Introduction to Corporate Governance

Corporate governance is the set of process customs, policies, law, and

institutionms affecting the way a corporation(or company) is directed,
administered or controlled. Corporate governance also includes the
relationship among the many stakeholders involved and the goals for which
the corporation is governed. In simpler terms it means to which companies
are run in an open & honest manner.
Corporate governance is about ethical condust in business. Ethics is
concerned with the code of values and principles that enables a person to
choose between the right and wrong and therefore, select from alternative
course of action.
Corporate governance is beyond the realm of law. Corporate governance
dealswith conducting the affairs of a company such that there is fairness to
all stakeholders and that its actions benefitest number of stakeholders.
Corporate needs to recognize that their growth requires the corporation of
all the stakeholders, and such corporation is enhanced by the corporation
adhering to the best corporate governance.
Corporate governance is the key element in improving the economic
efficiency of a firm. Good corporate governance is also helps ensures that
corporations take into account the interests of a wide range of constitutions,
as well as of the communities within which they operate.
Since the late 1970s corporate governance has been the subject of
significant debate in the U.S. and around the globe.

In the first half of the 1990s, the issue of corporate governance in the U.S.
received considerable press attention due to the wave of CEO
dismissals(e.g. IBM, Kodak, Honeywell) by their boards.
The California public employees retirement system(CALPERS) led a wave
of institutional share holders activism as a way of ensuring that coporates
value would not be destroyed by the now traditionally cozy relationship
between the CEO and the board of directors.
In 1997, the east Asian financial crisis saw the economics of Thailand,
Indonesia, south Korea, Malaysia and the Philippines severly affected by
the exit of foreign capital after property assests collapsed. The lack of
corporate governance mechanisms in there countries highlighted the
weaknesses of the institutions in their economics.
In the early 2000s, the massive bankruptcies and criminal malfeasance of
Enron and worldcom, as well as clesser corporate debacles, such as
Adelphia communications, AOL, Qwest, Arthur, Anderson, Global crossing,
etc led to increased shareholders and governmental interest in coporate
governance. The popular perception was that corporate leadership was
fraught with greed & excess.
Inadequacies & failure of the existing systems, brought to the fore, the
need for the norms & codes to remedy them. This resulted in the passage
of the sarbanesoxley act of 2002(popularly known as Sox) by the united
states.
In India however, the Securitius Exchange Board of India (SEBI),
introduced clauses ua, in the listing agreement, for due first timein the
financial year 2000-2001, that the listed companies started ambracing the

concept of corporae the concept of corporate governance. This clause was

based on the Kumara Mangalam Birla Comittee Constituted by sebi. After
these recommendations werein place for about for years SEBI, in order to
evaluate & improve the existing practices. Set up a Committee under the
chairmanship of Mr. N. R. Narayan Murthy during 2002-2003. At the same
time, the Ministry of corporate affairs set up a comittee under the
chairmanship of Shri Naresh Chandra to examine the various corporate
governanus issues. The recommendations of the comittee however, faced
widespread
Protests & representtations from the industry, forcing SEBI to revise them.
Subsequently, on 29 october 2004, SEBI amanded the original clauses ua
and issued a new clauses 49 and issued a new clauses clauses 4. All
existing listed companius will have to comply with the provisions of the new
clauses by 1 April 2005.However, it has already came in to force for
companies that have been listed on the stock exchange after 29 October
2004.
The need for Corporate Governance in IndiaIf corporate Governance has to take root in a country it will, to a large
extent, depand on the economic and business environment, that has been
created by public governance in the country, there cannot be good
corporate governance if public governance is weak.
the association of the accounting firm, Anderson has also raised a doubt
about the credibility of even highly regarded global players.

In the indian context the need for corporate governance has been
highlighted because of the series of scams that had become an annual
feature ever since the government liberalised the economy in1991.
Ethics And Values in Corporate GovernanceThe quality of corporate governance is also determined by the manner in
which top management, particularly board of directors, allocates the
financial resources of the company between themselves and others
interseted groups such as employes customers government.
Naresh Chandra Committee 2002:In the year 2002, a high level committee was appointed to examine and
recommended drastic amendments to the law involving the auditor client
relationship and the role of independent directors by the department of
company affairs in the ministry of finance & company affairs under the
chairmanship of Naresh Chandra .
Narayan Murthy Committee,2003:The company law amendment bill, 2003 envisaged many amendments on
the basis

of reports of the Naresh Chandra Committee and the

subsequently appointed.
N. R. Narayan Murthy Committee. Both the committees have done an
excellent job to promote corporate governance practies in India.
1:- Clauses ua of the listing agreement:- The board should be composed of
in the following manner. In case of full time chairman, 50 % non executive
directors and 50% executive directors.

