Corporate Governance may be defined as a set of systems, processes and principles which ensure that a company is governed in the

best interest of all stakeholders. It is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. In other words, 'good corporate governance' is simply 'good business'. It ensures: Adequate disclosures and effective decision making to achieve corporate objectives; Transparency in business transactions; Statutory and legal compliances; Protection of shareholder interests; Commitment to values and ethical conduct of business. In other words, corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It deals with conducting the affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest number of stakeholders. In this regard, the management needs to prevent a symmetry of benefits between various sections of shareholders, especially between the owner-managers and the rest of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company. Ethical dilemmas arise from conflicting interests of the parties involved. In this regard, managers make decisions based on a set of principles influenced by the values, context and culture of the organization. Ethical leadership is good for business as the organization is seen to conduct its business in line with the expectations of all stakeholders. The aim of "Good Corporate Governance" is to ensure commitment of the board in managing the company in a transparent manner for maximizing long-term value of the company for its shareholders and all other partners. It integrates all the participants involved in a process, which is economic, and at the same time social. The fundamental objective of corporate governance is to enhance shareholders' value and protect the interests of other stakeholders by improving the corporate performance and accountability. Hence it harmonizes the need for a company to strike a balance at all times between the need to enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other stakeholders in the company. Further, its objective is to generate an environment of trust and confidence amongst those having competing and conflicting interests. It is integral to the very existence of a company and strengthens investor's confidence by ensuring company's commitment to higher growth and profits. Broadly, it seeks to achieve the following objectives: 1)A properly structured board capable of taking independent and objective decisions is in place at the helm of affairs; 2)The board is balance as regards the representation of adequate number of non-executive and independent directors who will take care of their interests and well-being of all the stakeholders;3) The board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information; 4) The board has an effective machinery to subserve the concerns of stakeholders; 5)The board keeps the shareholders informed of relevant developments impacting the company; 6) The board effectively and regularly monitors the functioning of the management team; 7)The overall endeavour of the board should be to take the organisation forward so as to maximize long term value and shareholders' wealth. The board remains in effective control of the affairs of the company at all times.

BENEFITS AND LIMITATIONS The concept of corporate governance has been attracting public attention for quite some time. It has been finding wide acceptance for its relevance and importance to the industry and economy. It contributes not only to the efficiency of a business enterprise, but also, to the growth and progress of a country's economy. Progressively, firms have voluntarily put in place systems of good corporate governance for the following reasons:

Several studies in India and abroad have indicated that markets and investors take notice of well managed companies and respond positively to them. Such companies have a system of good corporate governance in place, which allows sufficient freedom to the board and management to take decisions towards the progress of their companies and to innovate, while remaining within the framework of effective accountability. In today's globalised world, corporations need to access global pools of capital as well as attract and retain the best human capital from various parts of the world. Under such a scenario, unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. The credibility offered by good corporate governance procedures also helps maintain the confidence of investors both foreign and domestic to attract more long-term capital. This will ultimately induce more stable sources of financing. A corporation is a congregation of various stakeholders, like customers, employees, investors, vendor partners, government and society. Its growth requires the cooperation of all the stakeholders. Hence it imperative for a corporation to be fair and transparent to all its stakeholders in all its transactions by adhering to the best corporate governance practices. Good Corporate Governance standards add considerable value to the operational performance of a company by: 1. 2. 3. improving strategic thinking at the top through induction of independent directors who bring in experience and new ideas; rationalizing the management and constant monitoring of risk that a firm faces globally; limiting the liability of top management and directors by carefully articulating the decision making process; assuring the integrity of financial reports, etc.

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It also has a long term reputational effects among key stakeholders, both internally and externally.

Also, the instances of financial crisis have brought the subject of corporate governance to the surface. They have shifted the emphasis on compliance with substance, rather than form, and brought to sharper focus the need for intellectual honesty and integrity. This is because financial and nonfinancial disclosures made by any firm are only as good and honest as the people behind them. Good governance system, demonstrated by adoption of good corporate governance practices, builds confidence amongst stakeholders as well as prospective stakeholders. Investors are willing to pay higher prices to the corporates demonstrating strict adherence to internally accepted norms of corporate governance. Effective governance reduces perceived risks, consequently reduces cost of capital and enables board of directors to take quick and better decisions which ultimately improves bottom line of the corporates. Adoption of good corporate governance practices provides long term sustenance and strengthens stakeholders' relationship. A good corporate citizen becomes an icon and enjoy a position of respects. Potential stakeholders aspire to enter into relationships with enterprises whose governance credentials are exemplary.

