Corporate Governance

Corporations have become a powerful and dominant institution. They have reached to every corner of the globe in various sizes, capabilities and influences. Their governance has influenced economies and various aspects of social landscape. Shareholders are seen to be losing trust; and their market value has been tremendously affected. Moreover, with the emergence of globalization, there is greater de-territorialization in corporate governance and less of governmental control, which results is a greater need for accountability (Crane and Matten, 2007).

Hence, corporate governance has become an important factor in managing Organizations in the current global and complex environment. There is evidently emerging condition of corporate colonialism. OBJECTIVE OF THE STUDY It is in view of the influence of the multi-national corporations (MNCs) through their strategy of corporate colonialism, using economic power, that the researchers have chosen this subject to view the current status of Corporate Governance in India while also presenting the subject as dissertation with definition, theories and practices followed.

Definition In order to understand corporate governance, it is important to highlight its definition. Even though there is no single generally accepted definition of corporate governance, it is necessary to define it: it can be defined as a set of processes and structures for controlling and directing an organization. It constitutes a set of rules, which governs the relationships among management, shareholders and stakeholders (Ching et al, 2006). The term “corporate governance” has a clear origin from a Greek word, “kyberman” meaning to steer, guide or govern.

From a Greek word, it moved over to Latin, where it was known as “gubernare” and the French version of “governor”. It could also mean the process of decision-making and the process by which decisions may be implemented. Henceforth, corporate governance has much a different meaning to different organizations (Abu-Tapanjeh, 2008). In recent years, with much corporate failures, the countenance of corporate has been scared. Corporate governance extends to all types of firms and its definitions could profitably include covering all of the economic and non-economic activities.

Literature in corporate governance provides some form of meaning on governance, but falls short in its precise meaning of governance. Such ambiguity emerges in words like control, regulate, manage, govern and governance. Owing to such ambiguity, there are many interpretations. It may be important to consider the influences a firm has or by which it is affected, to grasp a better understanding of governance. Due to the vastness of influential factors, the proposed models of corporate governance can be flawed as each social scientist is forming its scope and concern in his own way.

ETHICS There is no gain-saying the fact that corporate governance is all about ethical conduct in business. Ethics is concerned with the values and principles that enable a person to choose between right and wrong, and therefore, to select from alternative courses of action, one approach, as the best possible alternative. Further, ethical dilemmas arise from conflicting interests of the parties involved. In this regard, managers take decisions based on a set of principles influenced by the values, context and culture of the organization.

Ethical leadership is good for business akin to the ‘General will’ concept as the organization is seen to conduct its business in line with the expectations of all stakeholders. What constitutes good Corporate Governance will evolve with the changing circumstances of a company and must be tailored to meet these circumstances. There can, therefore, be no one single model of Corporate Governance. So, the Corporate Governance is nothing but the moral or ethical or value framework under which corporate decisions are taken.

It is quite possible that in an effort at attaining the best possible financial results or business results, there could be zealous attempts at doing things which are verging on the illegal or outright illegal. There is also the possibility of grey areas where an act is not illegal but considered unethical that is opposed to public policy. This raises moral issues in the corporate inside as much as in its relations with outside world. What is then corporate governance? Corporate Governance is concerned with holding the balance between economic and social goals and between individual’s and community goals.

The corporate 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 – Sir Adrian Cadbury • The primary purpose of corporate leadership is to create wealth legally and ethically. • This translates to bringing a high level of satisfaction to five constituencies — customers, employees, investors, vendors and the society-at-large. The raison d’être of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year. – N R Narayana Murthy 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 crisis or collapse.

• Also, unlike most OECD countries, the initiative in India was initially driven by an industry association, the Confederation of Indian Industry (CII). – 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, and Dr. Reddy’s Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others. • Following CII’s 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 It became mandatory for listed companies through the listing agreement, and implemented according to a roll-out plan. • 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 Fundamental Objective of Corporate Governance • Enhancement of Shareholder Value, keeping in view the Interests of other Stakeholders • CG a Way of Life rather than a mere Code to follow mechanically. Constituents of Corporate Governance The Board of Directors • Pivotal role • Accountable to stakeholders • Directing management • The Shareholders ; Stakeholders • To participate in appointment of directors • To hold the BoD accountable for governance through proper disclosures • The Management • To act on the direction of the BoD • To provide requisite information to the BoD for decision making

• To implement and monitor control systems ETHICS-definitions • The word ‘ethics’ is derived from the Greek word ‘ethos’ meaning character and Latin word ‘ mores’ meaning customs. To better understand ethics, let us understand and contrast the definition of ethics and law • Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society. • Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to individual self and others in society (through individual and group behaviour). What then is ethics? • The principles of conduct – professional ethics A system or philosophy of conduct • A discipline dealing with what is good and bad – moral duty and obligation • A set of moral principles or values. Relation between ethics and law [pic] MORE ON ETHICS ?

