Corporate Governance

Corporate Governance
Effective Corporate Governance Is no Longer a Nice to Have but a Must to have.
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Corporate Governance

Corporate Governance 1.1 Introduction 1.2 Concept of Corporate Governance 1.3 Meaning of the Term Governance 1.4 Who are Stakeholders? 1.5 What is Corporate Governance? 1.6 Definitions of Corporate Governance 1.7 History/Background of Corporate Governance 1.8 What is Good Corporate Governance? 1.9 Corporate Governance- Effective Management of Relationships 1.10 Objective of Corporate Governance
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Corporate Governance 1.11 Values, Ethics & Principles of Corporate Governance 1.12 Attributes of Corporate Governance 1.13 Importance of Good Corporate Governance 1.14 Why Corporate Governance Matters? 1.15 Advantages of Good Corporate Governance 1.16 Popular Models of Corporate Governance 1.16-1 1.16-2 1.16-3 1.16-4 The Anglo American Model The German Model The Japanese Model The Indian Model

1.17 Major Components or Aspects of Corporate Governance 1.18 Corporate Governance in World and in India (Various Committees)
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Corporate Governance A. Global Perspective B. Asian Perspective C. Indian Perspective

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Corporate Governance 1.19 Recent Development in Corporate Governance 1.20 The Role of SEBI in Corporate Governance References

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Corporate Governance

Corporate Governance

1.1 INTRODUCTION:Happy companies have robust growth in revenues, strong balance sheets and healthy profits that reflect genuine business success, not phony book keeping.

And they share other important traits as well.

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Corporate Governance They abide by high ethical standards which is a key to their solid success. They dont obstruct the flow of information to shareholders, but rather view the shareholders as the ultimate owner and the ultimate boss.

They choose directors on the strength of their abilities, character, and capacity for independent judgment. And their internal controls work well, so that the companys executives can take immediate corrective action when something goes wrong. Chairman Christopher Cox, U.S. Securities and Exchanges Commission, Washington D. c., March 21, 2006.
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Corporate Governance Remarks before the Committee for Economic Development. Corporate Governance refers to the mechanism and arrangements employed by financiers and shareholders, lenders and so that their interests are taken care of by the agents who have considerable residual control rights in practice.

With fast paced globalization and all round economics growth, Corporate Governance is the new mantra being chanted across the global business world. The concept started taking roots in India in early 1990s, and received a boost in the second half of that decade mainly because of economic liberalization and deregulation of industry, demand for new corporate ethos and stricter compliance with the law of the

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Corporate Governance land. The demand for greatest accountability of companies to their shareholders and customers further added to importance of the concept.

There is a slow and conscious shift in the Indian economy from a controlled one to a market driven one. In the process several developments have unfolded. Indian corporate need to absorb these developments in order to survive and flourish amidst global competition. They can aspire to reach their goals with success if they pursue the right means.

Corporate Governance is the means to that end. The objectives before a business are to create wealth for the society, maintain, and preserve that wealth efficiently and

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Corporate Governance to share the wealth with the shareholders; corporate governance is the method by which the aforesaid objectives are achieved.

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Corporate Governance 1.2 CONCEPT OF CORPORATE GOVERNANCE:-

The Concept of corporate governance is not just adding up two words, corporate and governance, it is one concept but with multitude of different interpretations.

Corporate governance is a voluntary ethical code of business of companies.

According to the Cadbury Committee, corporate governance is the system by which companies are directed and controlled. The board of directors is responsible for the governance of the company. The shareholders role in the governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance stature is in place.
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Corporate Governance

1.3 MEANING OF THE TERM GOVERNANCE:Governance, derived from the word Gubernare, means to rule or steer. Though originally meant to be a normative framework for exercise of power and acceptance of accountability thereof in the running of kingdoms, regions and towns over the years, it has found significant relevance in the corporate world. The word Governance according to Oxford Dictionary is governing or to rule.Therefore, governance is to control. To govern means to direct and to control by

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Corporate Governance ruling, one can manage or control the given condition. In this aspect, controlling and directive action of people for several aspects of work is governance.

1.4 WHO ARE STAKEHOLDERS? The focus under Corporate Governance is shifted from Shareholders to Stakeholders. Noble Prize Winner in Economics, Milton Friedman linked Corporate Governance to the conduct of business in accordance with the shareholders desires, which primarily meant to create wealth for shareholders/owners but at the same time conforming to the laws, rules, regulation, and customs established by the society. The
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Corporate Governance Corporate Governance is no longer restricted to creation of wealth for the shareholders. The concept now encompasses interest of stakeholders. But who really are the stakeholders?

The shareholders include, besides the shareholders, other participants in the corporation such as the Board of Directors, Managers, Employees, Workers, Customers, Vendors, Lenders and Community goals cant be overlooked under the Corporate Governance.

1.5 WHAT IS CORPORATE GOVERNANCE?

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Corporate Governance The primary goal of any organisaton is the maximization of the shareholders wealth in a legal and ethical manner. The main participants in a corporation are the shareholder management led by the CEO and the board of directors. There are other participants well such as the Employees, Customers, Suppliers, Creditors, and the Community.

Corporate governance has succeeded in attracting a good deal of public interest because if it is apparent importance for the economic health of corporation and society in general.

However, the concept of corporate governance defined poorly because it potentially converts a large number of distinct economic phenomenon. As a result,
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Corporate Governance different people have come up with different definitions. That reflects their special interested in the field. It is hard to see that this disorder will be any different in the future so the best way to define the concept so few definitions are as under.

1.6 DEFINITION OF CORPORATE GOVERNANCE:Corporate Governance is about promoting corporate fairness, transparency and accountability. J Wolfensohn,President, World Bank

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Corporate Governance The fundamental objective of corporate governance is the enhancement of long term shareholder value while, at the same time, protecting the interests of other stake holders. Kumar Mangalam Committee Report on Corporate Governance, 1999. CG

comprehends

that

structure

of

relationships

and

corresponding

responsibilities among a core group consisting of share holders, board member, corporate managers designed to best foster the competitive performance required to achieve the corporations primary objective. The OECD

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Corporate Governance Corporate Governance is the mechanism by which the values, principle, policies and procedures of a corporation are included and manifested. The Institute of Company Secretaries of India (ICSI) Corporate Governance is the system through which companies are directed and controlled in the best interest of stakeholders.

1.7 HISTORY/BACKGROUND OF CG:-

US expansion after World War II through the emergence of Multinational Corporations saw the establishment of the managerial class and Corporatization of Institution. According to lorsch and maclver, many large corporations have dominant
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Corporate Governance control oval businesses affairs without sufficient accountability or monitoring by their board of directors. This resulted in dissipating and disillusioning the minority shareholders interests. Since the late 1970s, corporate governance has been the subject of significant debate in the U.S. and around the globe.

