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CORPORATE
A corporation is an organization created (incorporated)
by a group of shareholders who have ownership of the
corporation.
The elected board of directors appoint and oversee
management of the corporation .

GOVERNANCE

Oxford English dictionary defines governance "as the

act, manner , fact or function of governing sway control.
The word has Latin origins that suggest the notion of
steering". it deals with the processes and systems by
which an organization or society operates.
Governance can be used with reference to all kind of
organizational structure e.g.
Ngo not for profit organization
Municipal corporation /gram panchyat
Central/state government
Partnership firm

ORPORATE GOVERNANC
It is generally understood as the framework of rules,
relationships, systems and processes within and by
which authority is exercised and controlled in
corporations.

A system of law and sound approaches

by which corporations are directed and
controlled focusing on the internal and
external corporate structures with the
intention of monitoring the actions of
management and directors and thereby
mitigating agency risks which may stem
from the misdeeds of corporate officers

OBJECTIVES OF GOOD CORPORATE

GOVERNANCES

Strengthen management oversight functions and

accountability.
Balance skills, experience and independence on the
board appropriate to the nature and extent of company
operations.
Establish a code to ensure integrity.
Safeguard the integrity of company reporting.
Risk management and internal control.
Disclosure of all relevant and material matters.
Recognition and preservation of needs of shareholders.

The Aim And Purpose 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.

Importance of Corporate
Governance
Shapes the growth and future of capital market &
economy.
Instrument of investors protection.
Protecting the interest of Shareholders and all
other stakeholder.
Contributes to the efficiency of the business
enterprise.
Creation of wealth.
Enables firm to compete internationally in
sustained way.
Keeps an eye on the issues of insider training.

Reasons for the Growing Demand

for Corporate Governance
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.
There has been renewed interest in the corporate governance
practices of modern corporations, particularly in relation to
accountability, since the high-profile collapses of a number of
large corporations during 2001-2002, most of which involved
accounting fraud

Reasons for growing demand for

corporate governance
The growing awareness of investors and
investors group of their rights.
Economic reforms that allowed the growth of
free enterprise and freed private investment
opportunities.
Exposures of domestic private and public sector
companies to greater domestic and foreign
competition ,which has multiplied choices for
consumers and compelled increases in efficiency.
The consequential changes in the shareholding
pattern of private and public sector companies.

 The growing importance of institutional

investors and public financial
institutions, gradually asserting and
transforming themselves in their new
role as active shareholders rather than
as lenders.
The stock exchanges becoming
increasingly conscious of their roles as
self regulatory organizations and
exploring the possibility of using the
listing agreement as a tool for raising the
standard of corporate governance

LIVE EXAMPLES:
. Corporate scandals of various forms have maintained
public and political interest in the regulation of
corporate governance. In the U.S., these include
Enron Corporation and MCI Inc. (formerly WorldCom).
Their demise is associated with the
U.S. federal government passing the
Sarbanes-Oxley Act in 2002, intending to restore public
confidence in corporate governance.
Comparable failures in Australia (HIH, One.Tel) are
associated with the eventual passage of the CLERP 9
reforms.
Similar corporate failures in other countries stimulated
increased regulatory interest (e.g., Parmalat in Italy).

Brief history of corporate governance

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

The initiative in India was initially driven by an industry association,

the Confederation of Indian Industry
In December 1995, CII 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

Brief history of corporate governance

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:
2000-01: All Group A companies of the BSE or those in the S&P
CNX Nifty index 80% of market cap.
2001-02: All companies with paid-up capital of Rs.100 million or
more or net worth of Rs.250 million or more.
2002-03: All companies with paid-up capital of Rs.30 million or
more

Brief history of corporate governance

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.

Initiatives are being taken to (i) account for ESOPs, (ii) further
increase disclosures, and (iii) put in place systems that can further
strengthen auditors independence.

FRAMEWORK OF GOVERNANCE
Supervisory board/committee/team
Audit committee
Internal audit
Statutory audit
Disclosure of information
Risk management framework
Internal control framework

Corporate Governance Environment

and Outcomes

RTIES TO CORPORATE GOVERNAN

Board of directors
Managers
Workers
Shareholders or owners
Regulators
Customers
Suppliers
Community(people affected by the actions of the
organization.)