Reflection in a company’s operations of the values and moral principles used in the communities in which they operate ? Successful markets and corporate performance are founded on a commitment to basic ethical principles aligned as much as possible to the interests of individuals, corporations and society. Ethical standards may be expressed in a company’s formal conduct requirements, or contained in generally stated principles that guide a company’s preferred conduct or behaviour. ? Most companies have put in place a code of ethics for its employees to conduct themselves in a particular manner while doing business. WHY Ethics is needed? • Ethics is the aggregate guiding principles. • Where the proposed business activity/ operation of the company borders on the unknown, the company needs to apply the ethics principles to decide on the project. Ethics helps make relationships mutually pleasant and productive- imbibes a sense of community among members- a sense of belongingness to society netizenship. Why have code of ethics at all? • To define acceptable behaviour • To promote high standards of practice

• To provide a benchmark for self-evaluation • To establish a framework for professional behavior and responsibilities • As a vehicle for occupational identity • As a mark of occupational maturity. Creating the Ethical Imperative Written code of ethics (for specificity, no ambiguity) • Employee commitment through corporate citizenship • Employee training(transformation through holistic development) Fundamental Corporate Governance Theories There are many theories on the subject. The important ones are the following: Agency Theory Agency theory having its roots in economic theory was exposited by Alchian and Demsetz (1972) and further developed by Jensen and Meckling (1976). Agency theory is defined as “the relationship between the principals, such as shareholders, and agents such as the company executives and managers”.

In this theory, shareholders who are the owners or principals of the company, hire the agents to perform work. Principals delegate the running of business to the directors or managers, who are the shareholders’ agents (Clarke, 2004). Indeed, Daily et al (2003) argued that two factors can influence the prominence of agency theory. First, the theory is conceptually and simple theory that reduces the corporation to two participants of managers and shareholders. Second, agency theory suggests that employees or managers in organizations can be self-interested.

The agency theory shareholders expect the agents to act and make decisions in the principal’s interest. On the contrary, the agent may not necessarily make decisions in the best interests of the principals (Padilla, 2000). Such a problem was first highlighted by Adam Smith in the 18th century and subsequently explored by Ross (1973) and the first detailed description of agency theory was presented by Jensen and Meckling (1976). Indeed, the notion of problems arising from the separation of ownership and control in agency theory has been confirmed by Davis, Schoorman and Donaldson (1997).

In agency theory, the agent may be succumbed to self-interest, opportunistic behaviour and falling short of congruence between the aspirations of the principal and the agent’s pursuits. Even the understanding of risk differs in its approach. Although with such setbacks, agency theory was introduced basically as a separation of ownership and control (Bhimani, 2008). Holmstrom and Milgrom (1994) argued that instead of providing fluctuating incentive payments, the agents will only focus on projects that have a high return and have a fixed wage without any incentive component.

Although this will provide a fair assessment, yet it does not eradicate or even minimize corporate misconduct. Here, the positivist approach is used where the agents are controlled by principal-made rules, with the aim of maximizing shareholders value. Hence, a more individualistic view is applied in this theory (Clarke, 2004). Indeed, agency theory can be employed to explore the relationship between the ownership and management structure. However, where there is a separation, the agency model can be applied to align the goals of the management with those of the owners.

Due to the fact that in a family firm, the management comprises of family members, hence the agency cost would be minimal as againsta firm with public ownership. (Eisenhardt, 1989). The model of an employee portrayed in the agency theory is more of a self-interested, individualistic and are bounded rationality where rewards and punishments seem to take priority (Jensen ; Meckling, 1976). This theory prescribes that people or employees are held accountable in their tasks and responsibilities.

Employees must constitute a good governance structure rather than just providing the needs of shareholders, which may be challenging the governance structure. Stewardship Theory Stewardship theory has its roots in psychology and sociology and is defined by Davis, Schoorman ; Donaldson (1997) as “a steward protects and maximises shareholders’ wealth through firm performance, because by so doing, the steward’s utility functions are maximised”. Viewed in this perspective, stewards are company executives and managers working for the shareholders; they protect their interest and assets and make profits for the shareholders.