In 1997, the East Asian financial crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia, and the Philippines severely affected by the exit foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies.

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Corporate Governance Positive effect of good corporate governance on different stakeholders, ultimately results into strong economy, and hence good corporate governance is tool for socioeconomic development. After East Asia economy collapse in late 20th country, World Bank president warned those countries, that for sustainable development, corporate governance is must to be good.

Thus, practically, corporate governance has meant that there should be at the board level non-official directors who are professionals and who have no conflicting interests and who can particularly operate the two key committees the Ethics Committees and the Finance Committee see that there is greater transparency in the management of the enterprise. Ultimately, the better transparency in the operations without sacrificing business strategy or business secretes which are necessary for
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Corporate Governance success in the business, market place and absolutely ethical behaviors where the conduct of the company will not only be legal but also ethical.

1.8 WHAT IS GOOD CORPORATE GOVERNANCE? Corporations around the world is realizing the good governance adds considerable value to their operational performance. The poor quality of local systems of CG lies at the heart of one of the greatest challenges facing most countries in the developing world. Asian Development Bank, for instance, defines good governance based on four pillars: Transparency, Accountability, Predictability, and Participation,
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Corporate Governance Recognizing that their application must be country specific and solidly grounded in the Economic, Social and Administrative capacity realities of the country.

Good Governance is not simply a matter of adopting a set of rules, but a continues process of implementing tailored strategic initiatives to maximize long term value.

CORPORATE GOVERNANCE MODEL cccc

Anglo- American model

UK and US

Pursues the interest of shareholders

GermanJapanese model

Germany, Japan and

Interest of all stakeholders, employees, and

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Corporate Governance

Though these models have different focus there is a global consensus as far as the objective of good governance is concerned maximizing long term shareholders values.

Better Reputation, Higher Credit Rating, Mitigation of Risks, Higher Valuations Premium, Improving Overall Performance, Lowering the firms cost of capital. These all are benefits of good corporate governance practices.

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Corporate Governance

1.9 CORPORATE GOVERNANCE - EFFECTIVE RELATIONSHIPS:-

MANAGEMENT OF

The management is accountable to the directors in running the company. The Board of directors in turn is answerable to various shareholders. All of them are together expected to effectively manage the corporation, both legally and ethically. The responsibility of the board is to ensure accountability of the management to the board of the public. The directors role is to keep vigil over the management to ensure proper use of the nations wealth. Therefore, corporate governance is concerned with effective management of relationships among Board of Directors, Management, and Shareholders to ensure proper use to resources. If relates to promoting corporate
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Corporate Governance fairness, transparency and accountability Corporate Governance and Effective Management of Relationships can be depicted as follows!

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Corporate Governance

Corporate Governance Effective Management of Relationship

Shareholder s

Creditors

Community

Board of directors Executive director Director

Management led by CEO

Accountable

Non Executive Independent

Suppliers

Customers

Employees
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Corporate Governance

The management is accountable to the directors in running the company. The board of directors, in turn is answer able to various shareholders. All are together expected to effectively mange the corporation, both legally and ethically. LEGAL FREMEWORK
Elect Board of Directors Accountable Share holders Share holders

The responsibility of the board is ensuring accountability of the management to the board and that of the board to the public. The directors role is to keep vigil over the management to ensure proper use of the nations wealth.

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Corporate Governance

1.10 OBJECTIVES OF CORPORATE GOVERNANCE:The principle objective of corporate governance is to help the organization to grow and develop in healthy manner on self-sustaining basis in highly competitive environment by resolving conflicts of interests among the stakeholder and the management. However, the following are also to be identified as the key objective of corporate governance: Transparency of corporate structures and operations. Accountability of managers and the board of directors to shareholders. Corporate responsibility towards stakeholders.
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Corporate Governance Creating long-term trust between companies and the external providers of capital. Rationalizes the management and monitoring of risk that a firm faces globally and assures the integrity of financial reports.

1.11 VALUES, ETHICS, AND PRINCIPLES OF CG:To understand the relevance or irrelevance of values, ethics, and principles in the context of corporate governance, we would have to have an understanding of these terms.

Following are certain well-established principles of corporate governance, which will be applicable to banking and non-banking corporate enterprises:
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Corporate Governance The crux of corporate governance is separation of ownership from management. The philosophy underlying corporate governance is that the board of directors should not be confine itself to statutory functions alone but become an effective pivot ensuring direction and management. Corporate Governance represents a set of system which includes certain structures and organizational aspects, and processes that embrace how things are done within such structural and organizational systems. Independence is the cornerstone of accountability and independent boards are essential. Corporate governance implies regulation and laws. Corporate governance goes far beyond regulations. Key pillars of a corporate governance framework are disclosure and transparency.
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Corporate Governance The term value represents a quality desirable as means or as an end in itself and also as the ideals, customs, institutions, etc. That arouses an emotional response for or against them, in a given society, or a given person. Values are like fingerprints. Nobodys are the same, but you leave them all over everything you do Elvis Presley It may be used to refer to the basic norms and ideals that guide peoples behaviors in the firm and form the underpinning of a firms corporate culture Ahmed chopra

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Corporate Governance The term ethical refers here to the the rule or standards for right conduct or practice, especially the standards of a profession. Some of the ethical values of an organization can be: Trustworthiness Respect Responsibility Caring Justice and Fairness Civil Virtue and Citizenship

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Corporate Governance

1.12 ATTRIBUTES OF CORPORATE GOVERNANCE:What do the stakeholders look for in an organization?

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Corporate Governance

The answer is that they will all be looking for the basic characteristics of good corporate governance. Literature on corporate governance often mentions four to seven core cornerstones of corporate governance. Discipline Trusteeship Transparency Independence Accountability and Empowerment Responsibility Fairness Social Responsibility
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Corporate Governance 1.13 IMPORTANCE OF GOOD GOVERNANCE:With competition raising the bar for survival, it is parameters like corporate governance that will set firms apart. -Kumar Mangalam Birla

Good corporate governance is the degree to which companies are run in an open and transparent manner. The importance of governance can be thus listed as:

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Corporate Governance It reduces the chances of reputation hazards. Helps in attracting talent in terms of non-executive manager directors. Good governance and a disciplined approach to financial controls reduce the amount of frauds. Leads to reduction in both audit fees and insurance premiums. Reduces the likelihood of operational dislocation, litigation and fraud arising out of improper evaluation of business hazards and controls.

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Corporate Governance 1.14 WHY CORPORATE GOVERNANCE MATTERS? Effective corporate governance not only cuts down the agency costs incurred due to the divisions of ownership and control but it also helps investors save on time and other resources.

