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CHAPTER -1

INTRODUCTORY

Ideas are no6ody’s property; they 6eCong to whoever expresses them


6est. ”

'Emilio Cecchi, Taccuin.


A Statement of the Problem

The growing role of market in the world, i.e. market -oriented economy in the
later part of the 20th century has led to the spread of capitalism, globalization,
liberalization, privatization, demanding efficiency, corporate culture, model
code of conduct and business ethics for the very survival of the corporate
world. The concept of corporate governance emerged in the late 1980’s when
several companies collapsed in U.K. because of inadequacy of operating
control. This led to the setting up of “Cadbury Committee” on corporate
governance in 1991 by the London Stock Exchange. Further a numbers of
scams and frauds that have surfaced during the last three decades have also
shocked the confidence of the investors. In this research, an attempt has also
been made to discuss the famous scams in addition to corporate governance.

India is a traditional country having historical background going way back to


many centuries. It has its own culture and value system. It has its own legends
and similarly own management practices. Indian economy is very old and its
crafts and artistic products were well known world over. It is a fact that before
the British ruled in India, India was well known exporter of many goods to
other countries and always had a favourable balance of payment. The present
day corporate sector in India is governed by the Companies Act and many
other regulations passed from time to time. But, the Indian Management
practices and corporate governance is a blend of provisions provided by
various laws, government directives and Indian social and marketing
traditions. Most of the books and thesis directly deals with the concept of
corporate governance without thinking that to understand the provisions of
Companies Act related with corporate governance and corporate social
responsibility, one needs to analyse first the provisions of Companies Act
related with corporate governance and corporate social responsibility.

Most of the Indian companies have the family members on the board of
directors. Although the companies use public money in the form of share
capital but most of directors belong to the same family. They control all the
decision making processes and the small investors have no role to play in
decision making and control. This is because the majority of the investors in
India are small-scale investors. However, the amendments in the Companies
Act, 2000 has tried to plug the lacuna by inserting a provision for appointment
of a representative director for small scale investors. Through this thesis, the
researcher has tried to interpret technical provisions into simple language
which can be understood even by laymen.

Corporate governance is considered as a system by which companies are


directed and controlled. It is a set of standards which aims to improve the
company’s image, efficiency, effectiveness and social responsibility.
Sustainability ensures the long-term financial and economic viability of
corporate investments and of requiring compliance with minimum
environment viability and social standards. In this study, the researcher has
critically analysed the concept of corporate governance and corporate social
responsibility and the relationship between them.

The issue of corporate social responsibility is an integral part of corporate


strategy, planning and operational performance. Profitability should not be the
sole criteria of vision and vital factor in judging the company’s performance
but corporates should also focus on their responsibility towards society at
large. Corporate social responsibility is the commitment of business to
contribute to sustainable economic development, working with employees,
their families, the local community and society at large to improve their
quality of life. It covers a variety of sensitive issues such as human rights,
worker’s rights, supplier’s relations and involvement.

In the fast changing business environment when companies are driven by


market forces and competitive pressures, they are judged by markets primarily
by the financial indicators, namely, profits, earnings per share, etc. Board
members receive incentives based on these performance indicators. If, socially
responsible behaviour does not reflect into a company share price or its
profits, companies would not have the inclination and incentive to pursue
socially responsible polices.

The purpose of the present study is to cover the complete scenario of corporate
governance and corporate social responsibility and make an insight in to the
people who are responsible for good governance of company. This research
work will also analyse a comprehensive view of the governmental approach
towards corporate governance and corporate social responsibility issues in
India.

Aim, Objective and Utility

It is said that a problem is what gives us power and energy to solve them as
every problem has in it seeds of its own solution. This statement signifies the
need of defining the objective of research. An attempt has been made in this
research work to study and understand the important facets of the corporate
governance and corporate social responsibility in comprehensive way and to
achieve new insights into it.

The main objectives of the present study are as under:

1. To understand the basic concept of corporate governance and corporate


social responsibility.

2. To trace the origin and development of the corporate governance.

3. To indentify the major problems in the field of corporate governance.

4. To critically examine the position of directors in corporate governance.

5. To analyze the role of auditors in corporate governance.

6. To discuss comprehensively the relationship of corporate governance and


corporate social responsibility.

