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A PROJECT ON CORPORATE GOVERNANCE

STUDENT DETAILS
STUDENT NAME:- JATIN TRIVEDI REGISTRATION NO:- ERO 0175330 ROLL NO:- 637 BATCH NO:- 08/12/0034 PROJECT SUBMISSION DATE:- 28/08/12

ACKNOWLEDGEMENT
I Jatin Trivedi Registration no. (ERO-0175330) have completed the project on Corporate Governance with immense support and with the help of my teacher Mr. Amartya Dasgupta who has helped me to complete this hurdle. I am also thankful to my brother Mr. Harsh Trivedi who has helped me throughout the completion of project. I have taken help from Goggle and other search providers.
Date:- ___________ Signature:-____________

CERTIFICATE
This is to certify that Mr.Jatin trivedi registration no. (ero0175330)has successfully completed this project on corporate governance on 28th Aug 2012. Teachers name 1) 2) 3) 4) 5) Mr. Amartya Dasgupta Mr. Ramesh Acharjee Mr. Abhijit Dutta Mr. Avishek Banerjee CA. Debasish Banerjee Signature

Sr.no. 1.)
2.)

Particulars Introduction

CONTENTS

Slide no. 6 12

Seriousness about Corporate Governance Importance of Corporate Governance Benefits to Culture & Society Details on Corporate Governance

13 14

3.)

15 18 19 20 21 30

4.) 5.)

6.)

Some examples of Corporate Governance


Conclusion

31 34 35

7.)

INTRODUCTION
The definition of corporate governance most widely used is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). More specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC states, "the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders".

The OECD Principles of Corporate Governance states: "Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

" While the conventional definition of corporate governance and acknowledges the existence and importance of 'other stakeholders' they still focus on the traditional debate on the relationship between disconnected owners (shareholders) and often self-serving managers. Indeed it has been said, rather ponderously, that corporate governance consists of two elements: 1.The long term relationship which has to deal with checks and balances, incentives for manager and communications between management and investors; 2.The transactional relationship which involves dealing with disclosure and authority.

This implies an adversarial relationship between management and investors, and an attitude of mutual suspicion. This was the basis for much of the rationale of the Cadbury Report, and is one of the reasons why it prescribed in some detail the way in which the board should conduct itself: consistency and transparency towards shareholders are its watchwords. As fundamentally important as these traits are, we prefer to take a rather broader view, which places the Cadbury Code and other codes developed since (Combined Code, Sarbanes-Oxley, King, etc) in a wider context and shows its recommendations emerging naturally in the course of a companys evolution .

In an early book on corporate governance, also published in 1992, one of the creators of this website developed a definition of corporate governance as consisting of five elements which the board must consider: long term strategic goals employees: past, present and future environment/community customers/suppliers compliance (legal/regulatory) This definition was endorsed by Sir Adrian Cadbury in his foreword to another of the authors books on the subject, directed at the smaller company.

A few years later in a third book the definition was extended by describing Five Golden Rules by which a system of good corporate governance should be operated, and set out a practical methodology for implementing and monitoring (Real World Corporate Governance - a Programme for Profit Enhancing Stewardship, FT Pitman 1998). We now make this methodology, expert knowledge and research available using modern internet technologies via this website. Separation of Ownership and Control The corporation, in contrast, for example, to a partnership, separates ownership from operational control - this concept is, of course, fundamental to any definition of corporate governance and is commonly referred to as the agency issue, or Agency Theory.

It is this separation which creates the need for systems of independent monitoring and control. Historically, it was the freedom that this separation created to take much bigger risks in order to expand that prevented for so long the permission of such organizations to exist, with the potential dangers it implied. And it is this freedom which has required mechanisms to be constructed to try and prevent it being abused.

Q) Why do we have to take corporate governance The importance of Corporate seriously? The creators of this website have spent many years espousing the importance of corporate governance, as authors, lecturers and consultants. Even before the issue came to the forefront of business with the Cadbury Committee following the Maxwell pensions scandal, we recognized that it was not actually a new concept at all. As long as there has been large-scale trade people have recognized the importance of corporate governance - that is, responsibility in the handling of money and the conduct of commercial activities. We discuss the history of corporate governance and the definition of corporate governance in other areas of the website.