Unlike agency theory, stewardship theory stresses not upon the perspective of individualism (Donaldson ; Davis, 1991), but rather on the role of top management as stewards, integrating their functional goals as part of the organization. The stewardship perspective suggests that stewards are satisfied and motivated when organizational success is attained. Agyris (1973) argues that the agency theory looks at the employees or people as an economic being, which suppresses an individual’s own aspirations. However, stewardship theory recognizes the importance of structures that empower the tewards and offers maximum autonomy built on trust (Donaldson and Davis, 1991). It stresses on the position of employees or executives to act more autonomously so that the shareholders’ returns are maximized. Indeed, this can minimize the costs aimed at monitoring and controlling behaviours (Davis, Schoorman ; Donaldson, 1997). On the other end, Daly et al. (2003) argued that in order to protect their reputation as decision-makers in organizations, executives and directors are inclined to operate the firm to maximize financial performance as well as shareholders’ profits (wealth).

In this sense, it is believed that the firm’s performance can directly impact perceptions of the individual performance of the directors, managers and executives. Indeed, Fama (1980) contends that the executives and directors are also managing their careers in order to be seen as effective stewards of their organizations, whilst Shleifer and Vishny (1997) insist that managers return finance to the respective investors to establish a good reputation so that the organisation can re-enter the market for future finance.

Stewardship model can have linking to or resemblance with the systems followed in countries like Japan, where the Japanese workers assume the role of stewards and take ownership of their jobs and work at them diligently. Moreover, stewardship theory suggests unifying the role of the CEO and the Chairman so as to reduce agency costs and to have greater synthesized role as stewards in the organization. It was evident where this operated and experience showed that there would be better safeguarding of the interest of the shareholders in such arrangement.

It was empirically found that the returns have improved by having both these theories (agency and stewardship) combined rather than separated (Donaldson and Davis, 1991). Stakeholder Theory Stakeholder theory was embedded in the management discipline in 1970 and gradually developed by Freeman (1984) incorporating corporate accountability to a broad range of stakeholders. Wheeler, et al, (2002) argued that stakeholder theory is derived from a combination of the sociological and organizational disciplines.

Indeed, stakeholder theory is less of a formal unified theory and more of a broad research tradition, incorporating philosophy, ethics, political theory, economics, law and organizational science. Stakeholder theory can be defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. Unlike agency theory in which the managers are working and serving for the stakeholders, stakeholder theorists suggest that managers in organizations have a network of relationships to serve – this includes the suppliers, employees and business partners.

And it was argued that this group of network is important, more than owner-manager-employee relationships as in agency theory (Freeman, 1999). On the other hand, Sundaram and Inkpen (2004) contend that stakeholder theory attempts to address the group of stakeholders deserving and requiring Management’s attention. Donaldson and Preston (1995) claimed that all groups participate in a business to obtain benefits. Clarkson (1995) suggested that the firm is a system, where there are stakeholders and the purpose of the organization is to create wealth for its stakeholders.

Freeman (1984) contends that the network of relationships with many groups can affect decision-making processes as stakeholder theory is concerned with the nature of these relationships in terms of both processes and outcomes for the firm and its stakeholders. Donaldson and Preston (1995) argued that this theory focuses on managerial decision-making; the interests of all stakeholders have intrinsic value and no sets of interests are assumed to dominate the other’ interests.

Resource Dependency Theory The stakeholder theory focuses on relationships with many groups for individual benefits; resource dependency theory concentrates on the role of board directors in providing access to resources needed by the firm. Hillman, Canella and Paetzold (2000) contend that resource dependency theory focuses on the role that directors play in providing or securing essential resources to an organization through their linkages to the external environment.

Johnson, et al, (1996) concur with them that resource dependency theorists provide focus on the appointment of representatives of independent organizations as a means for gaining access in resources critical to firm’s success. For example, outside directors who are partners to a law firm, provide legal advice, either in board meetings or in private communication with the firm executives that may otherwise be more costly for the firm to secure. It has been argued that the provision of resources enhances organizational functioning, firm’s performance and its survival (Daily, et al, 2003).