7. To decipher as to how the issue of corporate governance has been dealt


with in the Indian Scenario. /;

8. To find out the international initiatives on corporate governance.

9. To point out the possible defects and loopholes in the existing laws
relating to corporate governance.

10. To suggest the reforms and remedial measures for the prevention and
control of corporate scams. ^

The main aim of the present study is to understand the judicial interpretation
of the prevalent laws relating to corporate governance at national level. The
study also attempts to find possible implications of the recent corporate scams.
The study is important both from the theoretical and practical point of view.
On a theoretical level, it reveals the judicial appreciation of all the important
facts regarding corporate governance and corporate social responsibility. On
the practical level, it would cover the extent to which present law meets the
requirements of the day by protecting the people against various corporate
scams and promoting corporate social responsibility. The practical utility of
work also lies in the fact that how the policy making institutions may remove
ambiguities surrounding the corporate governance and corporate social
responsibility.

C Overview of the Existing Literature

The books are the most quietest and most constant of friends, they are the
most accessible and wisest of counselors, and the most patient of teachers. No
thesis can be written without consulting good books and articles. One of the
steps for starting the work on problem is to review the existing literature on
the subject. After indentifying a problem, it is imperative to consult literature
on the subject as the answers you get from literature depends on the questions
you pose. The review of the existing literature not only provides clarity of
concept and understanding of different aspects of the subject but also helps in
avoiding repetition. It further helps in indentifying the problem zones. It also
gives ideas in formulating research methodology. A number of books,
monographs, reports, research papers and articles deal with the subject of
corporate governance and corporate social responsibility.

1. Books

a. C V Baxi in his book “ Corporate Governance Critical Issues” has


elaborately discussed the issues related to corporate governance in detail like
accountability, board objective, board composition , role of independent
directors and board structure. As far as performance evaluation of board is
concerned, he has cri tically analysed the criteria of performance evaluation,
methodological issues, typology of measures, legal criteria, board functions,
corporate performance, board effectiveness, social responsibility of business
and implication of performance evaluation.
b. “Corporate Social Responsibility Concepts and Cases” THE INDIAN
EXPERIENCE is a combination of articles by various authors and is edited
by CV Baxi and Ajit Parsad. This book throws light on the concept of
corporate social responsibility and practices, Stakeholder management and
role of social responsibility. Various case studies have also been discussed in
this book.

c. Harsh Srivastva and Shankar Venkateswaran in their Book “The Business of


Social Responsibility” have exhaustively dealt with the concept of social
responsibility of business. They have explained the book why , what and how
of corporate social responsibility in India.

d. In the Book “Corporate Governance Modules of Best Practices” by


Institute of Company Secretaries of India, issues like corporate governance
framework, business ethics, corporate governance forums, corporate
governance at international level, transparency and disclosure legislative
framework, corporate governance reporting, risk management and
effectiveness of board are discussed in addition to the corporate social
responsibility and sustainability.

e. P.V. Khatri and Indu Baghel in their Book “Corporate Social Responsibility
Challenges in the Age of Globlisation” cover the basic ideas-traditional as
well as modem scenario, social and ethical policies and other related to
corporate citizenship. This book is an up to -date comprehensive study
covering the whole spectrum of the social responsibilities of the corporate
sector. It also cover the issue of corporate social responsibility in China,
Africa and East Asia. . '. I' <■'

f. A.C. Fernando in his Book “Corporate Governance Principles, Policies and


Practices” covers a comparative study of how various countries approach the
concept, how they institutionalize mechanisms for governance, and how they
are governed. It addresses multi-dimensional perspectives-of shareholders and
other stakeholders like employees, regulators, environmentalist, creditors, the
government, and society at large.

g. K.M Gosh and Dr. Chandratre’s in their Book ‘‘Company Law with
Secretarial Practice” have exhaustively dealt with the provisions of
Company Act. They have examined the provisions of company law in detail
and highlighted the importance of good governance practices.

h. C R Datta in his book “The Company Law”, has evaluated the various
provision of the Companies Act with latest cases. He has critically deal with
the subject of corporate governance highlighting relevant provisions of the
Companies Act. Appendix of this book is very good.

i. A.K. Majumdar and G.K. Kapoor in their book “Company Law” have
presented the Companies Act in simple and logical manner along with latest
legal decisions, notifications, clarifications and SEBI Regulations. The writers
have subjectively discussed the topic of corporate governance , Depositories
Act, 1996 and E-Govemance and E-filing along with latest amendments.

j. N.D. Kapoor in his book “Elements of Company Law” has explained the
fundamentals principles of Company law in a plain , easy and intelligible
language. The Companies Act, 1956 which governs the Company Law in
India, is formidable document. It requires a great deal of time, patience and
preservance to understand thoroughly the intricacies of the subject.

