Concept and Objectives Corporate Governance may be defined as a set of systems, processes and principles which ensure that

a company is governed in the best interest of all stakeholders. It is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. In other words, 'good corporate governance' is simply 'good business'. It ensures: Ade uate disclosures and effective decision making to achieve corporate ob!ectives" #ransparency in business transactions"

$tatutory and legal compliances" %rotection of shareholder interests" Commitment to values and ethical conduct of business.

In other words, corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It deals with conducting the affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest number of stakeholders. In this regard, the management needs to prevent asymmetry of benefits between various sections of shareholders, especially between the owner&managers and the rest of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company. 'thical dilemmas arise from conflicting interests of the parties involved. In this regard, managers make decisions based on a set of principles influenced by the values, conte(t and culture of the organi)ation. 'thical leadership is good for business as the organi)ation is seen to conduct its business in line with the e(pectations of all stakeholders. #he aim of *Good Corporate Governance* is to ensure commitment of the board in managing the company in a transparent manner for ma(imi)ing long&term value of the company for its shareholders and all other partners. It integrates all the participants involved in a process, which is economic, and at the same time social. #he fundamental ob!ective of corporate governance is to enhance shareholders' value and protect the interests of other stakeholders by improving the corporate performance and accountability. +ence it harmoni)es the need for a company to strike a balance at all times between the need to enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other stakeholders in the company. ,urther, its ob!ective is to generate

an environment of trust and confidence amongst those having competing and conflicting interests. It is integral to the very e(istence of a company and strengthens investor's confidence by ensuring company's commitment to higher growth and profits. -roadly, it seeks to achieve the following ob!ectives: A properly structured board capable of taking independent and ob!ective decisions is in place at the helm of affairs" #he board is balance as regards the representation of ade uate number of non& e(ecutive and independent directors who will take care of their interests and well& being of all the stakeholders"

#he board adopts transparent procedures and practices and arrives at decisions on the strength of ade uate information" #he board has an effective machinery to subserve the concerns of stakeholders" #he board keeps the shareholders informed of relevant developments impacting the company" #he board effectively and regularly monitors the functioning of the management team" #he board remains in effective control of the affairs of the company at all times.

#he overall endeavour of the board should be to take the organisation forward so as to ma(imi)e long term value and shareholders' wealth. . #op

Prerequisites and Constituents #oday adoption of good Corporate Governance practices has emerged as an integral element for doing business. It is not only a pre&re uisite for facing intense competition for sustainable growth in the emerging global market scenario but is also an embodiment of the parameters of fairness, accountability, disclosures and transparency to ma(imi)e value for the stakeholders. Corporate governance is beyond the realm of law. It cannot be regulated by legislation alone. /egislation can only lay down a common framework 0 the *form* to ensure standards. #he *substance* will ultimately determine the credibility and integrity of the process. $ubstance is ine(orably linked to the mindset and ethical standards of management. $tudies of corporate governance practices across several countries conducted by the Asian 1evelopment -ank, International 2onetary ,und, 3rgani)ation for 'conomic Cooperation and 1evelopment and the 4orld -ank reveal that there is no single model of good corporate governance.

#he 3'C1 Code also recogni)es that different legal systems, institutional frameworks and traditions across countries have led to the development of a range of different approaches to corporate governance. +owever, a high degree of priority has been placed on the interests of shareholders, who place their trust in corporations to use their investment funds wisely and effectively is common to all good corporate governance regimes. Also, irrespective of the model, there are three different forms of corporate responsibilities which all models do respect: Political Responsibilities: the basic political obligations are abiding by legitimate law" respect for the system of rights and the principles of constitutional state. Social Responsibilities: the corporate ethical responsibilities, which the company understands and promotes either as a community with shared values or as a part of larger community with shared values.

Economic Responsibilities: acting in accordance with the logic of competitive markets to earn profits on the basis of innovation and respect for the rights5democracy of the shareholders which can be e(pressed in terms of managements' obligation as 'ma(imi)ing shareholders value'.

