What Is Corporate Governance 1

CORPORATE GOVERNANCE
Email id: v_rathi@rediffmail.com
BY: - VYANKATESH RATHI 1

EXECUTIVE SUMMARY
"No one pretends that democracy is perfect or all-wise, indeed it has
been said that democracy is the worst form of government except all those
other forms that have been tried from time to time."
WINSTON CHURCHILL to the house of `commons'
This is an interesting & thoroughly worthwhile project. Its basic messages are
relevant to any organization & any manager. This project is not encyclopedic (as
Corporate Governance itself is a very large issue), although it is hoped that answers to
meet question will be found, or that at least a pointer may be given as to where the
answers are to be found.
This project is prepared for those who are either involved in Corporate
Governance or interested in its principles & practice, & who are concerned with the
human side of it. This project is based on mechanism of corporate governance,
dimensions of corporate governance, and mastering corporate governance
Corporate Governance brings power; and power corrupts. The antidotes to that
power are transparency, objectivity and accountability. All three requires a stead fort and
clear appreciation of oneself as seen by others. The pay -offs for conducting in the way
this project recommends can be enormous. This is more easily perceived by those who
have jumped in & learnt to swim after their own fashion than by those who have avoid
the plunge. There are always admirable reasons for avoiding the plunge, off course. But
this project is not one of them.

INDEX
SR.NO TOPIC PG. NO.
1. WHAT IS CORPORATE GOVERNANCE 1-3
2. ISSUES IN CORPORATE GOVERNANCE IN 4-9

INDIA
3. MECHANISM OF CORPORATE GOVERNANCE 10 - 18
4. NEW DIMENSIONS TO THE AUDIT OF CORPORATE 19 - 28

GOVERNANCE
5. IMPROVED CORPORATE GOVERNANCE IN STAGES 29 - 32
6. WHY CORPORATE GOVERNANCE IS GOOD FOR 33 - 39

HUMAN RIGHTS AND VICE – VERSA
7. CORPORATE GOVERNANCE : TOWARDS BEST 40 – 44

PRACTICES
8. PROMOTING CORPORATE GOVERNANCE FOR 45

SUSTAINABLE DEVELOPMENT
9. GLOBAL STRATEGY FACES LOCAL CONSTRAINTS 46 - 52
10. STRONG INSIDERS INVITE WEAK GOVERNANCE 53 - 55
11. FUTURE OF CORPORATE GOVERNANCE 56 - 61
12. CORPORATE GOVERNANCE ISSUES IN RELIANCE 62 - 64

GROUP
13. CORPORATE GOVERNANCE IN HDFC GROUP 65 - 67
14. CONCLUSION 68
15. MR. KUMAR MANGALAM BIRLA’S VIEW ON 69 - 73


What is corporate
governance?

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, the concept of corporate governance is poorly defined because it potentially
covers a large number of distinct economic phenomenons. As a result different people have
come up with different definitions that basically reflect their special interest in the field. 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.
Definitions
"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",
www.encycogov.com, 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, page 737].
"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 - 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 ill-defined, and
consequently blurred at the edges…corporate 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.

ISSUES IN CORPORATE GOVERNANCE IN INDIA

The word ‘corporate governance’ has become a buzzword these days because of
two factors. The first is that after the collapse of the Soviet Union and the end of the cold
war in 1990, it has become the conventional wisdom all over the world that market
dynamics must prevail in economic matters. The concept of government controlling the
commanding heights of the economy has been given up. This, in turn, has made the market
the most decisive factor in settling economic issues.
This has also coincided with the thrust given to globalization because of the
setting up of the WTO and every member of the WTO trying to bring down the
tariff barriers. Globalization involves the movement of four economic parameters
namely, physical capital in terms of plant and machinery, financial capital in terms of
money invested in capital markets or in FDI, technology, and labor moving across national
borders. The pace of movement of financial capital has become greater because of
the pervasive impact of information technology and the world having become a global
village.
When investments take place in emerging markets, the investors want to be

sure that not only are the capital markets or enterprises with which they are investing, run
competently but they also have good corporate governance. Corporate governance
represents the value framework, the ethical framework and the moral framework under
which business decisions are taken. In other words, when investments take place across
national borders, the investors want to be sure that not only is their capital handled
effectively and adds to the creation of wealth, but the business decisions are also taken
in a manner which is not illegal or involving moral hazard.

Corporate governance therefore calls for three factors:

 Transparency in decision-making
 Accountability which follows from transparency because responsibilities could be
fixed easily for actions taken or not taken, and
 The accountability is for the safeguarding the interests of the stakeholders and the
investors in the organization
Implementation of corporate governance has depended upon laying down explicit codes,
which enterprises and the organizations are supposed to observe.
The Cadbury’s code in United Kingdom was the starting point, which led to a
number of other codes.
In India itself we have the Kumaramangalam Birla code as a result of the
committee headed by him at the behest of the SEBI. Earlier we had these CII coming up
with the code for corporate governance recommended by the committee headed by Shri
Rahul Bajaj.
The codes, however, can only be a guideline. Ultimately effective corporate
governance depends upon the commitment of the people in the organization. The very first
issue of corporate governance in India is, do the India managements really believe in
corporate governance?
Corporate governance depends upon two factors.

The first is the commitment of the management for the principle of integrity and
transparency in business operations.
 The second is the legal and the administrative framework created by the government. If
public governance is weak, we cannot have good corporate governance.
The dramatic Enron case has highlighted how companies, which were the darlings of the
stock market and held up as models for vigorous and innovative growth, can, ultimately
collapse like a house of cards as they were based on fraud and dishonesty.
 The association of the accounting firm Anderson has also raised a doubt about the
credibility of even well regarded global players.

In the Indian context, the need for corporate governance has been highlighted because of
the scams we have been having almost as an annual feature ever since we had
liberalization from 1991.
We had the Harshad Mehta Scam, Ketan Parikh Scam, UTI Scam, Vanishing Company
Scam, Bhansali Scam and so on. I have been suggesting that we should learn from
especially the United States to see whether we can replicate similar conditions in our capital
market.
It is not that the United States is free of scams. Right now the Enron issue
is examined by a number of committees at different levels in the United States. At the end of
all these examinations, they are likely to come with a better model. In the Indian corporate
scene we must be able to induct global standards so that at least while the scope for scams
may still exist, we can reduce the scope to the minimum.
The ethical temperature of any business or capital market depends on three factors.
 The first is the individual’s sense of values.

 The second is the social values accepted by the business and industry. When
Harshad Mehta Scam took place, it was claimed that the manner in which the bank
receipts were being treated was the prevailing norm. Perhaps a similar argument
would have been given in the Ketan Parikh Scam.In other words, practices, which
are later on found to be highly objectionable, become acceptable because that was
the prevailing market practice. Social values will depend upon the standards set up
by professional bodies like the Association of Chartered Accountants or Cost
Accounts of India and so on.
 The third and perhaps the most decisive factor is the system. It is here we face the
main challenge. Our system

Code of Conduct & Ethics for the Pses & the Administrative
Ministries
The objective of the code is to prescribe standards of integrity and conduct that are to apply
to all the executives and employees in the PSEs and the officers and employees of the
administrative ministries concerned with them.
The principles stated below underlie and supplement the rules and laws regulating the
public and private conduct of the executives / officers and employees in both the PSEs and
the administrative ministries.
Objectives of the public sector enterprises

 The role of the executives / officers is to assist the PSE to achieve its objectives as
spelt out in the charter constituting the setting up of the enterprise.
 It is the obligation of every executive / officer and employee of the PSE /

administrative ministry to uphold the Rule of Law and respect for human rights
solely in the public interest while making recommendations or exercising
administrative authority. He or she must maintain the highest standards of probity
and integrity.
 In relation to the general public, the executives / officers and employees in the PSE /
administrative ministries should conduct themselves in such a manner that the public
feels that the decisions taken on the recommendations made by them are objective
and transparent, and are not calculated to promote improper gains for the political
party in power or for themselves or for anyone else. This would be particularly
significant so far as the customers of the public service are concerned. This will
apply also mutatis mutandis to the officers and employees in the administrative
ministry concerned with the PSE.

 Executives / officers and employees of the PSEs / administrative ministries should

not seek to frustrate or undermine the policies, decisions and actions taken in the
public interest by the management by declining or abstaining from action which
flows from the management decision. Where following the instructions of the
superior authority would appear to conflict with the exercise of impartial
professional judgment or affect the efficient working of the enterprise, he she should
set out points of disagreement clearly once in writing to the superior authority or
seek explicit written instructions. This will apply also mutatis mutandis to the
officers and employees in the administrative ministry concerned with the PSE.
 Where an executive / officer or employee of the PSE has reasonable grounds to

believe that he or she is being required by the superior authority to act in a manner
which is illegal or against the prescribed rules and regulations, or if any legal
infringement comes to his or her notice, he or she should decline to implement the
instruction, and would also have a right to bring the facts to the notice of the
Chairman / Managing Director of the enterprise or the Secretary of the
administrative ministry concerned. It shall be incumbent to examine the issue
carefully and take action appropriately. This will apply also mutatis mutandis to the
officers and employees in the administrative ministry concerned with the PSE.
 The religion, region, caste, language or the executive will have no influence on the
working in his official capacity.