2:- constitute of the audit committee :

the audit committee should be have 3 independent directors with due
chairman having sound financial background the finance directors and the
head of internal audit should be special invitees and a minimum of three
meetings should be convened every year.
3- the audit committee : the audit committee is responsible for review of
financial performance on half yearly/annual basis. Appointment/ removal /
remuneration of auditors/ review

of internal control systems and its

adequacy.
4- remuneration of directors:
Remuneration of non executive directors is to be decided by the board
detail decided by the board details of remuneration package stock options
performance

incentives

of

directors

should

be

disclosed

to

the

shareholders.
5- Board Procedures : the board should have at least four not be a member
of more then to committee and chairman of more than 5 committees across
all companies. Management discussion and analysis report should include
the following point.
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Industry structure and developments.

Opportunities and threats.
Segment- wise or product wise performance
Outlook on the business
Risks and concerns
Internal central systems and its adequacy
Discussion on financial performance
Disclosure by directors on material financial and commercial
transactions with the company.

Shareholders information :
The shareholders/ investors grievance committee of 2 meetings a years
under the chairmanship of an independent director.
Corporate governance rating :
ICRAA rates companies on quality of their corporate governance ICRAs
corporate governance rating (CGR) is based on an analysis of the following
factors .
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Shareholders structure.
Governance structure and management process
Board structure and process
Shareholders relationship.
Transparency and disclosures
Financial discipline

ICRAs & CGR has the following rating symbols.

CGR-1 Highest assurance on the quality of corporate governance.
CGR- 2 High level of assurance on the quality of corporate governance.
CGR-3 Adequate level of assurance on the quality of corporate
governance.
CGR-4 Moderate level of assurance on the quality of corporate
governance.
CGR-5 Inadequate level of assurance on the quality of corporate
governance
CGR-6

Low level of assurance on the quality of corporate governance.

A sing of t may be affixced to nay of the rating symbols other than CGR-1
to indicate a relatively higher standing within the category represented by
the particular symbol.

Executive summary
The concept of corporate governance hinges on total transparency,
integrity and accountability of the management and the board of directors.

The importance of corporate governance lies in its contribution both to

business prosperity and to accountability.
In the age of globalization, global competition, good corporate governance
help as great tool for corporate bodies. It existed from Vedic times as the
highest standards in the artha shastra to todays set of ethics, principles,
rules, regulations, value, morals, thinking, law etc. as good corporate
governance.
Corporate governance is a means not an end, corporate excellence should
be not end. Once the good corporate governess will be achieved, the
Indian corporate body will Since to outshine the whole word.
Findings and suggestions
Findings:
1- Corporate governance represents the value frame work, the ethical
framework and the moral framework under which business decisions
are taken.
2- Sir Cadbury report was Implemented by the London stock exchange
as part of its listing agreement with its member companies.
3- The corporate governance code in India was first promoted by the
confederation of Indian industry.
4- Recognition of obligations towards all stakeholders shareholders
customers employees, suppliers and due society.
5- High degree of disclosure and transparence lives.
6- The members of the board have access to all information of the
company and are free to recommend inclusion of for discussion.
7- The companys strategic direction, review and monitor corporate
performance, ensure regulatory compliance and safeguards the
interests of the shareholders.

8- The company their expertise in the fields of engineering, finance,

management, law and public policy.
Suggestions
1. Annual operating plans and budgets and any updates.
2. Quarterly results for due company and its operating divisions or
business segments.
3. It improves strategic thinking at the top by inducting independent
directors who bring in a wealth of experience and a host of new
ideas.
4. Significant capital investment proposals.
5. It ensures the integrity of financial reports.
6. CEO/CFO certification pursuant to clause ua (V) of listing agreement
is enclosed.
7. Qualifications in the draft audit report.
8. Disclosure of an related party transactions.
9. To review the functioning of the whistle blower mechanism in case in
the same is existing.

Research methodology
Scope of study : the scope of this project work is confined to the role of
corporate governance in BHEL the study has been taken to learn in detail
the policies and in detail the policies and strategies work in role of
corporate governance in BHEL.

Research Design : In view of the objective of the study listed above a

descriptive research design has been adopted. The data is collected by
using two sources.
Sources of data : there are two sources of collecting data .
1- Primary data
2- Secondary data
Primary data : the primary data was collected by visiting the organization
and by handing Informal discussions with various department head &
offices information pertaining to corporate governance in BHEL as collected
from the respective department in the unit.
Secondary data : secondary data means data that are already available.
secondary data may either be published data or unpublished data. Usually
published data are available.
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Various publications of the central state are local governments.

Technical and trade journals
Books magazines and newspapers.
Reports and publication of various associations connected with
business and industry bank stock exchange.

Limitation of the study:

1. Time restriction was only a few days of project work in the organization.
2. The finding and suggestion cannot be generalized.
3. The study covers a wide concept hence wide collection and coverage of
information was not easily possible.
4. The study is just for 1 month.

Reference
A.C. Fernando corporate governance pearson Publication.
Dr. prasanna Chandra financial management TATA Me Graw-Hill
Dr. Inderpal Singh, Dr. Vijay Kaushal- security analysis and port folio
management Kalyani Publishers
Cr Kothori Gaurav Garg, research methodology
New age international (p) Ltd.
WWW.BHEL.Com
WWW.Google.co.
www.indiacrs.in
www.economicstimas.com
www.financialtimes.com