In addition, business ethics and corporate awareness of the environmental and societal interest of the communities, within which they operate, can have an impact on the reputation and long&term performance of corporations. #he three key constituents of corporate governance are the -oard of 1irectors, the $hareholders and the 2anagement. #he pivotal role in any system of corporate governance is performed by the board of directors. It is accountable to the stakeholders and directs and controls the management. It stewards the company, sets its strategic aim and financial goals and oversees their implementation, puts in place ade uate internal controls and periodically reports the activities and progress of the company in the company in a transparent manner to all the stakeholders. #he shareholders' role in corporate governance is to appoint the directors and the auditors and to hold the board accountable for the proper governance of the company by re uiring the board to provide them periodically with the re uisite information in a transparent fashion, of the activities and progress of the company.

#he responsibility of the management is to undertake the management of the company in terms of the direction provided by the board, to put in place ade uate control systems and to ensure their operation and to provide information to the board on a timely basis and in a transparent manner to enable the board to monitor the accountability of management to it.

#he underlying principles of corporate governance revolve around three basic inter&related segments. #hese are: Integrity and ,airness

#ransparency and 1isclosures Accountability and 6esponsibility

#he 2ain Constituents of Good Corporate Governance are: Role and powers of Board: the foremost re uirement of good corporate governance is the clear identification of powers, roles, responsibilities and accountability of the -oard, C'3 and the Chairman of the board. Legislation: a clear and unambiguous legislative and regulatory framework is fundamental to effective corporate governance.

Code of Conduct: it is essential that an organi)ation's e(plicitly prescribed code of conduct are communicated to all stakeholders and are clearly understood by them. #here should be some system in place to periodically measure and evaluate the adherence to such code of conduct by each member of the organi)ation. Board ndependence: an independent board is essential for sound corporate governance. It means that the board is capable of assessing the performance of managers with an ob!ective perspective. +ence, the ma!ority of board members should be independent of both the management team and any commercial dealings with the company. $uch independence ensures the effectiveness of the board in supervising the activities of management as well as make sure that there are no actual or perceived conflicts of interests. Board S!ills: in order to be able to undertake its functions effectively, the board must possess the necessary blend of ualities, skills, knowledge and e(perience so as to make uality contribution. It includes operational or technical e(pertise, financial skills, legal skills as well as knowledge of government and regulatory re uirements. "anagement Environment: includes setting up of clear ob!ectives and appropriate ethical framework, establishing due processes, providing for transparency and clear enunciation of responsibility and accountability, implementing sound business planning, encouraging business risk assessment, having right people and right skill for !obs, establishing clear boundaries for acceptable behaviour, establishing performance evaluation measures and evaluating performance and sufficiently recogni)ing individual and group contribution. Board #ppointments: to ensure that the most competent people are appointed in the board, the board positions must be filled through the process of e(tensive search. A well defined and open procedure must be in place for reappointments as well as for appointment of new directors. Board nduction and $raining: is essential to ensure that directors remain abreast of all development, which are or may impact corporate governance and other related issues. Board "eetings: are the forums for board decision making. #hese meetings enable directors to discharge their responsibilities. #he effectiveness of board meetings is dependent on carefully planned agendas and providing relevant papers and materials to

directors sufficiently prior to board meetings.