2. Articles

a. S.N. Mahapatra and Sanjay Pandey in their article “Corporate Governance


vs. Corporate Crime”, have examined in brief the concept of corporate
governance. They have also discussed the issue of corporate crime and how it
is related relates with corporate governance.1

b. H.N. Gosh in his article “Can Corporate Governance Audit Campaign held
Corporates remain resilient to pressures?”, has emphasized on the
importance of corporate governance. He has also discussed the responsibilities
of directors. He has examined the functioning of audit committees towards the
corporate governance, fie has also briefly discussed the persons who are
responsible for internal controls and help of globalization to corporate in
improving efficiency.2

1 S.N. Mahapatra and Sanjay, “Corporate Governance vs. Corporate Crime” Management
Accountant, May 2004, pp. 387 - 390.
2 H.N. Gosh, “Can Coiporate Governance Audit Campaign held Corporates remain resilient to
pressures?” Chartered Accountant, June 2005, pp. 1725 - 1729.
c. P.N. Shah in his article “Role of Audit Committee in Improving Corporate
Financial Reporting”, has examined the role of audit committee in improving
corporate financial reporting. He has also briefly discussed the Birla
Committee on Corporate Governance, Clause 49 of the listing agreement,
some provisions of Companies Act, 1956 ^elating to audit committee and
Naresh Chandra Committee on Corporate Governance.3

d. N. J. Jhaveri in his article “Corporate Governance: The Concept and Its


Implications in the Indian Context”, has briefly discussed the driving forces
for corporate governance, explores two options for strengthening corporate
governance conducted in self interest, deals in some detail with the practice of
corporate governance , briefly mefttions various committees of the board of
directors generally to deal with various corporate governance issues, and
concludes with a review of the Indian situation in the context of the preceding
discussion.4

e. M K Datar in his article “Corporate Governance in Financial


Intermediaries”, elaborately has examined alternative governance
mechanisms, power of financial institutions, governance issues in lending and
risk tolerance levels. He has also discussed liquidity and governance,
employees compensation and disclosure standards.5

f. Dr. R Satya Raju in his article “Corporate Governance in a Changing


Environment”, has briefly examined the concept of corporate governance
with economic changes and demographic changes . The article also covers the
role of corporate governors. 6

3 P.N. Shah, “Role of Audit Committee in Improving Corporate Financial Reporting”, Decision,
Vol.30, No.l, January -June, 2003, pp. 41 - 60.
4 N. J. Jhaveri, “Corporate Governance: The Concept and Its Implications in the Indian Context”, ASCI
Journal Of Management 27 ( 1&2), pp. 62 - 70.
5 M K Datar, “Corporate Governance in Financial Intermediaries”, Economic and Political Weekly,
January 24 2004 pp. 328 - 332.
6 Dr. R Satya Raju, “Corporate Governance in a Changing Environment”, Indian Management ,
March 2000, pp. 42-47.
g. G Suresh in his article “The Origin of Corruption”, has critically discussed
the concept of corruption in corporate sector and its effect on Corporate Social
Responsibility.7

h. Reetesh K. Singh in his article, “Corporate Governance: A Conceptual


Framework”, has examined the concept of corporate governance with key
issues like family firm, board of directors, communication, codes and
violations, shareholders, financial disclosures, human aspects and ethics.8

i. Dr. Satyanarayan Dash in his article “Corporate Governance in India:


Meeting Challenges of Globalisation”, has examined the concept of
corporate governance. He has also stated the importance of Corporate
Governance.9

j. Mohi-ud-din Sangmi, in his article “Corporate Governance in India A 21st


Century Perspective”, has observed in his article that a company is now
considered a social institution, interacting with the society in many ways and
affecting its citizens. This institution should be governed in a rational manner.
It is the concern of all conscious eitizens-shareholders, employees, creditors,
customers and government. He has also briefly made cross country
comparison of corporate governance. He has also discussed the corporate
governance practices in India.10

k. Dr. Onkar Nath Dutta in his article “Corporate Governance-Codes and


Ethics”, has discussed, in brief, the concept of corporate governance with
special reference to India.11

l. Dr. Debaish Sur and Kaushik Chakraborty in their article “Corporate


Governance in India-An Appraisal”, have explained the concept of
corporate governance. They have also briefly discussed the major
recommendations of different committees formed in India on corporate

