Issues of corporate governance have been hotly debated in the United States and Europe over the last

decade or two. In India, these issues have come to the force only in the last couple of years. For example,
the corporate governance code proposed by the Confederation of Indian Industry is modelled on the lines
of the Cadbury Committee (Cadbury, 1992) in the United Kingdom. On account of the interest generated
by Cadbury Committee Report, the Confederation of Indian Industry (CII), the Associated Chambers of
Commerce and Industry (ASSOCHAM) and, the Securities and Exchange Board of India (SEBI) constituted
Committees to recommend initiatives in Corporate Governance. The main objective of it was to develop
and promote a code for Corporate Governance to be adopted and followed by Indian companies, be these
in the Private Sector, the Public Sector, Banks or Financial Institution, all of which are corporate entities.
Corporate governance represents the value framework, the ethical framework and the moral framework
under which business decisions are taken. In other words, when investments take place across national
borders, the investors want to be sure that not only is their capital handled effectively and adds to the
creation of wealth, but the business decisions are also taken in a manner which is not illegal or involving
moral hazard.
In the Indian context, the need for corporate governance has been highlighted because of the scams
occurring frequently since the emergence of the concept of liberalization from 1991. We had the Harshad
Mehta Scam, Ketan Parikh Scam, UTI Scam, Vanishing Company Scam, Bhansali Scam and so on. In the
Indian corporate scene, there is a need to induct global standards so that at least while the scope for
scams may still exist, it can be at least reduced to the minimum.

Kumar Mangalam Birla Committee First step in this direction

A committee was set up by SEBI under the Chairmanship of Kumar Mangalam Birla to promote and raise
standards of corporate governance. The committee in its report observed that the strong Corporate
Governance if indispensable to resilient and vibrant capital markets and is an important instrument of
investor protection. It is the blood that fills the veins of transparent corporate disclosure and high quality
accounting practices. It is the muscle that moves a viable and accessible financial reporting structure.
The recommendations of the Kumar Mangalam Birla Committee, led to the inclusion of Clause 49 in the
listing Agreement in the year 2000.

Setting up of National Foundation for Corporate Governance (NFCG)

Ministry of Company Affairs has recently of set up National Foundation for Corporate Governance (NFCG)
in partnership with Confederation of Indian Industry (CII), Institute of Company Secretaries of India
(ICSI) and Institute of Chartered Accountants of India (ICAI).

Functions of NFCG
Creating awareness regarding benefits of implementation of good corporate governance practices.
Encouraging research capability in the area of corporate governance.
Providing key inputs for developing laws and regulations.
Laisioning with the various regulatory authorities for proper implementation and

enforcement of

various laws related to corporate governance.

Cultivation of international linkages and maintaining the evolution towards convergence with
international standards.
Setting up of National Centres for Corporate Governance across the country to
provide quality training to Directors and also to produce quality research with the
aim to receive global recognition.

Regulatory framework of Corporate Governance in India

Corporate Governance through Listing Agreement
With the introduction of Clause 49 in the Listing Agreement, the issue of corporate governance has
acquired centre-stage. In its constant endeavor to improve the standards of corporate governance in
India, SEBI, in October 2002, constituted a Committee on Corporate Governance under the Chairmanship
of Shri N. R. Narayana Murthy. Based on the recommendations of the said Committee and public
comments received thereof, SEBI issued a circular on August 26, 2003 revising Clause 49 of the Listing
Agreement, to review the progress of the corporate sector in meeting the norms of corporate governance
and to determine the role of companies in responding to rumour and other price-sensitive information
circulating in the market in order to enhance the transparency and integrity of the market players and
participants.
Major changes have been made to the definition of 'independent directors'; strengthening the
responsibilities of audit committee; improving the quality of financial disclosures and finally; the board as
a whole has been tasked with the adoption of a formal code of conduct for senior management and the
certification of financial statements issued by the CEO or the CFO.
Accordingly, companies are now required to form various committees like a 'nomination committee',
'compensation committee', 'governance committee' and other committees like to adhere to corporate
governance.
Similarly, the law requires the nomination committee of the board to be composed entirely of independent
directors, who will be responsible for the evaluation and nomination of board members. In India, the
responsibilities of 'audit committee' include scrutiny of the company's annual audited financial statements,
appointment of external auditors, interacting with internal auditors and issues relating to internal controls
existing in the company.

SEBI initiatives for strengthening Corporate Governance

As a regulator, SEBI has initiated several measures through amendments in listing agreement. Some of
these are:
Strengthening of disclosure norms for Initial Public Offering following the recommendation of Malegam
Committee.
Providing information in the directors report for utilization/end use of funds and variation between

projected and actual use of funds.