Strateg% Setting: the ob!ective of the company must be clearly documented in a long term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones. Business and Communit% Obligations: though the basic activity of a business entity is inherently commercial yet it must also take care of community's obligations. #he stakeholders must be informed about the approval by the proposed and on going initiatives taken to meet the community obligations. &inancial and Operational Reporting: the board re uires comprehensive, regular, reliable, timely, correct and relevant information in a form and of a uality that is appropriate to discharge its function of monitoring corporate performance. "onitoring t'e Board Performance: the board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals, using key performance indicators besides peer review. #udit Committee: is inter alia responsible for liaison with management, internal and statutory auditors, reviewing the ade uacy of internal control and compliance with significant policies and procedures, reporting to the board on the key issues. Ris! "anagement: risk is an important element of corporate functioning and governance. #here should be a clearly established process of identifying, analysing and treating risks, which could prevent the company from effectively achieving its ob!ectives. #he board has the ultimate responsibility for identifying ma!or risks to the organi)ation, setting acceptable levels of risks and ensuring that senior management takes steps to detect, monitor and control these risks.

A good corporate governance recogni)es the diverse interests of shareholders, lenders, employees, government, etc. #he new concept of governance to bring about uality corporate governance is not only a necessity to serve the divergent corporate interests, but also is a key re uirement in the best interests of the corporates themselves and the economy.

Organi(ational &ramewor! #he organi)ational framework for corporate governance initiatives in India consists of the 2inistry of of Corporate Affairs 72CA8

and the $ecurities and '(change -oard of India 7$'-I8. #he first formal regulatory framework for listed companies specifically for corporate governance was established by the $'-I in ,ebruary 9:::, following the recommendation s of ;umarmangalam -irla Committee 6eport. It was enshrined as Clause <= of the /isting Agreement. #hereafter $'-I had set up another committee under the chairmanship of 2r. >. 6. >arayana 2urthy, to review Clause <=, and suggest measures to improve corporate governance standards. $ome of the ma!or recommendation s of the committee primarily related to audit

committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, codes of conduct and financial disclosures. #he 2inistry of of Corporate Affairs had also appointed a >aresh Chandra Committee on Corporate Audit and Governance in 9::9 in order to e(amine various corporate governance issues.It made recommendation s in two key aspects of corporate governance: financial and non&financial disclosures: and independent auditing and board oversight of management. It had also set up a >ational ,oundation for Corporate Governance 7>,CG8 in

association with the CII, ICAI and IC$I as a not&for&profit trust to provide a platform to deliberate on issues relating to good corporate governance, to sensitise corporate leaders on the importance of good corporate governance practices as well as to facilitate e(change of e(periences and ideas amongst corporate leaders, policy makers, regulators, law enforcing agencies and non& government organi)ations. Legal &ramewor! An effective regulatory and legal framework is indispensable for the proper and sustained growth of the company. In rapidly changing national and global business environment, it has become necessary that regulation of

corporate entities is in tune with the emerging economic trends, encourage good corporate governance and enable protection of the interests of the investors and other stakeholders. ,urther, due to continuous increase in the comple(ities of business operation, the forms of corporate organi)ations are constantly changing. As a result, there is a need for the law to take into account the re uirements of different kinds of companies that may e(ist and seek to provide common principles to which all kinds of companies may refer while devising their corporate governance structure. #he important legislations for regulating the entire corporate

structure and for dealing with various aspects of governance in companies are Companies Act, ?=@A and Companies -ill, 9::<. #hese laws have been introduced and amended, from time to time, to bring more transparency and accountability in the provisions of corporate governance. #hat is, corporate laws have been simplified so that they are amenable to clear interpretation and provide a framework that would facilitate faster economic growth. $econdly, the $ecurities Contracts 76egulation8 Act, ?=@A, $ecurities and '(change -oard of India Act, ?==9 and 1epositories Act, ?==A have been introduced by $ecurities and

'(change -oard of India 7$'-I8, with a view to protect the interests of investors in the securities markets as well as to maintain the standards of corporate governance in the country.