7 G Suresh, “The Origin of Conruption”, Indian Management, March 2000, pp. 48 - 52.
8 Reetesh K. Singh, “Corporate Governance: A Conceptual Framework” , Business Analyst, Vol. 24,
NO.2, July-December, 2003, pp. 47 - 53.
9 Dr. Satyanarayan Dash , “Corporate Governance in India: Meeting Challenges of Globalisation”,
Industrial Engineering Journal, Vol. XX3 No. 4,April 2002, pp. 2-6.
10 Mohi-ud-din Sangmi, “Corporate Governance in India A 21st Century Perspective,” The Business
Review, Vol.6, No.l&2, pp. 55 - 74.
11 Dr. Onkar Nath Dutta, “Corporate Governance-Codes and Ethics”, Growth, Vol. 33, No.4, Jan-Mar,
2006 , pp. 10 - 15.
governance. An appraisal of the corporate governance practices in India, the
focal point of the article, lead us to indentify the major deficiencies associated
with it. This article concludes that full convergence with international
accounting and audit standards better protection of minority investors rights
and stronger enforcement of existing law and regulations are some of the areas
1
that require adequate attention in the near future.

m. V.K. Bhalla in his article “Corporate Governance: Agency Costs and the
Politics of Finance”, has elaborately discussed the importance of finance in
corporate governance.13

n. Parthasarathi Baneijee in his article “Corporate Governance and


Competence in SME’s in India”, has examined the concept of corporate
governance in SMEs.14

o. Rohit Raj Mathur in his article “Corporate Governance: Emerging


Challenges before Public Relations”, has opined that in the emerging
paradigm of corporate governance, which expands the decision -making
framework of organizations to include members of boards in the once
exclusive turf of managements on other hand, and above all, greater
stakeholder surveillance will lead to public relations being practiced ethically
and professionally. He has also suggested that professional public relations
practioners must estimate the seriousness/disruptiveness of social costs of
actual or potential conflicts arising out of disputes, disagreements,
controversies, or confrontations.15

p. C. Rangarajan in his article “Corporate Governance-The New Paradigm”,


has critically examined the concept of corporate governance with special

12 Dr. Debaish Sur and Kaushik Chakraborty, “Corporate Governance in India-An Appraisal”, Growth,
Vol. 33, No.4, Jan-Mar, 2006, pp. 22 - 28.
13 V.K. Bhalla, “Corporate Governance: Agency Costs and the Politics of Finance”, Chartered
Secretary, January 1997, pp. 24-26.
14 Parthasarathi Banerjee , “Corporate Governance and Competence in SME’s in India”,Tech Monitor
, May- Jun 2005, pp. 43 - 49.
15 Rohit Raj Mathur,“Corporate Governance: Emerging Challenges before Public Relations”, South
Asian Journal of Management, Vol. 7 No. 1&2, pp. 91 - 95.
reference to banks. He has also discussed the role of RBI in corporate
governance.16

q. Anjali Bhatnagar in her article, “Corporate Governance in India - A


Paradigm Shift”, has critically examined the concept of corporate
governance. She has also suggested that efforts towards transparency will
increase a firm’s competitiveness, better performance and better relationships
with all the stakeholders.17

r. Narendra M. Apte in his article, “Corporate Governance, Risk


Management & Internal Audit”, has elaborately discussed the concept of
1ft
risk management and internal audit in corporate governance.

s. Yogesh Upadhyay and Shive Kumar Singh in their article “Corporate


Governance Role of Corporate Laws”, have discussed the role of corporate
laws in corporate governance. They have observed that declaration of adoption
of norms of good corporate governance, is rapidly becoming a part of the
annual reports of companies. Indians have to catch with the scene to remain in
the boat.19

t. Ashok A. Desai in his article “Towards Meaningful Corporate


Governance”, has critically examined the concept of corporate governance.
He has also observed that corporate governance is proclaimed to be only
global high-way for corporate success.20