It is Essential that the corporate sectors understand the importance of good quality corporate governance since it has a generous impact on the following: Efficient use of corporate assets. Ability to attract law-cost capital. Ability to meet social expectations. Overall performance.
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Corporate Governance

Good corporate governance is the degree to which companies are run in an open and transparent manner. The importance of good governance and be thus listed as:

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Corporate Governance It reduces the chances of reputation hazards. Helps in attracting talent in terms of non-executives managers directors. Good governance and a disciplined approach to financial controls reduce the amount of frauds. Leads to reduction in both audit fees and insurance premiums. Reduces the likelihood of operational dislocation, litigation and fraud arising out of improper evaluation of business hazards and controls.

1.15 ADVANTAGES OF GOOD CORPORATE GOVERNANCE:Corporate Governance has come to be viewed as a Differentiator among Firms as Good Governance Practices provides higher Market Valuation and Sustainable Competitive Advantages
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Corporate Governance A better managed company. Increased management credibility. More long-term investors. Greater analyst following. Improved access to, and lower cost of capital. The realization of a companys true underlying value. Good governance provides comfortable share and competitive advantage in the global market place. Good governed companies can raise capital widely easily and cheaply from domestic and foreign markets. Good governance becomes strong image self earned reputation like brand equity and providers positive goodwill.
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Corporate Governance Good corporate governance leads to improve employees morale and finally higher productivity. Good governance is the mirror of good human resource and judicious use of financial resources. Good corporate governance leads to improve employees morale and finally higher productivity. Good governance is the mirror of good human resources and judicious use of financial resources. Good governance is shaping of the growth and future of the company. Good governance maintaining the steady and improved trade record. Good governance is essential not only in order to gain credibility and trust, but also as a part of strategic management for survival, consolidation and growth.
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Corporate Governance Essential for creation of wealth. Good governance improves corporate excellence due to presence of trust. 1.16 POPULAR MODELS OF CG:The following four are important models of corporative governance, to study the unique characteristics and distinctive features: 1. 2. 3. 4. The Anglo American model The German model The Japanese model The Indian models

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Corporate Governance

1.16-1 The Anglo American Model:In this model the board appoints and supervises the managers who manage the day-to-day affairs of the corporations. While the legal system provides the structural framework, the stakeholders in the company will be suppliers, employees and creditors. However, creditors exercise their lien over the assets of the company. The policies are framed by the board of directions and implemented by the management. The theme of this model can be depicted as followed.

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Corporate Governance

The Anglo American Model

B.O.D.(supervisors)

Shareholders

Creditors Officers (Managers) Stakeholders Company

Legal system

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Corporate Governance

The distinctive features of the Anglo-American model are: Clear separation of ownership and management, which minimizes conflicts of interest. Professional managers who have negligible ownership stakes to performance run companies.CEO has major role to play.

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Corporate Governance

1.16-2 The German Model:In this model the shareholders own the company; they do not entirely dictate the governance mechanism. The shareholders elect 50% members of the supervisory board and the other half is appointed by labor unions. This ensures the employees and laborers also enjoy the share in the governance. The supervisory board appoints and monitors the management board. There is a reporting relationship between them, although the management board independently governs the day-to-day operations of the company. The theme of this model can be depicted as follows:

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Corporate Governance

The German Model

Supervisory Board

Employees & Labor Unions

Management Board (Including Labor) Shareholders Company

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Corporate Governance

The distinctive features of the German models are: Banks and financial institutions have substantial stake in the company. Labor relations officer is represented in the management board. Workers participator in management is essential. Both shareholders and employees have equal say in selecting the members of supervisory board. 1.16-3 The Japanese Model:-

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Corporate Governance The shareholders and the banks together appoint the Board of Directors and the President. It can be easily understood by the followings Figure:
The Japanese Model
Regulatory Framework

Self vs. Legal

Company Law

Take Over Code

Disclosure Required

Accountability

Supervision of Directors

Auditors RoleExpectation Gap Audit Committees Executive Remuneration Committees/Disclosures Parliamentary Committees

Stakeholders Shareholders Financing Institution Market for Corporate Control Non-Executive Directors

Directors (Executive)

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Management

Corporate Governance The distinctive features of the Japanese models are: Inclusion of president who consults both the supervisory board and the executive management. Importance of lending banks is highlighted. 1.16-4 The Indian model:Indian in its own right has unique background in the corporate governance. In ancient time the king was always considered the representative of the people. The wealth of the state was not the personal wealth of the king. The principal of trusteeship was also followed. Various modern authors have taken tips from kautilyas Arthasastra. The Indian model of corporate governance can be understood with the

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Corporate Governance following figure. The Indian corporate governance model is same as Japanese corporate governance models:
The Indian Model
Regulatory Framework

Self vs. Legal

Company Law

Take Over Code

Disclosure Required

Accountability

Supervision of Directors

Auditors RoleExpectation Gap Audit Committees Executive Remuneration Committees/Disclosures Parliamentary Committees

Stakeholders Shareholders Financing Institution Market for Corporate Control Non-Executive Directors
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Directors (Executive)

Corporate Governance

The distinctive features of the Indian model are: The government owned the equity shares wholly or substantially (51% or more). Good deal of Political and Bureaucratic influence over the management. Excessive emphasis on observing rules, regulations and guidelines. Organization often viewed as social entity. Administrative ministry appoints the Board of Director.

1.17

MAJOR COMPONENTS OR ASPECTS OF CG:-

Over the year, many experts have developed Corporate Governance guidelines, which are very useful for any enterprise to develop and fulfill the corporate responsibility to various stakeholders. The major components or aspects are as under:
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Corporate Governance

A. BOARD COMPOSITION:Size and Composition of the Board: The B.O.D. of the company shall have an optimum combination of executive and non-executive directors, with not less than 50% of the B.O.D. comprising NonExecutive Directors. Responsibility of the Chairman, CEO and the COO: The responsibility of the chairman, chief executive officer and chief operating officer should be specific and there is clear demarcation of responsibilities and authority among them.
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Corporate Governance

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Corporate Governance Independent Directors: As per clause 49 of the Listing Agreement with Indian Stock Exchanges, the proper and qualified person should appoint as the Independent Director and the responsibilities and duties of Independent Director should be defined. Board Membership criteria: To manage and guide a high knowledge, skills and experience, for that purpose, a Nomination Committee should be there to determine and appoint appropriate directors. Membership Term: The Board constantly evaluates the contribution of members and recommends to shareholders their reappointment periodically as per statute. The current law in India
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Corporate Governance mandates the retirement of one-third of the Board Members every years and qualities the retiring members to reappointments. Board Compensation Policy: Remuneration of the executive directors and independent directors consist of a fixed component and a performance incentive, which is determine and recommends by the compensation committee. Membership of Other Boards: As per law, memberships exceeding 10 companies are restricted. Board should clearly show in the annual reports, the membership of directors in other companies.

