Meaning:Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders.

Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

Definition
The definition of corporate governance most widely used is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). OR Milton Friedman has defined Corporate Governance as The conduct of business in accordance with shareholders desire which generally is to make as much money as possible while conforming to the basic rules of society embodied in law and local customs.

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.

Laws and Regulations Interests of Stakeholders Ownership Board of Directors Other Stakeholders

Changing Ownership Structure. Social Responsibility. Globalization. Ethical Conduct in Business. Improving Economic Efficiency of a Corporate. Co-operation of all stakeholders for the Growth. SCAMS

To create a trust in the corporate and in its abilities. To promote business development. To improve the efficiency of the capital .markets. To enhance the effectiveness in the service of the real economy.

People are more imp0orant than processes. Shareholder accountability. External audit must be independent and ```penetrating. Disclosure and transparency are crucial to market .integrity. There must be an appropriate regularity regime .to back these obligations.

Meaning:Agency theory is a theory concerning the relationship between a Principal (Share holder) and an Agent of the Principal (Companys Manager).

Investopedia Explains:
Agency theory is a very academic term essentially it involves Principals and Agents and aligning interests of the two groups. Agency theory is the branch of Financial Economics that looks at conflicts of interest between people with different interests in the some assets. This most importantly means the conflicts between Shareholders and Manager of Companies. Shareholders and Bond Holders.

Agency Theory Explains about o Why cos so often make acquisitions that are bad for share holders. o Why convertible bonds are used and bonds are sometimes sold with warrants. o Why capital structure matters. One particularly important agency issue is the conflict between the interests of shareholders and debt holders. In particular, following a more riskier but higher return strategy benefits the shareholder to the detriment (damage) of the debt holders.
To be contd..

o Debt holders lose out a more risky strategy increases the risk of difficult on debt, but Debt holders, being entitled to a fixed return, will not benefit form higher returns. oShareholders will benefit form the higher return, however if the risk goes bad, shareholders will thanks to limited liability, share a sufficiently bad loss with Debt holders.

Compliance with the Corporate Governance Principles can benefit the owners and managers of companies and increase transparency and disclosure by, Improving access to capital and financial markets. Help to survive in an increasingly competitive environment through mergers, acquisitions, partnerships and risk reduction through asset diversification. provide an exit policy and ensure a smooth intergenerational transfer of wealth and divestment of family assets, as well as reducing thebechance for To contd. conflicts of interest to arise.

It leads to better system of internal control, thus leading to greater accountability and better profit margins. It has a ability to attract equity investors-nationally and from abroad. It also reduce the cost of loans/ credit for corporations. Investors and potential partners will have more confidence in investing in or expanding the companys operations.

Provide the proper incentives for the board and management to pursue objectives that are in the interest of the company and shareholders as well as facilitate effective monitoring. Greater Security on their investments. It ensures that shareholders are sufficiently informed on decisions concerning amendments of statutes or articles in incorporation , sale of assets etc.,

Empirical evidence and research conducted in recent years supports the proposition that it pays to have good corporate Governance. It was found out that more than 84% of the global institutional investors are willing to pay a premium for the shares of well governed company over one considered poorly governed but with a comparable financial record. The adoption of Corporate Governance Principles as good Corporate Governance practice has already shown in other markets can also play a role in increasing the corporate value of companies.

Corporate Governance is part of an economys system which has today become the most important mechanism for resource allocation. It is affected by Capital market, block holders, institutional investors, proxy wars, company law and capital market regulation s and many other macro-economic as well as political factors. Much of the concerned literature revolves around the agency problem, while developing countries expropriation of small shareholders is the governance problem, However, shareholders activism is not likely to resolve the issue. Many more measures form audit committee of the board, rigorous disclosure, exercise of voting rights will ensure the issue.

The board of a company provides the leadership and strategic guidance, exercises control over the company while at all times remaining accountable to he shareholders. The overall role of the Board as envisaged under the statute is to direct and control the management of the company.
COMPOSITION OF THE BOARD:-

The composition of the BODs is critical to the independent functioning of the Board. The executive directors (like Director-finance, Director-Human Resource) are involved in the day-to-day management of companies; non-executive directors bring external and wider perspective and independence to decision making. Among the non-executive directors are independent directors who have a key role in the entire mosaic of corporate Governance. To be contd

Good Corporate Governance dictates that the Board be Comprised of individuals with certain personal traits and care competencies such as.. Recognition of Boards tasks. Integrity. Sense of Accountability. track record of achievements. Each of the members of the Board should have a driving motivation and aggressiveness, natural leadership and organizational abilities with a high degree of technical competence and team spirit.

Section 291 of the companies Act of 1956 specifies that the Board of Directors of the company shall be entitled to exercise all such powers and duties.

Powers exercisable only at meetings of the Board. Powers exercisable only with the prior consent of the company in general meeting. Powers exercisable by the Board through resolution passed by circulation. Boards is free to act and decide based on its wisdom.

Directors must act bona fide in the interests of the company. Every director must act with care and skill reasonably expected of his office. Personal interests must not be placed before companys interests. The information and knowledge gained during his tenure as director should not be used to gain personal profits. Duty to disclose his concern or interest in transactions.

Liability to maintain Books and Registers. Directors responsibility for proper books of accounts. Personal liability of Directors to repay in certain cases. Duty of filing of returns. Duty to seek approval form registrar.

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.

&

INFOSYS TECHNOLOGIES: THE BEST AMONG INDIAN CORPORATES

As per the Credit Lyonnais Securities Analysis (CLSA), the corporate governance ratings of the Software firms are higher than those of other Indian firms. Infosys, based in Bangalore, is a publicly held, ISO 9001 certified company offering information technology consulting & software services. The software offered include application development, Commerce & Internet Consulting, Software Maintenance. E-

Respected across the country, with very strong systems, high ethical values & a nurturing working atmosphere.

Net income of US 1,155 million and revenue of US 4,176 million. At present having US 20.4 billion market capitalisation.

ACHIEVEMENTS

Voted as the Best Managed Company in Asia. Biggest exporters of Software. First to follow the US Generally Accepted Accounting Principles before going for Nasdaq listing in 1991.

Championed Corporate Governance in India.

NARAYANA MURTHYS GLOBAL STRATEGY

1)

Global Delivery Model

Producing where it is most cost effective to produce & selling where it is most profitable to sell.

2)

Moving up the Value Chain

Getting involved in a software development project at the earliest stage of its life cycle.

3)

PSPD Model

Predictability of Revenues, Sustainability of Revenues, Profitability, De-risking.

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.

WINNING EMPLOYEES

GROWING INVESTORS

Thank you

DELIGHTED CUSTOMERS

HAPPY SOCIETY

TRUSTED SUPPLIERS

SATISFIED GOVERNMENT AND REGULATORS