Corporate Governance is the overall control of activities in a corporation.

It is concerned with the formulation of long term objectives and plans and proper management structure to achieve them. At the same time, it entails making sure that the structure functions to maintain the corporations integrity and responsibility to its various constituencies.

Ownership structure-The structure of ownership of a company determines, how a corporation is managed and controlled. Our corporate sector is characterized by the co-existence of state owned, private and multinational enterprises. The shares of these enterprises are held by institutional as well as small investors. Large shareholders tend to be active in corporate governance either through their representatives on the company boards or through active participation in annual general meetings. Under the concentrated ownership structure as has been demonstrated through the Bajaj group ,corporate performance tends to be better.

Structure of company boards-Company Boards are permitted to vary in size, composition and structure so as to best serve the interests of the corporation and the shareholders .With regard to the size of the board, opinions and practices vary. It is the quality of the Directors, the interests they take and the roles that they assume which are more vital than mere numbers or composition.

Financial structure-The financial structure of the company has an implication on the quality of Corporate Governance. The lenders exercise significant influence on the way a company is managed and controlled. Banks as creditors can perform the important function of screening and monitoring companies as they are better informed than other investors .Further, banks can diminish short term biases in managerial decision making by favoring investments that would generate higher benefits in the long run. Banks fosters close financial relationships with the companies because of their nominees on the board and they play a favorable role than other investors in reducing the cost of financial distress.

Institutional Environment- The legal,regulatory and political environment within which a company operates determines in large measure the quality of corporate governance.e.g:The extent to which shareholders can control the management depends on their voting rights as defined in company law,the extent to which creditors will be able to exercise financial claims on a bankrupt unit will depend on bankruptcy laws and procedures and the extent to which the market for corporate control efficiency operates to discipline underperforming management will depend on takeover regulations.

Companies Act, 1956-To ensure Corporate Governance the Act confers legal rights to shareholders to: Vote on every resolution placed before an AGM, to elect directors who are responsible for specifying objectives and laying down policies, removal of directors, take active part in AGMs, buyback of shares etc. Securities Law-e.g.The promoters are required to take a minimum stake of about 20% in the capital of the company and to retain these shares for a minimum lock-in period of 3 years.Clause 49 of the listing agreement provides for the optimum composition of executive and non-executive directors,setting up of a qualified and independent audit committee,remuneration of directors,Management discussion and Analysis Report to form part of annual report to the shareholders,a separate section on Corporate Governance in the annual reports of the company,auditors complaince certificate to the effect that all the conditions of the corporate governance have been complied with. Discipline of the capital market-Capital Market has considerable impact on corporate governance.Herein lies the role the minority shareholders can play effectively.They can refuse to subscribe to the capital of a company in the primary market and in the secondary market,they can sell their shares,thus depressing the share prices.A depressed share price makes the company an attractive take-over target. Nominees on company boards Statutory audit Codes of conduct

Mechanisms of Corporate Governance

Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations, and society. The incentive to corporations and to those who own and manage them to adopt internationally accepted governance standards is that these standards will help them to achieve their corporate aims and to attract investment. The incentive for their adoption by states is that these standards will strengthen the economy and discourage fraud and mismanagement. The foundation of any structure of corporate governance is disclosure. Openness is the basis of public confidence in the corporate system, and funds will flow to the centers of economic activity that inspire trust.

Inadequacies and failures of an existing system often bring to the fore the need for norms and codes to remedy them. This is true of corporate governance too. Deficiencies in the Accounting Standards became more evident after many companies, in their eagerness to increase earnings and accelerate growth, exploited the weaknesses in the accounting standards to show inflated profits and understate liabilities.

Recommendations of Birla Committee

The Birla Committee Report is the first formal and comprehensive attempt to evolve a Code of Corporate Governance, in the context of prevailing conditions of governance in Indian companies, as well as the state of capital markets. The Committee, felt that the recommendations should be divided into mandatory and nonmandatory categories.

 Applicability: The recommendations will apply to all the listed private and public sector companies, in accordance with the schedule of implementation. This is a mandatory recommendation. Board of Directors: Board of Directors should have an optimum combination of executive and non-executive directors. The CII Code has also laid down that no individual should be a director on the boards of more than 10 companies at any given time; non-executive directors should be active, have defined responsibilities, and be conversant with P & L accounts; directors who have not been present for at least 50 per cent of board meetings should not be re-appointed.

 Audit Committee and Remuneration Committee: One of the items of the CII Code is that there should be an Audit Committee, which shall have access to all financial information. The Birla Committee has recommended an Audit Committee to act as a catalyst for effective financial reporting, with powers to investigate any activity within its terms of reference and to seek information from any employee. Accounting Standards and Financial Reporting: companies are required to give consolidated accounts in respect of all its subsidiaries in which they hold 51% or more of the share capital.

 Management: While the Board is responsible for ensuring that the principles of corporate governance are adhered to and enforced, the real onus of implementation lies with the management which is responsible for translating into action the policies and strategies of the Board and implementing its directives to achieve corporate objectives of the company framed by the Board. It is, therefore, essential that the board should clearly define the role of the management.

 Shareholders: The shareholders are the owners of the company and as such they have certain rights and responsibilities. The Committee believes that the General Body Meetings provide an opportunity to the shareholders to address their concerns to the board of directors and comment on and demand any explanation on the annual report or on the overall functioning of the company. The Committee has also recommended that the institutional shareholders take an active interest in the composition of the Board of Directors and evaluate the corporate governance performance of the company.