CORPORATE GOVERNANCE

Table of Contents....PAGES
1.0INTRODUCTION: .............................................................................................................. 2 1.1DEFINITION OF CORPORATE: ........................................................................................ 2 1.2DEFINITION OF GOVERNANCE: .................................................................................... 3 1.3DEFINITION OF CORPORATE GOVERNANCE: ........................................................... 3 1.4 WHY CORPORATE GOVERNANCE? ............................................................................. 4 1.5 NEED FOR CORPORATE GOVERNANCE: .................................................................... 5 CHARACTERISTICS OF CORPORTAE GOVERNANCE: .................................................. 6 1.6 OBJECTIVES OF CORPORATE GOVERNANCE: ......................................................... 7 1.7 SOURCES OF CORPORATE GOVERNANCE: ............................................................... 8 1.8 FACTORS OF CORPORATE GOVERNANCE: ............................................................... 9 1.9 ELEMENTS OF GOOD CORPORATE GOVERNANCE ............................................... 11 1.10 QUALITY OF CORPORATE GOVERNANCE: ........................................................... 13 1.11 FACTORS INFLUENCING QUALITY OF CORPORATE GOVENANCE: ............... 13 1.12 PARTIES TO CORPORTAE GOVERNANCE: ............................................................ 14 1.13 PRINCIPLES OF CORPORATE GOVERNANCE ARE: ............................................. 14 1.14 WHY DO WE NEED MECHANISMS AND CONTROLS? ......................................... 16 1.15 INTERNAL CORPORATE GOVERNANCE CONTROLS .......................................... 16 1.16 EXTERNAL CORPORATE GOVERNANCE CONTROLS ......................................... 17 1.17 CODES AND GUIDELINES .......................................................................................... 18 1.18 ADVANTAGES OF CORPORATE GOVERNANCE: .................................................. 18 1.19 DISADVANTAGES OF CORPORATE GOVERNACE: .............................................. 19 1.20 EXAMPLES OF CORPORATE GOVERNANCE: ........................................................ 20 1.20.1 Example of Good Corporate Governance: TOYOTA ........................................... 21 1.20.2 Example of Bad Corporate Governance: ENRON ................................................ 21 1.21 CONCLUSION: ............................................................................................................... 22 1.22 BIBLIOGRAPHY ............................................................................................................ 23

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Corporate governance refers to the framework of rules and regulations that enable the stakeholders to exercise appropriate oversight o a company to maximise its value and to obtain a return on their holdings. Discuss.

1.0INTRODUCTION:
A company is a congregation of various stakeholders, namely, customers, employees, investors, vendor partners, government and society. A company should be fair and transparent to its stakeholders in all its transactions. With the opening of the economy towards globalization, our corporate world requires a world-class governance system. The essence of the corporate world lies in promoting compliance of the law in letter and in spirit, with transparency and accountability, and above all, fulfilling the fair expectations of all the stakeholders. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. Corporate governance is one such tool to achieve this goal. Corporate Governance is a combination of strong commitment of the management to safeguard the interest of various stakeholders, openness in ideas, fresh air for enterprises and corporate ethics. Therefore, it provides broad parameters of accountability, control and reporting system by the management and it encompasses the interactive relationship among various constituents in determining direction, and performance of the corporate. It is an indisputable fact that, scams and scandals are increasingly undermining our lives. Therefore, one of the most urgent tasks of our times is to understand the implications of corporate degradation and failures that we witness today. The issues and challenges, before the corporate sector have never been as turbulent and unpredictable as they are today. The proper governance of companies is as crucial to the world economy as the proper governing of countries. (corporate governace, 2009)

1.1DEFINITION OF CORPORATE:
Corporate is a group or large company which is recognized in a law and act to authorize as a single company. Corporate is a business for their members and shareholders has unlimited and limited liability, they buy and sell their stock and share which is depended on the board of director performance.

