Certificate Course In

CORPORATE GOVERNANCE

Study Materials

Index

I. IntroductionII. Ownership vs. Management.III. Principles of Good Governance.IV. Ethics in GovernanceV. Corporate GovernanceVI. Parties to Corporate Governance.VII. Board of DirectorsVIII. Audit Committee.IX. Disclosures X. Company law Provisions- Corporate GovernanceXI. Recent Developments in Corporate Governance in IndiaXII. Case StudyXIII. Conclusion

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Certificate Course in Corporate Governance

Study Materials

I. IntroductionBusiness of selling goods and services has always been carried on in different business forms in the society. The change in the form of business from Sole Trader to Partner-ships and Partner-ships to Limited companies was basically necessary to meet the need for increasing investment to meet the growth prospects of the business. The expansion of the business had also resulted in ownership of the business moving away from the Business Management. As the size of the business started increasing, the need to look after business in a serious way was felt very much. Along with this, the need for experienced persons handling the management of the business was also felt. Slowly, over a period of time the management of business started getting into the hands of experienced or specially qualified hands in the respective fields. The more severe the competition in the business became, the more and more specialised persons started getting employed to run business and such people have not been having any ownership stake in such business.II. Ownership vs. Management. With employment of specialised persons to look after running the business, the Owners’ interest in the

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business was mainly restricted to investing money to reap returns. As the owners/investors are mostly persons with sufficient resources, they were happy to leave the task of running the business in the hands of competent and experienced persons, willing to manage the business for a suitable remuneration. The managers have been given required freedom to run the business they deem fit and had to be accountable for their actions to the owners of the business. The Management’s view of the business will be to run successful business under competition and earn a reasonable return for the owners in the long range. The relationship between the Managers and the Owners is defined by the following factors:1. Powers: Managers need power to run business and the owners have to delegate powers to Managers to the extent required for successful running of business. This means that owners should trust and delegate sufficient powers to managers–sufficient enough to allow the managers to perform well using their expertise in running the business. The delegation of powers should be clearly expressed to managers and others in the organisation, so that managers are truly empowered and can be accepted as leaders by others.2. Accountability- The delegation of powers comes with accountability. The managers are accountable to the owners for the results. They managers have obligation to owners to use the powers delegated to them and achieve good working results for the benefit of the owners. They have to ensure that investors’ wealth grows due to their efforts and the business follows all the legal procedures and investors’ interests are well protected.3. Remuneration- The managers have to be paid remuneration to match with the powers delegated and tasks assigned to them. If remuneration does not

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commensurate with the tasks assigned to managers, there will be no motivation for the managers to perform well. Remuneration, should match the position, powers delegated and tasks assigned to Managers.4. Reports- Reporting is an important part of the managers’ responsibilities. Not only doing the job, but informing the concerned about what is being done is equally important. Other wise, the owners will be ignorant about their position, either relating to the status of their investment or the protection of their business. The Reporting covering all important aspects of business should be done in a systematic manner and with a fixed periodicity.

III. Principles of Good Governance.

Governance is the activity of governing. It relates to taking decisions that meet and define expectations, granting power, or verifying actual performance against the expectations. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a governing authority to administer these processes and systems.In the case of business organisations, governance relates to conducting consistent management of the organisation, lying down or defining cohesive policies, processes and decisions-rights for a given area of responsibility. For example, managing at a corporate level might involve

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evolving policies on privacy, on internal investment, and on the use of data.Perhaps the moral and natural purpose of governance consists of assuring, on behalf of those governed, a worthy pattern of good behavior, while avoiding an undesirable pattern of bad. The ideal purpose, obviously, would assure a perfect pattern of good with no bad behavior.In business, people who are trusted with the function of Governance, should exhibit that they have ability to govern the affairs of the organisation in a good manner. Unless the Governance is good, the working result can never show the desired results to the owners and owners will have no trust and confidence in those governing the organisation.Key elements of good governance principles include a. Honesty, b. Trust and integrity, c. Openness/ Transparency, d. Performance orientation, e. Responsibility and accountability, f. Mutual respect between the owners and Managers, and commitment to causes of the organisation.It is a matter of great importance to know as to how directors and management develop a model of governance that aligns the values of the business participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.