MECHANISMS OF
Elements, Concepts and Criticism

A: ELEMENTS FOR EFFECTIVE CORPORATE

GOVERNANCE
The ownership and control of corporation has been the focus of
struggle for the determination of effective corporate governance. However, the way
in which the struggle is carried on to achieve effective corporate governance is set
on the differences of political framework, social and enterprise history and attitude.
For example, in the United Kingdom where the shareholder model is
practiced, the primary way of ensuring effective corporate governance is through the
promotion of shareholders’ participation in general meetings, and the board carrying
on the daily affairs of the corporation primarily in the long run for the economic interest
of the share holders.
It means, then, that one basic element of effective corporate governance

is the participation of shareholders and the transparency and accountability of the
Board of Directors for the maximization of shareholders’ values.
In contrast, effective corporate governance in France is measured by the
ability, personality and disposition of the president director-general to direct the affairs
of the company. Shareholder participation is not of primary importance, at least not
more than state participation, as the bearer share procedure does not give access to a
defined individual share ownership.
Likewise in Germany, notable for its concentration of corporation

ownership, effective corporate governance is measured by the extent to which the
inside commercial enterprise performance of the corporation is monitored and or
participated in by “all interested stakeholders-managers, employees, creditors,
suppliers, and customers.

By marriage of the above differences on the procedure of attaining effective

corporate governance it is suggested (without claiming to be all exhaustive) that the
elements of effective corporate governance will include the following:
 The board and management of companies should, as a mark of good corporate

management, take into account the realities of the contemporary multilateral
governance relationships between firms, state and civil society and as such,
pilot the affairs of the company within the legal corporate framework prevalent in
any particular state and promote accountability to the shareholders but
“properly address the concerns of other legitimate stakeholders”.
By so doing, companies will avert the destructive campaigns and

demonstrations of a civil society. However, it is not intended to suggest that
companies will engage in all social and political responsibilities, but since their
products are directed at civil society (customers), companies should engage in
legitimate social responsibilities, such as ensuring that the health and safety of
their employees and customers are “respected and not recklessly jeopardized”.
 It is in this direction that the OECD principles (1999) of corporate governance

provide that good corporate governance is a matter of concern of and for the people.
It is vital to the well being and the welfare of not only the ‘owners’ and
‘shareholders’ of the companies, but the workers and the people of the society as a
whole.
 Secondly, transparency, effective communication and accountability should be

the underlying value within the strategies of corporate governance. Board and
management should ensure the confidence of investors without which the reputation
of the corporation will soil, and promote external takeover bidders.
 As Sheriden T and Kendall N succinctly describe, that “effective governance

for Mr… involves him improving communications between himself, the

investors, and the managers, so to gain a better understanding of management’s

strategy and business aims…[thereby] making a better fist of building long-
term shareholder value than the bidding company.
It is therefore suggested that good corporate governance should be that

which the management structure is designed to run in a transparent way to enhance the trust
of the stakeholders. There should be an open and equitable relationship between
the management, the board and the shareholders. All shareholders of the same share-
weight must be accorded the same treatment.
Much as well, as emphasized by the OECD principle, the corporation should be

run to support society; it must be geared toward the heart and mind of society. So the system
whereby the shareholders’ interest and profit maximization are the primary concern of
the company and keeps everybody else out, cannot, it is considered, withstand the
present global civil society volatility.
There should be a way of enhancing good corporate practice, ensuring moderation

between the company corporate objectives with the ‘necessary’ social realities of
the community. This has been the bane of social unrest of civil society against most
companies of developed countries’ origin, operating in developing countries.
Corporate governance should not be run to exploit the community.

B: THE EXTENT OF CORPORATE GOVERNANCE

CONVERGENCE
Comparative studies of corporate governance systems reveal significant

variations among countries . The variations in the corporate governance system are as
a result of institutional difference, political structures, and ownership forms, boards’
composition and characteristics and attitude of shareholders.
For example the state’s strong role – dirigisme - is the foundational cultural
value affecting corporate governance in France. Within the French system, share
holding and corporate practice is viewed as a national concern and a respectable
means of service to the state. There is not much room for the capitalistic
competition as obtainable in the Anglo-American system.
Monk and Minow (2001:291) in this direction, write that out of the top fifty
French firms, twelve are directly controlled by the state, while state influence spreads across
the rest. Despite the high level of privatization that took place in France in the early 1990s,
there is still no clear “evidence that there is any dominant corporate governance system by
French companies…the corporation governance system is more of a political process than
an economic decision based on efficiency consideration”.
In Germany as well, despite there is now an increase in the rate of its listed
companies than what it was in the 1980s, there is still the continuance of traditional
cross-ownership of shares and about 50% block voting rights. But a new economic and
commercial orthodoxy has taken place since the late 1980s, that corporation as opposed to
the state has become “a principal to economic growth and improved standard of living.
It is then important to emphasize that cultural difference, national differences

of company practice has not denied the possibility of convergence to best practice
especially on corporate accountability. The urge to maintain pace with the speed of
globalization and internationalization of finance , states especially that liberal

democratic states (developed and developing) and companies have been active in
restructuring their corporate and commercial practice rules.
There have been global trends in corporation merges, trans-Atlantic
institutional investment and take over mania from the early 1990s. The trend has
culminated in national companies being pressurized for performance changes by the
institutional investors. The pressures and corporations’ necessary receptiveness has brought
about convergence of corporate practice especially among listed companies. For example,
there is a convergence on the “disclosure requirements” of board and management in
the financial reporting of corporations.
Another area of considerable corporate governance harmonization is in
the law of takeovers, especially among European Union Member States. These
Formal legal harmonizations are geared towards raising investor protection in the present
EU transition economies.
For example, most of the French companies have in the recent times
allowed their shares sold in the Paris stock market to both local and foreign
investors. This has brought about unison of corporate practice. This is more than before a
sign of the state relaxing its traditional dirigisme. It has been active in promoting merges
and reshaping state owned companies to allow for dispersed shareholder
ownership-privatization.
We will finally suggest (noting as well that convergence is not

without local differences) that a new global culture of corporate practice has
arisen and it presently underpins the institutional micro and macro operations
of companies. Companies strive now to strike a balance between their
traditional corporate practices with the Anglo- American model of
corporate governance in order to maintain financial stability and remain
in business.

C: CRITICAL REVIEW OF OECD CORPORATE

GOVERNANCE PRINCIPLE
The most striking thing about the OECD principle of corporate governance is
that it is designed and structured to be adopted and or to be operational in all economies. Put
in another way, the OECD principle of corporate governance is tailored to work in
all governance systems; it is cognizant of the differences or varieties of board
structure, political differences and economic structures of its member states and non-
member states.
Hence it can work in both in the Anglo-American and the Stakeholder

Systems. Therefore, it is pertinent to state that the OECD principle’s thrust is to
serve as a “reference point for [corporate and government economic] policy makers” (page
11 of the Principles).
This means that in the contemporary global economic interdependence, it is

necessary that each system, whether a unitary or two tier board system, shall adapt its
governance practice to the provisions of the OECD principle. The transactions of
companies must be carried out in accordance with the OECD principles.
To this end, the OECD principles provide that boards and managers of
companies must disclose relevant corporate financial information to the shareholders. By
so doing there will be an “increase in the flow of private investment capital sector to
the business sector”, because the confidence of investors in the companies is promoted.
Significantly, the imitative by managers and boards to improve the quality, reliability and
comparability of financial information, will encourage the shareholders participation in the
affairs of the companies.
In this direction, the OECD corporate governance principles on pages

15-16 provide that corporate governance framework should protect shareholders’ rights.
These rights include: “ensuring adequate methods of ownership registration, conveying

or transferring shares, participating in the company’s profits, obtaining information

on a timely basis, participating and voting in general shareholder meetings”. Also, the
principle shareholders in the process of their exercising their right of voting should
“consider the cost and benefits of exercising their voting rights”.
In this direction, however, the principle is against the situation whereby the
boards and managers use “anti-take-over devices …to shield management from
accountability”.
Which of the Models does the OECD Principles

Promote and how is it internationally accepted?
Without being too copious of the provisions of the OECD principles or as

amplified by the International Corporate Governance Network (ICGN) in 1999, the
principles have been described as the ‘bedrock of good governance…[and ] a declaration of
minimum acceptable standards for companies and investors around the world…a
remarkable convergence on corporate governance common ground among diverse
interests, practice and cultures…it is welcomed by the G7 leaders [and] acts as a sign post
for the International Monetary Fund, the World Bank, the United Nations and
other international organizations. This goes to show that the OECD principles are
recognized internationally as the basic norm guiding corporate governance.
However, it will be noted that the principles of the OECD are voluntary. They
are not strictly binding on nations or corporations. As earlier noted they are geared to serve
as a reference principle for policy makers. But this apparent weakness of the OECD
principles is more said than in practice. This is because the forces of financial
internationalization, and the increase in systems’ interdependence have made it bold
that the principles are being shown to be followed by corporations.

It also important to note, that strategically the wordings, tune, philosophy, and
structure of the OECD principles are a mirror of the Anglo-American corporate
governance provisions. For example, the OECD provisions on the duties and
responsibilities of directors and managers, the rights of shareholders, procedure for
financial reporting and disclosure, and auditing were virtually as provided in the United
Kingdom Combined Code.
Take, for instance, on supply of information; the Combined Code

principles provided as follows: “the board should be supplied in a timely manner with
information in a form and of a quality appropriate to enable it to discharge its duties” (part
A.4), while the OECD principles provides that “in order to fulfill their responsibilities,
board members should have access to accurate, relevant and timely information” (page 21).
In general the entire provisions of the OECD principles, even though

we earlier argued that it is designed to work in all types of corporate
governance systems, are in favor of the shareholder ideologies of profit
maximization, competition and free-open economies. This is because most
of the content of the principles emphasized the protection of the
shareholder interest and rights. The board and management are obliged
to carry on the affairs of the corporation in the direct interest of the
shareholders and will only ‘respect’ the rights of the stakeholders if the
rights are provided for in law.