)uidelines*Principles #t nternational Level In the changing global scenario, it has become necessary to bring in effective governance practices in the corporate sector. Barious important and valuable lessons have been learned from the series of corporate collapses that occurred in different parts of the world. Accordingly, several codes, guidelines and principles have been made and implemented covering varied aspects of corporate governance. #hey were introduced in order to restore investors' confidence as well as to enhance corporate transparency and accountability. #hey seek to establish the accountability standards of 1irectors and C'3s" as well as define the roles and responsibilities of the -oard of 1irectors and stakeholders in the company. 3ver the years, the issue of corporate governance has received a high level of attention. #here are several reports and recommendations of the International Committees5 Associations, etc. on the development of appropriate framework for promoting good corporate governance standards, codes and practices to be followed globally. #hese are:&

Cadbury Committee 6eport&#he ,inancial Aspects of Corporate Governance 7?==98 Greenbury Committee 6eport on 1irectors' 6emuneration 7?==@8 +ampel Committee 6eport on Corporate Governance 7?==C8 #he Combined Code, %rinciples of Good Governance and Code of -est %ractice, /ondon $tock '(change 7?==C8

Cal%'6$' Global %rinciples of Accountable Corporate Governance 7?===8 -lue 6ibbon 6eport 7?===8 ;ing Committee 3n Corporate Governance 79::98 $arbanes 3(ley Act 79::98 +iggs 6eport: 6eview of the role and effectiveness of non&e(ecutive directors 79::D8 #he Combined Code on Corporate Governance 79::D8 A$E Corporate Governance Council 6eport 79::D8 3'C1 %rinciples of Corporate Governance 79::<8 #he Combined Code on Corporate Governance 79::A8 F>C#A1 Guidance on Good %ractices in Corporate Governance 1isclosure 79::A8 #he Combined Code on Corporate Governance 79::C8

#hese recommendations and principles have been mainly focused on structure of the company, financial and non&financial disclosures, compliance with codes of corporate governance, competitive remuneration policy, shareholders rights and responsibilities, financial reporting and internal controls, etc. All these efforts at international level, in turn, helps to bring favourable changes in the operating systems of -oard of 1irectors, Company's management and administration" as well as improve face of relationship between supervisory and e(ecutive bodies. $ome of the main codes and principles on the Corporate Governance are as follows:

Benefits and Limitations #he concept of corporate governance has been attracting public attention for uite some time. It has been finding wide acceptance for its relevance and importance to the industry and economy. It contributes not only to the efficiency of a business enterprise, but also, to the growth and progress of a country's economy. %rogressively, firms have voluntarily put in place systems of good corporate governance for the following reasons: $everal studies in India and abroad have indicated that markets and

investors take notice of well managed companies and respond positively to them. $uch companies have a system of good corporate governance in place, which allows sufficient freedom to the board and management to take decisions towards the progress of their companies and to innovate, while remaining within the framework of effective accountability. In today's globalised world, corporations need to access global pools of capital as well as attract and retain the best human capital from various parts of the world. Fnder such a scenario, unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. #he credibility offered by good corporate governance procedures also helps maintain the confidence of investors 0 both foreign and domestic 0 to attract more long&term capital. #his will ultimately induce more stable sources of financing. A corporation is a congregation of various stakeholders, like customers, employees, investors, vendor partners, government and society. Its growth re uires the cooperation of all the stakeholders. +ence it imperative for a corporation to be fair and transparent to all its stakeholders in all its transactions by adhering to the best corporate governance practices. Good Corporate Governance standards add considerable value to the operational performance of a company by: ?. improving strategic thinking at the top through induction of independent directors who bring in e(perience and new ideas" 9. rationali)ing the management and constant monitoring of risk that a firm faces globally" D. limiting the liability of top management and directors by carefully articulating the decision making process" <. assuring the integrity of financial reports, etc. It also has a long term reputational effects among key stakeholders, both internally and e(ternally.

Also, the instances of financial crisis have brought the sub!ect of corporate governance to the surface. #hey have shifted the emphasis on compliance with substance, rather than form, and brought to sharper focus the need for intellectual honesty and integrity. #his is because financial and non&financial disclosures made by any firm are only as good and honest as the people behind them. Good governance system, demonstrated by adoption of good corporate governance practices, builds confidence amongst stakeholders as well as prospective stakeholders. Investors are willing to pay higher prices to

the corporates demonstrating strict adherence to internally accepted norms of corporate governance.