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IV. Ethics in Governance

By virtue of existing in the social and natural environment, business is duty bound to be accountable to the natural and social environment in which it survives. Irrespective of the demands and pressures upon it, business by virtue of its existence is bound to be ethical, for at least two reasons, because:1. Whatever the business does affects its stakeholders, and 2. Every juncture of action, has side effects of ethical as well as unethical behavior wherein the existence of the business is justified by ethical behavior, it responsibly chooses.

One of the conditions that brought business ethics to the forefront is the withdrawal of small scale, high trust and face-to-face enterprises and emergence of huge multinational corporate structures capable of drastically affecting everyday lives of the masses. Good governance implies of conducting business with business ethics.

Stanley Krolick identifies four individual ethical decision-making styles.The first style is the Individualist and this decision maker is driven by natural reason, personal survival, and preservation. The self is the only criteria involved in decisions for this style while ignoring other stakeholders.The second style is Altruists who are primarily concerned for others. This approach is almost opposite to that of the Individualist. Altruists will disregard their own personal

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security for the benefit of others. The primary mission of Altruists is to generate the greatest amount of good for the largest number of people. The third style is Pragmatists who are concerned with current situations and not with the self or others. It is facts and the current situation that guide this decision maker’s decision.The fourth and final style is the Idealist who is driven by principles and rules. It is values and rules of conduct that determine the behaviors exhibited by Idealists. Idealists display high moral standards and tend to be rigid in their approach to ethical situations.

The different types of Governance may be noted as given below:1. Global governance2. Corporate governance3. Project governance4. Information Technology Governance5. Participatory Governance6. Non-Profit Governance7. Islamic Governance

V. Corporate Governance

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Corporate governance consists of the set of processes, customs, policies, laws and institutions affecting the way people direct administer or control a corporate. Corporate governance also includes the relationships among the many players involved -the stakeholders and the corporate goals. The principal players include 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.Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity.Report of SEBI committee (India) on Corporate Governance defines corporate governance as 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.Hence Corporate Governance can be understood as a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.A Healthy Corporate Governance assures to take care of interests of different stakeholders, which ultimately results in a strengthened economy, and hence good corporate governance is a tool for socio-economic development.

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Commonly accepted principles of corporate governance include:

1. Rights and equitable treatment of shareholders:

Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.

2. Interests of other stakeholders:

Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.

3. Role and responsibilities of the board:

The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors.

4. Integrity and ethical behavior:

Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and

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ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.

5. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be made known in time and in a balanced way to ensure that all investors have access to clear, factual information.

Issues involving corporate governance principles include:

1. Internal Checks and Controls.

2. Internal audit.

3. External audit or Statutory Audit.

4. Management of Risk

5. Managerial Remuneration.

6. Dividend policy.

Let us look into the details of each point now.

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1. Internal Checks and Controls:The Management has responsibility to ensure that there are proper Internal Checks in the day to day working of the organisation to ensure that there will be no collusion and chances of frauds by employees and outsiders to cheat the organisation and swindling the resources of the organisation. Internal Controls are introduced in the working of the organisation, which ensure , that each activity passes thru at least two individuals in the organisation.Internal Control refers to a process that is designed for helping the organization to accomplish goals and objectives through people of the organization and IT systems, whereas Internal Check is a part of Internal Control. It refers to the accounting procedure that safeguard against frauds and losses. On the other hand Internal Auditing is an activity that devises ways for organizations for better achievement of objectives.

Internal Control can be defined as “… a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:-Effectiveness and efficiency of operations;-Reliability of financial reporting and- Compliance with applicable laws and regulations.The management should introduce proper internal checks and control to regulate business and prevent losses on account of frauds, mis-appropriations by persons dealing with the business as employees, creditors or customers; they may act on their own or in collusion with other including insiders. Regular review and revision of the

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internal checks and controls, where ever found necessary is a part of the Company managements function.