According to Hillman, Canella and Paetzold (2000) that directors bring resources to the firm, such as information, skills, access to key constituents such as suppliers, buyers, public policy makers, social groups as well as legitimacy. In their opinion, Directors can be classified into four categories such as insiders, business experts, support specialists and community influentials. First, the insiders are current and former executives of the firm and they provide expertise in specific areas such as finance and law in the firm itself as well as general strategy and direction.

Second, the business experts are current, former senior executives and directors of other large for-profit firms and they provide expertise on business strategy, decision-making and problem-solving. Third, the support specialists are the lawyers, bankers, insurance company representatives and public relations experts and these specialists provide support in their individual specialized fields. Finally, the community influentials are the political leaders, university faculty, members of clergy, leaders of social or community organizations. Transaction Cost Theory

Transaction cost theory was first initiated by Cyert and March (1963) and later theoretically described and exposed by Williamson (1996). Transaction cost theory was an inte-disciplinary alliance of law, economics and organizations. This theory attempts to view the firm as an organization comprising people with different views and objectives. The underlying assumption of transaction theory is that firms have become so large that they in effect substitute for the market in determining the allocation of resources. In other words, the organization and structure of a firm can determine price and production.

The unit of analysis in transaction cost theory is the transaction. Therefore, the combination of people with transaction suggests that transaction cost theory managers are opportunists and arrange firms’ transactions to their interests (Williamson, 1996). Self-interest cannot all together be sacrificed; it should not, however, take the shape of self-aggrandizement. Political Theory Political theory brings the approach of developing voting support from shareholders, rather by purchasing voting power. Hence, having a political influence in corporate governance may direct corporate governance within the organization.

Public interest is much reserved as the government participates in corporate decision-making, taking into consideration cultural challenges (Pound, 1993). The political model highlights the allocation of corporate power. Profits and privileges are determined via the government’s favour. The political model of corporate governance can have an immense influence on the developments relating to corporate governance. Over the last a couple of decades, the government of a country has been seen to have a strong political influence on firms.

As a result, there is an entrance of politics into the governance structure or firms’ mechanism (Hawley and Williams, 1996). This is true of PSES in India. Ethics Theories and Corporate Governance Other than the fundamental corporate governance theories – the agency theory, stewardship theory, stakeholder theory, resource dependency theory, transaction cost theory and political theory – there are other ethical theories that can be closely associated with corporate governance. These include business ethics theory, virtue ethics theory, feminist ethics theory, discourse ethics theory, post-modern ethics theory to mention more prominent ones.

Business ethics is a study of business activities, decisions and situations where the rights and wrongs are addressed. The main reason for this is that the power and influence of business in any given society is stronger than ever before. Businesses have become major providers to the society in terms of jobs, products and services. Business-collapse has a greater impact on society than ever before and the demands placed by the firm’s stakeholders are more complex and challenging.

Only a handful of business giants have had any formal education on business ethics but there seems to be more compromises on this count these days. Business ethics helps us to identify benefits and problems associated with ethical issues within the firm; business ethics is important as it gives us a new light into present and traditional view of ethics (Crane and Matten, 2007). In understanding the ‘rights and wrongs’ in business ethics, Crane ; Matten, (2007) injected morality that is concerned with the norms, values and beliefs fixed in the social process which help right and wrong for an individual or social community.

Ethics is defined as the study of morality and the application of reason which shed light on rules and principles, called ethical theories, that ascertain the right and wrong for a situation. Business ethics theory focuses on the “rights and wrongs’ in business. Feminist ethics theory Feminist ethics theory emphasizes on empathy, healthy social relationships, loving care for each other and the avoidance of harm. In an organization, to care for one another is a social concern and not merely a profit centred motive. Ethics has also to be seen in the light of the environment in which it is exercised.

This is important, as an organization is a network of actions, hence influencing trans-communal levels and interactions (Casey, 2006). Discourse ethics theory Discourse ethics theory is concerned with peaceful settlement of conflicts. Discourse ethics, also called argumentation ethics, refers to a type of argument that tries to establish ethical truths by investigating the pre-suppositions of discourse (Habermas, 1996). Meisenbach (2006) contends that such kind of settlement would be beneficial to promote cultural rationality and cultivate openness. Virtue ethics theory

Virtue ethics theory focuses on moral excellence, goodness, chastity and good character. Virtue is a state to act in a given situation. It is not a habit as a habit can be mindless (Annas, 2003). Aristotle calls it as disposition with choice of decision. For example, if a board member decides to be honest, he takes a decision which strengthens his virtue of honesty. Virtue involves two aspects, the affective and intellectual. The concept of affective in virtue theory suggests “doing the right thing and have positive feelings”, whilst the concept of intellectual suggests “to do virtuous act with the right reason”.

