CORPORATE GOVERNANCE :

-VINAY KUMAR THAMMI

DEFINITION: its a system by which corporations are direscted and controlled.
The system of rules, practices and processes by which a company is directed
and controlled. Corporate governance essentially involves balancing the
interests of the many stakeholders in a company - these include its
shareholders, management, customers, suppliers, financiers, government
and the community.

THE ROLE OF CORPORATES IN INDIA:

1. Economic growth and development.
2. Government services and schemes implemnted via the publivate
partnership(PPP) mode and hence has a mjor hand in the shaping of indias
future
3. Role in improvement of social indicators like education, health, water, basic
services.
4. Role in imports and exports and fortifying the ties with our major trading
partners
5. Role of corporates in disaster risk managemnet and post disater relief
managemnet.
6. Corporate social responsibility to remove the inequalities and develop those
areas not being concentrated by the government.
7. With the uhering in of LPG, corporates have undeniable role in trade and
commerce and basic service provider

8. With the governmnet moving away from its role in service providing by the
way of disinvestments , corporates have a greater role to play.
9. Bridges the gender justice and encourages the merit and skill development.
10.Dividents of demography can be fructified with active intervention of
corporates.
11.Helps in inclusive growth and financial inclusion, this being reflected in PC
emphasizing its role in 12th five year plan.
12.Helps the economies in coping up with the financial crisis

The governance structure specifies the distribution of rights and responsibilities among
different participants in the corporation (such as the board of directors, managers,
shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules
and procedures for making decisions in corporate affairs.
PRINCIPLES OF CORPORATE GOVERNANCE: The Cadbury Report (UK, 1992), the
Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of
2002 (US, 2002) has speicified following principles;
Rights and equitable treatment of shareholders
Interests of other stakeholders
Role and responsibilities of the board
Integrity and ethical behavior
Disclosure and transparency

NEED FOR CORPORATE GOVERNANCE:

The presence of an active group of independent directors on the board

contributes a great deal towards ensuring confidence in the market.

Corporate governance is known to be one of the criteria that foreign
institutional investors are increasingly depending on when deciding on which
companies to invest in.
It is also known to have a positive influence on the share price of the company.
Having a clean image on the corporate governance front could also make it
easier for companies to source capital at more reasonable costs.
It matters for both the clients (in the form of Improving access to

capital, Improving performance) and the corporate (for value

addition, Reducing investment risk, Avoiding reputational
risk, Developing capital markets )
Dynamic changing structure of ownership

Importance of social responsibility

Proliferation and ubiquitous corporate scams in corroboration with state and
nonstate entities.
Regulate acquisition, mergers, takeovers.

Liberalization and its associated developments, i.e. deregulation, privatization

and extensive financial liberalization has made it important.
Greater role of corporate in the presnt world effecting wider array of public.
Hence their regulation and control takes primacy over all others.

EVOLUTION OF CORPORATE GOVERNANCE FRAMEWORK IN INDIA:

Companies act of 1956 provided for basic framework for regulation of all the
companies in india.
SecuritiesContract Regulations Act, 1956 provided for rules and provisions to
be complied by the companies.
SEBI Act, 1992 empowered it to control the corporate in listings and
recognitions and enforce discipline in the share markets.
A separate ministry of corporate affairs has been set up in the government to
look into such issues.
A committee set up under the chairman ship of rahulbajaj by CII ,the CII
released the code called Desirable Corporate Governance. It looked
intovarious aspects of Corporate Governance and was first to criticize nominee
directors and suggested dilution of government stake in companies.
SEBI had set up a Commission under Kumarmanlagam Birla. This committee
covered issues relating to protection of investor interest, promotion
oftransparency, building international standards in terms of disclosure of
information.
The Department of Companies Affairs (DCA) modified the Companies Act,
1956. It undertakes periodic review and brings about amendments in the
Companies Act, 1956. In 1999, the Act introduced the provision relating to