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Corporations states provide legal rights to separate from its owner. This business organization has limited liability of its owners, the issuance of shares which easily transferable stock and easily existence as a going concern. The process which is suitable to a corporation are called incorporation, which provide the company to focused those owners which are liable personally in that situation in which company gives a condition is limited liability and a company has separate legal standing from its owners. The incorporation is also give companies a more easily way to manage their ownership structure. (wikipedia)

1.2DEFINITION OF GOVERNANCE:
The meaning of governance is obtaining the policies and affairs of an organization. Governance is the processes, in which governments are select, create and applied public policy, monitored and changed. The governance is a system of interaction between the judiciary, administration and legislature. In this shareholder define interact with institutions of authority and their interests with each other. GOVERNANCE is consist on processes, institution and mechanisms through which groups and citizens , to manage a nation's affairs from economic and administrative authority , exercise of political articulate their interests. It is exercise their obligations and their legal rights, and mediate their differences. Governance is the sandwich between CEO/staff to the one side and shareholder in other side. Governance is the system in which we hold the social and economic resources for the development of the countries. Governance is the system in which power is exercised the economic and social resource of the management of the countries for the development. Governance is a system in which people using the power against any one because they have power. Governance is the way in which those with power use that power. (wikipedia)

1.3DEFINITION OF CORPORATE GOVERNANCE:

Corporate governance refers to the set of systems, principles and processes by which a company is governed. According to Milton Friedman Corporate Governance is to conduct the business in accordance with owner or shareholders desires, which generally will be to make as much money as possible, while conforming to the basic rules of the society embodied in law and local customs It is the responsibility of the board of directors to ensure
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good corporate governance. This involves a set of relationships between the management of a corporation, its board, its shareholders and other relevant stakeholders. Good corporate governance requires that the board must govern the corporation with integrity and enterprise. While the board is accountable to the owners of the corporation (shareholders) for achieving the corporate objectives, its conduct in regard to factors such as business ethics and the environment for example may have an impact on legitimate societal interests (stakeholders) and thereby influence the reputation and long-term interests of the business enterprise. Corporate governance can be defined narrowly as the relationship of a company to its shareholders or, more broadly, as its relationship to society It is palpable these days that a companys relationship to society, is often blurred by the distinction between corporate governance and corporate social responsibility. In fact, Corporate Governance is not just a legal compliance but is a need to have a balance between economic and social goals and between individual and communal goals .Corporate governance is about promoting corporate fairness, transparency and accountability. Corporate governance is about working ethically and finding a balance between economic and social goals. It includes the ability to function profitably while obeying laws, rules and regulations. The traditional analysis of corporate governance focused on the allocation of power and duty among the Board of Directors, management, and shareholders. As the sole residual claimants on company assets, shareholders were presumed to have the most incentive to maximize company value. According to that perspective, the Board of Directors acted as the shareholders agent and management was responsible for daily operations. In todays scenario, the Board and the Management play the role of trustees. (corporate governace, 2009)

1.4 WHY CORPORATE GOVERNANCE?

In the recent years, there has been a considerable concern in India and other countries about the standards of corporate governance. According to Company Law, directors are obliged to act in the best interests of shareholders, but there have been many instances where we find contradiction to such obligation. There have been many cases of excessive debt financing laced with fraud, disproportionate rise in payments for executives, which have been less than transparent. The latest imbroglio involving one of Indias largest IT companies, Satyam Computer Services has virtually discredited the concept of corporate governance. Satyam
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sought to invest into another company i.e. Maytas, involving a conflict of interest for its promoters. This in turn involved a change in the fundamental character of the company and utilization of virtually its entire cash balance.

Satyam was also being accused by the World Bank for bribing its employees to get certain contracts awarded in the companys favor. While these are allegations at this point in time, it may be noted, that the company had earlier approached suitable independent professionals to get the necessary clearances under the law of the land as well as appoint independent directors. Ostensibly, the idea is to comply with the code of corporate governance on paper. Ironically, this same company won the prestigious Golden Peacock Global Award for excellence in Corporate Governance as well as World Council for Corporate Governance .The Satyam fraud is symptomatic of the Economy of shock and surprise that we live in. Satyam gives India an opportunity to lead the world by better enforcement of Clause 49 through proper selection, training, evaluation and monitoring of directors. (corporate governace, 2009)

1.5 NEED FOR CORPORATE GOVERNANCE:

Corporate governance is important for the following reasons: 1. It lays down the framework for creating long-term trust between companies and the external providers of capital. 2. It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience, and a host of new ideas 3. It rationalizes the management and monitoring of risk that a firm faces globally 4. It limits the liability of top management and directors, by carefully articulating the decision making process 5. It has long term reputational effects among key stakeholders, both internally (employees) and externally (clients, communities, political/regulatory agents). (corporate governace, 2009)

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CHARACTERISTICS OF CORPORTAE GOVERNANCE:

1. Transparency: This means that the Board of Directors must release all relevant information to the stakeholders. They must show all the necessary financial and operational data to the stakeholders. They must not hide any important information or maintain any secrecy.