NEW DIMENSIONS TO THE AUDIT OF


 The philosophy and mantra of corporate governance is taking its rapid heat and
strides in the arena of Indian corporate affairs more by way of law, rules and
regulations than by self-regulation by the entity. Mishaps happened in the portals of
some of the major US corporate affairs was taken as forewarning in the global
context and the regulators were quick enough to constitute as many committees to
report on what corporate governance should be.
 In the Indian context too, we had a good number of reports on the corporate
governance recommending certain do's and don’ts. These do's and don’ts found their
place in the legislative Bills and before, they were enacted in the form of listing
requirements. The clause 49 to the listing requirement was amended from time to
time based on the reports of committee constituted by the Securities and Exchange
Board of India.
 The maiden attempt on amendment to the listing requirements relating to compliance

of conditions of corporate governance followed after the report of Kumarmanagalm
Birla Committee. Thereafter a few amendments in the clause were made consequent
to the developments taking place on the matter.
 The recent initiative of the SEBI following the Naryana Murthy Committee on
Corporate Governance has given new dimensions to the code, compliance of
conditions by the entity relating to corporate governance.
The revised clause 49 is now at the centre stage adding new dimensions to the disclosure
and reporting requirements on corporate governance by the corporate as well new
responsibilities and role for CA and CS professionals.

Analysis of New Dimensions
I. Schedule of Implementation:
In exercise of powers conferred by section 11(1) of the Securities and Exchange Board
of India Act, 1992 read with section 10 of the Securities Contracts (Regulations) Act,
1956, SEBI has revised the clause 49 of the listing agreement vide its circular dated
MRD/SE/31/2003/26/08 dated August 20, 2003.
The revised clause 49 shall be implemented as per the following schedule:

 By all entities seeking listing for the first time, at the time of listing;
 By all companies i.e. all listed entities having a paid-up share capital of Rs.3 crores
and above or net worth of Rs.25 crores or more at any time in the history of the
company.
The companies shall be required to comply with the revised requirements in the clause
on or before March 31, 2004.
The words, 'entities' and 'companies' have been interchangeably used. It could have been
better if a uniform word is used instead of two terminologies. There is also a condition that
the stock exchanges have to ensure that the companies seeking listing for the first time are
complying with the new provisions without delay, failing which the application money shall
be kept in escrow account till conditions are complied.
 What are the consequential effects, if the company fails to observe the
conditions?
 Who shall be bearing the sufferings and burden of poor subscribers to the
initial issue is not clear?

The Master Circular does speak at the very beginning of the need for harmonization of laws
i.e. between clause 49 and the Companies Act, 1956, yet, should not there be a way that the
company be bound to return the money to the investors as per the Companies Act, 1956 if
allotment is void as a result of continuing failure by the company on compliance of this
condition.
II. Board of Directors

A. Board's composition
The board shall have an optimum combination of executive and non-executive directors
with not less than fifty per cent of the board of directors consisting of non-executive
directors. [Sub-clause I (A)]. The expression ‘executive and non-executive’ is of general
expressions and defined neither in the clause nor in the Companies Act, 1956.
The board's composition shall consist of following tiers:
 Executive directors who may or may not be independent;
 Non-executive directors who shall be independent [Explanation (i)].
In order to determine that a non-executive director is independent, the following criteria

have been provided:
 he does not have any material pecuniary relationships or transactions with the
company/promoters/its senior management/its holding company/its subsidiaries and
associated companies;
 he is not related to promoters or management at the board level or one level below
the board;
 he is not a partner or an executive of the statutory audit firm or the internal audit firm
and has not been a partner or an executive of any such firm for the last three years;
 he is not a supplier/service-provider which includes lessor-lessee type relationships;
 He is not a substantial shareholder of the company i.e. owning two percent or more
of the block of voting shares.
In the above list, certain terms/expressions used need explanation.

Firstly, the term 'material pecuniary relationships' cannot be precisely determined. There
should be some benchmark as provided in section 297/299/301 of the Companies Act, 1956
to indicate that the concerned director is directly or indirectly interested. Alternatively, there
should be reference to the AS 18 and AAS 23.
Secondly, the term 'promoters or management' is generic and can be liberally interpreted.
Thirdly, the term 'executive' is also similar to that of the expressions as used above;
Fourthly, how logical reasoning be applied to determine, the supplier/service-provider

relationship is not mentioned;
Fifthly, whether holding two percent or more the block of voting shares includes only direct
or indirect holdings is not stated.
Instead of the term, 'institution' in the explanation (ii) to the paragraph, it could have
appropriate if the term is defined as per section 4A of the Companies Act, 1956.
B. Non-executive Directors compensation & Disclosures
Instead of the term 'compensation', the term ' remuneration' could have been more
appropriate (as used in the Companies Act, 1956).
The paragraph (b) in the clause states that the stock options granted to the non-executive
directors shall vest after a period of at least one year from the date such non-executive
directors have retired from the Board of the company.
Whether a director retiring by rotation under section 255/256 of the Companies Act, 1956 is
also covered by the term 'retired' is not clear.

Again the meaning of shares held by non-executive directors on an ‘if-converted’ basis

includes optional convertible instruments' need to be explained.
Whether holding of shares on a beneficial basis is permissible by law need to be

introspected.
C. Independent Director
It has been stated that independent director shall periodically review legal compliance
reports prepared by the company and steps taken to cure any taint. In addition, such
independent director shall not be entitled to be granted any immunity on the ground that he
was unaware of the responsibility.
There are some contradictions in this connection.
Firstly, by whom the company shall get the report prepared is not clear. Unless such
independent non-executive director prepares it, the onus of responsibility should not fall on
him.
Secondly, the intention of the requirement is against the spirit of law. Under section
61,217(2AA) (5) & (6) of the Companies Act, 1956, relaxation have been provided to
directors in similar situations. Failure on the part of independent director should not be
vitiated with responsibility unless, it is willful or intentional. Here the case of responsibility
lies only with independent director who is non-executive. In other words, non-independent
directors are excluded from the purview of responsibility and can claim immunity,
protection and exemption.

D. Board Procedure
It is stated that a director shall not be a member in more than 10 committees or act as
Chairman of more than five committees across all companies in which he is a director. The
intention is that the company here includes public and not private and other companies.
E. Code of Conduct
It is stated in the circular that the Board shall lay down code of conduct for its members and
senior management. This apparently is in conflict in the sense that on the one hand
distinction is made between independent non-executive director and executive directors and
on the other hand, it lays down code of conduct for all members of the board including
senior management. Further it is stated that members shall affirm the compliance of code of
conduct. How the affirmation shall be done is not mentioned?
F. Term of office of Non-executive directors

It is stated that the term of office is for a period of nine years. This restriction can easily be
circumvented by continuing unto 8 years and above but retire before 9 years and contest
again for election and continue for another period of nine years.

III. AUDIT COMMITTEE

A. Qualified and independent audit committee
The clause states that the all the members of the audit committee shall be non-executive with
the majority of them being independent. Here, it is not clear whether it is a simple majority
or 3/4th as majority.
Again that majority of the independent directors should be non-executive is apparently

causing confusion when it is given in Explanation (i) to paragraph I (A) that independent
directors shall mean non-executive directors. How suddenly a non-executive director can
become devoid of his independence?
In addition, it is stated in explanation (ii) that if the company has set up an audit committee
pursuant to provisions of the Companies Act, 1956, the company shall have such additional
functions/features as is contained in the listing agreement. Though it has been stated in the
Master circular on the revised clause 49 that steps shall be taken to harmonies between the
two laws namely section 292A of the Companies Act, 1956 dealing with the audit
committee and clause 49, till such time, the company/auditor have to see that that conditions
stated in the two laws to be satisfied by way of harmonization.
Further the audit committee shall mandatory review besides other information such as
reports relating to compliance with laws, to risk management, on related party transactions
etc. Who shall prepare the report and submit is not clear and precise.
On the audit reports and audit qualifications, it is stated that in case the management has
followed alternative treatment than that of prescribed in accounting standards, it shall clearly
explain such in the footnote of the financial statements. This clause seems to be not in
consistent with the paragraph VI on disclosure of contingent liabilities.
On the whistle-blower policy, auditors have been excluded, as there is no mention.

On subsidiary companies, the clause seems to have treated the holding and subsidiary as one
entity/company, though in letter and spirit of the law, i.e. Companies Act, 1956, they are
treated as separate entities. Only for accounting purposes under the SEBI Act, 1956,
consolidation of accounts is made compulsory, yet for other purposes, can the clause provide
 that the composition of board be the same for both the companies;
 that the audit committee of the holding company has powers to interfere with that of
audit committee of the subsidiary;
 whether the board minutes of the subsidiary are placed for review at the meetings of
the board of the holding company;
The above matters have to be debated and discussed.
On the disclosure of contingent liabilities, it is stated that the management shall provide a
clear description in plain English of each material contingent liability and its risks
accompanied by auditor's comments in clear words.
What are plain English and clear words cannot be strictly applied in a technical
matter.
On the disclosure of related party transaction the revised clause 49, states that AS 18
have to be taken into consideration. In the said Para VII (A), there is a mention of
transaction not on arm's length basis, which is silent in AS 18. The auditor in such
circumstances may draw inference to the provisions contained in the Income Tax Act, 1961.
As per the revised clause it is now the duty of the board/compliance officer to report
on disclosures relating to risk management.
On the utilization of proceeds from Initial Public Offerings (IPO's), it is stated that the
independent auditor shall certify the statement. This apparently as per SEBI, DIP
Guidelines, 2000, is the duty cast upon the merchant bankers. It is also important to note that
for the first time the clause uses the term 'independent auditor' but without any explanation.
On certification by the Chief Executive Officer (CEO)/Chief Financial Officer (CFO) it is
not clear as to when it is to be obtained and seen by the auditor.