Virtues can be instilled with education. Aristotle mentions that knowledge on ethics is just like becoming a builder (Annas, 2003). Through the process of educating and exposure to good virtues, the development of ethical values in a child’s life is evident. Hence, if a person is exposed to good or positive ethical standards, exhibiting honesty, just and fairness, then he would exercise the same and it will be embedded in his will to do the right thing at any given situation. Virtue ethics is eminent to bring about the intangibles into an organization.

Virtue ethics highlights the virtuous character towards developing a morally positive behaviour (Crane and Matten, 2007). Virtues are a set of traits that help a person to lead a good life. Virtues are exhibited in a person’s life. Aristotle believed that virtue ethics consists of happiness not on a hedonistic sense, but rather on a broader positive level. Post-modern ethics theory: Post-modern ethics theory goes beyond the facial value of morality and addresses the inner feelings and ‘gut feelings’ of a situation.

It provides a more holistic approach in which firms may make goals achievement as their priority, foregoing or having a minimal focus on values, hence having a long term detrimental effect. On the other hand, there are firms today which are so value-driven that their values become their ultimate goal (Balasubramaniam, 1999). Recommendations of the Kumar Mangalam Committee Securities and Exchange Board of India (SEBI) constituted a Committee on Corporate Governance under the Chairmanship of Mr. Kumar Mangalam Birla.

The Committee observed that there are companies, which have set high standards of governance for them while there are many more practices in them and other companies which are matters of concern. There is increasing concern about standards of financial reporting and accountability especially after losses were suffered by investors and lenders in the recent past, which could have been avoided or at least detected much before they turned into scams, with better and more transparent reporting practices.

Companies raised capital from the market and the investors who invested suffered due to unscrupulous managements that performed much worse than past reported figures. Bad governance was also exemplified by allotment of promoters’ share at preferential prices unreasonably disproportionate to market value, affecting minority holders’ interests. Many corporates did not pay heed to investors’ grievances. While there were enough rules and regulations to take care of grievances, the inadequate implementation and the absence of severe penalty left much to be desired.

The Kumar Mangalam Committee made both mandatory and non-mandatory recommendations as per such terms of reference. Based on the recommendations of this Committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreements (“Listing Agreements”). The important aspects thereof, in brief, are: (i) Board of Directors is accountable to shareholders.

(ii) Boards lay down code of conduct and are accountable to shareholders for creating, protecting and enhancing wealth and resources of the Company, reporting promptly in transparent manner while not involving in day to day management. iii) Classification of non-executive directors into those who are independent and those who are not. (iv) Independent directors not to have material or pecuniary relations with the Company/subsidiaries and if they had, to disclose such interest in the Annual Report. (v) Laying emphasis on calibre of non-executive directors especially independent directors.

(vi) Sufficient compensation package to attract talented non-executive directors. vii) Optimum combination of not less than 50% of non-executive directors on the boards of companies with non-executive Chairman, to have at least one third of independent directors and, under executive Chairman, at least one half of independent directors. (viii) Nominee directors to be treated on par with other directors, (ix) Qualified independent Audit Committee to be set up with minimum of three, all being non-executive directors with one having financial and accounting knowledge.

x) Corporate Governance report to be part of Annual Report and disclosure on directors’ remuneration, etc. , to be included. A specimen of corporate governance report forming part of Annual report of ………. Limited is annexed in appendix. CRITICAL ANALYSIS The compliance certificates of the Statutory Auditors were scrutinized as appearing in the published Annual Reports of Banks and companies for the year ended 31st March, 2010.

The selection covered State Bank of India, Canara Bank, ICICI Bank, HDFC Bank, Priyadarshini Spinning Mills Limited, Rana Sugars Limited, Reliance Capital, Reliance Industries Limited, Unitech Limited and Sona Koyo Steering Systems Limited. It was observed that the Statutory Auditors have seen the reports as certified by the Boards of Directors concerned stating that the compliance with regard to Corporate Governance required under clause 49 of the Listing Agreement with the relative Stock Exchange has been complied with.