Principles of corporate
governance

Rights and equitable treatment of share holders: Organizations should

respect the rights of shareholders and help shareholders to exercise those
rights.
Interests of other stakeholders: Organizations should recognize that they
have legal, contractual, social, and market driven obligations to non-shareholder
stakeholders, including employees, investors, creditors, suppliers, local
communities, customers, and policy makers.
Role and responsibilities of the board: The board needs sufficient relevant
skills and understanding to review and challenge management performance. It
also needs adequate size and appropriate levels of independence and
commitment
Integrity and ethical behavior: Integrity should be a fundamental
requirement in choosing corporate officers and board members.
Disclosure and transparency: Organizations should clarify and make publicly
known the roles and responsibilities of board and management to provide
stakeholders with a level of accountability. They should also implement
procedures to independently verify and safeguard the integrity of the company's
financial reporting. Disclosure of material matters concerning the organization
should be timely and balanced to ensure that all investors have access to clear,
factual information.

RICIPLES OF CORPORATE GOVERNANC

Every listed company should be headed by an effective
board which should lead and control the company.
There should be board balance of executive & non
executive directors such that no individual can dominate
the board decision making.
The board should be supplied with timely information to
enable it to discharge its duties.
There should be formal and transparent procedure for
the appointment of new directors to the board.
All directors should be required to submit themselves for
re-election at regular intervals and at least every three
years.

ORS INFLUENCING QUALITY OF GOVERNA

Integrity of the management
Ability of the board
Adequacy of the process
Commitment level of individual board members
Quality of corporate reporting
Participation of stakeholders in the management

ENDS IN CORPORATE GOVERNAN

Demand for greater transparency and accountability
Written job descriptions detailing roles and responsibilities
of chairman and board members.
Core competencies for board members are defined and
those without skills or expertise not invited.
Development

of

performance

evaluations of the board.

Orientation for new members.
Ongoing training
Succession planning

criteria

and

annual

HE BOARD RESPONSIBILITIE
Overseeing strategic development & planning
Management selection, supervision and upgrading.
Maintenance of good member relations.
Protecting and optimizing the organizations assets.
Fulfilling legal requirements.

Fairness

Responsibility

Transparency

Accountabilit
y

Corporate
Governance

Fundamental Pillars of Corporate

Governance

Accountability
Clarifying governance roles & responsibilities, and
supporting voluntary efforts to ensure the alignment of
managerial and shareholder interests and monitoring by
the board of directors capable of objectivity and sound
judgment.

Transparency
Requiring timely disclosure of adequate information
concerning corporate financial performance

Responsibility
Ensuring that corporations comply with relevant laws and
regulations that reflect the societys values

Fairness
Ensuring the protection of shareholders rights and the
enforceability of contracts with service/resource providers

CORPORATE GOVERNANCE
Investors are Willing to Pay More For a Company
With Good Board Governance Practices

83

81

89

Companies are willing to pay 18 % to 28% more for better

governance.

ICSI NATIONAL AWARD FOR EXCELLENCE IN

CORPORATE GOVERNANCE

Best Governed Companies

CONCLUDING OBSERVATIONS
Code of CG should be redesigned to reflect international best
practices
Stringent enforcement of Law
More effective coordination and cooperation between SEBI, DCA
CG mechanism should be flexible and suitable
Overall ethical values in all segments should be promoted for
effective accounting, auditing, disclosure and transparent system.

MANDATED CG GUIDELINES AND DISCLOSURES

Board of Directors: information that must be supplied

Annual, quarter, half year operating plans, budgets and
updates.
Quarterly results of company and its business segments.
Minutes of the audit committee and other board
committees.
Recruitment and remuneration of senior officers.
Materially important legal notices and claims, as well as
any accidents, hazards, pollution issues and labor
problems.
Any actual or expected default in financial obligations.

 Details of joint ventures and collaborations.

Transactions involving payment towards goodwill, brand
equity and intellectual property.
Any

materially

significant

sale

of

business

and

investments.
Foreign currency and other risks and risk management.
Any regulatory non-compliance.

 Report of the
Kumar Mangalam
Birla Committee on
Corporate
Governance.

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.