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Corporate Governance B. BOARD COMMITTEES:-

Various expert committees, appointed for Corporate Governance have mentioned that for effective control. Board Committees are important part of the management. Audit Committee: A qualified and an independent Audit Committee should be up by the Board of the company. This would go a long way in enhancing the creditability of the financial disclosure of the company and promoting transparency. Here Board should decide the objectives and responsibilities of the Audit Committee under Audit Committee Charter.

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Corporate Governance Remuneration or Compensation Committee: The Board should set up a Remuneration Committee or Compensation Committee to determine on their behalf and on behalf of the shareholders, with agreed terms of reference, the companys policy on specific remuneration packages for executive directors, including pension rights and any compensation payment. Nomination Committee: For the purpose of evaluate the current composition, organization and governance of the Board and its committees, as well as determine future requirements and make recommendation to the Board for approval and evaluating and making

recommendations to the Board concerning the appointment of directors to Board

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Corporate Governance Committees, the selection of Board Committee chairs and the Board Members eligible for reappointment etc., there should be a Nomination Committee.

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Corporate Governance Investor Grievance Committee: The Board should set up a committee under the chairmanship of a non-executive independent director to specially look into shareholders issues, including share transfers and redressed of shareholders complaints.

C. BOARD MEETINGS:-

The Board Meetings should be held at least four times a years, with a maximum time gap of four months between any two meetings. All information recommended by the SEBI Committee should be placed before the Board.

D. MANAGEMENT REVIEW AND RESPONSIBILITY:60 | P a g e

Corporate Governance

Four sound and effective management system Board should specify the management review and responsibilities for that purpose Board should consider the following points: Formal Evaluation of Officers. Board Interaction with Clients, Employees, Institutional Investors, the Government and the Media. Risk Management. Managements Discussion and Analysis.

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Corporate Governance E. COMMUNICATION AND DUTIES TOWARDS THE SHAREHOLDERS: The Boards interaction with the shareholders is very important. So Board should constantly communicate with the shareholders and consider the various points, problems and participation of shareholders in the management. Board should convey the information regarding the meetings, annual reports, various committees performance, appointments, reappointments of directors etc.

F. COMPLIENCE WITH THE MANDATORY AND NON-MANDATORY REQUIREMENTS OF CLAUSE 49 OF THE LISTING AGREEMENT:

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Corporate Governance The Board should follow the all mandatory and non- mandatory requirements of Clause-49 of the Listing Agreement and revised them time to time, as and when required, like shareholders rights, training of Board members, Mechanism for evaluating non-executive Board Members, Whistle-blower policy etc.

G. COMPLINCE WITH CORPORATE GOVERNANCE CODES:

The Board should confirm that the Corporate Governance practices of the company are followed and complied with the Corporate Governance Codes given by various committees and government authorities, i.e. Naresh Chandra Committee, Birla Committee, and OECD principles of Corporate Governance etc.

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Corporate Governance 1.18 CG IN WORLD AND IN INDIA:-

A. GLOBAL PERSPECTIVE:A number of committees were set up to look into the various aspects of Corporate Governance. These include:

(i) Sir Adrian Cadbury Committee on Financial Aspects of Corporate Governance. [1992] (ii) Mervyn E. Kings Committee on Corporate Governance. [1994] (iii) Greenbury Committee on Directors Remuneration. [1995] (iv) CalPERS- Global Corporate Governance Principles. [1996] (v) Market Specific Principles- UK and France. [1997]
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Corporate Governance (vi) Market Specific Principles- Japan and Germany. [1997] (vii) TIAA-CREF- Policy Statement on Corporate Governance [Sep-1997] (viii) Business Round Table (BRT) Statement on Corporate Governance. [1997] (ix) Hampel Committee on CG. [1998] (x) Combined Codes of Best Practices-LSE. [1998] (xi) CACG Principles for CG in Commonwealth. [1998] (xii) Core Principles and Guidelines-USA. [April-1998] (xiii) Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committee. [1999] (xiv) OECD (Organization for Economic Co-Operation and Development) Principle of CG. [1999] (xv) Euro Shareholders Corporate Governance Guidelines. [2000]
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Corporate Governance (xvi) The Higgs Report- UK. [Jan-2003] These Committees/Codes recommended the following in relation to Accounts, Reporting and Auditing: I. Sir Adrian Cadbury Committee on Financial Aspects of Corporate Governance-[1992]: Audit Committee to have minimum three members, written terms of reference and authority to investigate. Listed companies to publish full financial statements annually and half yearly reports interim. Code of Best Practice:

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Corporate Governance Board to present to balanced and understandable assessment of companys position. Directors to report on effectiveness of internal control system. II. Mervyn E. Kings Committee on Corporate Governance- [1994]: Effective Internal Audit Function. Establishment of Audit Committee. Observance of highest level of business and professional ethics. Accounting Standards in line with International Standards.

III. Hampel Committee on Corporate Governance-[1998]:

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Corporate Governance

Companies and Auditors should apply the following principles: Financial Reporting: The Board should present a balanced and understandable assessment of the companys position and prospects.

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Corporate Governance Internal Control:

The Board should maintain a sound system of internal control to safeguard shareholders investments and repays assets. Relationship with Auditors:

The Board should establish formal and transparent arrangements for maintaining and appropriate relationship with the companys auditors. External Auditors:

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Corporate Governance The external auditors should independently report to shareholders in accordance with statutory and professional requirements and independently assure the board on the discharge of its responsibilities in accordance with professional guidance. The Auditors have Dual Responsibility:

The public report to shareholders on the statutory financial statements and on other matters and additional private reporting to directors on operational matters.

IV. CACG Principles for CG in Commonwealth-[1998]:

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Corporate Governance Ensure that the corporate comply with all relevant laws, regulations and codes of best business practices. Ensure that the corporate communication with shareholders and other stakeholders effectively. Serve the legitimate interest of the shareholders of the corporate and account to them fully. Regularly review processes and procedures to ensure effectiveness of its internal system and control so that its decision making capability and the accuracy of its reporting and financial results are maintain at a high level at all times. Ensure annually that the corporate will continue as a going concern for its next financial year.