The Annual Reports do contain information under the following heads: Company’s Philosophy on Code of Corporate Governance. Board of Directors (composition – number, Executive and non-executive directors, no. of meetings held and attended by each director, appointment of directors, business interest of directors in the company, no. of directorships); Board Committees Audit Committee and its members; Remuneration Committee (Directors’ Remuneration) Shareholders’/Investors’ Grievance Committee; Name and address of Compliance Officer;

Additional information on Directors retiring by rotation and seeking re-appointment at the Annual General Meeting; General Body Meetings (dates, places, time) CEO’s Certificate on Corporate Governance. Despite mandatory information given, there appears necessity for specific disclosures on large funds lay-out, losses or strategic plans affected the company’s performance and the analysis of grievances handled. Canara Bank has mentioned even the compliance on Non-mandatory requirements of clause 49 of the listing agreement.

As the audit or have disowned responsibility in regard to full verification; they have stated that the responsibility for compliance rests with the management. They have further stated that their certificate is neither an audt nor expression of opinion on the financial statement and similarly on the status of Corporate Governance. They have also stated that their certificate in respect of Corporate Governance is neither an assurance of the future viability of the company nor the efficiency or effectiveness with which the management has conducted the affairs of the company.

This sounds well because the provisions of the company law do not permit lifting of the corporate veil and management is for the most part, where procedures and systems are concerned, an indoor management. Special provision has to be made for management audit to highlight the efficiency level of management personnel and directors so that further corporate training and education could be given to the directors and key personnel. Conclusion

It is observed that the financial reporting practices have improved in the Indian corporate enterprises over the years. The concept of disclosure has grown and expanded in diverse ways in response to the evolution of corporate form of business organizations and the statutory requirements of Indian Companies Act 1956, the enactment of Securities and Exchange Board of India Act 1992 and also on account of emergence of accountancy and auditing as a distinct profession.

It is seen, however, that in spite of the efforts on the part of corporate management to improve the meaningfulness of the annual reports, there are many users of these published corporate annual reports that continue to show their dissatisfaction with the overall quantity and quality of disclosure expressed therein. More specific deficiencies are inadequate disclosure of pertinent data, lack of uniform employment of alternative approximation methods and lack of sufficient voluntary disclosures.

Confederation of Indian Industries (CII) is the first business association to come out with a code of corporate governance in 1998 for transparent corporate disclosure norms. The code has suggested stricter norms for large companies only to begin with. CII says that the changed scenario will see many foreign portfolio investors raising their demand for better corporate governance in Indian markets. It opines that the takeover code should be modified to reflect international norms.

For good governance, CII code suggested that certain key information must be placed by the management to the board. This includes: Annual operating plans and budgets; Capital budgets; manpower and overhead budgets; quarterly results; internal audit reports; show cause, demand and prosecution notices; default in payments; details of any joint-venture or collaboration agreement; the transaction that involves substantial payment towards oodwill, brand equity or intellectual property; recruitment and remuneration of senior officers; quarterly details of foreign exchange exposure; and the steps taken by the management to limit the risk of adverse exchange rate movement etc. ). However, the CII code does not reveal anything on restructuring; spin offs, desensitization and over-reliance on equity route of finance.

Unit Trust of India (UTI) has drawn a five-point code for good corporate governance as: the executive directors should not be appointed by the principal promoters alone; company audit committees should include only non-executive directors to make them truly independent; all important corporate decisions should be discussed by the board to bring greater transparency to corporate governance; the pay and perks of whole-time directors must be decided by compensation committees and better monitoring of investment in subsidiaries.

The Unit Trust of India plans to achieve the above objectives through its nominee directors on the Board of various companies. Similarly, ICICI has evolved an internal corporate governance code which restricts board representatives of ICICI officials on the board to four. ICICI has decided to implement the concept of corporate governance in true sense by giving its board of directors a new look by defining role, composition, structure, functions and responsibilities. It is truly said in the management world that you dig deep into any activity and you find a man there.

Accordingly, the human action and the information flow shall be the two most dominant inputs to any sound business development strategy. For this to happen to achieve the purpose in view, the right quantity and quality information needs to be in the hands of the right people at the right time. The success does not rely on an individual’s knowledge, but on the knowledge of the organization as a whole. True, because in this age of competitive pressures, the need to innovate is critical and with the breakdown of global physical borders in business, every single thing counts.

When the ability to gain that edge in the competitive arena is within, and in the form of walking around employees, it must be to capitalize it and leverage on it. It is not just tools and technologies rather it’s a process of integrating intellectual capital into the ‘fabric’ of an organization through intensive use of human capabilities and skills, and, of course, knowledge. The process of weaving involves the people, business and knowledge process and technology dimensions. It is the foundation of the future competitiveness, and capability building too!