IV. REPORT/CERTIFICATE ON CORPORATE

GOVERNANCE
 The revised clause 49 prescribes that the report on corporate governance shall be a
quarterly affair and there shall be a separate section on the subject in the annual
reports of the company. The quarterly compliance shall be submitted to the stock
exchanges by the compliance officer or the Chief Executive Officers of the company
within 15 days from the date of close of the quarter in the prescribed format as given
in the circular.
 The company can now obtain the certificate on the compliance of conditions of
corporate governance either from the auditors or from the practicing company
secretaries and such certificate shall be annexed with the director's report. In
addition, such certificate shall also be sent to the stock exchanges along with the
annual returns filed by the company.
 Thus in pursuit of furtherance and commitment to corporate governance, the revised

clause has instilled many areas, which have to be complied by the company. The
listing requirements have thrown many challenges and opportunities to the
professionals, personnel in the company and the entity itself.

Improved corporate governance in

stages

It is but right that an extension has been given to implement Clause 49 amendments.
THE Securities and Exchange Board of India's decision to postpone the application of
Clause 49 (of the listing agreement) by nine months has primarily been guided by practical
considerations.
The amendments under the clause are not some stock market Arcanum. Yet, if some of the
amendments are still found to be onerous, more time should be given to the corporate to
iron out the difficulties. Such logic has weighed with SEBI while deferring the
implementation date from March 31.
Announcing the postponement, the SEBI Chairman, M. Damodharan said:

"Clause 49 is a means to an end .It seeks to improve governance levels in Indian corporate."
The amendments are concrete suggestions aimed at improving the standards of corporate
governance. Moreover, they have been framed after due deliberations and widespread
discussions. Three expert committees, among others, have left a mark on the amendments
that will hopefully be adopted by the end of the year.
The Kumar Mangalam Birla Committee and the Narayana Murthy Committee were
appointed by SEBI to look into various aspects of corporate governance. The Naresh
Chandra Committee, appointed by the Union Government, looked into the role of auditors
and independent directors primarily.
In August 2003, SEBI made its first attempt at implementing the Clause 49 amendments, but
had to postpone them in the face of opposition from companies.
Finally, it was decided to implement them from April 1, 2005. Hence, postponements are
not new. In a sense, it is better to hasten slowly when the subject matter and the action
points are so new to the country.

Some proposals originally mooted such as a whistleblower policy, under which employees
who reported unethical practices were to be given protection, were impractical and hence
diluted.
However, many onerous clauses remain. The number of independent directors that a
company must have and the role to be defined for them has been one such. Family owned
businesses and others who have a substantial stake are loath to accommodate a large
number of outside directors. In government owned companies, the function of an
independent director has already been the subject of a controversy.
Will the majority shareholder, the Government, appoint a truly "independent"

director?
In fact many companies say that it is extremely difficult even to prepare even a short list of
names that will satisfy the requirements of the new law as well as the company.
For it is not altruism that will guide the decision of a "fit" person to join a particular
company's board. Nor is it likely that a company will deliberately scout around for a
"difficult" person, however well he may be qualified to be an independent director.
The new proposals call upon the entire board of a company including independent directors
and also its principal officers to take responsibility for the decisions. In certain cases they
will be personally liable. These are going to be tough propositions to act upon.
In many ways the cost of compliance will go up.
The question one needs to ask is whether the results will be commensurate with the costs
and efforts. Maybe the nine months breather that companies get will be put to good use in
debating these proposals once again.
To a large extent, Indian attempts at imposing corporate governance standards through the
stock exchanges have been influenced by developments in the U.S.

Following some high profile corporate scandals, the authorities tightened laws and
procedures relating to governance. Much of the impetus to framing new rules has come from
well publicized reports, such as the Sarbanes-Oxley Committee in the U.S. and the Cadbury
Committee in the U.K.
However path breaking those are in the West, it should not be forgotten that the Indian
scenario is markedly different in many aspects — the regulatory machinery, shareholders'
concerns and judicial oversight, to name just a few.

Why corporate governance is good for

human rights and vice versa

In international organization circles, the mention of financial transparency is often a

polite way of referring to the C-word corruption without naming it
At a United Nations conference this weekend, hundreds of business leaders and government
representatives will discuss ways to promote both corporate social responsibility (CSR) and
greater transparency in the region _ and the UN is right to link one to the other.
Corruption is an insiders' business. It grows on terrain where business relations take place
among a small group of people who have a stake in all economic ventures be they public or
private sit on each other's boards, and do business according to arbitrary rules.
Nothing has contributed more to undermining the insiders' culture than corporate
governance codes _ and the restless activity that has characterized this field in recent years is
testimony to the stock shareholders and regulators have placed in corporate governance as a
means of advancing transparency.
Asia is no exception, and although regional standards remain uneven, progress is notable.
One interesting finding emerges from a review of corporate governance provisions around
the world: there is a strong correlation between the level of independence on corporate
boards and a country's corruption score as measured annually by Transparency
International's Corruption Perceptions Index (CPI).

Here are five Asian cases.

The new corporate governance code that became effective in Hong Kong this past
January calls for at least one-third independent non-executive directors on the board, with
formal appointment and succession plans. The audit, remuneration and nomination
committees must be constituted of a majority of independent non-executive members. And
corporate governance provisions that resemble closely those of Hong Kong.
Launched in 2000, Malaysia's code was established on a ''comply or explain'' basis,

meaning that companies must account for any departure from the code. It calls for boards to
include at least one-third independent non-executive directors. The decision to combine the
chairman and CEO positions must be explained and, where this is so, independence on the
board must be strengthened.
At the other end of the spectrum is Indonesia, which has a two-tier board structure.
Indonesia's corporate governance provisions call for only 20% of members of the
supervisory board (Board of Commissioners) to be independent.
Furthermore, the disclosure of the commissioners' remuneration is not mandated.

(Remuneration disclosure is called for in the three preceding cases.) Score: 2/10.
Where does Thailand stand?

In 2002, the stock exchange published 15 principles of corporate governance, compliance
with which listed companies are expected to report annually. The principles ''propose'' that
one-third of the board be constituted of independent directors. The principles do not define
independence nor do they mandate the separation of the CEO and chairman positions, but
they do call for disclosing the remuneration of directors and top executives.
In a 2004 survey of 50 listed companies, Standard and Poor's found that the boards of the
majority of listed companies (58%) comprised one-third independent directors or less while
only 20% of companies published the remuneration of directors.

Because there are financial as well as social and environmental factors to the stability of a
business environment, both financial transparency and CSR are necessary to ensure
sustainable profits.
Know-your-customer and record-keeping rules, open regulations regarding the disposal of

assets in bankruptcy, continuous disclosure requirements, and auditing standards _ all
advance the cause of transparency by increasing scrutiny in the way business is done.
In a January 2005 business survey, CEOs named the lack of good governance as their
primary concern when operating in developing countries.
The projects companies undertake with NGOs and international organizations to promote
the rule of law, human rights and access to justice improve the predictability of the business
climate. They can also increase a company's license to operate, thereby reducing
stakeholder risks and further embedding the company in its local environment.
There are two reasons why financial transparency typically precedes CSR as a business
concern. The first is the sheer size of the world's capital markets _ US$118 trillion,
according to a new McKinsey study _ and the volume of daily global financial transactions.
Additionally, participants in financial markets are united by the profit motive while
stakeholders are often divided by competing agendas.
When a country takes financial transparency seriously, however, CSR is usually not far
behind. The reason is simple: both strategies seek to tackle theft. Attitudes toward public
money, human beings and the global commons of land, sea, and air tend to converge.
If stealing millions is acceptable, so is robbing human lives, be it through arbitrary arrests or

sexual exploitation. This is the linkage that business must ponder: from independence on
the board to human rights, the step is smaller than it seems.

Governments, for their part, must consider the following: from corporate governance reform
to partnerships for sustainable development, corporations have been asked to make quite a
few adjustments in recent years, and they have come a long way. Governments now must
commit to the same values they call for business to respect.
Executives, officers and employees in the PSE / administrative ministries should be alert to
any actual or potential conflict of interest, financial or otherwise, and should disclose this to
their superiors, whether the conflict covers them or their family members.
Executives, officers and employees in the PSE / administrative ministries should maintain
their independence, dignity and impartiality by not approaching politicians and outsiders in
respect of service matters or private benefit. They should exercise peer pressure to dissuade
those who do so within the organization and set in motion disciplinary proceedings against
such persons.
Accountability and responsiveness to the public
 Consistent with accountability to the superior officers and ministers in accordance

with provisions governing PSE / administrative ministry, the executives,
officers and employees in the PSEs should also practice accountability to the people
in terms of quality of service, timeliness, courtesy, people orientation and readiness
to encourage participation of, and form partnership with citizen groups for
responsive management.
 Executives, officers and employees in the PSEs / administrative ministries should be

consistent, equitable and honest in their treatment of the members of the public, with
particular care for the weaker sections of society and should not even be or appear to
be unfair or discriminatory. Decision in pursuit of discretionary powers should be
justifiable on the basis of non arbitrary and objective criteria.