u. NJ. Jhaveri in his article “Dilemma of Corporate Governance”, has


critically examined the incidental issues of corporate governance.21

16 C. Rangarajan , “Corporate Govemance-The New Paradigm”, Reserve Bank of India Bulletin,


October 1997, pp. 787 - 791.
17 Anjali Bhatnagar,“ Corporate Governance in India - A Paradigm Shift,” Business Analyst, Vol. 23,
No.l, January-June, 2002,pp. 79 - 87.
18 Narendra M. Apte , “Corporate Governance, Risk Management & Internal Audit”, The Chartered
Accountant, November 2004, pp. 585 - 588.
19 Yogesh Upadhyay and Shive Kumar Singh, “Corporate Governance Role of Corporate Laws”,
Pranjana,Vol. 3, No.l &2,2000, pp. 107 -118.
20 Ashok A. Desai, “Towards Meaningful Corporate Governance”, Chartered Secretary, August 2003
, pp. A 259 - A 260.
21 N.J. Jhaveri, “Dilemma of Corporate Governance”, Chartered Secretary, August 2003 , pp. A 261
-A 262.
v. Dr. S.D.Israni in his article “Independent Directors- The New Movers &
Shakers of the Board?”, has critically discussed the role of independent
22 '
directors in corporate governance,

w. Ranjan Mukheijee in his article “The Ultimate Result of Corporate


Governance: Value Management”, has examined the concept of corporate
governance with reference to value management. He has also discussed the
expectations of various stakeholders from their companies, marketing
OX
conditions and strategies.

x. Rabi Narayan Kar in his article, “Corporate Governance Issues in Mergers


and Acquisitions” has critically discussed the corporate governance issues in
i • 24 ' ' •
mergers and acquisitions. "vV

y. M. Samgadharan & Mini Mol in their article “Corporate Governance In


India”, have examined the concept of corporate governance. They have also
stated that e-govemance has emerged in the corporate environment as a
parallel phenomenon to redefine work, defeat time, shatter bureaucracies and
intellectual orthodoxies, instill a strong sense of commitment and it is the only
factor that ties together everybody involved in a business transaction inside a
single cyber-market that remains active throughout the twenty-four hour day.25

z. G. Gehani in his article “Role of SEBI in Regulating the Insider Trading”,


has examined the role of SEBI in regulating the insider trading.26

aa. T.V. Narayanaswamy in his article “SEBI — A Boon to Investors”, has


critically analysed the role of Securities and Exchange Board of India in
protection of interest of investors.27

22 Dr. S.D.Israni, “Independent Directors- The New Movers & Shakers of the Board?”, Chartered
Secretary, August 2003 , pp. A 269 - A 271.
23 Ranjan Mukherjee in his article “The Ultimate Result of Corporate Governance: Value

Management”, Chartered Secretary, August 2003 , pp. A 294 - A 296.


24 Rabi Narayan Kar , “Corporate Governance Issues in Mergers and Acquisitions”, Chartered

Secretary, August 2003 , pp. A 297 - A 299. :


25 M. Samgadharan & Mini Mol, “Corporate Governance In India”, Yojana, April 2003, p. 42.to 44.
26 G. Gehani, “Role of SEBI in Regulating the Insider Trading”, Chartered Secretary, August 2001,

pp. A 207 - A 208.


27 T.V. Narayanaswamy , “SEBI - A Boon to Investors”, Chartered Secretary , August 2001, pp. A
209- A 210. '
bb. N. Balasubramaian in his article “Changing Perceptions of Corporate
Governance in India”, has critically discussed the concept of corporate
governance in India and other complicated issues associated with it.28

cc. K.R.S. Murthy in his article “Corporate Governance: A Sociological


Perspective”, has stated that the central issue in corporate governance in India
is sociological. He has also stated that promoter families know what should be
done but continue to do what is questionable. The inability of non-executive
directors to question managements help them to be less accountable to
stakeholders. He has critically examined the CII code, compares and contrasts
corporate governance practices in USA, Germany, Japan and India taking a
sociological- evolutionary perspective and recommends education of boards to
play a proper role in the emerging competitive environment in India.29

dd. Dr. S. Selvarani in her article “Corporate Governance-The Role of the


Board of Directors”, has briefly analysed the role of board of directors in
corporate governance.30

ee. Oliver Hart in his article “Corporate Governance: Some Theory and
Implications”, has attempted to provide theoretical framework for the
corporate governance debate and to derive some implications which may be
o1
useful as a guide to policy.