We find that the merging of human resources functions and technology in recent years has enabled great gains in process automation and efficiency within the enterprise. Speed and agility have become key words for HR operations and in many cases, e-HR innovations are boosting the bottom line. There was a high degree of concern about several issues, which were more related to the fundamental old problems of human resources rather than the tougher technology related problems of the new economy.

The talent attraction and retention is the number one concern of executives, reflecting both the labour market and a shift in the economy from productivity to talent as a source of competitive advantage. Business people are identifying the right things to be worried about, and that’s encouraging; executives are spending time and energy grappling with issues that, ideally, would be behind them by now. Knowledge management has emerged on the front stage and a sine qua non for business development, company advantage, customer delight and improving or at least sustaining market share through innovation and creativity.

Annual Reports of 4 banks were scrutinized regarding disclosures and transparency standard and status within the Corporate Governance concept. It was found that corporate governance in banks is in a formative stage. It is fast evolving and has a long way to go. While setting accountability standards for board, there is a need for enhanced transparency and disclosure in respect of various aspects of Board constitution and functioning. Corporate governance calls for a paradigm shift in the role of the board and corporate directors.

They need to be “evolutionary” and “revolutionary”, constantly moving the company towards higher level of creativity. While corporate governance is an important element of affecting the long term financial health of banks, it is only a part of larger economic context in which banks operate. The corporate governance depends upon legal and institutional environment. In competitive business environment, banks that adopt good corporate governance principles and best practices will be able to survive and attain sustainable growth levels.

PSBs need greater functional autonomy in a deregulated environment. Such autonomy needs to be accompanied by greater accountability on the part of their boards to stakeholders. A code of governance shall serve as an effective instrument for achieving this goal. In nut-shell, even beginning is shaky, mandatory norms are receiving tardy response, compliance is the minimum to avoid criticism; it is a formality and not discharge of value-based responsibility with pleasure, thrill, and as essential corporate culture embedded in business ethics.

A long way to go, may be stricter penal provisions are called for, at this initial stage! All concerned are aware , strengthening the company board is the best bulwark against inadequate governance. The Companies Bill, 2009 should prescribe measures to improve governance, including accounting and auditing. Developed countries, even with much larger company scandals, held substantive discussions between stock exchange regulators, company law regulators and professional institutes.

They desisted from recommending rotation of auditors, but called for an oversight board, rotation of partners of the audit firm, surprise inspections and strengthened peer reviews with clear policy thrust to strengthen the mid-tier firms. Our own Companies Bill, 2008 and 2009 (after Satyam) did not provide for rotation, but the Select Parliamentary Consultative Committee (SPCC) has recommended rotation of audit firms entirely as a reaction to Satyam (see para 10. 4 of Chapter X of the SPCC report).

One needs to reconsider its efficacy. The answer lies in compulsory rotation of audit partners and not of firms, stronger peer review, an audit oversight board and inspection of firms doing listed company audits by ICAI, joint auditors in companies having more than Rs. 1,000 crore turnover, thus promoting small and medium firms. The objective should be to strengthen the audit profession and its quality; and enliven company Law Board with trained staff with better pay.

Rotation system will only convert auditors into marketing strategists, making them lose talent and quality work and destroy their ability to put up red flags to recalcitrant managements. Prof. K. C. Sharma, Swami Vivekanand School of Management Mrs. Omkar Kaur, Sr. Faculty, Swami Vivekanand School of Management Miss Parneet Kaur, Lecturer, Swami Vivekanand Institute of Management & Technology References Corporate Governance and Ethics: An Abstract Corporatization process started in the West, more particularly in America. It was natural evolution out of the private ownership of business enterprises there.

The people in the West believe that the sovereign should not own business houses or manufactories; the Sovereign must reign only and, at best, ensure law and order and issue commands to his agencies to look after activities related to tax collection for spending on general welfare. The corporate entity was creation of law and its affairs were managed by paid professionals who had no major stake in it apart from employment. The owners/shareholders were not much concerned with the daily affairs of business. They were content with periodical reports and more particularly with the annual reports.

Still, there were brokers to inform about the price changes of the stocks on the stock bourses. Some of the shareholders became better informed and many started trading stocks frequently in response to the market price movements to earn profits. The trend now is not to stick to the same stock; these are off-loaded or bought day in and day out, even for thin margins. In such a scenario, it was but natural for the unscrupulous elements to indulge in manipulations and malpractices to dupe the honest and ignorant stockholders. The corporate entities also were affected by cut-throat competition.