 Executives, officers and employees in the PSEs / administrative ministries should

accept the obligation to recognize and enforce customer’s right for speedy
redressed of grievances and commit themselves to provide services of declared
quality and standard to customers.
 Executives, officers and employees in the PSEs / administrative ministries should

respect the right of public to information on all activities and transactions of the
organizations except where they are debarred in the public interest from releasing
information by provisions of law or by valid instructions.
Concern for value of public asset and funds

The employees in the PSE / administrative ministry should avoid wastage and extravagance
and ensure effective and efficient use of the public money within their control. In cases of
disputes or grievances efforts must be made to resolve them quickly. No unlawful stoppage
or disruption of work or damage to the assets of the PSE should be resorted to.
Non abuse of official position
Employees of PSEs / administrative ministries have a responsibility to make decisions on

merits. They are in a position of trust. They must not use their official position to influence
any person to enter into financial or other arrangements with them or with any one else.
They must not abuse their official position to obtain a benefit for themselves or for someone
else, in financial or some other forms. This will apply also mutatis mutandis to the officers
and employees in the administrative ministry concerned with the PSE.
Continuous improvement through professionalism and teamwork

It shall be the duty of every employee of the PSE / administrative ministry to continuously
upgrade his /her skills and knowledge, strive for creativity and innovation and nurture the
values of team working and harmony.

He / she should promote and exhibit public and private conduct in keeping with the
appropriate behavior and standards of excellence and integrity.
He / she should support the juniors in the latter’s efforts to resist wrong or illegal directives
and in abiding by the Code of Ethics.
At the same time, they should reward good work and punish any dereliction of duty and
obligations based on objective and transparent criteria.

Corporate Governance: Towards Best

Practices

Corporate governance is increasingly demanding our attention and has moved

centre stage. The Enron and WorldCom scandals in the U.S have amply demonstrated
the necessity of having a system of corporate governance even in the developed world.
In a liberalizing and deregulating country like India, corporate governance is all the more
important.
In this context, it is indeed heartening to note that Bankers’ conference is devoting a
full session on “corporate governance”. In this address let me touch upon the basic
cornerstones of corporate governance in Indian banking sector.
THE BASIC ISSUE

Modern day corporations are known for the separation of ownership and control.
After all, the managers are merely paid employees and the agency theory taught us that the
independent managers can operate in a way that could be detrimental to the interests of the
shareholder.
It is, thus necessary, to have a mechanism by which the shareholders’ interest are
protected by the managers. It is here that corporate governance can play a crucial role.
What is corporate governance then?

I can do no better than to quote from Professors Shleifer and Vishney, who defined
corporate governance as dealing with “the ways that suppliers of finance to corporations
assure themselves of getting a return on their investment”.
Corporate governance is however conceptually different for banks. The business
model of financial intermediaries especially of banks envisages dealing in the financial
resources of others and most of their liabilities constitute debts which are in the form of
deposits. Since depositors are the main suppliers of finance to a bank, their interest is
paramount and therefore directors and officers of a bank should be charged with a
heightened duty to ensure the safety and soundness of these enterprises.
Banks are highly leveraged organizations; they undertake maturity transformation and hence
create maturity mismatches between their assets and liabilities and rely on the confidence of

their creditors. There is also the contagion impact and the issue of maintaining the integrity
of the payments system in which banks play a significant role.
Corporate governance therefore affects the interests of a larger cross-section of

stakeholders also has implications for financial stability and is one of the key factors that
determines the health of the system and its ability to survive economic shocks.
Corporate governance practices differ widely across the world. In a highly dispersed
shareholding system normally it is the board of directors who are granted the responsibility
of monitoring executives (e.g., U.S). On the other hand, allowing for concentrated and cross
shareholding, countries like Germany or Japan adopted ‘internal’ corporate governance
systems.
Corporate governance for an emerging market economy (EME) has an added dimension.
After all, since the late 1980s / early 1990s, the financial sector of a number of EMEs has
seen a wave of liberalization and deregulation. Greater deregulation in markets and in banks
operations requires better governance as more responsibility rests with the Board and the
management.
It is because banks are a critical component of the economy that it is universally a regulated
industry and banks have access to safety nets. It would, however, be erroneous to conclude
that regulatory oversight is a substitute to corporate governance. There exists
complementarily between regulation and corporate governance in banking. Perhaps it is in
this spirit that the Bank for International Settlement (BIS) in discussing enhancing corporate
governance for banking organization observed that,
“Banking supervision cannot function as well if sound corporate governance is not in place
and consequently, banking supervisors have a strong interest in ensuring that there is
effective corporate governance in every banking organization”.

GLOBAL BEST PRACTICES

A number of supranational organizations have drawn codes/principles of corporate
governance. The most well known is perhaps the OECD principles of corporate governance
of 1999.
It is instructive to summaries the five basic pillars of OECD code, viz.

 Protecting the rights of shareholders;
 Ensuring equitable treatment of all shareholders including having an effective
grievance redressed system;
 Recognizing the rights of stakeholders as established by law;
 Ensuring the timely and accurate disclosure regarding the corporation including the
financial situation, performance, ownership and governance of the company; and
 Ensuring the strategic guidance of the company, effective monitoring arrangement
by the board and the board’s responsibility to the company and the shareholder.
While the OECD principles went a long way in emphasizing the basic tenets of corporate
governance, it is the 1999 BIS paper that went specifically to the issue of enhancing
corporate governance for banking organization. From banking industry perspective, BIS
proposed the following seven principles:
 Establishing strategic objectives;
 Setting and enforcing clear lines of responsibility and accountability;
 Ensuring that the board members are qualified for their position and are not subject
to undue influence from the management or outside concerns;
 Ensuring that there is appropriate oversight by senior management;
 Effectively utilizing the work conducted by internal and external auditors;
 Ensuring that compensation approaches are consistent with the bank’s ethical values;
and
 Conducting corporate governance in a transparent manner.
Again, from a banking sector perspective, the BIS principles noted categorically two
specific things, viz,

 the role of supervisors, and

 The paramount interest of depositors.
Apart from such supranational organizations or regional organization like EU, all the G-7
countries as well as other developed economies have codified some kind of ‘best practices’
on corporate governance, or some specific aspects of it.
While a comprehensive survey of the country-specific principles of corporate governance is

beyond the scope of the present address, one is tempted to cite the recently enacted
Sarbenes-Oxley Act of 2002 in US, aiming to protect investors by improving the accuracy
and reliability of corporate disclosures.
It is against this background of global best practices let me now turn to the Indian
experience on corporate governance.

Promoting Corporate Governance for

Sustainable Development.
The Global Corporate Governance Forum is a multi-donor trust fund co-founded

by the World Bank Group and the Organization for Economic Co-operation and
Development (OECD) to promote global, regional, and local initiatives that aim to
improve the institutional framework and practices of corporate governance.
Housed in the joint IFC/World Bank Corporate Governance Department, the

Forum’s unique activities promote sustainable economic growth and poverty reduction
within the framework of agreed international development targets.
The Forum's extensive work program encompasses:

 Raising awareness and building consensus for implementation of reform through
meetings, briefings, policy papers, and conferences;
 Supporting institution and capacity building and providing technical assistance to
ensure implementation at the field level through training programs and toolkits;
 Supporting research relevant to the needs of developing countries to underpin
reform efforts by sound analysis through sponsoring papers and building sustainable
networks for academics in developing countries; and
 Disseminating best practice materials and publications through networks and
knowledge management tools.

Global strategy faces local

constraints

Corporate governance systems vary across countries, and these differences directly
affect both the process for developing global strategies and the kinds of strategies that can be
adopted. In this article, we examine how different corporate governance systems might
influence decisions about company globalization and, in particular, decisions to take
operations abroad.
Global strategy decisions pose a very tough test for the effectiveness of corporate
governance systems in that they seek to maximize profits and global competitiveness, often
at the expense, at least in the short term, of some corporate governance players. By
definition, a global strategy means taking a global, rather than a single-country, view of
strategy, and this can be hard for those players with strong ties to the company’s home
country. Moreover, some aspects of global strategy, particularly the overseas relocation of
jobs, mean real sacrifices for some, especially employees.
Players in corporate governance

We identify five critical stakeholder players that most affect the company’s decisions
about global strategy:
Employees and their collective organizations, such as unions and work councils,
have various legislated, statutory, contractual or negotiated rights, such as employment
conditions, that must be considered.
The board of directors is the ultimate governing body of an organization and, as
such, it must approve all company strategies, including global ones.
The top management team is charged with day-to-day responsibility for strategy and
operations.
Shareholders exercise their voice through their shareholder rights, such as
cumulative voting or proxy voting, but they can also exit the company by selling their shares
if they do not agree with globalization strategies or other decisions.
Finally, governments set and enforce the overall rules of national corporate
governance; they design specific norms about international business, such as trade policies;
and they can selectively intervene in individual globalization decisions, such as moving

operations abroad, or subsidizing a given company because of its national strategic

relevance. Supra-national governments, such as the European Union, also play a role in
regulating corporate governance, the consultation rights of workers, bankruptcy procedures
and the like. We exclude other stakeholders, such as customers, suppliers and competitors,
because they tend to be less involved with corporate governance.
Cross-national differences
Corporate governance systems vary by country, as do the roles and power of the five
corporate governance players. Figure 1 summarizes these differences for some major
countries and types of corporate governance systems: the “Anglo-American” systems of the
US and UK; the “Continental” systems of Germany, France and Italy; and the “Extended”
system of Japan.
In the rest of this article, we briefly describe the main characteristics of these
corporate players across countries and their potential influence on global decision-making.
Employees
Two main variables differentiate employees, as a collective group, across countries.
First, the country’s labor market will influence the flexibility and mobility of employees.
Countries such as the US that have employment at will, whereby a contract can be
terminated at any time, are likely to have flexible labor markets and short-term labor
commitment. Generally, the consequence is that labor training is done outside the company
and employees have general and portable skills.
Second, the strength of labor unions and unionization rates varies from one country
to another. For instance in France, where union rights are extended to all employees
regardless of union affiliation, unionization will have a much greater influence on corporate
decision-making than in the US or UK, where only union members benefit from collective
bargaining agreements. Japanese companies tend to have enterprise unionism, which leads
to collective bargaining at the company level and grants a strong voice to employees.

