the Institute of Directors. and ii. ITC's governance policy recognises the challenge of this new business reality in India. CORE PRINCIPLES ITC's Corporate Governance initiative is based on two core principles. in the resultant competitive context. Management must have the executive freedom to drive the enterprise forward without undue restraints. and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused. New Delhi. ITC has won the Golden Peacock Awards for 'Corporate Social Responsibility (Asia)' in 2007. freedom of executive management and its ability to respond to the dynamics of a fast changing business environment will be the new success factors. This freedom of management should be exercised within a framework of effective accountability. Since large corporations employ vast quantum of societal resources. Equally. we believe that the governance process should ensure that these companies are managed in a manner that meets stakeholder’s aspirations and societal expectations.

as well as to ensure that the Company fulfill its obligations and responsibilities to its other stakeholders. as well as the conduct of its business in a manner that will bear scrutiny. with care and responsibility to meet stakeholder aspirations and societal expectations. that the rights of all shareholders. control and ethical corporate citizenship. transparency means openness in Company's relationship with its employees. ITC believes that empowerment is a process of actualising the potential of its employees. transparency. empowerment and accountability. Internally. namely. other providers of capital. They represent a coalition of interests. Empowerment and Accountability : Empowerment is an essential concomitant of ITC's first core principle of governance that management must have the freedom to drive the enterprise forward. namely trusteeship. This belief therefore casts a responsibility of trusteeship on the Company's Board of Directors. business associates and employees. We believe transparency enhances accountability. namely those of the shareholders. Inherent in the concept of trusteeship is the responsibility to ensure equity. They are to act as trustees to protect and enhance shareholder value. Empowerment unleashes creativity and innovation throughout the Page 30 . Transparency : ITC believes that transparency means explaining Company's policies and actions to those to whom it has responsibilities.Good Corporate Governance an Idea whose time has come. large or small. Therefore transparency must lead to maximum appropriate disclosures without jeopardising the Company's strategic interests. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. are protected. Cornerstones From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy. Trusteeship : ITC believes that large corporations like itself have both a social and economic purpose.

Control : ITC believes that control is a necessary concomitant of its second core principle of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. We believe that empowerment. provides an impetus to performance and improves effectiveness.Good Corporate Governance an Idea whose time has come. organisation by truly vesting decision-making powers at the most appropriate levels in the organisational hierarchy. as well as in their external relationships. Ethical Corporate Citizenship : ITC believes that corporations like itself have a responsibility to set exemplary standards of ethical behaviour. and the management is accountable to the Board of Directors. Corporate Governance in ITC shall take place at three interlinked levels. thereby enhancing shareholder value. namely  Strategic supervision by the Board of Directors  Strategic management by the Corporate Management Committee  Executive management by the Divisional Chief Executive assisted by the Divisional Management Committee Roles The core roles of the various entities at the three levels of Corporate Governance will be as follows: Page 31 . and ensure that business risks are pre-emptively and effectively managed. combined with accountability. We believe that unethical behaviour corrupts organisational culture and undermines stakeholder value. ITC believes that the Board of Directors are accountable to the shareholders. Control should prevent misuse of power. facilitate timely management response to change. The Governance Structure Flowing from the philosophy and core principles. both internally within the organisation.

Agenda papers. As laid down in the Articles of Association of the Company. As trustees they will ensure that the Company has clear goals relating to shareholder value and its growth. whichever is earlier. Normally items for the Board Agenda. shall have been Page 32 . resources. They should set strategic goals and seek accountability for their fulfillment. Directors shall be appointed / re-appointed for a period of three to five years. All major issues included in the agenda shall be backed by comprehensive background information to enable the Board to take informed decisions. standards of Company conduct. and exercise appropriate control to ensure that the Company is managed in a manner that fulfills stakeholder aspirations and societal expectations. They will provide direction. the quorum for meetings shall be one third of members and decisions shall be taken by simple majority. etc. Non-Executive Directors are expected to play a critical role in imparting balance to the Board processes by bringing an independent judgement to bear on issues of strategy. The Board must periodically review its own functioning to ensure that it is fulfilling its role. performance. Meetings shall be governed by a structured agenda. The Non-Executive Directors shall comprise eminent professionals. The ITC Board will be a balanced Board. Board of Directors (Board) : The primary role of the Board of Directors is that of trusteeship to protect and enhance shareholder value through strategic supervision of ITC. The Board shall meet at least six times a year and as far as possible meetings will be held once in two months. Executive directors. drawn from amongst persons with experience in business / finance / law / public enterprises. except those emanating from Board Committees. its wholly owned subsidiaries and their wholly owned subsidiaries.Good Corporate Governance an Idea whose time has come. shall be circulated at least three working days prior to the meeting. including the Executive Chairman. The annual calendar of meetings shall be agreed upon at the beginning of each year. shall not generally exceed 1/3rd of the total strength of the Board. The Board shall determine from time to time the retirement age for both Executive and Non-Executive Directors. the latter including independent professionals. unless statutorily required otherwise. and in the case of Executive Directors up to the date of their retirement. The Board shall specify the maximum number of company Directorships which can be held by members of the ITC Board. as far as practicable. consisting of Executive and NonExecutive Directors.

