Corporate governance is defined as the system by which business entities are mon itored, managed and controlled.

Corporate governance practices have become an es sential prerequisite for the ability to acquire and retain financial resources necessary for restructuring long term investment and sustainable growth. At one end of the spectrum the shareholders are the owners of business entity as they a re risk takers. At the other end the managers or the executive director of the c ompany who are in control of its day-to-day affairs. A good structure of corporate governance is that encourages balanced relationshi p among shareholders, executive directors and the board of directors. The govern ance mechanism is shaped by its political, economic and social history and its l egal frame work. In the beginning most of the countries found company to be the convenient form of organizations that enabled entrepreneurs to raise money from large number of investors. Shareholders start agitating only when they perceive that the company is being highly mismanaged and the shareholder value is getting destroyed. Promoting equity and ethics We want corporate governance because we say it is accountable. It promotes equit y and ethics. If it does not promote equity and ethics, then it is not corporate governance. This is what we have been doing manipulation of business of majority of people. Business has been doing this throughout history. Now things have to change. They have to change because that is what will create value. Promoting gender balance , accepting diversity are issues which will make markets worth for the poor. Markets should bring prosperity and work for the poor. If markets do not work fo r the poor, corporate governance is not successful. Mr Damodaran, he is great fr iend of mine, this is one of his agendas: how can markets work for the benefit o f the poor? Not just for 2%, we are now shining in the glory of India, and we sa y that our stock markets have gone up to 14,000 it may have come down temporarily we are talking of 9.2% growth, we are talking of US$190 billion worth foreign exch ange reserves and a whole lot of things. But stock market participation is just 2%. While it is 25% in the US, here it is just 2%. What about the rest of 98%? How can we bring the rest and why do we th ink stock markets are important? This is one instrument where it does not matter whether you are from Chennai or from Bangalore or you are from Mumbai. Stock ma rkets do not distinguish between your castes. Emerging Challenges While corporates have been quite successful in placing effective processes that will ensure compliance with the listing norms, several challenges exist in the governance la ndscape. Though the Chairman and CEO are separated in several companies, quite often it i s found that a family member who is a non executive director is chairman and another fam ily member is the CEO. Such arrangements meet the compliance requirements in letter but not in spirit. Similarly, in some it was found that meetings of several committ ees are clubbed together to save on time. Though time is an important element that needs to conserved with great care, the focus of the discussion should not be lost in try ing to save time, which might lead to a situation where committees are called in a routine m anner to

fulfil the regulatory requirement. Significant improvements are required in res pect to the reporting of subsidiary company operations as also related party transactions, a general feeling that is commonly shared by most of the practicing community on the corpo rate governance. Evaluation of the performance of the Board and the sub committees in particular the Audit Committee needs to be further strengthened and streamlined. In view of the sizeable representation of the public sector enterprises in the stock market capitalization, it becomes important to speed up the process of placing required number of independent directors in these companies. These companies being big in size a nd having significant growth, it is important that a short coming on the proportion of ind ependent directors should not place them in a disadvantageous position in regard to compl iance standards. Companies should endeavour to extend the range of disclosures beyond the mandatory norms to areas such as management processes, corporate social responsi bility etc., The next round of reforms might focus on the compensation and remuneration committees since they will assume greater significance in the background of enor mous growth of the companies and their operations extending beyond the national bound aries entailing greater challenges for management. Some companies feel that the next r ound of major discussion and disclosures will center around compensation disclosure anal ysis which discusses the parameters governing the compensation for the executive directors as also designing effective structure for executive compensation.