IMPLEMENTATION OF CORPORATE
GOVERNANCE IN INDIA
SHRI KUMAR MANGALAM COMMITTEE
CONSTITUTED IN MAY 1999 TO PROMOTE AND RAISE THE
STANDARD OF CORPORATE GOVERNANCE IN INDIA
MANDATORY RECOMMENDATIONS OF BIRLA
COMMITTEE:
APPLIES TO LISTED COMPANIES WITH PAID UP CAPITAL
OF Rs.3 CRORE AND ABOVE
COMPOSITION OF BOARD OF DIRECTORS OPTIMUM
COMBINATION OF EXECUTIVE & NON-EXECUTIVE
DIRECTORS
AUDIT COMMITTEE WITH 3 INDEPENDENT DIRECTORS
WITH ONE HAVING FINANCIAL AND ACCOUNTING
KNOWLEDGE.

MANDATORY RECOMMENDATIONS OF BIRLA

COMMITTEE
REMUNERATION COMMITTEE
BOARD PROCEDURES ATLEAST 4 MEETINGS OF THE
BOARD IN A YEAR WITH MAXIMUM GAP OF 4 MONTHS
BETWEEN 2 MEETINGS. TO REVIEW OPERATIONAL PLANS,
CAPITAL BUDGETS, QUARTERLY RESULTS, MINUTES OF
COMMITTEES MEETING.
DIRECTOR SHALL NOT BE A MEMBER OF MORE THAN 10
COMMITTEE AND SHALL NOT ACT AS CHAIRMAN OF MORE
THAN 5 COMMITTEES ACROSS ALL COMPANIES
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
COVERING INDUSTRY STRUCTURE, OPPORTUNITIES,
THREATS, RISKS, OUTLOOK, INTERNAL CONTROL SYSTEM
INFORMATION SHARING WITH SHAREHOLDERS

NON-MANDATORY RECOMMENDATIONS OF
BIRLA COMMITTEE
ROLE OF CHAIRMAN
REMUNERATION COMMITTEE OF BOARD
SHAREHOLDERS RIGHT FOR RECEIVING HALF
YEARLY FINANCIAL PERFORMANCE
POSTAL BALLOT COVERING CRITICAL MATTERS LIKE
ALTERATION IN MEMORANDUM ETC
SALE OF WHOLE OR SUBSTANTIAL PART OF THE
UNDERTAKING
CORPORATE RESTRUCTURING
FURTHER ISSUE OF CAPITAL
VENTURING INTO NEW BUSINESSES

IMPLEMENTATION OF RECOMMENDATIONS OF BIRLA

COMMITTEE
BY INTRODUCTION OF CLAUSE 49 IN THE LISTING AGREEMENT WITH
STOCK EXCHANGES
PROVISIONS OF CLAUSE 49
COMPOSITION OF BOARD
IN CASE OF FULL TIME CHAIRMAN, 50% NON-EXECUTIVE DIRECTORS AND
50% EXECUTIVE DIRECTORS
CONSTITUTION OF AUDIT COMMITTEE
WITH 3 INDEPENDENT DIRECTORS WITH CHAIRMAN HAVING SOUND
FINANCIAL BACKGROUND. FINANCE DIRECTOR AND INTERNAL AUDIT
HEAD TO BE SPECIAL INVITEES AND MINIMUM 3 MEETINGS TO BE
CONVENED. RESPONSIBLE FOR REVIEW OF FINANCIAL PERFORMANCE 0N
HALF YEARLY/ANNUALLY BASIS; APPOINTMENT/ REMOVAL/REMUNERATION
OF AUDITORS; REVIEW OF INTERNAL CONTROL SYSTEMS AND ITS
ADEQUACY

 CLAUSE 49 REQUIREMENTS
REMUNERATION OF DIRECTORS
REMUNERATION OF NON-EXECUTIVE DIRECTORS TO BE DECIDED BY
THE BOARD. DETAILS OF REMUNERATION PACKAGE, STOCK OPTIONS,
PERFORMANCE INCENTIVES OF DIRECTORS TO BE DISCLOSED
BOARD PROCEDURES
ATLEAST 4 MEETINGS IN A YEAR. DIRECTOR NOT TO BE MEMBER OF
MORE THAN 10 COMMITTEES AND CHAIRMAN OF MORE THAN 5
COMMITTEES ACROSS ALL COMPANIES
MANAGEMENT DISCUSSION & ANALYSIS REPORT
SHOULD INCLUDE:
INDUSTRY STRUCTURE & DEVELOPMENTS
OPPORTUNITIES & THREATS
SEGMENT WISE OR PRODUCT WISE PERFORMANCE