'ffective governance reduces perceived risks, conse uently reduces cost of capital and enables board of directors to take uick and better decisions which ultimately improves bottom line of the corporates. Adoption of good corporate governance practices provides long term sustenance and strengthens stakeholders' relationship. A good corporate citi)en becomes an icon and en!oy a position of respects. %otential stakeholders aspire to enter into relationships with enterprises whose governance credentials are e(emplary. Adoption of good corporate governance practices provides stability and growth to the enterprise.

'ffectiveness of corporate governance system cannot merely be legislated by law neither can any system of corporate governance be static. As competition increases, the environment in which firms operate also changes and in such a dynamic environment the systems of corporate governance also need to evolve. ,ailure to implement good governance procedures has a cost in terms of a significant risk premium when competing for scarce capital in today's public markets.

&uture Prospects #he issues of governance, accountability and transparency in the affairs of the company, as well as about the rights of shareholders and role of -oard of 1irectors have never been so prominent as it is today. #he corporate governance has come to assume a centre stage in the -oard room discussions. India has become one of the fastest emerging nations to have aligned itself with the international trends in Corporate Governance. As a result, Indian companies have increasingly been able to access to newer and larger markets around the world" as well as able to ac uire more businesses. #he response of the Government and regulators have also been admirably uick to meet the challenges of corporate delin uency. -ut, as the global environment changing continuously, there is a greater need of adopting and sustaining good corporate

governance practices for value creation and building corporations of the future. It is true that the 'corporate governance' has no uni ue structure or design and is largely considered ambiguous. #here is still lack of awareness about its various issues, like, uality and fre uency of financial and managerial disclosure, compliance with the code of best practice, roles and responsibilities of -oard of 1irectories, shareholders rights, etc. #here have been many instances of failure and scams in the corporate sector, like collusion between companies and their accounting firms, presence of weak or ineffective internal audits, lack of re uired skills by managers, lack of proper disclosures, non&compliance with standards, etc. As a result, both management and auditors have come under greater scrutiny. -ut, with the integration of Indian economy with global markets, industrialists and corporates in the country are being increasingly asked to adopt better and transparent corporate practices. #he degree to which corporations observe basic principles of good corporate governance is an increasingly important factor for taking key investment decisions. If companies are to reap the full benefits of the global capital market, capture efficiency gains, benefit by economies of scale and attract long term capital, adoption of corporate governance standards must be credible, consistent, coherent and inspiring. Guality of corporate governance primarily depends on following factors, namely:& integrity of the management" ability of the -oard" ade uacy of the processes" commitment level of individual -oard members" uality of corporate reporting" participation of stakeholders in the management" etc. $ince this is an important element affecting the long&term financial health of companies, good governance framework also calls for effective legal and institutional environment, business ethics and awareness of the environmental and societal interests. +ence, in the years to come, corporate governance will become more relevant and a more acceptable practice worldwide. #his is easily evident from the various activities undertaken by many companies in framing and enforcing codes of conduct and honest business practices" following more stringent norms for financial and non&financial disclosures, as mandated by law" accepting higher and appropriate accounting standards" enforcing ta( reforms coupled with deregulation and competition" etc. +owever, inapt application of corporate governance re uirements can adversely affect the relationship amongst participants of the governance system. As owners of e uity, institutional investors are increasingly demanding a decisive role in corporate governance. Individual shareholders, who usually do not e(ercise governance rights, are highly concerned about getting fair treatment from controlling shareholders and management. Creditors, especially banks,

play a key role in governance systems, and serve as e(ternal monitors over corporate performance. 'mployees and other stakeholders also play an important role in contributing to the long term success and performance of the corporation. #hus, it is necessary to apply governance practices in a right manner for better growth of a company.