ff. James A Brickley, Clifford W. Smith, Jr. and Jerold, in their article
“Corporate Governance, Ethics, and Organisational Architecture”, have
observed that successful companies assign decision-making authority in ways
that effectively link that authority' with the knowledge and experience need to

28 N. Balasubramanian, “Changing Perceptions of Corporate Governance in India”, ASCI Journal of


Management, 27 (1&2), pp. 55 - 61.
29 K.R.S. Murthy, “Corporate Governance: A Sociological Perspective”, ASCI Journal of
Management, 27 (1&2), pp. 1-9.
30 Dr. S. Selvarani in her article “Corporate Governance-The Role of the Board of Directors” ,
Organisation Management, July- September 2001 Vol. XVII No. 2., pp.34 - 36.
31 Oliver Hart, “Corporate Governance: Some Theory and Implications”, The Economic Journal, May
1995, pp. 678-689.
make good decisions. They have examined the concept of. corporate
governance in context of organizational structure and ethics.32

gg. S.C. Das in his article , “Corporate Governance in France”, has observed
that the corporate governance system in France is different from the Anglo-
American system and the German model of governance. It has a choice of two
different systems of board governance with PDG in absolute power. He has
also opined that although the governance system in France has shown
dynamism and accountability over the years. France seems genuinely
uncertain about the much needed development of its corporate governance
system. He has also explained the present governance system and its impact
O'!

on over the prevailing uncertainty., :

hh. Ananya Mukherjee Reed in her article “Corporate Governance Reforms in


India”, has critically examined the growth of concept of corporate governance
in India. She has also observed that India, like many developing countries, has
been moving towards the adoption of an Anglo American model of corporate
governance .34

ii. R.K Mishra and B. Navin in their article “Corporate Governance & Public
Enterprise Boards”, have discussed the concept of corporate governance
-ac
with reference to public enterprise boards.

jj. Igor Filatotchev and Steve Toms in their article “Corporate Governance and
Financial Constraints on Strategic Turnarounds”, have discussed the
strategy making and good governance.36

kk. N. Balasubramanian in his article “Corporate Governance: What it means


and What it Needs?” has critically examined the concept of corporate

32 James A Brickley, Clifford W. Smith, Jr. and Jerold, “Corporate Governance, Ethics, and
Organisational Architecture”, Journal of Applied Corporate Finance, Vol. 15 Number 3, Spring
2003 pp. no 34-45.
33 S.C. Das, “Corporate Governance in France” The Management Accountant, November 2004, pp.
918-921.
34 Ananya Mukherjee , “Corporate Governance Reforms in India”, Journal of Business of Ethics,
2002, pp. 249-268.
35 R.K Mishra and B. Navin, “Corporate Governance & Public Enterprise Boards”, Productivity, Vol.
40, No. 4, January-March,2000, pp. 544 - 550.
36 Igor Filatotchev and Steve Toms “Corporate Governance and Financial Constraints on Strategic
Turnarounds”, Journal of Management Studies, May 2006, pp. 407 - 433. '
governance. He has also observed that one should not forget that corporate
governance is only a sub set of overall political and societal standards of
integrity and transparency.37

11. D. N. Gosh, in his article “Corporate Governance and Board Room


Politics”, has discussed the role of board politics in corporate governance. He
has opined that corporate governance codes, which are emerging from a
variety of quarters, are woven around the role and responsibility of the board
of directors.38

mm.Ranjul Rastogi and T.V.S. Ramamohan Rao, in their article “Corporate


Governance and Capital structure”, have stated that strategic decisions of
the firm are either under the control of the board of directors who act on behalf
of the shareholders or delegated to the management. They have also observed
that the decision regarding the capital structure depends on the locus of
control. Hence, it is possible to infer the nature of the organizational
mechanism by examining the factors which determine the choice of the capital
30
structure.

nn. Conrad S. Ciccotello and C. Terry Grant, in their article “Corporate


Governance and Shareholder Patience”, have critically discussed the
corporate governance and shareholder patience.40

00. Kamal Gosh Ray in his article “Corporate Governance and Reporting
Practices in India: A Study”, has analysed the issue relating to corporate
governance and various reporting practices in India.41

pp. B.B. Pradhan and S. Pattnaik in their article “Corporate Governance and
Shareholder Value Analysis”, have overviewed corporate governance and
shareholder value analysis in different perspectives. They have also observed