etc. Compensation Committee : To recommend to the Board compensation terms for Executive Directors and the senior most level of management below the Executive Directors. Investor Services Committee : To look into redressal of shareholder and investors grievances. approval of transmissions. Terms of Reference of the Board Committees shall include :  Objectives. sub-division of shares. examined by the CMC. Nominations Committee : To recommend to the Board nominations for membership of the CMC and the Board.Good Corporate Governance an Idea whose time has come. The Head of Internal Audit will act as coordinator to the Audit Committee. Role. issue of duplicate shares. and oversee succession for the senior most level of management below the Executive Directors. Board decisions shall record the related logic as far as practicable. but will be administratively under the control of the Director accountable to the Board for the Finance function. The Board shall have the following Committees whose terms of reference shall be determined by the Board from time to time : Audit Committee : To provide assurance to the Board on the adequacy of internal control systems and financial disclosures. Responsibilities  Authority / Powers  Membership & Quorum  Chairmanship  Tenure  Frequency of Meetings The composition of these Committees will be as follows :Page 33 . Minutes shall be circulated within 15 working days of the meeting and confirmed at the next meeting.

However. and with at least one Board. convene a meeting of the Committee. The Director accountable to the Board for the Finance function. Signed minutes of Board Committee meetings shall be tabled for the Board's information as soon as possible. The Chairmanship of Board Committees shall be for two years at a time. Normally meetings of the Board Committees shall be convened by their respective Chairmen. Directors of the Company. as may be One of the Committee decided by the Board. Compensation Non-Executive Directors. Head of Internal Audit and representative of External Auditors shall be the Permanent Invitees with the Company Secretary to act as the Secretary. Secretary as the Secretary. Committee Audit Committee Members Chairman Directors of the Company.Executive Chairman. issues requiring Board's attention / Page 34 . determined by the Board. to be Function as the Secretary. with the consent of the concerned Chairman. all being Non-Executive Directors. Nominations Committee Investor Services Committee The Executive Chairman and all the Non. as may be One of the decided by the Board. to be Directors with majority of them being determined by the independent. with the Company Executive Directors. any member of the Committee may. Director having financial and accounting knowledge. with not less than 3 Independent members. with the Director Independent accountable to the Board for the HR Directors.Good Corporate Governance an Idea whose time has come. as may be One of the nondecided by the Board. to be determined by the Board. Executive Directors. However.

as far as practicable. The CMC shall be convened and chaired by the Executive Chairman of the Company. However. He shall be responsible for the working of the Board. Agenda items shall be backed by comprehensive notes from the concerned member / invitee. Minutes of CMC meetings shall be tabled before the Board for its information. The composition of the CMC will be determined by the Board (based on the recommendation of the Nominations Committee). for ensuring that all Page 35 . approval should be tabled in the form of a note to the Board from the Committee Chairman. issues arising from CMC Meetings and requiring Board's approval / attention should be tabled in the form of a note from the relevant Executive Director. In the event there are no issues to be brought before the Board by the Audit Committee. The Company Secretary shall be the Secretary of the CMC. The CMC shall normally meet once a month.Good Corporate Governance an Idea whose time has come. and will consist of all the Executive Directors and three or four key senior members of management. subject to a minimum of three members. He shall keep the Board informed on all matters of importance. He shall preside over the General Meetings of shareholders. Corporate Management Committee (CMC) : The primary role of the CMC is strategic management of the Company's businesses within Board approved direction / framework. Executive Chairman of ITC : The Executive Chairman of ITC shall operate as the Chief Executive for ITC as a whole. Decisions will be taken by simple majority. He shall be the Chairman of the Board and the CMC. His primary role is to provide leadership to the Board and CMC for realising Company goals in accordance with the charter approved by the Board. The CMC will operate under the superintendence and control of the Board. shall be circulated at least three days prior to the meeting. The quorum for meetings will be 50% of the members. As Chairman of the CMC he will be responsible for its working. for ensuring that all directors are enabled and encouraged to play a full part in the activities of the Board. for ensuring that all relevant issues are on the agenda. Agenda papers. along with DMC approval where applicable. the Committee Chairman shall submit a 'NIL' report to the Board. for its balance of membership (subject to Board and Shareholder approvals). Membership of the CMC shall be reviewed by the Nominations Committee annually.