 CLAUSE 49 REQUIREMENTS MANAGEMENT DISCUSSION &

ANALYSIS REPORT
TO INCLUDE:
OUTLOOK
RISKS & CONCERNS
INTERNAL CONTROL SYSTEMS & ITS ADEQUACY
DISCUSSION ON FINANCIAL PERFORMANCE
DISCLOSURE BY DIRECTORS ON MATERIAL FINANCIAL AND
COMMERCIAL TRANSACTIONS WITH THE COMPANY
SHAREHOLDERS INFORMATION
BRIEF RESUME OF NEW/RE-APPOINTED DIRECTORS, QUARTERLY
RESULTS TO BE SUBMITTED TO STOCK EXCHANGES AND TO BE
PLACED ON WEB-SITE, PRESENTATION TO ANALYSTS

 CLAUSE 49 REQUIREMENTS
SHAREHOLDERS/INVESTORS GRIEVANCE
COMMITTEE UNDER THE CHAIRMANSHIP OF
INDEPENDENT DIRECTOR. MINIMUM 2
MEETINGS IN A YEAR
REPORT ON CORPORATE GOVERNANCE AND
CERTIFICATE FROM AUDITORS ON COMPLIANCE
OF PROVISIONS OF CORPORATE GOVERNANCE
AS PER CLAUSE 49 IN THE LISTING AGREEMENT

Names of the Members of the committee Shri Kumar Mangalam Birla,

Chairman, Aditya Birla group
Chairman of the Committee

1. Shri Rohit Bhagat, Country Head, Boston Consulting Group

2. Dr. J Bhagwati, Jt. Secretary, Ministry of Finance.
3. Shri Samir Biswas, Regional Director, Western Region, Department of Company
Affairs, Government of India
4. Shri S.P. Chhajed, President of Institute of Chartered Accountants of India
5. Shri Virender Ganda, Ex-President of Institute of Company Secretaries of India
6. Dr. Sumantra Ghoshal, Professor of Strategic Management, London Business School
7. Shri Vijay Kalantri, President, All India Association of Industries
8. Shri Pratip Kar, Executive Director, SEBI Member Secretary
9.Shri Y. H. Malegam, Managing Partner, S.B. Billimoria & Co
10.Shri N. R. Narayana Murthy, Chairman and Managing Director, Infosys Technologies
Ltd.
11.Shri A K Narayanan, President of Tamil Nadu Investor Association
12.Shri Kamal Parekh, Ex-President, Calcutta Stock Exchange (Shri J M Chaudhary
President Calcutta Stock Exchange
13.Dr. R. H. Patil, Managing Director, National Stock Exchange Ltd.
14.Shri Anand Rathi, President of the Stock Exchange, Mumbai
15.Ms D.N. Raval, Executive Director, SEBI
16.Shri Rajesh Shah, Former President of Confederation of Indian Industries.
17.Shri L K Singhvi, Sr. Executive Director, SEBI
18.Shri S. S. Sodhi, Executive Director, Delhi Stock Exchange

 RECENT DEVELOPMENTS COMMITTEE HEADED BY SHRI

NARESH CHANDRA CONSTITUTED IN AUGUST 2002 TO
EXAMINE CORPORATE AUDIT, ROLE OF AUDITORS,
RELATIONSHIP OF COMPANY & AUDITOR
RECOMMENDATION OF NARESH CHANDRA COMMITTEE:
RECOMMENDED A LIST OF DISQUALIFICATIONS FOR AUDIT
ASSIGNMENTS LIKE DIRECT RELATIONSHIP WITH COMPANY,
ANY BUSINESS RELATIONSHIP WITH CLIENT, PERSONAL
RELATIONSHIP WITH DIRECTOR
AUDIT FIRMS NOT TO PROVIDE SERVICES SUCH AS
ACCOUNTING, INTERNAL AUDIT ASSIGNMENTS ETC. TO AUDIT
CLIENTS
AUDITOR TO DISCLOSE CONTINGENT LIABILITIES & HIGHLIGHT
SIGNIFICANT ACCOUNTING POLICIES