2. Protection of Shareholders' Rights: The Board of Directors must protect the rights of the stakeholders. They must protect all the stakeholders, especially the minority stakeholders.

3. More Powers to CEO: The CEO must be given more powers so that he can approve the companys plans and strategies independently.

4. Accountability: The CEO and the Board of Directors must be made accountable for their actions to the stakeholders and to the entire society.
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5. Based on Ethics: Corporate governance is based on ethics, moral principles and values. So, the Board of directors must avoid unfair practices, cheating, exploitation, etc.

6. Universal Application: Corporate governance has universal application. That is, it is used by companies all over the world. It is given a legal recognition in many countries. All companies must use corporate governance voluntarily.

7. Systematic: Corporate governance is very systematic. It is based on laws, procedures, practices, rules, etc. All these laws are made to increase the wealth of the shareholders and to protect the rights of all the stakeholders of the company. (corporate govenance, 2011)

1.6 OBJECTIVES OF CORPORATE GOVERNANCE:

Corporate Governance seeks to achieve the following objectives: 1. That a properly structured Board capable of taking independent and objective decisions is in place at the helm of affairs;

2. That the Board is balanced as regards the representation of adequate number of nonexecutive who will take care of the interests and well-being of the independent directors and all the stakeholders;

3. That the Board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information;

4. That the Board has an effective machinery to sub serve the concerns of stakeholders;

5. That the Board keeps the shareholders informed of relevant developments impacting the company;

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6. That the Board effectively and regularly monitors the functioning of the management team, and

7. That the Board remains in effective control of the affairs of the company at all times, The overall endeavor of the Board should be to take the organization forward to maximize long-term value and shareholders wealth. (corporate governace, 2009)

1.7 SOURCES OF CORPORATE GOVERNANCE:

1. Code of Ethics: This is defining about the rules of organization, principles which are applicable and better relationship with the organization to the employees.

2. By Law: This is defining the companys operations and main rules.

3. Code of Conduct: This is defining how an organization can organized from which a shareholder get maximum profit.

4. Treatment of confidential information: This is defining procedures to give special focus on the treatment of the price sensitive information.

5. Internal Dealing: This is defining the flow of information of the market in such case when relevant person who are involving company shares, perform operation, and other financial products issued which control the company listed on the countries regulation markets or unlisted but accounting for more than 50% of its assets.

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6. Procedural code for transactional with reeled Organization: This is defining the procedures when concerned parties dealing with the company itself.

7. Management and control model: This is defining the administrative liabilities and aims at preventing criminal offences, consolidate and spreading managerial practices, promoting an efficient organization structure and enabling control oriented.

8. Insider Register: In this include the list of the member which are access and manage privileged information if disclosed. This is significantly influence with the market price instructions.

9. Charter of Values: This is translated the languages of the entire groups. The charter enhances principles of corporate governance and endorses the main aspects of it, with the reference to the international standards. (ukessays on corporate govenance)

1.8 FACTORS OF CORPORATE GOVERNANCE:

1. Memorandum of Association: This is simply called the memorandum; it is the document which creates the relationship between outsider and an organization. It is the document which is required to incorporate a company everywhere in the world such as: Mauritius, India, Pakistan, United Kingdom, Sri Lanka, Ireland and Bangladesh. It is also used in the common law of the common wealth. It is necessary of a new company to file this document. In this document just only contain the limited information that was required prior to 1 October 2009.

2. Articles of Association: When a new company establish it is required to register in under the law of India and many countries. Articles of association and memorandum of association both are constitution of a company. In this discussing different voting rights which are attached to the different classes of the shares and stock, the valuations of the IPR of one partner and valuation of intellectual

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rights in that way in which we value real estate of other partner, the appointment of directors, director meeting, management decisions, transferability of shares, Special voting rights of chairman, the dividend policy, winding up , knowledge of penalties for disclosure and founders of agreement, first right of refusal in which purchase rights.

3. Board Audit Committee: The audit committee is a committee of board which is appointed by the board. It shall have at least three members whom shall be non executive directors. In this two member are quorums if one member is out of country then these two member shall be appointed any director as the replacement of that member. The meeting of the committee should hold at least four times a year. Finance director, CEO and other senior management required to attend the meeting and give the explanation, operations, and information which are relevant to the company. The committee also invites the external auditors that attend the meeting and give answer of the following question which are related to the audit procedures and financial controls of the company, non executive director also invited.