Governance

With globalization vastly increasing the scale of trade and the size and complexity of corporations and the bureaucracies constructed to attempt to control it, the importance of corporate governance and internal regulation has been amplified as it becomes increasingly difficult to regulate externally. Here we will explore four issues which in our view are key to understanding the importance of corporate governance. The issue of integrity: are the boards and management of companies carrying out their duties in an ethical way (we define business ethics here)? Topicality - the bonus culture: could better corporate governance in financial institutions and their remuneration policies have prevented the credit crunch and resulting financial crisis?

Importance of Corporate Governance


The importance of corporate governance in Directors' training: prevention is better than a cure, so including knowledge of the principles and practice of corporate governance in mainstream director training is essential. The Issue of Integrity Perception is in the eye of the beholder, and corporate governance, while a technical term for accountants, lawyers and the like, is known by the readers of the popular newspapers by names such as honesty, decency, fairness. Similarly, what the professional would call questionable practice in this arena is criticized by the general public using words such as rip-off, cheating and crooked.

The regulatory framework: introducing more regulation has clearly failed - we need better regulation which ensures businesses recognize the importance of corporate governance as an integral part of management, not a box ticking exercise.

The central issue today therefore in the field of corporate governance is not whether most listed companies comply with the various provisions of the Combined Code, Sarbanes-Oxley, King, etc. The key point is whether the top management of large organisations especially, but actually of that of business in general, is seen as possessed of integrity in the eyes of the general public. This is the spirit that gave support to the principle of setting up the Cadbury Committee, not simply a desire to lay down some rules on the financial aspects of corporate governance to prevent innocent fund managers being misled by greedy directors. And it is this integrity - perceived and actual - which underlines the importance of corporate governance, as it is the tool by which integrity can be encouraged, measured and projected.

The importance of corporate governance in this scenario is, in our minds, unquestionable. A better system of checks and balances (the core definition of corporate governance) would have picked up the warning signs that many people were sending that the level and criteria of lending was getting dangerous. The OECD have published lessons from the financial crisis, which also conclude that "the financial crisis can be to an important extent attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies."

BENEFITS TO CULTURE & SOCIETY


We strongly believe that our approach, which is different to the conventional, box ticking mechanisms, would have succeeded as it is not only places corporate governance and business ethics at the core of the organization not as a separate issue, but is based on independent market research. This is covered in our corporate governance and research section. Directors' pay and the bonus culture are often seized upon by special interest groups and the media as a single issue, not in the context of business and society as a whole, and is therefore blinkered to the underlying factors causing and affecting remuneration

In its Principles of Corporate Governance, the OECD acknowledges that: "Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring." Clearly, it is not in the best interests of the company for it to go out of business or be bailed out by governments. So it is not the principle that should be debated here, but the implementation.

DETAILS ON CORPORATE GOVERNANCE


Different Countries, Different Models This has led to different systems in different countries, depending on which constituent or interested party in the companys operations has been given the most importance. In the AngloSaxon world, for example, there has always been a single board of directors consisting of executive and nonexecutive, or independent directors. Elsewhere, a two tier structure exists to balance the executive board with representatives from other stakeholder groups like employees and bankers (like the Aufsichtsrat or Supervisory Board in Germany).

The Emperor has no clothes Corporate Governance, is not - or should not be - about debate and discussion on executive compensation, shareholder protection, legislation and so on. In recent times, the issue has become not only a subject of fierce debate and public outcry, but also, as a result of this and arising legislation, a subject which wearies many company directors. Put in other words, therefore, the phrase coined above means that there is very little substance to modern corporate governance, in the view of the authors.

The discussion so far has illustrated that a proper definition of corporate governance should not just describe directors obligations towards shareholders. And we have mentioned that different countries have different ideas as to what constitutes good corporate governance. Therefore any satisfactory definition, to be applicable to a modern, global company.

