Corporate Governance

1. Corporate governance refers to the set of systems, principles and processes by which a company is governed. 2. They provide the guidelines as to how the company can be directed or controlled such that it can fulfill its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. 3. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society 4. The management of the company hence assumes the role of a trustee for all the others

Institute of Company Secretaries of India Corporate Governance is the application of best Management Practices, Compliance of Laws in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.

Standard and Poor Corporate Governance is the way a company is organized and
managed to ensure that all financial stakeholders receive a fair share of the companys earnings and assets.

Objectives of Corporate Governance: Corporate Governance is aimed at creating an organization which maximizes the wealth of shareholders. It envisages an organization in which emphasis is laid on fulfilling the social responsibilities towards the stakeholders in addition to the earning of profits. The objectives of Corporate Governance is to ensure the following:

1. Properly constituted Board capable of taking independent and objective decisions.

2. Board is independent in terms of Non-Executive and Independent Directors. 3. Board adopts transparent procedures and practices. 4. Board has an effective machinery to serve the concerns of the Stakeholders. 5. Board to monitor the functioning of the Management Team. 6. Properly constituted Board capable of taking independent and objective decisions. 7. Board is independent in terms of Non-Executive and Independent Directors. 8. Board adopts transparent procedures and practices. 9. Board has an effective machinery to serve the concerns of the Stakeholders. 10. Board to monitor the functioning of the Management Team. 11. Board remains in effective control of the affairs of the Company.

Elements of Good Corporate Governance :1. Role and Powers of the Board. 2. Legislation 3. Management Environment 4. Board Skills 5. Board Appointments 6. Board Induction and Training 7. Board Independence 8. Board Meetings 9. Board Resources 10. Code of Conduct 11. Strategy setting 12. Financial and Operational Reporting 13. Monitoring the Board Performance 14. Audit Committee 15. Risk Management

Secretarial Standards :The Institute of Company Secretaries of India has issued the following Standards in order to maintain the uniformity of procedure with regard to the Board Meetings, General Meetings, Payment of Dividend, Maintenance of Registers and Records, Recording of Minutes and Transfer and Transmission of Shares. A brief detail of these standards is given as under : -

SS1 Meetings of Board of Directors : The Secretarial Standard 1 deals with the meetings of the Board of Directors. It deals with the various aspects of the conducting the Board Meetings, the frequency of such meetings in an year, Quorum required for the meeting, powers of the Chairman in such meetings, and recording of minutes of such meetings.

SS2 - General Meetings : The Secretarial Standard 2 deals with the General Meetings. It explains the procedure of conducting the General Meetings, the frequency of meetings in an year, Quorum required for the conduct of the meeting, powers of the Chairman in such meetings, recording of minutes of such meetings, procedure of voting, etc.

SS3 Dividend : This Secretarial Standard pertains to Dividend. It illustrates the calculation of amount payable as dividend, declaration of dividend, Treatment of Unpaid Dividend, and Transfer of Dividend to Investor Education and Protection Fund(IEPF). SS4 Registers and Records This Secretarial Standard enumerates the various Registers required to be maintained as per statutory requirements. It requires the following registers to be maintained : Register of members and Debenture holders. Register of Contracts u/s 301.

 Register of Directors u/s 303. Register of Transfer of Shares.

SS5 Minutes This Secretarial Standard deals with the recording and signing of Minutes of the Meetings. Minutes should contain : (a) The appointment of the Chairman of the meeting. (b) The presence of Quorum. (c) The fact that certain registers and documents were available for inspection. (d) The number of members present in person including representatives. (e) The number of proxies and the number of shares represented by them. (f) The presence of the Chairman of the Audit Committee at the Annual General Meeting. (g) The presence if any, of the Auditors, the Practising Company Secretary who issued the Compliance Certificate, the Court appointed observers or scrutineers. (h) Reading of the notice of the meeting. (i) Reading of the report of the auditors. (j) Summary of the opening remarks of the Chairman. (k) Summary of the clarifications provided. (l) In respect of each resolution, the type of the resolution, the names of the persons who proposed and seconded and the majority with which such resolution was passed. Resolutions should be written in the present tense.

SS6 Transfer and Transmission of Shares This Secretarial Standard deals with the procedure of Transfer and Transmission of shares held singly and jointly. The register and records pertaining to transmission should be preserved permanently and kept in the custody of the secretary of the company or any other person authorized by the Board for the purpose.

Factors Influencing the quality of Corporate Governance :-

1. Integrity of the Management 2. Ability of the Board 3. Adequacy of the Process 4. Quality of Corporate Reporting 5. Participation of Stakeholders 6. Quality of Corporate Reporting 5.

What are the principles underlying corporate governance?

1. Corporate governance is based on principles such as conducting the business with all integrity and fairness 2. Transparent with regard to all transactions, making all the necessary disclosures and decisions 3. Complying with all the laws of the land, accountability and responsibility towards the stakeholders 4. Commitment to conducting business in an ethical manner

Features of Corporate Governance

The characteristics or features of corporate governance are listed below. 5. 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. 6. 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. 7. More Powers to CEO: The CEO must be given more powers so that he can approve the companys plans and strategies independently. 8. Accountability: The CEO and the Board of Directors must be made accountable for their actions to the stakeholders and to the entire society. 9. 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. 10. 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. 11. 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.

 Importance of Corporate Governance

The need, significance or importance of corporate governance is listed below 1. Separation of ownership and management so that the interests of all stakeholders are protected. 2. Empirical evidence shows that businesses with superior governance practices generate bigger profits, higher returns on equity and larger dividend yields. 3. Importantly, good corporate governance also shows up in such soft areas as employee motivation, work culture, corporate value system and corporate image. 4. Conversely, the failure of high profile companies such as BCCI, Enron and WorldCom was a clear lesson of the damage bad corporate governance can cause. 5. Changing Ownership Structure: In recent years, the ownership structure of companies has changed a lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc. The also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance. 6. Importance of Social Responsibility: Today, social responsibility is given a lot of importance. The Board of Directors has to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance. 7. Growing Number of Scams: In recent years, many scams, frauds and corrupt practices have taken place. Misuse and misappropriation of public money are happening every day in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate governance. 8. Indifference on the part of Shareholders: In general, shareholders are inactive in the management of their companies. They only attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings. Shareholders associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance to protect all the stakeholders of the company. 9. Globalization: Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate governance, it is impossible to enter, survive and succeed the global market. 10. Takeovers and Mergers: Today, there are many takeovers and mergers in the business world. Corporate governance is required to protect the interest of all the parties during takeovers and mergers.

11. SEBI: SEBI has made corporate governance compulsory for certain companies. This is done to protect the interest of the investors and other stakeholders.