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Corporate Governance V. Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committee-[1999]: Members of Audit Committee to be independent. Audit Committee to consist of independent directors only. Audit Committee to have minimum of three directors- each to be financially literate. Audit Committee to have formal written charter, approved by full board, specifying: Responsibilities Structure, Process and Membership. Charter to specify outside auditors responsibility towards boards and committee.
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Corporate Governance Companies to attach with Annual Report, a letter from Audit Committee as to whether or not: Management reviewed the audited financial statements with the committee. Outside auditors discussed with committee, their judgment. Committee believes that companys financial statement is fairly presented in conformity with GAAP. VI. OECD (Organization for Economic Co-Operation and Development) Principle of CG-[1999]:

The government of the 30 organization for Economic Co-operation and Development (OECD) countries have recently approved a revised version of the OECDs principles of Corporate Governance adding new recommendations for good
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Corporate Governance practices in corporate behavior with a view to rebuilding and maintaining public trust in companies and stock markets.

The revised principles respond to a number of issues that have undermined the confidence of investors in company management in recent years. They call on governments to ensure themselves to be truly accountable. They advocated increased awareness among institutional investors and an effective role for shareholders in executive compensation. They also urge strengthened transparency and disclosure to counter conflicts of interest. VII. Euro Shareholders Corporate Governance Guidelines- [2000]:

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Corporate Governance Euro Shareholders is the confederation of European shareholders association, constituted with the overall task of representing the interest of individual shareholders in the European Union.

In April 1999, the OECD published its general principles on Corporate Governance. The Euro Shareholders Guidelines are based on the same principles, but are more specific and detailed.

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Corporate Governance B. ASIAN PERSPECTIVE:CG Watch an annual collaboration studies of the CG landscape of the Asian markets undertaken by the independent stockbroker, Asia Pacific Markets and the Asian Corporate Governance Association (ACGA) provides the most

comprehensive and qualitative assessment of CG standards, and progress for both regulators and companies within the Asia region. The CG scores for the Asian Markets from 2003 to 2007 (no survey in 2006) are shown in Table. It is a matter of pride and satisfaction that Indian retains third position in the overall CG rankings of 11 markets in Asia behind just Hong Kong and Singapore.

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Corporate Governance The CG scores for markets and individual companies are based on seven categories; six of the categories Discipline, Transparency, Independence, Accountability, Responsibility, Fairness They are unchanged from previous years scores. The 7th category in 2007 being the score for Clean and Green survey that replaced the previous years Social Responsibility category.
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Corporate Governance

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Corporate Governance Corporate Governance Markets Score (2003-2007)

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Markets Hong Kong Singapore India Taiwan Japan South Korea Malaysia Thailand China Philippines Indonesia 2003 73 77 66 58 55 55 46 43 37 32 2004 67 75 62 55 58 60 53 48 50 40 2005 69 70 61 52 50 56 50 44 48 37 2007 67 65 56 54 51 49 49 47 45 41 37

(Source: Executive Chartered Secretary, Vol-5, No-2, Feb-2008)

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Corporate Governance Jamie Allen, secretary of ACGA, describes about the methodology followed: Under each of these categories, we assess the companies on issues that are Key to constituting good CG. Our CG score is based on how we rate a company on 54 issues under 6main aspects, each with a 15% weighting, that we take to constitute the concept of CG, to which we add the C & G score with a 10% weighting.

Table-1.1 depicts breakdown of the average score of the companies in each market/country by scores for each of the seven categories in the CG score. The 2007 CG scores show slightly better average CG improvement for companies in India, China and Indonesia, while a slight deterioration in the average score in Taiwan. Japan (a new entrant in 2007) surprisingly has a higher average CG score for its firms than the rest of the sample.
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Average CG Category Scores by Asian Countries in 2007 Markets Discipline Japan Thailand Hong Kong Taiwan India Malaysia Singapore Korea Philippines China Indonesia AVERAGE 55.3 51.3 56.3 68.4 65.4 63.4 57.6 50.3 39.1 45.5 59.6 55.7 Transparency 89.3 92.9 79.7 57.2 83.8 85.3 84.2 71.9 65.1 66.6 44.9 74.6 Independence 42.3 62.5 47.3 42.6 43.1 57.6 72.7 42.8 63.1 45.8 49.1 51.7 Accountability 27.7 51.1 56.8 51.9 43.1 37.1 27.2 49.2 35.7 44.6 38.8 42.1 Responsibility 76.0 32.6 57.2 62.6 41.2 44.4 50.6 42.3 26.7 28.6 21.0 43.9 Fairness 72.1 66.9 69.2 59.9 49.2 46.4 36.3 59.4 60.4 45.7 39.6 55.0 Clean & Green 45.0 31.8 12.0 28.9 27.5 13.2 10.6 23.4 20.5 7.9 9.8 21.0 Overall CG 58.9 56.7 56.2 54.3 51.6 51.4 50.3 49.7 45.5 42.3 38.9 50.5

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(Source: Executive Chartered Secretary, Vol-5, No-2, February- 2008)

It is worth mentioning here that some Exemplary companies can be found in Asia also. Three Hong Kong companies dominate at the very top of the list of companies with the highest CG scores in 2007. Of the top-30 CG scores, 10 are Japanese companies. However, of the top-5 companies in the high CG large cap list (which score above 80%) only one company (sharp) is from Japan. Other Japanese companies CG scores are below 80%. In all seven of the top-30 CG companies are from HK. The other two companies in this list at the top for CG are TSMC and Infosys Technologies. In this list of top-30, South Korea has 6 companies but unfortunately none of them scored above 80%-top companies have good but not excellent CG scores.

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C. INDIAN PERSPECTIVE:The Government of India has initiated major Corporate Governance since the mid-1990s. The first was by the Confederation of Indian Industry (CII), which came up with the first voluntary code of Corporate Governance in 1998. The second was Kumar Mangalam Birla Committee of the SEBI, which is submitted its report in 1999. Based on this report the SEBI now enshrined as Clause 49 of the listing agreement. In our country, there are six mechanisms to ensure Corporate Governance. They are: i. The Companies Act 1956.
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ii. The Securities and Exchange Board of India (SEBI) Act, 1992. iii. Corporate Control. iv. Shareholders Participation. v. Statutory Audit. vi. Code of Conduct. India has formulated codes of Corporate Governance through various committees, more important once being: (i) CII Code of Desirable Corporate Governance. [1998] (ii) UTI Code of Governance. [1999] (iii) SEBI Norms Based on Kumar Mangalam Birla Committee of Corporate Governance. [2000]
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(iv) SEBI Norms Based on N.R.Narayan Murthy Committee. (v) Naresh Chandra Committee on Corporate Audit and Governance. Besides companies like Infosys, ICICI, BSES etc. have created their own benchmarks. I. CII Code of Desirable Corporate Governance-[1998]: The CII was the Indias first company which came up with the first voluntary code of Corporate Governance in 1998. CII Code Recommends that: Key information to be reported. Listed companies to have Audit Committees.
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Corporate to give a statement of value addition. Consolidation of accounts to be optional. II. SEBI Norms Based on Kumar Mangalam Birla Committee of Corporate Governance-[2000]: The Securities and Exchange Board of India (SEBI) appointed the Committee on corporate governance on May 7, 1999 under the Chairmanship of Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of corporate governance. The Committees detailed terms of the reference are as follows: To suggest suitable amendments to the listing agreement executed by the stock exchanges with the companies and any other measures to improve the standards of corporate governance in the listed companies.
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To draft a code of corporate best practices; and To suggest safeguards to be instituted within the companies to deal with insider information and insider trading. The SEBI Board in its meeting held on January 25, 2000 considered the recommendation of the Committee and decided to make the amendments to the listing agreement in pursuance of the decision of the Board, it is advised that a new clause, namely clause 49, be incorporate in the listing agreement as under: Board of Directors: The company agrees that the board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors.
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The company agrees that all pecuniary relationship or transactions