4. Company Law: The purpose is to consolidate the law, make sure that the growth of corporate enterprise in Pakistan. It interacts to the investors and creditor it is imported because investor wants minimum risks and better protection.

5. Board of Directors: A board of director contains on a member who oversee the company activities. It is also called board of members, board of trustee, board of governors, board of visitors or board of regents. It is referring to the board. BOD have some duties: approving the annual budgets, supporting, selecting, reviewing and appointing the performance of CEO, operating the availability of the financial resources, establishing the objectives and broad policies which governing the organization, compensation of company management and setting the salaries, accounting to the stakeholders for the organizations performance. The legal responsibilities of the board member and board are varying with the jurisdiction within which it operate and with the nature of the organization. These responsibilities are much more complex and rigorous for the other types.
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6. Other Stakeholders: The other stakeholders are those which are affected to the organization through the actions as a whole. This concept was firstly used in 1963. In the other stake holders includes: customers in this ethical products, value customer care, quality. Governments in this legislation, truthful reporting, taxation, low unemployment, VAT. Employees in this compensation, truthful communication, rates of pay, respect, job security. Trade Unions in this jobs, qualities and staff protection. Owner is a person who has interest in the success of the organization. Suppliers provide equitable business opportunities and used the product at the end. Creditors in this new contracts, liquidity and credit score. For example the community in this shares, environmental protection, jobs, truthful communication and involvement. (corporate governace, 2009)

1.9 ELEMENTS OF GOOD CORPORATE GOVERNANCE

1. Role and powers of Board Good governance is decisively the manifestation of personal beliefs and values, which configure the organizational values, beliefs and actions of its Board. The foremost

requirement of good governance is the clear identification of powers, roles, responsibilities and accountability of the Board, CEO, and the Chairman of the Board. 2. Legislation Clear and unambiguous legislation and regulations are fundamental to effective corporate governance. Legislation that requires continuing legal interpretation or is difficult to interpret on a day-to-day basis can be subject to deliberate manipulation or inadvertent misinterpretation. 3. Management environment Management environment includes setting-up of clear objectives and appropriate ethical framework, establishing due processes, providing for transparency and clear enunciation of responsibility and accountability, implementing sound business planning, encouraging business risk assessment, having right people and right skill for the jobs, establishing clear

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boundaries for acceptable behaviour, establishing performance evaluation measures and evaluating performance and sufficiently recognizing individual and group contribution. 4. Board independence Independent Board is essential for sound corporate governance. This goal may be achieved by associating sufficient number of independent directors with the board. Independence of directors would ensure that there are no actual or perceived conflicts of interest.
5. Code of conduct

It is essential that the organizations explicitly prescribed norms of ethical practices and code of conduct are communicated to all stakeholders and are clearly understood and followed by each member of the organization. Systems should be in place to periodically measure adherence to code of conduct and the adherence should be periodically evaluated and if possible recognized. 6. Strategy setting The objectives of the company must be clearly documented in a long-term corporate strategy and an annual business plan together with achievable and measurable performance targets and milestones. 7. Business and community consultation Though basic activity of a business entity is inherently commercial yet it must also take care of communitys obligations. Commercial objectives and community service obligations should be clearly documented after approval by the Board. The stakeholders must be informed about the proposed and ongoing initiatives taken to meet social responsibility obligations. 8. Financial and operational reporting The Board requires comprehensive, regular, reliable, timely, correct and relevant information in a form and of a quality that is appropriate to discharge its function of monitoring corporate performance. 9. Audit Committees
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The Audit Committee is inter alia responsible for liaison with the management; internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures, reporting to the Board on the key issues. The quality of Audit Committee significantly contributes to the governance of the company.

10.

Risk management

Risk is an important element of corporate functioning and governance. There should be a clearly established process of identifying, analyzing and treating risks, which could prevent the company from effectively achieving its objectives.

The above improves public understanding of the structure, activities and policies of the organization. Consequently the organization is able to attract investors, and to enhance the trust and confidence of the stakeholders. (corporate governace, 2009)

1.10 QUALITY OF CORPORATE GOVERNANCE:

The quality of corporate governance is a theoretical application of good practice and the quality of management is how they would be responsible for ensuring it was applied and how would govern the quality of the governance in the final analysis.