In essence we believe that good corporate governance consists of a system of structuring, operating and controlling a company such as to achieve the following: a culture based on a foundation of sound business ethics fulfilling the long-term strategic goal of the owners while taking into account the expectations of all the key stakeholders, and in particular: ?consider and care for the interests of employees, past, present and future.

work to maintain excellent relations with both customers and suppliers ?take account of the needs of the environment and the local community maintaining proper compliance with all the applicable legal and regulatory requirements under which the company is carrying out its activities. We believe that a wellrun organization must be structured in such a way that all the above requirements are catered for and can be seen to be operating effectively by all the interest groups concerned.

We develop this further in our section on best corporate governance practice. Here we have set out our assessment of how corporate governance is usually discussed and introduced our own, which we hope you have found useful. This page serves as a hub to link to a range of issues related to the definition of corporate governance. For example we define business ethics and Corporate Social Responsibility, different country models and Codes of Conduct.

The definition of corporate governance most widely used is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). More specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC states, "the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders". The OECD Principles of Corporate Governance states: "Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders.

Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined." While the conventional definition of corporate governance and acknowledges the existence and importance of 'other stakeholders' they still focus on the traditional debate on the relationship between disconnected owners (shareholders) and often self-serving managers

The Regulatory Framework - better not more regulation. As we argue elsewhere, the importance of corporate governance could be restated as the importance of good management. Put in that simple way it seems obvious, but we see instances daily of a lack of recognition that good governance is actually just good management and a failure of governance is a failure of management. Awarding bank and insurance company bosses generous bonuses and pension packages after government bailouts of failing institutions, apart from being a huge public relations gaff is rewarding poor management and hence poor management itself.

Constructing new regulations to try to control circumstances that have yet to emerge - every crisis has different causes - is a futile task. Restricting the range of products available to address the problem has major implications on innovation and consumer choice. Some of the knock-on effects of this are that products become more expensive; large providers will not take on certain sectors of society because they are not profitable; and niche providers providing those innovative products will cease to operate or be closed down by the regulators. That clearly represents a significant backward step in the financial services market.

SOME REALISTICS EXAMPLES OF CORPORATE GOVERNANCE


For example, should naturally be responsible in their role as fiduciaries of other peoples money. This is rarely mentioned in the conventional, reporting-based definition of corporate governance. To use another metaphor, there is so much smoke, that we have lost sight of the fire. This fire is the real message and definition of corporate governance, which is undoubtedly beneficial to all, that we should be good directors.

The early Cadbury and Greenbury codes did not arise simply to produce legislation, but to encourage self-regulation, with the ultimate goal that in applying the recommendations, the company will become more efficient, gain shareholder value, and hopefully increase market value as a result. This is the bottom line. We all want to increase our value, and Corporate Governance is often seen as cost ineffective, bringing little or no benefits the smoke gets in our eyes, as it were .

What we need to do is to apply the principles of good governance to the whole corporation. This could be described as: "looking at Management through Corporate Governance-tinted glasses" i.e. taking a fresh look at management structure taking into account all interested parties and ensuring all the necessary monitoring and controls are in place to ensure that shareholder value is always at the forefront.

A few years later in a third book the definition was extended by describing Five Golden Rules by which a system of good corporate governance should be operated, and set out a practical methodology for implementing and monitoring (Real World Corporate Governance - a Programmer for Profit Enhancing Stewardship, FT Pitman 1998). We now make this methodology, expert knowledge and research available using modern internet technologies via this website.

CONCLUSIONS
"Effective corporate governance ensures that long-term strategic objectives and plans are established, and that the proper management and management structure are in place to achieve those objectives, while at the same time making sure that the structure functions to maintain the corporations integrity, reputation, and accountability to its relevant constituencies." Our definition of corporate governance The discussion so far has illustrated that a proper definition of corporate governance should not just describe directors obligations towards shareholders. And we have mentioned that different countries have different ideas as to what constitutes good corporate governance.

THE END