or its wholly owned subsidiary (Line Director). act as the custodian of ITC's interest and be responsible for their governance in accordance with the charter approved by the Board. for ensuring that all CMC members are enabled and encouraged to play a full part in its activities. Normally the Divisional Financial Controller.Good Corporate Governance an Idea whose time has come. he shall in writing delegate the power to convene and chair the required meeting to one of the DMC members identified by name. c) As Director accountable to the Board for a wholly owned subsidiary. If the Divisional CEO. contribute to the strategic management of the Company's businesses within Board approved direction / framework. Decisions will be taken by simple majority. Quorum for meetings shall be 50% of the members subject to a minimum of three members. Minutes of meetings shall be tabled before the CMC for its information. Divisional Management Committee (DMC) : Executive management of the divisional business to realise tactical and strategic objectives in accordance with CMC / Board approved plan. The key functions of the Division shall be represented on the DMC. is not in a position to convene a required DMC meeting. shall act as the Secretary to the DMC and will be responsible for circulation and custody of agenda notes and minutes. open-ended delegation. for any reason. Executive Director : a) As a member of the CMC. Such delegation should be either for a specific meeting or for meetings to be held during a specific period of time. b) As Director accountable to the Board for a business (Line Director). The DMC shall generally meet at least once a month to review Divisional performance and related issues. relevant issues are on the agenda. The Divisional CEO shall convene and chair the DMC meetings. assume overall responsibility for its strategic management. Composition of the DMC shall be determined by the Line Director with the approval of the CMC. assume overall strategic responsibility for its performance. It cannot be a general. in addition to being a member. including its governance processes and top management effectiveness. d) As Director accountable to the Board for a particular corporate function (Line Director). Agenda items shall Page 36 .

shall be circulated at least three days prior to the meeting. Divisional CEO : The Divisional CEO shall function as the Chief Operating Officer with executive responsibility for day-to-day operation of the Divisional business. will have the freedom to focus on the executive management of the divisional business. assisted by the Divisional Management Committee. and shall provide leadership to the Divisional Management Committee in its task of executive management of the Divisional business. within Board approved direction and framework. be backed by comprehensive notes from the relevant member / invitee. being free from involvement in the task of strategic management of the Company. to focus its attention and energies on the strategic management of the Company. Agenda papers. and seek accountability for effective strategic management from the Corporate Management Committee (CMC). The Board of Directors (Board) as trustees of the shareholders will exercise strategic supervision through strategic direction and control. The 3-tier governance structure thus ensures that : a. Strategic supervision (on behalf of the shareholders).Good Corporate Governance an Idea whose time has come. The CMC will have the freedom. as far as practicable. The Divisional Chief Executive. can be Page 37 . CONCLUSION It is ITC's belief that the right balance between freedom of management and accountability to shareholders can be achieved by segregating strategic supervision from strategic and executive management.

indianmba.Good Corporate Governance an Idea whose time has come.wikipedia. BIBLIOGRAPHY   http://en.org/wiki/Corporate_governance Journal of the Institute of Chartered Accountants of India.com Page 38 . Executive management of the divisional business. efficiency and effectiveness of its business.  www. conducted by the Board with objectivity. Jul -2008. Aug-2008. free from collective strategic responsibilities for ITC as a whole. and c. remains focused and energised. b. uncluttered by the day-to-day tasks of executive management. gets focused on enhancing the quality. thereby sharpening accountability of management. Strategic management of the Company.

Good Corporate Governance an Idea whose time has come.  www.com Page 39 .managementparadise.