In 2004 for example, employee opposition to job losses prevented the restructuring, via a
merger with a foreign partner, of France’s financially troubled Alstom, a major producer of
ships and trains. In the same year Volkswagen, despite suffering from very high labor costs,
had to promise its western German employees job security until 2011 in exchange for a
wage freeze until 2007 and more flexible working hours. The company’s workers wield
considerable power, partly through co-determination rights, which require employees to be
consulted on corporate decisions.
Top management teams

Cross-national variation in top management teams is mostly reflected in their
functional background and their international experience, as well as the patterns of
managerial career mobility. Managers in the US and UK tend to have professional
backgrounds (often with formal business school education) and strong functional
backgrounds in finance or marketing. This is not the case in Germany, where managers are
more technically oriented. In France, managers often share a common grandes écoles
background and ideology, frequently linking them back to government positions that they
have previously held.
There is also variation in the international experience and background of managers,
with US managers having the most foreign-born individuals in their management teams and
France, Italy and Japan the least. Managerial career mobility tends to be very fluid in the US
and UK due to open labor markets whereas, in Japan and France, managers tend to remain
with a company for a long period of time.
Shareholders
Countries vary in their mix of types of shareholders. At one extreme, the US and UK
have mostly arms-length, neutral shareholders, who are focused on shareholder value
maximization. Although many UK shareholders are large institutions, such as pension funds,
these generally play passive roles, compared with the shareholder activism that arose in the
US among institutional investors such as Calpers. Japan has plenty of institutional
shareholders, but these tend not to be neutral and often act as part of a network, or keiretsu,

that supports the role of the company and, hence, incumbent management. Germany’s main
trait is that banks play a leading role in influencing corporate policy at many companies,
both as lenders and shareholders.
Employee shareholders typically use their ownership to block the global relocation
of jobs. This applies even in the US where United Airlines provides a rare example of a
large public company with majority ownership by its employees (55 per cent owned by an
employee stock ownership plan). This employee stake and, hence, control have greatly
constrained the ability of the airline to relocate jobs overseas. For example, United’s flight
attendants’ union has been able to block plans to staff more flights from its lower-cost
Taiwan base.
Boards of directors
The composition of boards of directors also shows strong contrasts across countries.
For instance, Japanese companies are renowned for having very large and inefficient boards,
sometimes with more than 50 members. Japanese boards also have very few outsiders to
monitor managers and the strategic direction of the company.
Italian and French boards are considered medium-sized, although still quite
inefficient due to the lack of outsiders. Germany is unusual because it tends to have a wide
variety of stakeholders represented in the upper (supervisory) board, such as employees,
industrial banks and suppliers. In November 2004, a commission convened by BDA, the
German employers association and BDI, the industry federation, concluded that the German
co-determination system had become a hindrance to German companies operating
internationally and a barrier to inward investment. It recommended changes to the laws,
which were last revised in 1976. Under this proposal, individual companies would be free to
choose a system of employee representation, taken from three options, ranging from
retention of the current system to a looser consultation system separate from the supervisory
board.
France Telecom provides an example of how board representation can be distorted
by national interests. Although privatized in 1997, France Telecom still has significant
intervention by the French government. Out of 15 members of the board of directors, only

seven are elected by the shareholders meeting, while three represent employees and five
members represent the French government.
Government
Finally, countries also differ in terms of the degree of government intervention in
their economies and protectionism of their markets. Government intervention is usually in
the form of market regulation. A representative measure for government intervention in the
economy is regulation around takeovers. The US and, to a lesser degree, the UK have weak
takeover barriers and it is mostly up to individual companies to design anti-takeover
measures. Conversely, in countries such as France, Germany, Italy and Japan, government
intervention often provides strong takeover barriers, such as golden shares, which bestow on
the holder veto power over changes to the company’s charter.
The various hindrances to hostile takeovers in many continental European countries
continue to make it difficult for foreign companies to make acquisitions across borders in
Europe. France is also particularly active in preserving national ownership of major
companies. In 2004, the French government brokered the takeover of Aventis, a French-
German pharmaceutical company, by France’s Sanofi-Synthélabo, while blocking a bid
from Switzerland’s Novartis. Similarly, France blocked Germany’s Siemens from bidding
for Alstom’s railway operations, which manufacture the high-speed TGV trains.
How managers can use their corporate governance systems

Top managers need to recognize that they are not in sole charge. Global (and other)
strategy is an equilibrium game among corporate governance players. Managers need to
work on building coalitions and aligning interests behind a common approach.
Assuming that you want to improve your use of global strategy, then how can you do
this from the various countries? If you are a manager in an Anglo-American system, then
you are generally in luck. Your country’s corporate governance system is a source of
competitive advantage. A manager in a Continental system faces many constraints,
especially from the legal involvement of employees. But, committed employees can also be
a major source of global competitive advantage.

In the Continental system, managers have to align trade off and meet other
stakeholders’ interests halfway. They have to craft their language and rhetoric to meet the
other players’ expectations. The watchwords here are consensus and social cohesion.
In sum, if governments care to sustain national competitiveness and to help their
companies to globalize, then they should assess the degree to which the players in their
corporate governance system are aligned with each other and with their intended global
strategies. For example, France might need to upgrade its compensation policies to recruit
and retain world-class talent in the top management teams of its global companies.
Government policies should also become less inimical to foreign owners and use
such capital to provide the much-needed global knowledge. This can only be accomplished
if the right mechanisms are in place to give a voice to these foreign owners. We think that
governments have the responsibility as well as the policy tools to gear the country’s
corporate governance system so that it enhances national competitiveness.

Strong insiders invite weak

governance

Recent corporate scandals have resurrected public suspicion that there is plenty of
potential for mischief inside large public companies. For many, the scandals affirm the
warning of the economist Adam Smith, which dates from 1776:
”The directors of [joint stock] companies, however, being managers rather of other people’s
money than of their own, it cannot be well expected that they should watch over it with the
same anxious vigilance [as owners]...Negligence and profusion, therefore, must always
prevail, more or less, in the management of the affairs of such a company.”
Heeding this fundamental wisdom, investors around the world are searching for a system of
corporate governance that will minimize the potential for “negligence and profusion”. In
today’s debate, the words are “expropriation” and “theft”, but they amount to the same.
Without protection from these risks, no rational investor will finance a company.
The absentee shareholder

In countries with highly developed financial systems, much of the governance debate
focuses on the balance of power between shareholders, boards and top executives in widely
held public companies. This balance is the result of three main influences, which differ
substantially across countries: legal precedent (case law); the cost of shareholder activism;
and the political strength of employee unions.
When a company is founded, this balance of power is hardly an issue. At that time,
directors, executives and employees all understand that shareholders own the company.
Employees readily accept fixed-wage contracts with no demands for control rights. And
directors view themselves as agents of shareholders with the primary task of hiring and
firing management and setting compensation. However, as the company grows and prospers,
attitudes start to change. With growth comes the need for additional capital. Naturally, with
limited wealth, the founding shareholders relinquish control, preferring instead to diversify
personal holdings. New investors are brought in and the shareholder base becomes
dispersed.

Corporate insiders increasingly view shareholders as a remote constituency and as

largely irrelevant for the company on a daily basis. By choosing to diversify, shareholders
for their part agree to play a diminished role in the company’s affairs. The cost of actively
monitoring the performance of management swamps investment returns, so they no longer
show up to annual meetings and either vote with management or throw the proxy in the
wastebasket.
The combination of voluntary shareholder absenteeism and strong corporate insiders
creates a problem that lies at the heart of today’s governance crisis. The important historical
lesson is that the absentee shareholder system breeds arrogance on the part of corporate
insiders. A vigorous corporate governance system is thus required to prevent shareholder
rights being expropriated by insiders.
Corporate insiders on boards

A common but self-serving argument made by corporate insiders is that the
corporation has a “social responsibility” to constituencies other than shareholders. In other
words, the board is saddled with the impossible task of adjudicating the many conflicting
objectives of its various constituencies. The winner in the ensuing breakdown of the board’s
decision-making process is, of course, the corporate insider.
A major task of the board is to hire and fire top managers, and to set their
compensation. Therefore, corporate insiders come with an inherent conflict of interest when
they sit on boards. Nevertheless, corporate insiders sit on boards in all major developed
countries.
Co-determination has an important effect on the company’s investment policy. If I
hire you with a fixed salary and then give you a board seat, the rational thing for you to do is
to push for an investment policy that reduces your risk of job and wage loss. It is like
placing your main creditor in charge of taking risks. Indeed, research suggests that sluggish
risk-taking has contributed to a slower postwar growth in the German economy when
compared with the US.