1.11 FACTORS INFLUENCING QUALITY OF CORPORATE GOVENANCE:

Quality of governance primarily depends on following factors: 1. Integrity of the management; 2. Ability of the board; 3. Adequacy of the process; 4. Commitment level of individual board members; 5. Quality of corporate reporting; 6. Participation of stakeholders in the management.

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1.12 PARTIES TO CORPORTAE GOVERNANCE:
Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large.

In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse.

A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities.

The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital.

A key factor in an individual's decision to participate in an organisation e.g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse.
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1.13 PRINCIPLES OF CORPORATE GOVERNANCE ARE:
1. Roles and responsibilities of the board: A variety of skills and understanding is required by the Board of directors to be able to manage various business problems and should have the capability to test and review the management performance. It should have an subsequent level of commitment to fulfill its duties and responsibilities. 2. Rights and equality in treatment of shareholders: Firms should honour the rights of shareholders and assist them to exercise their rights. Organizations can help them by effectively communicating information that is accessible, understandable and which encourages shareholders to take part in meetings conducted. 3. Ethical behaviour and integrity: Responsible and ethical decision making is not only important for public relations but also necessary element in risk management. Organizations should construct a code of conduct for their employees and directors which promote ethical and responsible decision making. It is important to understand that dependence by a company on the ethics and integrity of individuals will lead to eventual failure. Because of which, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm.

4. Interests of other stakeholders: Firms should recognize that they have law related obligations and other obligations to all the stakeholders. 5. Transparency and disclosure: Organizations should clarify the code of duties of board and management to provide shareholders with a particular level of dependence and trustablity. Organizations should also implement procedures to protect and verify the credibility of the company's financial reporting and analysis. The material matters concerning the organization should be revealed,

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balanced and routine to ensure that all investors have access to accurate information (ukessays on corporate govenance)

1.14 WHY DO WE NEED MECHANISMS AND CONTROLS?

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the auditor) attests the accuracy of information provided by management

1.15 INTERNAL CORPORATE GOVERNANCE CONTROLS

Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:

1. Monitoring by the board of directors: The board of directors, with its legal authority to hire fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria.

2. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.
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3. Internal control procedures and internal auditors: Internal control procedures are policies implemented by an entity's board of directors, audit committee, management, and other personnel to provide reasonable assurance of the entity achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an organization who test the design and implementation of the entity's internal control procedures and the reliability of its financial reporting 4. Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met.

1.16 EXTERNAL CORPORATE GOVERNANCE CONTROLS

External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:

1. demand for and assessment of performance information (especially financial statements)

2. debt covenants

3. government regulations

4. media pressure

5. takeovers

6. competition

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7. managerial labour market

8. telephone tapping (corporate govenance, 2011)

1.17 CODES AND GUIDELINES

Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect.

For example, Companies quoted on the London and Toronto Stock Exchanges formally need not follow the recommendations of their respective national codes. However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices. Such disclosure requirements exert a significant pressure on listed companies for compliance.

In the United States, companies are primarily regulated by the state in which they incorporate though they are also regulated by the federal government and, if they are public, by their stock exchange. The highest number of companies is incorporated in Delaware, including more than half of the Fortune 500. This is due to Delaware's generally business-friendly corporate legal environment and the existence of a state court dedicated solely to business issues (Delaware Court of Chancery).

1.18 ADVANTAGES OF CORPORATE GOVERNANCE:

1. Economic Growth: Strong corporate governance provides a success and economic growth.

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2. Increase Capital: Strong corporate governance increases the capital of a company efficiently and effectively because they maintain investors confidence, through this company increase the capital.

3. Share Price: Corporate governance reduces the capital cost, which give a positive impact on the share price, and company get profit.

4. Proper Inducement: Corporate governance gives proper inducement to the owners and managers achieve objectives that are in interests of the organization and the shareholders.

5. Minimizes

Risk:

Strong

corporate

governance

also

minimizes

corruption,

mismanagement, risks and wastages. 6. Develop Brand: It provides the better plan through which an organization made better brand formation and development.

7. Interest: Through corporate governance company fallow those steps which member getting interest. (advantages on corporate governace)

1.19 DISADVANTAGES OF CORPORATE GOVERNACE:

1. Ownership Management Separation: Some time directors taking some policy decisions which can become a problem in publicly traded corporations, which are not necessarily for shareholders. In the case when any shareholders dont hold a controlling interest in the organization and most of sh areholder is voting by proxy then directors and officers controlling corporations assets. Ownership and management can be separate because it can resolve the confliction of interest between management duty which increase the shareholder value and its interest to increase their income.