of the non-

executive directors viz-a-viz. the company should be disclosed in the Annual Report. Audit Committee: The company agrees that a qualified and independent audit committee shall be set up and that: The audit committee shall have minimum three members, all being non-executive directors, with the majority of them being independent, and with at least one director having financial and accounting knowledge; The chairman of the committee shall be an independent director;

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The chairman shall be present at Annual General Meeting to answer shareholder queries; The audit committee should invite such of the executives, as it considers appropriate to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and when required, a representative of the external auditor shall be present as invitees for the meetings of the audit committee; The Company Secretary shall act as the secretary to the committee. The audit committee shall meet at least thrice a year. One meeting shall be held before finalization of annual accounts and one every six months. The quorum shall be
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either two members or one third of the members of the audit committee, whichever is higher and minimum of two independent directors. The audit committee shall have powers which should include the following: a) To investigate any activity within its terms of reference.

b) To seek information from any employee. c) To obtain outside legal or other professional advice.

d) To secure attendance of outsiders with relevant expertise, if it considers necessary. The company agrees that the role of the audit committee shall include the following:

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a)

Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

b) Recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services. Remuneration of Directors: The company agrees that the remuneration of non-executive directors shall be decided by the board of directors. The company further agrees that the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the annual report.
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All elements of remuneration package of all the directors i.e. Salary, Benefits, Bonuses, Stock Options, Pension etc. Details of fixed component and performance linked incentives, along with the performance criteria. Service contracts, notice period, severance fees. Stock option details, if any and whether issued at a discount as well as the period over which accrued and over which exercisable. Board Procedure: The company agrees that the board meeting shall be held at least four times a year, with a maximum time gap of four months between any two meetings. The company further agrees that a director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director.
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Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. Management: The company agrees that as part of the directors report or as an addition there to, a Management Discussion and Analysis report should form part of the annual report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the companys competitive position: a) Industry structure and developments. b) Opportunities and Threats.
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c) Segmentwise or product-wise performance. d) Outlook e) Risks and concerns. f) Internal control systems and their adequacy. Disclosures must be made by the management to the board relating to all material financial and commercial transactions, where they have personal interest that may have a potential conflict with the interest of the company at large.

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Shareholders: The company agrees that in case of the appointment of a new director or reappointment of a director the shareholders must be provided with the following information: a) A brief resume of the director; b) Nature of his expertise in specific functional areas; and c) Names of companies in which the person also holds the directorship and the membership of Committees of the board. The company further agrees that information like quarterly results, presentation made by companies to analysts shall be put on companys web-site, or shall be

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sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. The company further agrees that a board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressing of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as Shareholders/Investors Grievance Committee. The company further agrees that to expedite the process of share transfers the board of the company shall delegate the power of share transfer to an officer or a

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committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight. Report on Corporate Governance: The company agrees that there shall be a separate section on Corporate Governance in the annual reports of company, with a detailed compliance report on Corporate Governance. Non compliance of any mandatory requirement i.e. which is part of the listing agreement with reasons there of and the extent to which the nonmandatory requirements have been adopted should be specifically highlighted. Compliance:

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The company agrees that it shall obtain a certificate from the auditors of the company regarding compliance of conditions of corporate governance as stipulated in this clause and annexed the certificate with the directors report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual returns filed by the company. III. SEBI Norms Based on N.R.Narayan Murthy Committee: The SEBI Committee on Corporate Governance was constituted under the Chairmanship of Shri N. R. Narayana Murthy, Chairman and Chief Mentor of Infosys technologies Limited.

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The Committee met thrice on December 7, 2002, January 7, 2003 and February 8, 2003, to deliberate the issues related to corporate governance and finalize its recommendations to SEBI. Background: The key issues debated by the Committee and the related recommendations are discussed below. Audit Committees: Suggestions were received from members that audit committees of publicly listed companies should be required to review the following information mandatorily: Financial statements;
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Management discussion and analysis of financial condition and results of operations; Reports relating to compliance with laws and to risk management; Management letters / letters of internal control weaknesses issued by statutory / internal auditors; and Records of related party transactions. The Committee noted that most of this information was already reviewed by audit committees during the audit committee meeting. Further, it was already contained as a recommendation in the Kumar mangalam Birla Committee on Corporate Governance. The Committee also noted that the recommendation in the Birla Committee Report cast a responsibility on the audit committee vis--vis their duties and role.
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Further, the compliance report of the Mumbai Stock Exchange showed that approximately only 53% of the companies complied with this requirement contained in the Birla Committee Report. In view of the above deliberations, the Committee makes the following mandatory recommendation:

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Mandatory Recommendation: 1) Audit committees of publicly listed companies should be required to review the following information mandatorily: a. Financial statements and draft audit report, including quarterly / half-yearly financial information; b. Management discussion and analysis of financial condition and results of operations; c. Reports relating to compliance with laws and to risk management; d. Management letters / letters of internal control weaknesses issued by statutory / internal auditors; and e. Records of related party transactions.
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2) All audit committee members should be financially literate and at least one member should have accounting or related financial management expertise. Audit Reports and Audit Qualifications: Mandatory recommendation: In case a company has followed a treatment different from that prescribed in an accounting standard, management should justify why they believe such alternative treatment is more representative of the underlying business transaction. Management should also clearly explain the alternative accounting treatment in the footnotes to the financial statements.

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Non-Mandatory Recommendation: Companies should be encouraged to move towards a regime of unqualified financial statements. This recommendation should be reviewed at an appropriate juncture to determine whether the financial reporting climate is conducive towards a system of filing only unqualified financial statements. Related Party Transactions: A statement of all transactions with related parties including their bases should be placed before the independent audit committee for formal approval / ratification. If any transaction is not on an arms length basis, management should provide an explanation to the audit committee justifying the same.