The Future of Corporate Governance

Taking personal responsibility for economic and ethical performance of corporations

- Corporate governance and business ethics articles by Dr Patrick Dixon, ranked as one of
the 50 most influential business thinkers alive today (Thinkers50). More than 8.5 million
different people have visited this site.
Failure in corporate governance is a real threat to the future of every corporation.
Corporate governance as a business ethics issue is a hundred times more powerful

than the internet or globalization and can destroy your business in a week. To make matters
worse, standards of corporate governance are changing rapidly in response to random events
which capture public imagination. In business ethics, what was good is becoming bad and
what was considered bad is now good. Standards for corporate governance that have worked
for decades are looking old fashioned or immoral while other practices that raised questions
are becoming totally acceptable.
 So what is going to happen next in corporate governance?
 How can corporations use corporate governance to restore confidence and
protect themselves against tomorrow’s headlines?
 What will be the new “Gold Standard” for corporate governance and business
ethics?
 How much further than legal minimum requirements for corporate governance
should corporations go to ensure sustainable success?
 When corporate governance goes wrong who gets blamed?

 Impact of media allegations of dishonesty, fraud or corruption of senior executives or
directors – and how to protect business ethics reputation using robust corporate
governance
 Why goalposts for corporate governance will go on changing, and how to get ready
 Urgent need for all corporate governance to be whiter than white, with
unquestionable business ethics and risk management
 Ensuring corporate governance compliance - board duties of care and responsibility
in the future?

 Defining clear areas of corporate governance responsibility of boards and directors

 Using corporate governance to balancing interests of different constituencies and
stakeholders
 Why we have to separate board scrutiny role from management power
 Ethical / society responsibilities of directors and large investor “owners”
 Independence of audit, nomination and remuneration committees?
 “Duty of curiosity” by directors to ask very awkward and sensitive questions
 Improving quality and flow of information within a corporation’s governing
structure
WHY WE GOT IN SUCH A MESS

Free market ideology was that corporations were kept responsible to customers,
shareholders, workers and society by customer and investor behavior, seen in share price.
Millions of individual “voters” in the market place ensured they behaved. “Bad”
corporations were punished by selling. “Good” corporations” were rewarded by buying.
“Market forces will sort it all out”. This ideology weakened the idea of corporate
governance and accountability.
WHY WE STILL CAN’T TRUST THE NUMBERS

Conflicts of interest remain in all audits even where consulting links are abolished
 Concerns that some auditors are looking for jobs in the companies they audit
 Auditors under pressure to get next year’s audit business
 Old accounting standards do not always give fullest picture
 Globalization and e-technology are making reliable audits extremely difficult

EXPECT MORE CONFLICTS OF INTEREST AMONG GLOBAL

AUDITORS
Consolidation at top end of professional service organizations means global players are
running out of firms to approach to provide independent advice over large complex deals
 Conflicts of interest are growing rapidly – made worse by the collapse of Arthur
Andersen, with companies in danger of representing the interests of more than one
party
 Expect future accusations of breaks in “Chinese walls”
TRUST TAKES YEARS TO WIN AND HOURS TO LOSE

System of corporate governance must win trust of the international community
• Steps to rebuilding trust in the corporation

 Transparent – totally open, going beyond current requirements or expectations
 Responsible – clearly acting in the broader and longer term interests of all
 Uncompromising – total commitment to highest moral positions
 Successful – great results combining excellence in all areas with strong values
 Temperate – taking care to avoid major risks, wild decisions and extravagance
CEO CONFLICTS OF INTEREST MUST BE DEALT WITH
 Making decisions that benefit the CEO at expense of the future of the company, made
worse by the large stock options given and other triggered incentives,
 Hiding how much the CEO takes - non-recording of stock options as an expense,
overly-complex complex reporting

ACCOUNTABILITY CONFLICTS FOR STAFF

The fundamental issue at the heart of many recent scandals
 “I did what I was told”
 So who do you serve? Your boss? The boss of the boss? CEO? Board?
Shareholders? Customer’s interests? General public? Courts of law? Your own
conscience?
 Extreme pressures on employees to toe the official line
 Harassment and threats by people representing huge power
HOW CONSULTANTS AND ADVISERS GET COMPROMISED
 Who is the consultant or adviser accountable to if things are discovered?

 To the individual who set up the arrangement and is asking for the advice (who may
be part of the problem)? His or her boss? The CEO? The board? The shareholders?
The government? Consumers? The public? Who do you tell and when?
 What are the limits of confidentiality in consultancy?
HOW THE MEDIA CAN BE COMPROMISED
 Media investigation should be a powerful corrective force, exposing wrong-doing,

but media depends on advertising. Dangers of alienating big funders of media
companies.
 Media is also sensitive to news manipulation and lobbying, including benefits for
journalists writing stories
 Need for transparency – declaring interests of journalists and editorial team including
those of the owner(s)
HOW GOVERNMENT CAN BE COMPROMISED
 Lobbying budget in US greater than GDP of 57 nations

 Over 100 lobbyists per Member of Congress

 $5bn a year industry designed to create new laws or regulations, change existing
ones, limit corporate liability, create barriers to entry for competitors, change who
gets elected
 Potential for corrupting the democratic purpose
 US Government shell-outs to business are worth more than $300bn a year
 Selective tax breaks, trade policies and spending programmers are all sensitive
areas
Risk of corruption and danger of distorting free market
HOW CORPORATIONS CAN OUT-GUN GOVERNMENT LAWYERS
 Government will increasingly target corporations as well as individuals with legal

action
 Large corporations have deeper pockets than legal budgets of government
 They often get better quality representation from huge heavy-weight teams
“SUCCESS PLUS” – Doing great things in the right ways

Success itself is being redefined – fundamental rethink about the purpose of corporations.
Corporate responsibility will be far more widely interpreted. REAL SUCCESS will be
everything we have previously taken for granted in high performing companies PLUS the
highest ethical standards in all areas.
Corporations will be expected in future to “build a better future” – not only for their
shareholders but also for their customers, workers, business partners, community, nation
and the wider world. Those with effective corporate governance based on this core value
will have an added competitive advantage: attracting and retaining talent and generating
positive reactions in the marketplace.

Corporate governance issues in Reliance

Group.

Were the means as good as the end?

THE seven-month-long stand-off between the Ambani brothers has been amicably resolved.
But issues of corporate governance with implications for shareholders of the Reliance group
companies have come to the fore in recent months.
From the governance standpoint, shareholders who are keen on staying invested in the
Reliance group for the long term will be looking forward to a dramatic overhaul in the
coming months.
Even as the dust settles on this bitterly fought battle and the finer details of the settlement
are mapped out, there is little doubt that the Reliance Industries board has started off on the
right note on the following counts:
 It has settled for the demerger route for transfer of holdings across the group
companies, which is a positive move. In this case, a special purpose vehicle is to be
created in which the equity stake of Reliance Industries in Reliance Energy,
Reliance Infocomm and Reliance Capital (to accrue to Mr Anil Ambani) will be
transferred. Since the shareholding pattern in the holding company will mirror that of
Reliance Industries, it is expected to protect the interest of the minority shareholders.
 The Reliance Industries board has decided to resort to the conversion of the
preference shares of Rs 8,100 crore issued to Reliance Infocomm at Rs 32 per share,
even in the early stages. Post-conversion, this will take the Reliance Industries
share in Reliance Infocomm to 65.9 per cent from 42.4 per cent.
 While one can quibble over the attractiveness of the conversion price for Reliance
Industries shareholders, the fact that the conversion has happened is heartening,
because it considerably reduces the degree of uncertainty for them.

 Role of the board
 But this should not in any way deflect attention from the key issues highlighted on
the corporate governance front on several occasions. As the debate over the need to
strengthen governance norms in Corporate India continues to rage, certain aspects of
the workings of the Reliance group have come to the fore.

Corporate Governance in the HDFC

Group

Good governance is the manifestation of personal beliefs and values, which configure the
organizational values, beliefs and actions of its employees.
HDFC's core values of fairness, kindness, efficiency and effectiveness determine

the principles of the organization, which in turn determine the course of action of each
employee in every sphere of activity. These core values that HDFC hands down to its
subsidiary and associate companies weave in to form the corporate culture for the HDFC
group.
The HDFC group has always been committed to the principles of transparency, integrity,
accountability and social responsibility. At the HDFC group, corporate governance is a
voluntary, self-disciplining code, which means not only ensuring compliance with
regulatory requirements, but by also being responsive to customer needs.
HDFC has always maintained that a strong customer focus and a value-driven
organization are the means of attaining 'profits in perpetuity'. More specifically, the focus of
the Board and the management has always been to ensure value creation for each of its
stakeholders.
The concept of corporate governance is entering a phase of global convergence. The

driver behind this is the recognition that companies need to attract and protect all
stakeholders, especially investors – both domestic and foreign. Global capital seeks its own
equilibrium and naturally flows to where it is best protected and bypasses where protection
is limited or non-existent. Companies stand to gain by adopting systems that bolster investor
trust through transparency, accountability and fairness.
The tide of regulation has risen to a high watermark and while there is compelling
evidence of financial benefits to companies which adopt good governance practices, it has
often been felt that the ethos of corporate governance still needs to sink in. Corporate
irregularities continue to plague investors as regulators relentlessly strive to cleanse the
system. Financial scandals often prompt an overhaul of regulation. But the efficacy of

regulation can get negated when compliance becomes a box-ticking exercise with
prohibitive costs. Again, there is no single model of good corporate governance. Principles,
values and ethics cannot be typecast into a universal one-size-fits-all framework...