37 N. Balasubramanian, “Corporate Governance: What it means and What it needs”, Management


Review, July-September, October-December, 1996 , pp. 82 - 92.
38 D. N. Gosh, “ Corporate Governance and Board Room Politics”, Economic and Political Weekly,
November 11 2000, pp. 4010 - 4014.
39 Ranjul Rastogi and T.V.S. Ramamohan Rao, “Corporate Governance and Capital structure”,
Finance India, Vol. XI No. 4, December 1997, pp. 951 - 976.
40 Conrad S. Ciccotello and C. Terry Grant, “Corporate Governance and Shareholder Patience”,
Business Horizons, November-December 1999, pp. 29 - 34.
41 Kamal Gosh Ray, “Corporate Governance and Reporting Practices in India: A Study”, Management
and Change, Vol. 5, No. 2, Winter 2001, pp. 423 - 442.
that corporate governance reflects the standards of a company,: which , in turn,
collectively reflect the societal standards. So, in many individual corporations,
shareholders are striving hard to hold top-level managers more accountable for
their decisions and the results they generate.42

qq. Rajeev Sinha in his article “Corporate Governance and Shareholder Value
Analysis”, has critically examined the response of shareholder vis a vis and
corporate governance.43

rr. Ronald C. Anderson, Thomas W. Bates, John M. Bizjak, and Michael L.


Lemmon in their article “Corporate Governance and Firm
Diversification”, have empirically investigated whether corporate governance
structure is different between focus|d and diversified firms, and whether any
difference in corporate governance is associated with the value loss from
diversification. They have also observed that diversified companies, however,
have more outside directors, no difference in independent block-holdings, and
sensitivity of CEO turnover to performance similar to that in single-segment
firms.44

ss. C. Gopinath in his article “Corporate Governance Failure at Enron”, has


critically examined the enron failure.45

tt. Vinod Javeri in his article “Corporate Governance Through Strategic


Leadership”, has stated that the competencies and skill analysis are intrinsic
in nature-‘antarmukhi’-since they develop from within the leader. These can
be best developed by experience and observation, clubbed with an attitude of
change. It creates an internal drive which helps acquire the necessary
expertise. They Have also observed, whereas all the Competencies and skills
indentified are relevant under diverse situations, their relevance may be in

42 B.B. Pradhan and S. Pattnaik, “Corporate Governance and Shareholder Value Analysis”, Journal of
Accounting and Finance, Vol. 17 No.l, October 2002-March 2003, pp. 73 - 80.
43 Rajeev Sinha, “Corporate Governance and Shareholder Value Analysis”, Global Business Review,
p. 1 to 16.
44 Ronald C. Anderson, Thomas W. Bates, John M, Bizjak, and Michael L. Lemmon, “Corporate
Governance and Firm Diversification”, Financial Management, Spring 2000, pp. 5 - 22. *
45 C. Gopinath, “Corporate Governance Failure at Enron”, ICFAI Reader, May 2002, pp. 49 - 52.
varying degree. So, an appropriate blend of the different factors would
determine strategic leadership for success in corporate governance.46

uu. M.K Chouhan in his article “Changing Role of Nominee Directors”, have
critically analysed the role of nominee directors in context of corporate
governance47

w. Syamlal K. Ghosh and Shailesh Budhia in their article “Corporate


Governance: How Effective Is It?”, have examined the effectiveness of
corporate governance practices in a number of countries with special reference
to India. They have also stated that some of the major corporate scandals
which have shaken the confidence of people, at large, all over the globe, in
institutions and mechanisms governing corporate sector are the result of poor
corporate governance and corruption.48

D Research Methodology

The methoclology of research differs according to subject. This study is


doctrinal in nature. An Attempt has been made to make a comparative
analysis of laws relating to Corporate Governance and Corporate Social
Responsibility. This monograph is an attempt in direction of getting a world
view of corporate governance. The material from decided cases of Courts of
United Kingdom and India have been used wherever required. The basic data
has been drawn from the decided cases of the High Courts and Supreme Court
of India. The cases has been mainly studied from the A.I.R. and S.C.C.,etc .
As the scope of the subject is vast and still expanding with regular output of
decisional material from the courts, a representative selection of cases from
Supreme Court and High Court of India has been made to cover all the
important aspects of the chosen problem. A list of cases has been given for
ease of reference to the reader.

