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History records Pataliputra, the capital of the Mauryan Empire, as a city ³astonishingly well
organised and administered according to the best principles of governance´.
Writing about the ideal conduct of the King Kautilya,an official says an ideal king is one for
whom-
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Kautilya further elaborates on the fourfold duty of a King as:

u? „aksha or Protection
u? ‘ruddhi or Enhancement
u? Palana or Maintaineance
u? £ogakshema or Safeguard

The substitution of the state with the company, the King with the CEO oe the Board of the
Company & the subjects with the Shareholders, brings out the spirit of the Corporate
Governance

So, the fourfold duties of the King/CEO/Board of a Company can be interpreted to imply-
u? „aksha or Protection - Shareholders Wealth
u? ‘ruddhi or Enhancement - Wealth through proper utilisation of assets
u? Palana or Maintaineance - Of that Wealth
u? £ogakshema or Safeguard - Interest of the Shareholders





 

Corporate governance is the set of processes, customs, policies, laws and institutions affecting
the way a corporation is directed, administered or controlled. Corporate governance also includes
the relationships among the many stakeholders involved and the goals for which the corporation
is governed. The principal stakeholders are the shareholders, management and the board of
directors. Other stakeholders include employees, suppliers, customers, banks and other lenders,
regulators, the environment and the community at large.
Corporate governance is a multi-faceted subject. An important part of corporate governance
deals with accountability, fiduciary duty (trust, trustee), disclosure to shareholders and others,
and mechanism of auditing and control. In this sense, corporate governance players should
comply with codes to the overall good of all constituents. Another important focus is economic
efficiency, both within the corporation¶s (such as the best practice guidelines) as well as
externally (national institutional frame works). In this´ economic view, the corporate governance
system should be designed in such a way as to optimize results, as well as to detect and prevent
frauds. Some argue that the firm should act not only in the interest of the shareholders but also
off all the other stakeholders.
Governance makes decisions that the define expectations, grant power, or verify performance. It
consists either of a separate process or of a specific part of the management or leadership
processes. Sometimes people setup a government to administer these processes and systems. In
the case of a business or a nonprofit organization, governance develops and manages consistent,
cohesive policies, processes and decision-rights for a given area of responsibility. For example,
managing at a corporate level might involveevolvic policies on privacy, on internal investment,
and on the use of data.

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The word Governance derives from Latin origins that suggest the notion of ³steering´. One can
contrast this sense of ³steering´ group or society with the traditional ³Top-Down´ approach of
governments ³driving´ society. Distinguish between governance¶s ³power to´ and governments
³power over´.

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³Corporate Governance deals with the ways in which suppliers of finance to

Corporations assure themselves of getting a return on their investment´
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‡? ³«the process and structure..to direct and manage the business and affairs of the
corporation with the objective of enhancing shareholder value, which includes ensuring
the financial viability of the business«.´
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‡? ³Corporate governance involves a set of relationships between a company¶s management,

its board, its shareholders and other stakeholders ..also the structure through which
objectives of the company are set, and the means of attaining those objectives and
monitoring performance are determined.´
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‡? ³«fundamental objective of corporate governance is the µenhancement of the long-term

shareholder value while at the same time protecting the interests of other stakeholders.´
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Corporate governance is essentially about leadership:
±? leadership for efficiency;
±? leadership for probity;(honesty)
±? leadership with responsibility; and
±? leadership which is transparent and which is accountable.
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„elationships between a company¶s management, its board, its shareholder and other
stakeholders. Corporate governance also provides the structure through the objectives of the
company is set, and the means of attaining those objectives and monetary performance. Good
governance should provide proper incentives for the board management to pursue objectives that
are in the interest of the company and shareholders and should facilitate effective monitoring
thereby encouraging firms to use resources efficiently

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Corporate governance is typically perceived by academic literature as dealing with ´problems
that results from the separation of ownership and control´. From this perspective, corporate
governance would focus on: the internal structure of BOD; the creation of independent
committee¶s rules for disclosures of information to shareholders and creditors; and control of the
management.
An adequate institutional and legal framework is in place in India for effectively implementing a
code of sound corporate governance in banks. The statutes have build-in legal provisions that
prohibit or strongly limit activities and relationship that diminish the quality of corporate
governance in banks; they have been advised to place before their board of directors the report of
consultative group of directors of banks and setup to review the supervisory role of boards of
banks. The recommendations include the responsibility of the BOD, role and responsibility of
independent and non- executive directors, fit and proper norms for nomination of directors in
private sector banks, etc. The banks were advised to adopt and implement the recommendations
on the basis of the decisions taken by their board.
Transparency and disclosures standards are also important constituents of a sound corporate
governance mechanism. Transparency and accounting standards in India have been enhanced to
align with international best practices. However, there are many gaps in the disclosures in India
vis-a-vis the international standards, particularly in the areas of risk management strategies and
practices, risk parameters, risk concentrations, performance measures, component of capital
structure, etc. Hence, the disclosure standards need to be further broad-based in consonance with
improvements in the capability of market players to analyze the information objectively.