2. Internal Audit Internal Auditing profession has since changed significantly in the recent times starting from a “watchdog” function, to a prominent role in the essential domain and component of corporate governance. Internal audit function when carried out by an outside agency will assure the stake holders about genuine concern of the management in ensuring transparency of operations of the Organisation.Internal Audit reporting directly to Board of Directors will ensure impartial reporting about weak points in the Systems and procedures and also about inefficient working of the employees in operations , causing losses to the Organisation. Internal auditing should be considered as important subsets of corporate governance.In the last decade, following repeated financial scandals, together with the development and widespread perception of risk as an integral aspect of corporate governance, the concept of internal Audit has become central to various Corporate Governance Codes, and the intervention of the internal audit function is explicitly recommended. As a consequence, these events have raised the importance of internal audit as a key component of good corporate governance practices.Non interference of executives in the appointment of Internal Auditors and conduct of Internal Audit and timely, submission of replies to points raised by the internal auditors in their reports, indicate healthy state of affairs of Corporate Governance.

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3. External Audit.The independence of External Auditors, in conducting audit of accounts of the organisation and reporting on the affairs of the corporate will assure stakeholder about effective conducting of business operations by the management.The external Auditors will be required to not only comment on the accuracy of recording and presenting the financial data, but also on the compliance to various statutory regulations relating running of companies as applicable to the client’s company-such as Accounting standards, energy conservation, pollution control measures etc.The external auditors by, concentrating on verifying and reporting on the legal and statutory compliances in addition to verifying the accuracy of accounting data, will provide sufficient information to stakeholders, since in most of the countries, the law has covered governance provisions as a part of Audit Programs, which have to be verified and reported up on by the statutory auditors. The Annual Report to shareholders will contain, report of the Auditors in addition to the report of the board of directors to the shareholders. In this report External Auditors will express their comments on Accounts of the completed period and other related matters. This report will give much of the information, needed by the shareholders, on Corporate Governance. The External Auditors should be competent and experienced and independent in their examination of data available. They should be unbiased and impartial in their approach and reporting. 4. Management of Risk.Business involves risks. The risk and returns are directly proportional. Risks should be properly identified, assessed and addressed to restrict, the adverse effects of such risks on business. Shareholders have to be informed about the

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possible risks in the operations and how the management is assessing the risks and managing such risks by taking steps to measures the risks, share the risks and contain the risks in the business. As owners, they should not only know as what major risks are being faced by business and also how these risks will affect the earning capacity of their investment as well as how the management is planning to mitigate the adverse effects of these risky activities. As a part of regular review and information to shareholders, company may post in its annual report, comments such as”“The Board regularly discusses the significant business risks identified by the management and the mitigation process being taken up.A detailed note on the risk identification and mitigation is included in Management Discussion and Analysis annexed to the Directors Report.”

5. Managerial Remuneration.This is one of the sensitive areas, in the management of the company affairs, the shareholders should be informed. Unless, the market price is paid, the competent and best persons will not be available to manage the affairs of the company. If remuneration is not good enough, company can not attract and retain the competent persons to manage the affairs of the company. But at the same time, the mangers should be held responsible for achieving the targets fixed for the company- accountability should be fixed on them for performance. The remuneration of the senior persons, is fixed and approved by the Shareholders, or at least ratified, based on the recommendations of the Board of Directors. Many times the senior most executive in a company is offered a percentage of the profits payable as part of the remuneration and some times company’s stock is also offered as a part of the remuneration package, in order to motivate them for improvement in performance. Offering stock options (EOS) to employee as followed elsewhere is now becoming a regular feature in Indian Companies.

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6. Dividend Policy.Dividend is the return paid to the owners of the company- Shareholders on the amount invested in the business. This dividend may be paid, when the company earns profit. But at the same time, paying dividend to shareholders means outflow of Cash from Business operations. Cash outflow represents lower liquidity in business. Hence how much dividend to be paid to shareholders has to be decided very carefully and companies generally formulate a dividend policy to ensure transparency to shareholders and recommendation for paying dividend will be made by Board but has to be approved by the shareholders themselves.Hence we can understand that a Dividend Policy is a Policy used by companies to decide as to how much dividend should be paid to Shareholders.