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2. Illegal insider trading: Corporate insider refers to officers, employees and directors of an organization because they may have approach to originated or maintained in strict secrecy or privacy which may be non public information about an organization that affect the shares value. Corporate insider are not strictly prevent from trading corporate shares but it should report to the SEC. Illegal insider trading occurs when the share holder sell shares to a buyer without access to the information which are confidential and relevant to the future value of shares. Illegal insider trading also committed with the shareholder who are not directly related with the organization, such as a relative of the corporate insider, government regulator and outside auditor.

3. Misleading Statement: It is many way from which company provide to our factually of the accurate information on the financial statement in the way that is misleading to investor.

4. Cost of Regulation: Corporate governance abuse has triggered the enactment to federal laws and larg body of state designed to prevent those abuse. Compliance with such laws can be expensive and burden for the organization. (disadvantages of corporate governace)

1.20 EXAMPLES OF CORPORATE GOVERNANCE:

Corporations the world over have been publicly criticized for improving their firm's bottom line at any moral or social cost. Ethics essentially refers to the issues of right, wrong, fairness and justice. Clearly, examples such as Enron, WorldCom, and even Conrad Black tested society's views on sound ethical business and the link to what society sees as good governance practices. Although the controversies involve issues matched in variety only by the types of companies, they all virtually involve some form of abuse of stakeholders trust.

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1.20.1 Example of Good Corporate Governance: TOYOTA
Toyota is a global leader in automotive sales, technology and production while also retaining one of the world's most recognizable and highly valued brands. At the heart of their success is the innovative and groundbreaking production methods made possible by the company's recognition of the value of employee empowerment. Employee involvement is defined as consisting of a variety of systematic methods that empower employees to participate in the decisions that affect them and their relationship with the organization. At Toyota, the company has employed these proven techniques of co-determination to encourage employee, and supplier involvement in their decision making process, since these practices help improve both the ability and attitude of stakeholders. In fact, one of the guiding principles of Toyota requires the company to foster a corporate culture that enhances individual creativity and teamwork value, while honoring mutual trust and integrity.

1.20.2 Example of Bad Corporate Governance: ENRON

Many companies are involved positive and negative risk that it takes. Enron was a company caused by poor corporate governance. It has also triggered a flood of legislative and regulatory changes and codes of conduct across the developed and emerging worlds to improve systems for ensuring that public companies are run properly in shareholders' interest. The situation Enron faced as a company was alleged corporate fraud. It responded by ensuring that the company rules and policies were updated with the standard set by SarbanesOxley requirements. As a result, Enron is compelled to go back to its basic fundamentals where it laid its foundations.

Enron was a financial scandal that was reveled in the late 2001. After a series of revelations involving irregular accounting procedures bordering on fraud, perpetrated throughout the 1990s, involving Enron and its accounting firm Arthur Andersen. Enron filed for bankruptcy on December 2, 2001. Enron's Devastation occurred after it was revealed that much of its profits and revenue were the result of deals with special purpose entities. Enron as a company had many unsolved problems dealing with financial disputes. Not having the right people in management caused Enron to fall right on its face.

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The company had a corporate culture that encouraged its staff to influence public policymakers on the deregulation or privatization of the U.S. (and world) energy sector. Second, the company both instructed and led its accounting firm into `dubious' financial transactions, which ultimately caused the collapse of Enron and may have ended Andersen as an independent firm, especially in its core business of accounting. (ukessays on corporate govenance)

1.21 CONCLUSION:
Good corporate governance may not be the engine of economic growth, but it is essential for the proper functioning of the engine. The investors both National and International would be loyal to invest in the companies if they follow all the standards of corporate governance practices. Further, to nurture and strengthen this loyalty, the companies need to give clear-cut signal that the words your company have real meaning. That requires well functioning Board, greater disclosure, better management practices, and a more open, interactive and dynamic corporate governance environment. Quite simply, shares holders and creditors support are vital for the survival, growth and competitiveness of the companies. 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 companies 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. Thus, the essence of corporate governance is in promoting and maintaining integrity, transparency and accountability in the management of the company as well as in manifestation of the values, principles and policies of a corporation. In order to make an honest and objective assessment on corporate governance practices we do need more laws but better enforcement because the effectiveness and the utility of good corporate governance practices rest on its enforceability.

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1.22 BIBLIOGRAPHY
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