 RECENT DEVELOPMENTS RECOMMENDATION OF NARESH

CHANDRA COMMITTEE:
AUDIT COMMITTEE TO BE FIRST POINT OF REFERENCE FOR
APPOINTMENT OF AUDITORS
CEO & CFO OF LISTED COMPANY TO CERTIFY ON FAIRNESS,
CORRECTNESS OF ANNUAL AUDITED ACCOUNTS
REDEFINITION OF INDEPENDENT DIRECTORS DOES NOT HAVE ANY
MATERIAL, PECUNIARY RELATIONSHIP OR TRANSACTION WITH THE
COMPANY
COMPOSITION OF BOARD OF DIRECTORS
STATUTORY LIMIT ON THE SITTING FEE TO NON-EXECUTIVE
DIRECTORS TO BE REVIEWED RECOMMENDATIONS HAVE
FORMED PART OF COMPANIES (AMENDMENT) BILL, 2003 (YET TO BE
PASSED)

RECENT DEVELOPMENTS SEBI CONSTITUTED A COMMITTEE

HEADED BY SHRI N. R. NARAYANA MURTHY

TO REVIEW EXISTING CODE OF CORPORATE

GOVERNANCE

CORPORATE GOVERNANCE - ULTIMATE OBJECTIVE

TO ATTAIN HIGHEST STANDARD OF PROCEDURES AND

PRACTICES FOLLOWED BY THE CORPORATE WORLD SO AS
TO HAVE TRANSPARENCY IN ITS FUNCTIONING WITH AN
ULTIMATE AIM TO MAXIMISE THE VALUE OF VARIOUS
STAKEHOLDERS.

Narayana Murthy Committee on

Corporate Governance in 2002
With the belief that the efforts to improve corporate governance
standards in India must continue because these standards
themselves were evolving in keeping with the market dynamics,
the Securities and Exchange Board of India (SEBI) had
constituted a Committee on Corporate Governance in 2002 , in
order to evaluate the adequacy of existing corporate
governance practices and further improve these practices. It
was set up to review Clause 49, and suggest measures to
improve corporate governance standards. The SEBI Committee
was constituted under the Chairmanship of Shri N. R.
Narayana Murthy, Chairman and Chief Mentor of Infosys
Technologies Limited. The Committee comprised members
from various walks of public and professional life. This included
captains of industry, academicians, public accountants and
people from financial press and industry forums.

The terms of reference of the committee were to:

review the performance of corporate governance; and

determine the role of companies in responding to rumor and
other price sensitive information circulating in the market, in
order to enhance the transparency and integrity of the market.

The issues discussed by the committee primarily related to audit

committees, audit reports, independent directors, related
parties, risk management, directorships and director
compensation, codes of conduct and financial disclosures.
The committee's recommendations in the final report were
selected based on parameters including their relative
importance, fairness, accountability, transparency, ease of
implementation, verifiability and enforceability.

The key mandatory

recommendations focused on:
strengthening the responsibilities of audit committees;
improving the quality of financial disclosures, including those
related to related party transactions and proceeds from initial
public offerings;
requiring corporate executive boards to assess and disclose
business risks in the annual reports of companies;
introducing responsibilities on boards to adopt formal codes of
conduct; the position of nominee directors; and
stock holder approval and improved disclosures relating to
compensation paid to non-executive directors.
WHISTLE BLOWER POLICY TO BE PALCE IN A COMPANY
PROVIDING FREEDOM TO APPROACH THE AUDIT COMMITTEE
SUBSIDIARIES TO BE REVIEWED BY AUDIT COMMITTEE OF
HOLDING COMPANY

Non-mandatory
recommendations included:
moving to a regime where corporate
financial statements are not
qualified;
instituting a system of training of
board members; and
evaluation of performance of board
members.

 As per the committee, these recommendations codify

certain standards of 'good governance' into specific
requirements, since certain corporate responsibilities
are too important to be left to loose concepts of
fiduciary responsibility. Their implementation through
SEBI's regulatory framework will strengthen existing
governance practices and also provide a strong
incentive to avoid corporate failures. The Committee
noted that the recommendations contained in their
report can be implemented by means of an
amendment to the Listing Agreement, with changes
made to the existing clause 49.

CONCLUSION:
There are several corporate governance structures
available in the developed world but there is no one
structure, which can be singled out as being better than
the others. There is no "one size fits all" structure for
corporate governance. The Committees
recommendations are not therefore based on any one
model but are designed for the Indian environment.
Corporate governance extends beyond corporate law.

The Committee believes that its recommendations will

go a long way in raising the standards of corporate
governance in Indian firms and make them attractive
destinations for local and global capital. These
recommendations will also form the base for further
evolution of the structure of corporate governance in
consonance with the rapidly changing economic and
industrial environment of the country in the new
millenium.

THANK YOU