Corporate governance refers to the set of systems, principles and processes by which a company is governed.

They provide the guidelines as to how the company can be directed or controlled such that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society.

Abstract: The corporate governance plays a major role in the integrity of businesses and markets and helps in maintaining vitality, growth and stability and leads to increase in economic efficiency. In India SEBI under its listing agreement clause 49 has laid down rules and regulations for effective corporate governance and lot of research has been carried out to evaluate the corporate governance practices of the Indian corporate. At global level Organization for Economic Cooperation and Development (OECD) has also framed principles of corporate governance which are non-binding and intended to assist member and non-member government to evaluate and improve the legal, institutional and regulatory framework of corporate governance. The principles of corporate governance as laid down by OECD can lead to examine the level of disclosure practices to corporate governance at global level of the Indian corporate. Hence, in this study an attempt has been made to examine and evaluate the level of the fulfillment towards the various principles of 30 BSE Sensex companies for the year 2010-11.The analysis reveals that the disclosure practice made by Indian company as per Clause 49 are to a certain extent capable of meeting the various principles of OECD on Corporate Governance. The Study depicts that the principle on Role of Stakeholders in Corporate Governance has attained greater significance. The principle on Board Responsibilities and Disclosure and Transparency needs to be more emphasised by Indian companies for effective Corporate Governance practice at global level. Corporate governance is based on principles such as conducting the business with all integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions, complying with all the laws of the land, accountability and responsibility towards the stakeholders and commitment to conducting business in an ethical manner. Another point which is highlighted in the SEBI report on corporate governance is the need for those in control to be able to distinguish between what are personal and corporate funds while managing a company.

Why is it important? Fundamentally, there is a level of confidence that is associated with a company that is known to have good corporate governance. The presence of an active group of independent directors on the board contributes a great deal towards ensuring confidence in the market. Corporate governance is known to be one of the criteria that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs. Unfortunately, corporate governance often becomes the centre of discussion only after the exposure of a large scam. Why was it in the news recently? Corporate governance has most recently been debated after the corporate fraud by Satyam founder and chairman Ramalinga Raju. In fact, trouble started brewing at Satyam around December 16 when Satyam announced its decision to buy stakes in Maytas Properties and Infrastructure for $1.3 billion. The deal

was soon called off owing to major discontentment on the part of shareholders and plummeting shareprice. However, in what has been seen as one of the largest corporate frauds in India, Raju confessed that the profits in the Satyam books had been inflated and that the cash reserve with the company was minimal. Ironically, Satyam had received the Golden Peacock Global Award for Excellence in Corporate Governance in September 2008 but was stripped of it soon after Raju's confession.

Principles of corporate governance[edit source | editbeta]

Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and OECD reports present general principles around which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports. Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. 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. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. 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.
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Definition of 'Corporate Governance'

The system of rules, practices

and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company these include its shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

Investopedia explains 'Corporate Governance'

Corporate governance became a pressing issue following the 2002 introduction of the Sarbanes-Oxley Act in the U.S., which was ushered in to restore public confidence in companies and markets after accounting fraud bankrupted high-profile companies such as Enron and WorldCom. Most companies strive to have a high level of corporate governance. These days, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior and sound corporate governance practices

The concept of CG gained prominence in India post liberalization, voluntarily introduced by CII, the leading industry association in India. By the year 2000, the same had been incorporated as a necessity Evolution of Corporate Governance in India in the clause 49 of the listing agreement administered by the market regulator SEBI. It was followed by the Naresh Chandra Committee report with major stress on independent oversight of board and audit, and improvements in disclosures ( financial as well as non-financial). In the subsequent years, two more committees were constituted under the leadership of Mr Narayan Murthy and Mr J J Irani, with the explicit aim of bringing in best practices from around the world to create a well regulated environment that promotes entrepreneurship. In 2009, the Satyam fiasco shook the Indian industry, bringing home the point that proper governance is indispensable to further growth and development. Since then

efforts to create a framework have gained urgency. The Ministry of Corporate Affairs (MCA) came out with guidelines in 2009. A lot of diverse ideas have been introduced in parts over these years, which will be synthesised into law when the new Companies Bill is passed. Significant work has been done in the last couple of decades, but some key issues remain unresolved.

Agency Gap: The western approach to CG focuses more on regulating management actions to align them with the interest of stakeholders, as ownership is reasonably dispersed. This is the classic agency problem, but in India the agency problem primarily exists between the dominant/majority shareholder (typically the promoter) and other stakeholders. Indian businesses are also dominated by familybusiness-promoted firms where they exercise disproportionate control. Even in the case of MNCs and PSEs the majority shareholder

has been found to exercise dominant control. The underlying characteristics of this system need to be researched and identified, so that the CG framework can be fine-tuned to Indian needs. PSE vs. MNC vs. Family Business: The three different kinds of firms- PSEs, MNCs and Family Businesses- have their own unique characteristics and public perceptions. PSEs are answerable to ministries, need to comply with norms laid down by Department of Public Enterprises, and are subject to scrutiny under Right to Information act and other authorities such as CAG and CVC. PSEs though subject to controls operate in a relatively complex setting. The MNCs on the other hand are perceived as the most advanced in terms of CG, as they are required to comply with the standards set down by the parent company. However, even MNCs have had instances where they have made an attempt to acquire minority shareholding at unfair valuations.

Family Businesses dominate Indian market;

as per a study by Credit Suisse in 2010, 663 of the listed 983 companies are family businesses. They exercise undue control over a company either directly through the promoter or promoter family stake or through a holding company. In the recent Satyam debacle the Promoter Raju (and family) had no more than 5 percent stake, yet exercised significant control. Regulatory Framework: SEBI, MCA and the Stock Exchanges together share jurisdiction over the markets. There are bound to be overlaps. The Companies Bill should create a regulatory regime detailed enough to satisfactorily address such issues. Also, CG needs to be discussed within the broader context of the handicaps and delays in the Indian Judicial System. Currently, there is no mechanism for settling class action / appeals. Moreover, civil courts are barred from hearing security fraud matters. Only SEBI can hear these cases and the amount collected goes to the consolidated fund of India. In order to be successful, CG needs to be

based on sound theory rather than popular perception or results of spontaneous discussions with the concerned parties. They also need to be tested empirically and linked to concrete performance indicators.