CONCLUSION
After preparing this project I came to conclusion that the issue of corporate
governance is fast gearing one in the Indian history of business, although many corporate
giants of Indian business arc not taking this matter seriously excluding Kumar Mangalam
Birla.
Corporate governance has wider implications and is critical to economic and social
well being, firstly in providing the incentives and performance measures to achieve business
success, and secondly in providing the accountability and transparency to ensure the
equitable distribution of the resulting wealth. The significance of corporate governance for
the stability and equity of society is captured in the broader definition of the concept offered
by the World Bank: "Corporate governance is concerned with holding the balance between
economic and social goals and between individual and communal goals. The governance
framework is there to encourage the efficient use of resources and equally to require
accountability for the stewardship of those resources. The aim is to align as nearly as
possible the interests of individuals, corporations and society."
There is, however, potential for much more to be achieved. Hopefully this project
will have made a small contribution. Finally, I hope that this project has indicated the
valuable information about each and every aspect of this issue of corporate governance in
brief and will help to all those persons to understand this concept in brief through this
project.

Mr. Kumar Mangalam Birla's views on

Corporate Governance

"With competition raising the bar for survival, it is parameters like corporate governance
that will set firms apart",
Says Mr. Kumar Mangalam Birla.
There can be no denying that the dictates of liberalization and globalization, and
the growing role of institutional shareholders have brought Corporate Governance
issues to the fore.
Today, many Indian companies are restructuring, raising capital overseas and
listing their shares on foreign stock exchanges and all this ferment has led towards a
sharper focus on Corporate Governance. Many of the international best practices have
been adopted - and adapted - and encapsulated in a SEBI code, which is statutory and
applicable to all listed companies.
If we look overseas, the experience of some countries does reinforce, in a dramatic
way, the case for sound governance. In the US, in particular, deficiencies in governance
structures often resulted in extreme battles for corporate control, battles that, more often than
not, proved destructive - for companies, employees and shareholders. This degree of conflict
led to loss of jobs and misallocation of capital, and forced sacrifices in vital areas such as
R&D.
Many takeover attempts were warded off by tactical means that were
even worse - poison pills and scorched earth defenses, and loading up on too much debt,
putting the corporation's very survival at risk. The best way we can avoid coming to
such a pass is to pre-empt it, by having an adequate corporate governance framework in the
first place. That is the negative case for corporate governance.
Let me state the positive case.

Stated simply, corporate governance is good for companies. Institutional investors
and CEOs place a valuation premium on companies perceived to have effective corporate
governance.

There was a study carried out, in 1996, by McKinsey & Co. and Institutional Investor, Inc.,
which covered over 100 major institutional investors, CEOs, and senior executives from
firms whose average sales were US$ 2.3 billion. The institutional investors surveyed had
total assets under management of US$ 840 billion.
Investors were asked to compare two well performing companies. Next, they were
asked if they would pay more for the stock of one of those companies if it were well
governed.
Two-thirds of the investor group said that they would pay more for well-governed
companies and among those willing to pay more for good governance, the average premium
specified was a huge16 per cent.
The non-investor group - CEOs and senior executives - was also asked whether
they were willing to pay more for the shares of well-governed companies. Two-thirds said
that they would be willing to pay more. The valuation premium they were willing to pay
was higher - at 24 per cent. The higher premium specified by corporate is hardly a surprise -
given that their perspective is that of longer-term investors.
Why were the respondents willing to pay a premium for good governance?
In their view a company with good governance would turn in a superior performance
over time, which would result in higher valuations. Importantly, good governance tended to
reduce risk perceptions - there was less likelihood of 'bad things' happening to the company.
The question then is how good corporate governance can be a competitive tool.
First and foremost, corporate governance cannot work in isolation. It has to be
backed by a credible strategy and good performance.
Good performance with good governance is a winning combination.

How does this happen?

A well-constructed governance structure enhances a company's competitiveness. The
initial impact is greater transparency and more effective oversight, which increases investor
confidence. A higher investor’s confidence level flows through into a higher valuation.
Companies that enjoy higher valuations find it easier to access capital, on terms that are
finer. Better valuations also provide a 'currency' that makes it possible to reward
talent. Acquisitions also become easier, without having to add too much debt or unduly
dilution interests of existing shareholders.
A high valuation is also a powerful effective deterrent for warding off takeover
attempts. In short, a high valuation, builds a moat around the company. It provides a wall of
defense, which provides management the space to focus better on addressing issues that help
make the company competitive over the long haul. When a company commands a valuation
premium, management has just that much less fire-fighting to contend with. It can turn its
mind to what's truly important.
The rewards of good corporate governance go much beyond valuations.
Companies, which are perceived to be governed well, also enjoy a good image.
Talent is drawn to organizations that radiate a positive image. Customers and suppliers
want to do business with such a company. Communities want a good corporate citizen in
their midst.
Good image and good citizenship often tip the scale in critical situations.

The minimum threshold for just staying in business is getting higher by the day.
Cost competitiveness, strong brands, high levels of service, a well-defined strategy,

and quality are hygiene factors, the entry ticket. The differentiation between firms along those
dimensions is becoming narrower.
Given such conditions, it is the 'soft' factors such as corporate values, vision, leadership,
a corporate conscience, and corporate governance - around which firms can differentiate
themselves. In fact, differentiation built around these so-called 'soft' dimensions will become
more powerful and enduring, because they would be so difficult to imitate.
Finally, although corporate governance is often thought about as a 'soft'

issue, that, in no way, undermines its importance. 'Soft' it may be, but hard-
headed investors increasingly place their money on these so-called soft issues.
“The quality of governance will become one of the key tests and challenges of
leadership and one of the major drivers of shareholder value in our country as
well. I have no doubt that corporate India will meet this challenge
successfully.”

What Is Corporate Governance 1

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CORPORATE GOVERNANCE

Email id: v_rathi@rediffmail.com

BY: - VYANKATESH RATHI 1

WINSTON CHURCHILL to the house of `commons'

BY: - VYANKATESH RATHI 2

1. WHAT IS CORPORATE GOVERNANCE 1-3

2. ISSUES IN CORPORATE GOVERNANCE IN 4-9

3. MECHANISM OF CORPORATE GOVERNANCE 10 - 18

4. NEW DIMENSIONS TO THE AUDIT OF CORPORATE 19 - 28

5. IMPROVED CORPORATE GOVERNANCE IN STAGES 29 - 32

6. WHY CORPORATE GOVERNANCE IS GOOD FOR 33 - 39

7. CORPORATE GOVERNANCE : TOWARDS BEST 40 – 44

8. PROMOTING CORPORATE GOVERNANCE FOR 45

9. GLOBAL STRATEGY FACES LOCAL CONSTRAINTS 46 - 52

10. STRONG INSIDERS INVITE WEAK GOVERNANCE 53 - 55

11. FUTURE OF CORPORATE GOVERNANCE 56 - 61

12. CORPORATE GOVERNANCE ISSUES IN RELIANCE 62 - 64

13. CORPORATE GOVERNANCE IN HDFC GROUP 65 - 67

15. MR. KUMAR MANGALAM BIRLA’S VIEW ON 69 - 73

BY: - VYANKATESH RATHI 3

BY: - VYANKATESH RATHI 4

BY: - VYANKATESH RATHI 5

"Corporate governance - which can be defined narrowly as the relationship of a company

"Corporate governance is about promoting corporate fairness, transparency and

BY: - VYANKATESH RATHI 6

ISSUES IN CORPORATE GOVERNANCE IN INDIA

BY: - VYANKATESH RATHI 7

When investments take place in emerging markets, the investors want to be

BY: - VYANKATESH RATHI 8

Corporate governance therefore calls for three factors:

Corporate governance depends upon two factors.

BY: - VYANKATESH RATHI 9

 The first is the individual’s sense of values.

main challenge. Our system

BY: - VYANKATESH RATHI 10

Objectives of the public sector enterprises

 It is the obligation of every executive / officer and employee of the PSE /

BY: - VYANKATESH RATHI 11

 Executives / officers and employees of the PSEs / administrative ministries should

 Where an executive / officer or employee of the PSE has reasonable grounds to

BY: - VYANKATESH RATHI 12

Elements, Concepts and Criticism

BY: - VYANKATESH RATHI 13

A: ELEMENTS FOR EFFECTIVE CORPORATE

It means, then, that one basic element of effective corporate governance

Likewise in Germany, notable for its concentration of corporation

BY: - VYANKATESH RATHI 14

By marriage of the above differences on the procedure of attaining effective

 The board and management of companies should, as a mark of good corporate

By so doing, companies will avert the destructive campaigns and

 It is in this direction that the OECD principles (1999) of corporate governance

 Secondly, transparency, effective communication and accountability should be

 As Sheriden T and Kendall N succinctly describe, that “effective governance

BY: - VYANKATESH RATHI 15

investors, and the managers, so to gain a better understanding of management’s

It is therefore suggested that good corporate governance should be that

Much as well, as emphasized by the OECD principle, the corporation should be

There should be a way of enhancing good corporate practice, ensuring moderation

Corporate governance should not be run to exploit the community.

BY: - VYANKATESH RATHI 16

B: THE EXTENT OF CORPORATE GOVERNANCE

Comparative studies of corporate governance systems reveal significant

It is then important to emphasize that cultural difference, national differences