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Risk Management Mandatory Recommendation: 1) Procedures should be in place to inform Board members about the risk assessment and minimization procedures. These procedures should be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework. 2) Management should place a report before the entire Board of Directors every quarter documenting the business risks faced by the company, measures to address and minimize such risks, and any limitations to the risk taking capacity of the corporation.

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Non-mandatory Recommendation: Companies should be encouraged to train their Board members in the business model of the company as well as the risk profile of the business parameters of the company, their responsibilities as directors, and the best ways to discharge them. Proceeds from Initial Public Offerings (IPO): Companies raising money through an Initial Public Offering should disclose to the Audit Committee, the uses / applications of funds by major category on a quarterly basis. On an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus. This statement should be certified by the independent auditors of the company. The audit committee should make appropriate recommendations to the Board to take up steps in this matter.
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Code of Conduct: It should be obligatory for the Board of a company to lay down the code of conduct for all Board members and senior management of a company. This code of conduct shall be posted on the website of the company. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The annual report of the company shall contain a declaration to this effect signed off by the CEO and COO.

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Nominee Directors: There shall be no nominee directors. Where an institution wishes to appoint a director on the Board, such appointment should be made by the shareholders. An institutional director, so appointed, shall have the same responsibilities and shall be subject to the same liabilities as any other director. Nominee of the Government on public sector companies shall be similarly elected and shall be subject to the same responsibilities and liabilities as other directors. Non-Executive Director Compensation: All compensation paid to non-executive directors may be fixed by the Board of Directors and should be approved by shareholders in general meeting. Limits should be set for the maximum number of stock options that can be granted to non-executive
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directors in any financial year and in aggregate. The stock options granted to the nonexecutive directors shall vest after a period of at least one year from the date such nonexecutive directors have retired from the Board of the Company. Companies should publish their compensation philosophy and statement of entitled compensation in respect of non-executive directors in their annual report. Alternatively, this may be put up on the companys website and reference drawn thereto in the annual report. Companies should disclose on an annual basis, details of shares held by non-executive directors, including on an if-converted basis. Non-executive directors should be required to disclose their stock holding in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should accompany their notice of appointment.

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Whistle Blower Policy: Personnel who observe an unethical or improper practice should be able to approach the audit committee without necessarily informing their supervisors. Companies shall take measures to ensure that this right of access is communicated to all employees through means of internal circulars, etc. The employment and other personnel policies of the company shall contain provisions protecting whistle blowers from unfair termination and other unfair prejudicial employment practices. Subsidiary Companies: The provisions relating to the composition of the Board of Directors of the holding company should be made applicable to the composition of the Board of Directors of subsidiary companies. At least one independent director on the Board of
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Directors of the parent company shall be a director on the Board of Directors of the subsidiary company. The Audit Committee of the parent company shall also review the financial statements, in particular the investments made by the subsidiary company. The minutes of the Board meetings of the subsidiary company shall be placed for review at the Board meeting of the parent company. The Board report of the parent company should state that they have reviewed the affairs of the subsidiary company also. Real Time Disclosures: It was suggested that SEBI should issue rules relating to real-time disclosures of certain events or transactions that may be of importance to investors, within 3-5 business days. These would include events such as (a) a change in the control of
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the company, (b) a companys acquisition / disposal of a significant amount of assets, (c) bankruptcy or receivership, (d) a change in the companys independent auditors, and (e) the resignation of a director. The Committee noted that there are certain practical problems in ensuring timely disclosures. For example, a business transaction that is under negotiations may have an impact on the market price. However, its disclosure may prejudice the underlying business negotiations. The Committee also noted the issue of rumor verification by stock exchanges. It noted a view that Board decisions that were price sensitive should be disclosed to the markets within 15 minutes. Stock exchanges are currently responsible for rumor verification. The Committee however believed that this issue needs to be

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studied with much greater depth by SEBI and the stock exchanges, and should not be restricted to a corporate governance perspective alone. The Committee was of the view that no recommendation would be made to SEBI in respect of this suggestion. Evaluation of Board Performance: The performance evaluation of non-executive directors should be by a peer group comprising the entire Board of Directors, excluding the director being evaluated; and Peer group evaluation should be the mechanism to determine whether to extend / continue the terms of appointment of non-executive directors.

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Analyst Reports: SEBI should make rules for the following: Disclosure in the report issued by a security analyst whether the company that is being written about is a client of the analysts employer or an associate of the analysts employer, and the nature of services rendered to such company, if any; and Disclosure in the report issued by a security analyst whether the analyst or the analysts employer or an associate of the analysts employer hold or held (in the 12 months immediately preceding the date of the report) or intend to hold any

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debt or equity instrument in the issuer company that is the subject matter of the report of the analyst. IV. Naresh Chandra Committee on Corporate Audit and Governance: Background: Section 2.3.8 of this Report states that the Committee would also recommend that the following mandatory recommendations in the report of the Naresh Chandra Committee, relating to corporate governance, be implemented by SEBI. This section sets out such recommendations of the Naresh Chandra Committee that were considered by this Committee.

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Disclosure of Contingent Liabilities: (Sec- 2.5) Mandatory Recommendation: 1) Management should provide a clear description in plain English of each material. 2) Contingent liability and its risks, which should be accompanied by the auditors clearly worded comments on the managements view. 3) This section should be highlighted in the significant accounting policies and notes on accounts, as well as, in the auditors report, where necessary.

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4) This is important because investors and shareholders should obtain a clear view of a companys contingent liabilities as these may be significant risk factors that could adversely affect the companys future financial condition and results of operations. CEO / CFO Certification: (Sec- 2.10) Mandatory Recommendation: 1) For all listed companies, there should be a certification by the CEO (either the Executive Chairman or the Managing Director) and the CFO (whole-time Finance Director or other person discharging this function) which should state that, to the best of their knowledge and belief;

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2) They have reviewed the balance sheet and profit and loss account and all its schedules and notes on accounts, as well as the cash flow statements and the Directors Report; 3) These statements do not contain any material untrue statement or omit any material fact nor do they contain statements that might be misleading; 4) These statements together present a true and fair view of the company, and are in compliance with the existing accounting standards and / or applicable laws / regulations; 5) They are responsible for establishing and maintaining internal controls and have evaluated the effectiveness of internal control systems of the company; and

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6) They have also disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, and what they have done or propose to do to rectify these; 7) They have also disclosed to the auditors as well as the Audit Committee, instances of significant fraud, if any, that involves management or employees having a significant role in the companys internal control systems; and 8) They have indicated to the auditors, the Audit Committee and in the notes on accounts, whether or not there were significant changes in internal control and / or of accounting policies during the year. Independence of Audit Committee: (Sec-4.7 ) Mandatory Recommendation:
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All audit committee members shall be non-executive directors Independent Director Exemptions: (Sec- 4.10) Recommendation: 1) Legal provisions must specifically exempt non-executive and independent directors from criminal and civil liabilities under certain circumstances. 2) SEBI should recommend that such exemptions need to be specifically spelt out for the relevant laws by the relevant departments of the Government and independent regulators, as the case may be. 3) However, independent directors should periodically review legal compliance reports prepared by the company as well as steps taken by the company to cure any taint.
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4) In the event of any proceedings against an independent director in connection with the affairs of the company, defense should not be permitted on the ground that the independent director was unaware of this responsibility. 1.19 RECENT DEVELOPMENT IN CG:Effective Corporate Governance Is no Longer a Nice to Have but a Must to have.