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/: Ensuring transparency in
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2) Project Governance
3) Information Technology Governance
4) Fair Governance


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In the * th century, state corporation laws enhanced the rights of corporate boards to govern
without unanimous consent of shareholders in exchange for statutory benefits like appraisal
rights, to make corporate governance more efficient. Since that time, and because most large
publicly traded corporations in the US are incorporated under corporate administration friendly
Delaware law, and because the US's wealth has been increasingly securitized into various
corporate entities and institutions, the rights of individual owners and shareholders have become
increasingly derivative and dissipated. The concerns of shareholders over administration pay and
stock losses periodically has led to more frequent calls for corporate governance reforms.
In the 20th century in the immediate aftermath of the Wall Street Crash of * 2 legal scholars
such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C.Means pondered on the changing
role of the modern corporation in society. Berle and Means' monograph "The M

(* 32, Macmillan) continues to have a profound influence on the conception of corporate

governance in scholarly debates today.
In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and World
com, as well as lesser corporate debacles, such as Adelphia Communications, AOL, Arthur
Andersen, Global Crossing, Tyco, and, more recently, Fannie Mae and Freddie Mac, led to
increased shareholder and governmental interest in corporate governance. This culminated in the
passage of the Sarbanes-Oxley Act of 2002. But, since then, the stock market has greatly
recovered, and shareholder zeal has waned accordingly.

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Parties involved in corporate governance include the regulatory body (e.g. theChief Executive
Officer, the board of directors, management and shareholders).Other stakeholders who take part
include suppliers, employees, creditors, customers and the community at large.
All parties to corporate governance have an interest, whether direct or indirect, in the effective
performance of the organization. Directors, workers and management receive salaries, benefits
and reputation, while shareholders receive capital return. Customers receive goods and services;
suppliers receive compensation for their goods or services. In return these individuals provide
value in the form of natural, human, social and other forms of capital.
A key factor in an individual's decision to participate in an organization e.g. through providing
financial capital and trust that they will receive a fair share of the organizational returns. If some
parties are receiving more than their fair return then participants may choose to not continue
participating leading to organizational collapse.

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*) To build an environment of trust and confidence amongst these having

Competition and conflicting interest.

2) To enhance shareholders value and protect the interest of stakeholders by

Enhancing the corporate performance and accountability.
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?To have system and procedures which are transparent and which inform?
The stakeholders about the working of corporations.

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External corporate governance controls encompass the controls external
stakeholders exercise over the organization. Examples include:
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demand for and assessment of performance information (especially
financial statements)
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government regulations
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managerial labour market
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media pressure
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Corporate governance for banking organizations is arguably of greater importance than for other
companies, given the crucial financial intermediation role of banks in an economy, the need to
safeguard depositors¶ funds and their high degree of sensitivity to potential difficulties arising
from ineffective corporate governance. Effective corporate governance practices, on both a
system-wide and individual bank basis, are essential to achieving and maintaining public trust
and confidence in the banking system, which are critical to the proper functioning of the banking
sector and economy as a whole. Bank failures can pose significant public costs and consequences
due to their potential impact on deposit insurance mechanisms and the possibility of broader
macroeconomic implications, such as contagion risk and impact on payment systems. Indeed,
banks and other financial companies may lose large amounts of money in a short period in the
case of events such as fraud. In addition, poor corporate governance can lead markets to lose
confidence in the ability of a bank to properly manage its assets and liabilities, including
deposits, which could in turn trigger a liquidity crisis or a run on deposits. Banks also typically
have access to confidential customer information, which can potentially be misused by
employees for personal gains.
Moreover, review and analysis of the investments, activities, risk exposures and financial
statements of banks may in some cases be more complex than such reviews of other companies
for several reasons, including the unrated, borrower-specific nature of a bank¶s loan portfolio, as
well as valuation challenges. In light of these sensitivities, minimum standards of corporate
governance for banks should therefore be more ambitious than for non-financial firms.


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A number of committees were set up to look into various aspects of Corporate Governance these
includes:

-? Sir Adrian Cadbury Committee on Financial Aspects of Corporate Governance(* 2)

-? Mervyn E King¶s Committee on Corporate Governance(* 4)

-? Jenkins „eport, US (Sept, * 4).

-? Toronto Stock Exchange „eport, Canada (Dec.* 4)

-? Greenbury Committee on Directors „emuneration(*
)

-? Hampel „eport,UK (Dec,* )

-? Business „ound Table(B„T) Statement on Corporate Governance(* )

-? Hampel Committee on Corporate Governance(* )

-? Blue „ibbon Committee on improving the Effectiveness of Audit Committee(* )

-? CACG Principles for Corporate Governance in Commonwealth(* )

-? Blue „ibbon Commisson „eport, US,2000

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Following committees were set up to look into various aspects of Corporate Governance these
includes:

-? Kumar Mangalam Birla Committee(* )

-? The Naresh Chandra Committee(2002)

-? The Narayan Murthy Committee(2003)

  ./!!$$!0which deals with Corporate Governance that a listed
entity should follow was *st introduced in the F.£.2000-0* based on the recommendations of
Birla Committee.

After these recommendations were in place for about 2yrs, SEBI in order to evaluate the
adequacy of the existing pratices set up Narayana Murthy Committee, which after holding 3
meetings submitted a Draft recommendations on Corporate Governance norms accordingly
Clause 4 of Listing Agreement was revised but industry had some objections which forced the
Murthy Committee to revise Clause 4 again.

This revised recommendations have considerably diluted the Original Murthy Committee
recommendations.

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„eason behind CS„

·? Capital reputation

·? Eco-Social Perspective

·? „ights to information

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·? Increased sales

·? Customer loyalty

·? Creating new business opportunities

·? Enhanced reputation

·? Brand value

·? Tax benefits

EXAMPLE OF GOOD CO„PO„ATE GO‘E„NANCE