VI. Parties to Corporate Governance.

Parties involved in corporate governance include people who regulate the operations of the organisation like Director, Executive Director, Managing Director, Chief Executive Officer, Board of Directors, Corporate Management Team, Shareholders and Auditors. Other stakeholders who help in running the organisation include suppliers, employees, creditors, customers and the community at large.

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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.Let us Study the role of above in the corporate governance.A Director is a person who directs the operations of the corporate. A Director is a representative of the owners or stake holders, who are interested in ensuring that organisation operates in systematic fashion and protects the interests of the owners and stake holders.Board of Directors is a collective group of Directors. Directors must be individuals.Directors can be owners, managers, or any other individual elected by the owners of the business entity.

Directors who manage the operations are Called Managing Directors.Executive Director executes the instructions of Managing Director and / or Board of Director and is involved in running the day to day affairs of the company.The lenders also may nominate their representatives also as Directors to guide and watch the performance of the borrower company. They are known as Nominee Directors. Company may also request some experienced and eminent persons to accept directorship of the company and make available their expertise to guide and monitor the performance of the company. Similarly persons acting as directors who are not owners or managers are sometimes

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referred to as outside directors, outsiders, disinterested directors, independent directors, or non-executive directors.Generally in most of the companies, the persons investing majority of the equity nominate themselves or their representatives to the position of Managing Director.

Chief Executive Officer is a person who is in charge of operations of an organisation. He heads the Corporate Management Team. Corporate Management Team consists of Heads of major Functional Areas and is involved in preparing and executing Strategic Management initiatives to ensure that the organisation improves its performance and achieves the set targets.

VII. Board of DirectorsAs already indicated Board of Directors is a collective group of Directors.Board of Directors is the supreme body guiding the company in performing and achieving the targets. It would be given access to all the resources available with the company. However, certain important matters may have to be brought before the shareholders-like huge borrowings, changing the objects of the company and appointment of Directors etc. Role of the Board of Directors with reference to shareholders can be compared to that of the Guardian in case of minors. They act like Trustees on behalf of shareholders.The articles of association of the company indicate the procedure for functioning of Board of Directors. Other details regarding procedures for election of directors to the Board, conducting/holding meetings of Board of

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Directors are also indicated in the Articles of Association of the Company. Typical major duties of boards of directors include

1. Governing the organization by establishing broad policies and objectives in line with Vision and Mission Statements of the company;

2. Selecting, appointing, supporting and reviewing the performance of the chief executive;

3. Ensuring the availability of adequate financial resources to the company;

4. Approving Business Plans and Annual budgets of the company;

5. Accounting to the stakeholders for the organization's performance.

The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types. Typically the board chooses one of its members to be the chairman.Board should regularly meet and review the functioning of the company and takes decisions for which it is authorised and recommend resolutions for consideration and passing the same by shareholders in Annual General Body Meetings (AGM) or Extra Ordinary General Body Meetings (EGM) in other cases.The role and responsibilities of a board of directors vary depending on the nature and type of business entity and the

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laws applying to the entity. For example, the nature of the business entity may be one that is traded on a public market (public company), not traded on a public market (a private, limited or closely held company), owned by family members (a family business), or exempt from income taxes (a non-profit, not for profit, or tax-exempt entity). There are numerous types of business entities available throughout the world such as a corporation, limited liability company, cooperative, business trust, partnership, private limited company, and public limited company.

VIII. Audit Committee

It is a subcommittee of board of Directors. Audit Committee members are drawn from the company’s Board of Directors. These members in turn will elect one among them as Chairman of Audit Committee.A qualifying Audit Committee is required for a Company shares are listed in a Stock Exchange. To qualify, the committee must be composed of Independent outside Directors with at least one director qualifying as a financial expert.

