CORPORATE GOVERNANCE

Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists of either a separate process or part of management or leadership processes. These processes and systems are typically administered by a government.

An ethical and socially responsible company generally conforms to the standards of good corporate governance.
Researchers show that investors from all over the world indicate that they will pay a large premium for companies with an effective corporate governance.

Corporate governance enables corporations to realize their corporate objectives, protect shareholder rights, meet legal requirements and demonstrate to wider public how they are conducting their business encourages efficient use equally, for accountability of resources

Corporate governance is the balance between economic and social goals and between individual and communal goals.
It is the system by which the companies are directed and controlled and the means by which they are responsible to their shareholders, employees and the society. It is also concerned with the values, ethics and morals of a company.

The rule is to ensure that the directors of company are subject to their duties, obligations and responsibilities in the best interest of their company, to remain accountable to their shareholders

It is the increasing role of foreign institutional investors (FIIs) in the emerging economies that has made the concept of corporate governance a relevant issue today.
The increasing concern of FIIs is that the enterprise in which they invest should not only be effectively managed but should also observe the principles of corporate governance

Liberalization and deregulation all over the world have given greater freedom in management. This would imply greater responsibilities. Competition brings in its weakness in standards of reporting and accountability. The market conditions are increasingly becoming complex in the light of global developments like World Trade Organization (WTO) and removal of barriers/reduction in duties. The failure of corporate due to lack of transparency, disclosures, and instances of falsification of accounts/embezzlement, and the effect of such undesirable practices in other companies.

Importance
It lays down the framework for creating a long-term trust between

companies and the external providers of capital. It improves strategic thinking at the top level by inducting independent directors, who bring in a wealth of experience and a host of new ideas. It rationalizes the management and monitoring of risk that a firm faces globally. It limits the liability of top management and directors, by carefully articulating the decision-making process. It has long-term reputation effects among key stakeholders, both internally (employees) and externally (clients, communities, political/regulatory agents).

PROBLEMS OF CORPORATE GOVERNANCE Supply of accounting information Demand for information Monitoring costs BEST PRACTICES IN CORPORATE GOVERNANCE : Corporate boards and directors, Operational management and control, Credibility and transparency of reporting, Shareholders democracy, Protection of minority interests.

THE BOARD KEY TO GOOD CORPORATE GOVERNANCE

Board Responsibility 1. Approve a core philosophy and mission 2. Monitor and evaluate the corporate performance 3. Monitor and evaluate the corporate strategy 4. Review and approve material transactions not in the course of ordinary business 5. Determine the executive compensation 6. Evaluate the senior management performance 7. Manage the Executive Director/CEO succession 8. Communicate with the shareholders 9. Evaluate the boards performance

Executive directors are those who are in whole time appointed, non-executive directors are from outside the company.

THE SEARCH FOR A NEW APPROACH TO CORPORATE GOVERNANCE Teadway Commission (USA) Placed a great emphasis on the composition and functioning of the board of directors. Cadbury Committee (UK) The Cadbury Committee on the financial aspects of corporate governance examined the issue of corporate governance primarily from the point of view of the shareholders of a company. The King Committee (South Africa) The King Committee (South Africa) was set up to develop a code of ethics for business enterprises. The Naresh Chandra Committee Report, 2002 The Naresh Chandra Committee (India) was appointed to make recommendation on the representation of independent directors and composition of audit committees. The Recommendations of Narayana Murthy Committees are emphasized on audit committee audit qualification, and code of conduct.

CODE OF CONDUCT FOR CORPORATE GOVERNANCE Code of conduct are guidelines for all board members and the senior management of a company, and which are obligatory on them. Prescribing of ethical values which are universally acceptable Providing for highest standards of functioning as board of directors in an impartial and objective manner Ensuring transparency in functioning How requisite care and diligence has to be ensured in functioning Encouraging discipline Avoiding conflict of interests Ensuring confidentiality Providing of requisite incentives for efficient and effective functioning Respecting one another Loyalty to the organization Providing motivation

MEASURES TO IMPROVE CORPORATE CONDUCT 1. Improving financial disclosure norms; 2. Making relevant non-financial disclosures mandatory; 3. Making the management more accountable towards fulfilling its responsibility to society at large; 4. Changing the composition and functioning of company boards, with greater proportion of competent non-executive directors; 5. Formation of audit committees consisting exclusively of nonexecutive independent directors; 6. Suggesting ways of effective involvement of institutional investors in the management and conduct of the affair of a company; and 7. Facilitating a free play of market forces in securing a change of management.

CORPORATE GOVERNANCE AND INDIA

In India, the growing reliance placed by private and public sector

companies on capital markets, underpinning the need of corporate governance. Economic reforms that allowed that the growth of free enterprise and free private investment opportunities. Growing awareness of investors

Consciousness among stock exchanges.

Kumar Mangalam Birla Committee - First Step in the Intended

Direction

Setting up of National Foundation for Corporate Governance (NFCG)

Second Step in the Intended Direction Setting of Naresh Chandra committee in 2002.

In India, the corporate governance code proposed by the CII is modelled on the lines of the Cadbury committee in the UK.

The CII published Indias first governance code ( Desirable corporate governance : A Code) in 1998.

Company Law Securities Law- SEBI has set up as a statutory authority in1992 and it has taken a no of initiatives in the area of investor protection. 1. Declaration of unaudited quarterly results. 2. Compliance officer 3. Dispatch of a copy of Complete balance sheet to every investor. 4. Provide information in the Directors report for end use of funds.

SEBI in the revised clause 49 of the listing agreement had mandated that at least 50% of the board of a listed company comprise independent directors. Nomination committee Compensation Conmmittee Governance committee

CRISIL

The Satyam Scandal prompted quick action by the government, including the arrest of several insiders and auditors of Shyam, investigations by SEBI, and substitution of the companys directors with theb government nominees