Adoption of good corporate governance practices provides stability and growth to the enterprise.

Effectiveness of corporate governance system cannot merely be legislated by law neither can any system of corporate governance be static. As competition increases, the environment in which firms operate also changes and in such a dynamic environment the systems of corporate governance also need to evolve. Failure to implement good governance procedures has a cost in terms of a significant risk premium when competing for scarce capital in today's public markets. There is a greater need to increase awareness among entrepreneurs about the various aspects of corporate governance. There are some of the areas that need special attention, namely:-

Quality of audit, which is at the root of effective corporate governance; Role of Board of Directors as well as accountability of the CEOs and CFOs; Quality and effectiveness of the legal, administrative and regulatory framework; etc.

The Need of Corporate Governance Recent corporate failures and scandals involving mis-governance and unethical behaviour on the part of corporates rocked the corporate sector all over the world, shook the investor confidence in stock markets, and caused regulators and others to question the assumption that most companies do the right thing most of the time. These incidences diminished reputation and goodwill of even those corporates who enjoy the trust and confidence of public at large. These factors highlight the importance of good corporate governance. On the other hand, corporate governance is important because corporate decisions impinge on its shareholders, customer, creditors, the state and employees. Globally the objective of corporate governance is to maximize long-term shareholder value. With the assumption that capital and financial markets are working properly, anything that maximizes shareholder value will necessarily maximize corporate prosperity. For sound governance, managers need to act as trustee of shareholders, prevent asymmetry of benefits between sections of shareholders, especially between owner-managers and the rest of shareholders. They also need to be a part of societal concerns about labour and environment. In fact stock market analysts see these days a greater correlation between governance and returns. Investment analysts recommend a company based on strength or weakness of a companys governance infrastructure. Confidence of investors, both domestic and foreign, is the need of the hour. This is to attract patient long term capital that will reduce their cost of capital. Thus, there is a need for intellectual honesty, integrity and transparency, which form the basis for good corporate governance. Corporate governance in Indian Context Corporate governance has been much talked about in India particularly after 1993. Liberalization brought mixed results for Indian economy. Noticeably, it brought in its wake a spate of corporate scandals. Later on scores of companies made public issues with large premium and then disappeared; prospectus misled the public. The management of most of these companies diverted funds and investors had no option but to repent their lost money. Primary market literally collapsed in the after math of these failures. Slowly, many a family owned businesses moved to become widely held limited companies. The question, how to function in a corporate setup overriding family interest and obligations called for a code of governance. Similarly, corporate banks also came under strain due to scams; governance failure was total. The story of UTI is also well known where millions of small investors lost their capital due to inadequate management practices and weak supervision. Auditors were following questionable accounting practices on behest of the management and often advising on how doubtful accounting choices might be made so as to remain on the right side of law and at the same time, escape detection by users of financial information. All these factors put strong pressure on many corporates to evolve a good governance practice. Over the period of time in India companies like Tata Group, Infosys, Wipro have evolved sound principles of governance, intertwining corporate governance with social responsibility. These companies have become global and it is common to find global norms of accounting and disclosure being followed in these corporate houses. Rights of employees, stock options, independent directors, meeting quality norms, price warranty and guarantee- all these have made room for quality governance. Managers have indeed become trustees of shareholders. It began in 1998 with the Desirable Code of Governance- a voluntary code published by CII, and the first formal regulatory framework for listed companies, st established by the SEBI in February 2000, following the guidelines enunciated by the Kumar Mangalam Birla Committee Report. On 21 August, 2002, the Department of Company Affairs under the Ministry of Finance appointed Naresh Chandra Committee to examine issues pertinent to governance. The committee looked into financial and non-financial disclosure and independent auditing and board oversight of management. Apart from financial compliance or disclosure, the independent oversight of management is also important. Many companies have disappeared, vanished either due to fraud or poor quality of board resulting in lack of independent oversight. The Kumar Mangalam Birla Committee focused on the role of independent and statutory auditors and also the role of the board of directors. SEBI constituted a committee on corporate governance under the chairmanship of Sri N. R. Narayana Murthy. The committee included representatives from the stock exchange, chamber of commerce and industry, investor associations and professional bodies, which debated on key issues related to corporate governance. Findings and recommendations of these committees are discussed in the later chapter. Thus we find that the corporate India is going through a great churning phase. New aggressive companies are doing business with global ambitions, placing a lot of emphasis on governance and transparency. FIIs are very serious about good governance and disclosures. Liberalization brought great challenges, after initial jolts and pain of restructuring, companies are seeing profits more than before.