The National Foundation for Corporate Governance (NFCG) has been jointly set up by the Ministry of Company Affairs, the Industry, Institute of Chartered
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Accountants of India (ICAI) and ICSI to evolve corporate governance principles in three areas- Institutional Investors, Independent Directors and Auditing. The NFCG will ensure compliance of corporate governance norms in letter and spirit by the Indian companies. It estimated that over 9,000 listed companies require about 30,000 independent directors to comply with requirement of Clause 49. The PRIME database has created the website primedirectors.com to enable listed companies to find suitable independent directors for their boards. The main sponsors of the website are the National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE) with the Confederation of Indian Industry (CII) as the institutional partner.
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In the fast-changing business scenario, risk management has acquired top priority. As such, strong and effective corporate governance is no longer a Nice to have but a Must to have. This is the reason why companies, besides restructuring their board of directors, are looking at a more holistic governance model. E- Governance:Changing technology is the driving force behind the next wave of economic growth. To take advantage of that growth, we have to not only apply new technology but also new thinking. Information is data that have been arranged into meaningful patterns, and knowledge is that which helps in application and productive use of information.

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Need for E-Governance: World economics have recognized IT as an effective tool in catalyzing the economic activity, in efficient governance and developing human resource. The Electronic Governance wave has started world wide, with the technologies to implement electronic governance already available. Change in the mindset of the people particularly at the top levels in the bureaucracy and policy making is important because it is they who provide the leadership. In simple terms Electronic Governance (E- Governance) can be defined as giving citizens the choice of when and where they can have access to government information and services.

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Importance of Electronic Governance: A Joined up government community citizen infrastructure has its own significance. A strong and effective information chain, comprising a choice of practical, accessible and manageable channels of communication has a dual benefit. Citizens enjoy a fast and convenient service, whilst government not only becomes more integrated into the community itself, but can focus its resources where they are needed most. 1.20 THE ROLE OF SEBI IN CG:The Securities and Exchange Board of India (SEBI), the chief corporate regulatory body in India. Over the last decade, SEBI has performed well and has formed various committees to look into the ways and means to regulate the corporate
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governance practices in India, at par with international practice. Commensurate with the urgent needs and directions of International Organization of Securities Commissions (IOSCO), the international regulatory body of International Accounting Standards Board (IASB), SEBI is under sheer pressure to look for better corporate governance practice in India since SEBI is a member of (OSCO) On the broad and specific recommendations given by various committees, like kumar Mangalam Birla Committee (1999) Naresh Chandra Committee (2002), Narayan Murthy Committee (2003) on corporate governance and financial reporting practices, the SEBI has approved the following: To revise Clause 49 of the Listing Agreement to strengthen the responsibilities of audit committees to present consolidated financial statements whether necessary
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and to publish quality segment financial reporting so as to improve the quality of financial disclosure, including information on related party transactions: TO adopt a formal code of the conduct for directors and introduce performance evaluation of non-executive directors; TO introduce a whistle-blower policy whereby an employee can have the opportunity to bring to the notice of the management any irregularity observed by him/her without any fear of exploitation by superior; TO induce the independence of directors to improve disclosures relating to compensation paid to the non-executives directors and their mandatory training.

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Some of the above approvals have duly been implemented quite successfully by SEBI, while others are still pending because of strong protests by the Indian corporate sectors. The following have so far been achieved: The board meeting gap has been reduced from four months to three months; The number of independent directors in the audit committee has been fixed at twothirds of the members of audits committee instead of previous requirement of being majority; All members of the audit committee shall be financially literate as against the previous requirement of at least one member having financial and accounting knowledge;

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Minimum number of audit committee meetings in a year has increased from three to four; The presentation of consolidation Financial Statements and Publication of Quality Segment Financial Results have been made mandatory; The nominee directors are to be regarded as independent directors; Five new criteria have been added to test the independence of directors. Thus, SEBI has set the ball rolling to usher in excellence in corporate governance and also to improve the financial disclosure practice in India through the process of convergence and harmonization of accounting standards.

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REFERENCES: REFERENCE BOOKS: 1) Corporate Governance [MODULES FOR BEST PRACTICES]-4th Edition, ICSI. JOURNALS, MAGAZINES, NEWS PAPERS, BULLETIN: 1) Corporate Governance Scenario-Madan Bhasin, The Accounting World, June2008. 2) Corporate Governance Practices in India-Prof. V. Gangadhar and Dr. M. Yadagiri, The Accounting World, Jan-2008. 3) Corporate Governance Basic Framework for Better Corporate Management- Dr. Chittaranjan Sarkar, The Accounting World, Feb-2008.
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4) Corporate Governance Compliance Report-Nresh Kumar, The Accounting World, July-2007. 5) Corporate Governance from Compliance to Competitive Advantage-Pankaj M. Madhani, The Accounting World, Aug-2007. 6) Corporate Governance and EVA as a Measure of Wealyh Creation- Rupali Kumar, Managament Trends, Vol-2, No-2, April 2005- Sep 2005. 7) Corporate Governance: Problem of Increasing Transparency in Asia- Dr. Madan Bhasin, The Chartered Accountant, Vol-56, No-4, October-2007. 8) Corporate Governance Scenario in India: Perspectives and Prospects- Dr. Madan Bhasin, Executive Chartered Secretary, Vol-5, No-2, Feb-2008.

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9) Disclosure of Corporate Governance- Building Investors Bhatt and Hetal Jhaveri, The Accounting World, Dec-2008.

Confidence- Sandip

10)E-Governance Problems and Prospects- Philip Varughese Porattor, Southern Economist, Vol-44, No-19, Feb-2006. 11) Looking Beyond Corporate Governance Code- Sumona Ghosh, The Chartered Accountant, Vol-56, No-5, Nov-2007.

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