Declaration of unaudited quarterly results.
Mandatory appointment of Compliance Officer for monitoring the share transfer process and ensuring
compliance with rules and regulations.
Dispatch of a copy of complete balance sheet to every investor household and arbitrage copy of balance
sheet to all shareholders.
Under the SEBI Act, 1992, SEBI has extensive powers to issue directions to market participants on a wide
range of subjects, many of which relate to corporate governance.
Governance by Financial Institutions:
The Financial Institutions have also taken responsibility enforcing corporate governance in companies
where they have substantial stakes. They insists the companies on following:
making adequate disclosures,
moving towards internationally accepted accounting standards,
maintaining distinction between the CEO and Chairman, wherever applicable, and
holding regular meetings with proper recording and dissemination of proceedings.

Financial Institutions have also implemented new norms for appointment of nominee directors which have
drastically cut down the total number of such directors on companys board.

What is corporate governance?

Corporate Governance is concerned with holding the balance between economic and social goals and between
individual and communal goals.
The corporate governance framework is there to encourage the efficient use of resources and equally to require
accountability for the stewardship (looking after) of those resources.
The aim is to align as nearly as possible the interests of individuals, corporations and society
- Sir Adrian Cadbury
What is corporate governance? Contd

The primary purpose of corporate leadership is to create wealth legally and ethically.

This translates to bringing a high level of satisfaction to five constituencies -- customers, employees,
investors, vendors and the society-at-large.

Most important to every corporate body is to ensure predictability, sustainability and profitability of
revenues year after year.
- N R Narayana Murthy
History of Corp Gov in India

Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any
serious nationwide financial, banking and economic collapse

In December 1995, CII (Confederation of Indian Industry ) set up a task force to design a voluntary code
of corporate governance

The final draft of this code was widely circulated in 1997

In April 1998, the code was released. It was called Desirable Corporate Governance: A Code

Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco,
Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

History of Corp Gov in India

Following CIIs initiative, the Securities and Exchange Board of India (SEBI) set up a committee under
Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies

The Birla Committee Report was approved by SEBI in December 2000

Became mandatory for listed companies through the listing agreement, and implemented according to a
rollout plan
History of Corp Gov in India

Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956
to incorporate specific corporate governance provisions regarding independent directors and audit committees

In 2001-02, certain accounting standards were modified to further improve financial disclosures. These
were:

Disclosure of related party transactions

Disclosure of segment income: revenues, profits and capital employed

Deferred tax liabilities or assets

Consolidation of accounts
CORPORATE GOVERNANCE CONCEPT:

Corporate governance is not just corporate management ,it is something much broader to include
fair,efficient and transparent administration to meet certain well define objective.

It is a system by which companies are run. it relates to the set of incentives,safegaurds and the dispute
resolution process that are used to control & coordinate the action of the agents on behalf of the shareholder by
the board of director.
It is related to the code of conduct the management of the company observes while exercising its power.
The Cadbury committee (U.K) has defined corporate governance as
the system by which companies are directed and controlled
NEED AND SIGNIFICANCE OF CORPORATE GOVERNANCE

Changing ownership structure

Social responsibility

Scams

globalization
Fundamental principles of corporate governance.

Transparency

Accountability

Independence

reporting
MAIN ISSUE IN CORPORATE GOVERNANCE.

ROLE OF BOARD OF DIRECTORS: the board of company is expected to perform the following
functions:

Determine the distinctive purpose for the company.

Establish achievable and measurable objectives and formulate plans for their achievement

Ensure that the company has adequate finance people,organisation supporting technology.

Appoint a management team and establish the framework of policies and values within which the
management operates.

Approve and review plans, and monitor performance and taking corrective action ,where appropriate.
Safeguard the physical, financial assets of the company and ensure ethical conduct.
Ensure renewal, learning and development of key competencies.
Report performance to various shareholders in the company.

Composition of the board:

the non executive directors can play a crucial role in corporate governance .they can exercise independent
judgment in matters of corporate practise,performance and resource management and monitoring .the non
executive director should be selected through the formal process and the board as a whole should decide their
nomination.

They should be appointed for a specific term.

Audit committee:
All public limited companies with a paid up capital of 5 crores and above must establish audit committee
consisting of independent non-executive directors. audit committee can improve the quality of financial reporting
by reviewing the financial statement ,creating a climate of discipline and control and reducing the opportunity of
fraud.