46 Vinod Javeri, “Corporate Governance Through Strategic Leadership”, Business Perspective, Vol. 5,
No.2,pp. 11-16,
47 M.K Chouhan, “Changing Role of Nominee Directors”, Business Barons, August 2002, p. 16.
48 Syamlal K. Ghosh and Shailesh Budhia, “Corporate Governance: How Effective Is It?”, Indian
Accounting Review, Vol.9 No.2, December 2005, pp. 57 - 72.
E. CHAPTER SCHEME

The present research work has. been divided into eight chapters. These are as
under:

1. Chapter 1: Introductory articulates the problem of study in the area of


corporate governance and corporate social responsibility. It covers the
methodology employed and gives an overview of literature.

2. Chapter 2: Corporate Governance-An Overview analyses the concept of


corporate governance; the elements of corporate governance, factors
influencing the corporate governance, edifice of corporate governance, its
relation with capital structure, democracy, first diversification, role of state
and financial institutions. It also critically examines the relationship with
strategic leadership, the relationship with shareholder value analyses and the
relationship of corporate governance with corporate social responsibility etc.

3. Chapter 3: Upheavals in Corporate World examines the various corporate


scams happened in corporate world . It throws light on the development of
corporate governance in India. It also covers the recommendations of various
committees appointed by Indian Government and Government of other
countries.

4. Chapter 4: Role of Directors in Corporate Governance makes an


exhaustive study about the role of directors in corporate governance. It also
throws light on some general aspects like board room, board leadership,
director’s interest, remuneration paid to directors, restriction on the number of
directorship, restriction on the appointment of directors, board report,
disqualification of directors, and also the role of nominee director. It also
critically examines the independent director in terms of its role, position,
selection, responsibilities, remuneration, status and limitations.

5. Chapter 5: Corporate Governance and Securities Laws makes an


exhaustive study about the provisions of the Securities and Exchange Board of
India Act, the Securities Contract Regulation Act, Depositories Act and
regulations made by Securities and Exchange Board of India relating to
corporate governance.
6. Chapter 6: Corporate Governance in Companies Act with Special
Reference to Auditing and Accounting examines the role of accountant and
auditors in corporate governance; provisions relating to audit committee,
appointment of auditor, auditor report, audit of cost accountant in certain
cases, books of accounts to be kept by a company, annual accounts and
balance sheet, Balance-sheet of Holding Company to include Certain
Particulars as to its Subsidiaries, Financial Year of Holding Company and
Subsidiary, Authentication of Balance-Sheet and Profit and Loss Account,
Duty of Officer to make Disclosure of Payments, protection of interest of
small depositors, inspection, political contributions, type of issue of new share
capital in company law. It also throws light on corporate democracy including
Passing of Resolutions by Postal Ballot Requirement regarding Postal Ballot,
Notice of Postal Ballot, Passing of a Resolution etc.

7. Chapter 7: Social Commitment and Corporate Social Responsibility


examines the relationship between corporate governance and corporate social
responsibility, meaning and concept of corporate social responsibility,
alternative to corporate social responsibility, drivers of corporate social
responsibility, relationship between stakeholder management and corporate
social responsibility, corporate social performance, role of NGOs in corporate
social responsibility , relationship between social responsibilities and
marketing. It further examines the responsibilities of companies under the
Companies Act, various labour legislations, pollution laws, the Essential
Commodities Act, the Drugs and Cosmetics Act, the Income Tax Act etc. It
also enumerates the model of corporate social responsibly, Gandhiji Ideas on
trusteeship and social responsibilities of companies, positive and negative
aspects of social responsibilities of companies.

8. Chapter 8: Conclusion and Suggestions covers the conclusions arrived at as


a result of the discussions in the various chapters. An attempt has also been
made to point out the shortcomings and lacunae in the present laws and to
suggest the remedial measures to ensure good corporate governance and
corporate social responsibilities. The seeking is the goal and research is the
answer. It is believed that the thesis may throw light on the subject of
corporate governance and corporate social responsibilities in a holistic way. It
is earnestly hoped that the conclusions drawn and the suggestion presented on
the basis of critical study in this disclosure will be a real contribution to the
field. It is said that the best way to become acquainted with a subject is to
write a book on it. The present research work is only an attempt to understand
the concept of corporate governance and corporate social responsibility and
relationship between them and relevant laws dealing with the corporate
governance and social responsibility.

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