nomination facilities for shareholders and share buybacks and for formation of
Investor education and protection fund.
The Department of Corporate Affairs constituted Naresh Chandra Committee
in 2002. The committee talks extensively about the statuary auditor-company
relationship, rotation of statutory audit firms/partners, procedure for
appointment of auditors and determination of audit fees, true and fair statement
of financial affairs of companies.
SEBI appointed Narayan Murthy Committee in 2002. Its report mainly
focuses on and makes mandatory recommendations regarding responsibilities of
audit committee, quality of financial disclosure, requiring boards to assess and
disclose business risks in the companys annual reports.
Clause 49 of the Listing Agreement : has enlisted following requirements for
the corporate governance;
Independence of board
Independence of directors
Duties and remuneration of board and directors
Role of audit committee and auditors.
Appointments and powers of independent directors.
In December 2009, Ministry of Corporate Affairs specified Voluntary
Guidelines on Corporate Governance. These guidelines provide for a set of
good practices, which will 8help the companies to strengthen their internal
governance processes and may be voluntarily adopted by the Indian Public
companies.
In March 2012, Ministry of Corporate Affairs constituted a committee under
the Chairmanship of Mr. Adi Godrej, Chairman, Godrej Industries Limited,
to formulate policy document on Corporate Governance. In September, 2012
the Committee submitted its document, specifying seventeen guiding
principles on corporate governance.
The Companies bill waiting to become companies act 2013, mandates the
novel CORPORATE SOCIAL RESPONSIBILITY principle. This would
enhance the corporate governance.

ISSUES IN CORPORATE GOVERNANCE:

Value based corporate culture

Holistic view
Compliance with laws
Disclosure, transparency, & accountability
Corporate governance and human resource management
Innovation
Necessity of judicial reforms
Globalization helping Indian companies to become global giants based on
good corporate governance
Lessons from Corporate failure

Inclusion of ethics in corporate governance is the important aspect in the improvement of

corporate governance.
ETHICAL CORPORATE GOVERNANCE
1. shortest - definitions is, to quote Lord Moulton, "obedience to the unenforceable".
2. Business ethics (also corporate ethics) is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in a
business environment. It applies to all aspects of business conduct and is relevant to the
conduct of individuals and entire organizations.
NEED FOR ETHICS IN BUSINESS:

Ethics help make relationships mutually pleasant and productive- imbibes a

sense of community among members- a sense of belongingness to society.
Ethics are the guiding principles for any endeavour.
To stop business malpractices
Improve customers confidence
Survival of business
Safeguarding customer rights
Protecting the interest of employees and shareholders
Develop good relations
Healthy competition and consumer satisfaction.

RECENT INITIATIVES TO ENHANCE CORPORATE GOVERNANCE IN

INDIA:
1. Green Initiatives in the Corporate Governance : The Ministry of corporate affairs has
allowed paperless compliances by the companies and Registrar of Companies under the
provisions of the Companies Act, 1956 .
2. Simplification in Procedures and Process under Companies Act, 1956
3. e-Payments in the Ministry: The payment of filing fee by the companies has been
made completely online
4. adoption of International Financial Reporting Standards (IFRS)
5. Investor awareness programmes
6. The Companies Bill, 2012
7. Reorganisation of field offices.
8. Easy Exit Scheme, 2011
9. Setting up of Indian Institute of Corporate Affairs (IICA)
10. Limited Liability Partnership Act
11. National Company Law Tribunal (NCLT)
12. New Bills on Multi State Societies and Multi State Partnerships

13. Various orientation programmes for Directors throughCentres of Excellence, seminars

and conferences topropagate propagate the need for following following good corporate
corporategovernance practices are being organized.
14. Setting up of NFCG in partnership withstakeholders CII, ICAI, ICSI& FICCI.
15. Setting up of Investor Education and ProtectionFund.
16. Amendments to the Acts governing three professional institutes(ICAI/ICSI/ICWAI)
(ICAI/ICSI/ICWAI) with a view to strengthen strengthen the disciplinary
disciplinarymechanism and bring transparency in their working.
17. Empowering SEBI under the SEBI Clause 49 for greater regulation and monitoring of
companies
18. Mandatory corporate social responsibility (CSR) under the companies act 2013.
THE ULTIMATE AIM OF CORPORATE GOVERNANCE IS FOR A
PROSPEROUS INDIA