Although Boards of Directors rely on management to run the daily operations of the business, they may not be able to participate in the regular management activities and can only supervise the work of the Senior Managers or Corporate Management. The Board's role at best can be described as oversight or monitoring, rather than execution. Hence a subcommittee of directors known as Audit Committee is formed to take more active role in Company affairs than Board of Directors. The responsibilities of such subcommittee called as Audit Committee typically include:

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1. Reviewing and Overseeing the financial performance and reporting the same along with proper disclosures in annual reports.

2. Monitoring choice of accounting policies and principles, checking adequacy of Internal controls and fixing the terms of reference to internal auditors. It will also be involved in reviewing the finding and reports of Internal auditors and discussions with Statutory auditors

3. Overseeing hiring, performance and independence of the external auditors.

4. Overseeing of regulatory compliance, ethics, and whistleblower hotlines.

5. Discussing risk management policies and practices with management.

This Audit Committee will have power to Investigate any matter within the purview its terms of reference and seek information from any employee or obtain outside legal or professional expert advice in the concerned subjects.

IX. Disclosures

Business involves risks and in the day to day management, many important issues involving risks will come up for decisions. By virtue of delegated powers, certain decisions involving such risks will be taken by management. The Management of business as a part of good business ethics must maintain transparency in conducting management by disclosing all material facts to the owners of the business. Otherwise the owners will not be aware of the risks being faced by the organisation in which, they have invested and such investment is exposed to what types of risks. Hence disclosure is an important aspect of discharging the duties of trusteeship. If certain information is important to an investor or lender using the financial statements, that information should be disclosed within the statement or in

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the notes to the statement. It is because of this basic accounting principle that numerous pages of "footnotes" are often attached to financial statements.

As an example, let's say a company is named in a lawsuit that demands a significant amount of money. When the financial statements are prepared it is not clear whether the company will be able to defend itself or whether it might lose the lawsuit. As a result of these conditions and because of the full disclosure principle the lawsuit will be described in the notes to the financial statements.

A company usually lists its significant accounting policies as the foot note to its financial statements. Non disclosure will amount to denying right of information to the stakeholders.

X. Company law provisions & Corporate Governance.Indian Companies ACT a956 and subsequent amendments contain many provisions covering the requirements of Corporate Governance.As already indicated the Articles of Association (AoA) of a company indicate the various corporate governance procedures. Those companies, which do not want to prepare separate Articles of Association can adopt the model AoA as given in Companies Act.The Contents of model Articles of Association in case of a Private Company limited by Shares is as given in Annexure I.From this it can be seen that the articles cover-Directors’ Powers and Responsibilities, Decision making by Directors, Appointment of Directors, Shares and Distribution(about

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allotment of shares, payment of dividends and capitalisation of profits), Decision making by Shareholders and Administrative arrangements. The Contents of model Articles of Association in case of a Public Company limited by Shares is as given in Annexure II.

Other provisions include certain sections available in Companies Act 1956, covering

1. Disclosures on Remuneration of Directors: Section 299 of the Act requires every director of a company to make disclosure, at the Board meeting, of the nature of his concern or interest in a contract or arrangement (present or proposed) entered by or on behalf of the company.The company is also required to record such transactions in the Register of Contract under section 301 of the Act.

2. Requirements of the Audit Committee: Audit Committee has a critical role to play in ensuring the integrity of financial management of the company. The existence of this Committee gives assurance to the shareholders that the auditors, who act on their behalf, are in a position to safeguard their interests. Besides the requirements of Clause 49, section 292A of the Act requires every public having paid up capital of Rs 5 crores or more shall constitute a committee of the board to be known as Audit Committee. As per the Act, the committee shall consist of at least three directors; two-third of the total strength shall be directors other than managing or whole time directors. The Annual Report of the company shall disclose the composition of the Audit Committee.

The recommendations of the committee on any matter relating to financial management including Audit Report, shall be binding on the board. In case board does not accept the recommendations so made, the committee shall

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record the reasons thereof, which should be communicated to the shareholders, probably through the Corporate Governance Report.The committee shall act in accordance with the terms of reference to be specified in writing by the board. The committee should have periodic discussions with the auditors about the Internal Control Systems and the scope of audit including the observations of the auditors. If the default is made in complying with the said provision of the Act, then the company and every officer in default shall be punishable with imprisonment for a term extending to a year or with fine up to Rs 50000 or both.