Therefore, the government in each of such countries came to the rescue of the investors and various codes and guidelines were formulated for compliance; non-conformance was severely dealt with. The healthy practices introduced over a period were codified and supervisory agencies with powers set up for strict enforcement of regulations that were enacted. In this way, the concept of Corporate Governance evolved. This briefly explains the need for the corporate bodies/organizations to function like political democracy responsible and accountable to the stakeholders and government, as also to the society/general public. Corporate Governance’, among other things, covers transparency of operations in the business, industry or service organization. There is prescription under this concept, which the West has been following for a long time, that there has to be full disclosure of information or events including planning (successes and failures) with commitment to business ethics not only to maximize shareholder value on a sustainable basis but also functioning to ensure fairness to all stakeholders including customers, employees, investors, enders, lessors, vendors, government agencies, and society at large. Corporate Governance is the system by which companies are directed, controlled and managed. As corporate entities function like democratic polities, it is incumbent upon them to be accountable to all stake-holders and government. Corporate governance is guided by code of ethics and set of principles that enable a functionary to choose between right and wrong. It hinges upon transparency. It is lack of transparency that leads to corrupt, deviant or errant behaviour.

Commonly accepted corporate governance principles are: honouring the rights and extending equitable treatment to shareholders; watching interest of minority stock/share holders; serving interest of other stakeholders; ensuring proper playing the role and enforcing proper discharge of responsibilities by the board; enforcing and ensuring integrity and ethical behaviour on the part of not only the board members but also on the part of the other functionaries (bottom to top); and, above all, overseeing full disclosure and transparency of working in the corporate organization.

Understanding and paying proper attention to the four Ps of Corporate Governance (namely People, Purpose, Processes and Performance), the internal working has to be professional, straight-forward, truthful, fair and ethical. There is no scope for any manipulation of facts and reports, fudging of figures, mis-statements, fraud and defalcation. The superiors have to be vigilant and skilled enough to detect signs of undesirable conduct early enough to preserve the integrity and image of the organization.

The issues involving Corporate Governance are: oversight of the preparation of the financial statements to leave no scope for wrong information; formulating, reviewing and enforcing strict internal controls and ensuring independence of the auditors; periodic review of compensation arrangements, more particularly to the CEO and other top ranking executives; the procedure or manner in which individuals are nominated to the board to ensure efficiency, quality and judicious decisions; provision and review of resources provided to the directors to carry out their duties efficiently; maintaining critical oversight and management of multi-factor risk; and dividend policy – formulation, application, review and innovating. Kumar Mangolam Birla Committee has made mandatory and non-mandatory recommendations to induct corporate governance in India Inc. ; a modest beginning has been made by including vital parameters in a self-certificate form, confirmed by the Statutory Auditors as enclosure to the audited annual Balance Sheet, etc. Different cultures have different values and ethical codes, codes of conduct and codes of behaviour in different occupations. To bring about uniformity in the business ethics, which should be uniform, not affected by different working environment, strict governance code has been prescribed for the corporate world.

In the completely privatized economy, as that of USA, the MNCs have branches or collaborations or subsidiaries in many countries. Common record-keeping, compiling financial statements and designing internal working procedures and practices, as well as reporting practices are necessary to safeguard the interests of all stakeholders, customers and society at large. Ethics has, therefore, been enmeshed into the corporate governance in such a manner that the large business organizations ensure their working in the interest of their internal and external publics. This paper is an attempt to review literature on a range of theories in corporate governance and present integrated view with comment on ethics of business followed.

Corporate entities must keep cost low, charge reasonable price, leave no scope for deviant behaviour and corrupt practices and disclose product ingredients, specify process and technology and make all kinds of operations/activities transparent and business related information fully disclosed. Complaints and grievances are to be handled promptly to establish credibility and fairness through professionalism. Apart from serving shareholders and other stake holders, they must function in the overall interest of society inasmuch as they have to care for environment, reduce pollution level, sustain bio-diversity and tap alternative energy sources with changes in technology and processes. Prof. K. C. Sharma, Swami Vivekanand School of Management Mrs. Omkar Kaur, Sr. Faculty, Swami Vivekanand School of Management Miss Parneet Kaur, Lecturer, Swami Vivekanand Institute of Management & Technology