When it comes to the hardware aspect of corporate governance. then we are not going to achieve good corporate governance. The most important aspect for observing corporate governance is the top management. I think we will have to look at the hardware as well as the software aspect. It is always possible to mouth very high principles but act in a very lowly manner. This is the first point to be realised.walking their talk. With the SEBI trying to bring some discipline in the stock market especially in terms of greater transparency and disclosure norms. nothing much happens. which becomes a reference point for behaviour. corporate governance in the Indian context at least seems to focus primarily and rightly on the issue of transparency. It is lack of transparency that leads to corrupt or illegal behaviour. Page 40 . But how is this transparency to be achieved? One method of course is the code. It is by walking their talk that the top management can earn credibility. Another would be the regulatory authorities like SEBI. particularly the board of directors and the senior level management of an enterprise . If there is going to be divergence between practice and precept. Perhaps amendment of the Companies Act and bringing in this discipline will also help in automatically ensuring better ethics and corporate governance. Another legal approach to achieve better corporate governance may be to look at the whole issue of bringing the corporate sector under the discipline of debt and equity. EPILOGUE When it comes to corporate governance. This also has a direct bearing on the morale of an organisation. laying down guidelines so that a certain degree of transparency is automatically ensured. But the sad fact in our country is that even though there is a lot of talk about corporate governance. we go into the issue of a code. I would suggest.Good Corporate Governance an Idea whose time has come. when it comes to reality. it depends on the values cherished and practiced by the members of the Board of Directors as well as the management of an organisation. it is only natural that the focus should be on transparency. RBI etc. If corporate governance is concerned with better ethics and principles. So far as the software aspect is concerned.

Substance is more important than style. This change will have to come from within. and when there is a commitment to employees. which will be conducive for such a mindset taking place. Page 41 . In fact. In the current competitive environment. creativity is vital to get a competitive edge. Corporate governance extends beyond corporate law. but the primary responsibility. We then come to a common moral problem in running enterprises. Perhaps the most important challenge we face towards better corporate governance is the mindset of the people and the organisational culture. Another important aspect is to realise that ultimately the spirit of corporate governance is more important than the form. many a time. A clear understanding of the fundamental values which govern corporate governance and their explicit articulation in a proper code backed by well established structures and traditions like the ethics committee and audit committee may be the best insurance for good corporate governance under the circumstances. Firstly. so that these values are practiced. is of the people especially the members of the board of directors and the top management. As competition increases. Corporate governance and ethical behaviour have a number of advantages. Its objective is not mere fulfillment of legal requirements but ensuring commitment on managing transparently for maximising shareholder values. Values are the essence of corporate governance and these will have to be clearly articulated and systems and procedures devised.Good Corporate Governance an Idea whose time has come. Once there is a brand image. the employees will become more creative. One can have practices which are legal but which are unethical. tax planning exercises may border on the fine razor’s edge between the strictly legal and the patently unethical. The government or the regulatory agencies at best can provide certain environment. once there is greater loyalty. they help to build good brand image for the company. there is greater commitment to the employees. there is greater loyalty.

Good Corporate Governance an Idea whose time has come. But Corporate Governance should be embraced because it has much to offer to the Public Sector. Existence of a comprehensive system alone cannot guarantee ethical pursuit of shareholder’s interest by Directors. who have to diligently oversee the management while adhering to unpeachable ethical standards. Corporate Governance in the Public Sector cannot be avoided and for this reason it must be embraced. technology pronounces the deal of distance and speeds up communication. Transparency about a company’s governance process is critical. environment also changes. Good Corporate Governance. Quality of governance depends upon competence and integrity of Directors. officers and employees. Finally the key lesson for us to learn are that Regulations and Policies are only one part of improving governance. Implementing Corporate Governance structures are Important but instilling the right culture – work culture is Most Essential. Strengthened systems and enhanced transparency can only further the ability. In this dynamic environment the systems of Corporate Governance also need to evolve. upgrade in time with the rapidly changing economic and industrial climate of the country. Page 42 . Good Government and Good Business go hand in hand.

30.22.25.15 16.14.Good Corporate Governance an Idea whose time has come.34.31.9 10.11 12 13 14.28.35.29.7.23.17 18 20 20 .40 Page 43 . Case Study on ITC Ltd Bibliography Epilogue 4 5 6.21.36 38 38.24.8. Cross Reference Index Prologue Case study index Introduction Clause 49 Directory Responsibility Insider Trading Shareholders Governance Principles Corporate Governance Scores Structure and Composition of Board Case Study on Infosys Technologies Ltd. 40.26 28.32.

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