Director’s remuneration: The specific disclosures on the remuneration of directors regarding all elements of remuneration package of all the directors should be made as a part of Corporate Governance.Section 309(1) of the Act requires that the remuneration payable both to the executive as well as non-executive directors is required to be determined by the board in accordance with and subject to the provisions of section 198 either by the articles of the company or by resolution or if the articles so require, by a special resolution, passed by the company in a general meeting.Further, Schedule VI of the Act requires disclosure of Director’s remuneration and computation of net profits for that purpose.

Corporate Democracy: Wider participation by the shareholders in the decision making process is a pre-condition for democratizing corporate bodies. Due to geographical distance or other practical problems, a substantially large number of shareholders cannot attend the general meetings. To overcome these obstacles and pave way for introduction of real corporate democracy, section 192A of the Act and the Companies (Passing of Resolution by Postal Ballot), Rules provides for certain

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resolutions to be approved and passed by the shareholders through postal ballots.

XI. Recent Developments in Corporate Governance In IndiaConfederation of Indian Industries (CII) has set up A National task Force with Mr. Rahul Bajaj, past president of CII and Chairman and Managing Director of Bajaj Auto ltd, as the Chairman and included members from industry, the legal profession, media. This Task Force made an in depth study on the matters relating to Corporate Governance by Indian Corporates and issued a set of Guidelines outlining the desirable Procedures of Corporate Governance, in Apr 1998. CII has recommended this Code to Indian business and industry, for understanding and implementation. A copy of the Guide-lines issued by CII is given in Annexure III.

It can be seen from these Guide lines that suggestions have been made about inclusion of Independent Directors on the Board of Directors and restricting the number of directorships to be held by an Individual to function effectively in managing the companies.The Guide lines suggest that those directors who are not attending, even 50 % of meetings of Board of Directors should not be considered for re- appointment.Similarly, they also recommend establishing Audit Committees comprising of Directors of the Board. The guidelines regarding functioning of Audit Committees have also been indicated. The matters to be placed before Board have also been indicated so that all important activities of the company are surely reviewed and revised by Board, where ever required.

The Guidelines also covered as to what are the desirable disclosures (both financial and non-financial) and certain

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guidelines to protect the rights of the Creditors of the companies as well.Many of these guidelines have since become part of Companies Act and corporate Governance practices of leading companies in India.

Many such efforts have been made to update the corporate Governance practices in India after this, like Kumara Mangalam Birla committee Constituted by SEBI in 1999 and SEBI’s acceptance of those recommendations of this committee by amending Clause no 49, of listing Agreement. Latest effort being setting of Expert Committee under the chairmanship of Dr. JJ Irani based on recommendations of which the GOI has brought out the Corporate Governance guidelines and The Companies Bill 2009.

GOI CG Guidelines 2009 Ministry of Company Affairs Government of India has issued during Dec 2009 as a part of “India Corporate Week” celebrations a set of ‘Voluntary guidelines’ to be followed by Indian Companies. These recommendations have been meant to be followed by Indian Corporates Voluntarily and some of the guidelines will become part of Indian Companies Act, once approved by Parliament. A copy of the Voluntary guide lines issued is attached .Annexure IV.

XII. Case StudyThe Corporate Governance Report of one of the leading Corporates Giants of India –M/s. ITC Ltd for the year ending Mar31, 2010 is attached here with for your reference and detailed study- Annexure V.

XIII. Conclusion

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Nevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives of the Corporates. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. John G. Smale, a former member of the General Motors board of directors, wrote: "The Board is responsible for the successful perpetuation of the corporation. That responsibility cannot be relegated to management."  The Interest of even a smallest investor should be protected and those in position of power should conduct business and inform the concerned to this extent. This effort must go to the extent of ensuring that corporation should cease to exist if that is in the best interests of its stakeholders.

Prof. JR KumarFaculty Director

FAPCCI,HYD.

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