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Ques. 1 : What do you mean by Corporate Governance ? differentiate between Corporate Governance & Corporate Management.

Ans : Corporate governance involves regulatory and market mechanisms, and the roles and relationships between a companys management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. Lately, corporate governance has been comprehensively defined as "a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby mitigating agency risks stemming from the devious deeds of these corporate officers" In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees. Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business. A related but separate thread of discussions focuses on the impact of a corporate governance system on economic efficiency, with a strong emphasis on shareholders' welfare. In large firms where there is a separation of ownership and management and no controlling shareholder, the principalagent issue arises between upper-management (the "agent") which may have very different interests, and by definition considerably more information, than shareholders (the "principals"). The danger arises that rather than overseeing management on behalf of shareholders, the board of directors may become insulated from shareholders and beholden to management. This aspect is particularly present in contemporary public debates and developments in regulatory policy.(see regulation and policy regulation). Economic analysis has resulted in a literature on the subject. One source defines corporate governance as "the set of conditions that shapes the ex post bargaining over the quasi-rents generated by a firm." The firm itself is modeled as a governance structure acting through the mechanisms of contract, possibly in tandem with corporate finance. There has been renewed interest in the corporate governance practices of modern corporations, particularly in relation to accountability, since the high-profile collapses of a number of large corporations during 2001-2002, most of which involved accounting fraud. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron Corporation and MCI Inc. (formerly WorldCom). Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate governance. Comparable failures in Australia (HIH,One.Tel) are associated with the eventual passage of the CLERP

9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest (e.g.,Parmalat in Italy). difference between Corporate Governance & Corporate Management In terms of the meanings of the words, it does not seem too much difference between management and governance, they both have a relationship with to direct or to act. But if the words management and governance are associated with the concept of corporate management and corporate governance, the difference between management and governance will be very visible. The difference between governance and management in terms of the difference between Corporate Governance and Corporate Management are as follows: Governance focuses on oversight, accountability and strategic decisions, while management focuses on strategic decisions, management decisions and control, and operational management. Intersection between governance and management is on the area of strategic decisions. Coverage area of governance is the upper-middle while the coverage area of management is the lower-middle.

Ques 2 : What factors affect Corporate Governance in Indian Scenario and roll of Board of Directors of the Company ? Ans : factors affecting Corporate Governance in Indian Scenario are following The Ownership structure The structure of ownership of a company determines, to considerable extent, how a corporation is managed and controlled. Our corporate sector is characterized by the c o-existence of state owned, private and multinational enterprises. The shares of these enterprises (except those belonging to the public sector) are held by institutional as well as small investors. Large shareholders tend to be active in Corporate Governance either through their representatives on company boards/through their active participation I n annual general body meetings. This has been demonstrated by Reliance Industries Ltd., which has the highest number of equity shareholders spread across the country.. The Structure of Company Boards Along with the structure of ownership, the structure of company boards has considerable influence on the way the companies are managed and controlled. The Board of Directors is responsible for establishing corporate objectives, developing broad policies and selecting top-level executives to carry out those objectives and policies. The board also requires management's performance to ensure that the company is run well and shareholder's interests are protected.

Company boards are permitted to vary in size, composition and structure to best serve the interests of the corporation and the shareholders. Boards can be singletired/two-tired with regard to the size of the board, opinions and practices vary. Some argue that the adequate size is to range from 9 to15. Some put the figure at 10. Yet others recommend a minimum of 5 and a maximum of 10. The Financial Structure Along with the notion that the structure of ownership matters in Corporate Governance is the notion that the financial structure of the company ie., Proportion between debt and equity, has implications for the quality of governance. Recent research has shown contrary to the Modigliani-Miller hypothesis that the financial structure of the firm has no relationship to the value of a firm, that the financial structure does matter, it is no secret that the lenders exercise significant influence on the way a company is managed and controlled. Banks can perform the important function of screening and monitoring companies as the (banks) are better informed than other investors. Further, banks can diminish short-term biases in managerial decision-making by favouring investments that would generate higher benefits in the long run. Banks play a more favourable role than other investors in reducing the costs of financial distress. The Institutional Environment The legal, regulatory and political environment within which a company operates determines in large measure the quality of Corporate Governance. In fact, Corporate Governance mechanisms are economic and legal institutions and often the outcome of political decisions. For eg. The extent to which shareholders can control the management depends on their voting rights as defined in Company Law and the extent to which the market for corporate control efficiency operates to discipline under performing management will depend on take-over regulations. Mechanisms of Corporate Governance In India, there are 6 mechanisms to ensure Corporate Governance; 1. Companies Act 1956 Companies are regulated by the Companies Act 1956, as amended up to - date. The Companies Act is one of the biggest legislations with 658 sections and 14 schedules. To ensure Corporate Governance, the Act confers legal rights to shareholders to a. Vote on every resolution placed before an annual general meeting. b. To elect directors who are responsible for specifying objectives and laying down policies. c. Determine remuneration of directors and the CEO d. Removal of Directors and e. Take active part in the annual general meeting Internationally accepted Corporate Governance practices aimed at strengthening corporate democracy, protecting the interests of minority shareholders and providing maximum flexibility to the companies

in responding to the market needs. Among these, the amendments that have made headlines are permitting companies to buy back shares and the liberalization of intercorporate investments. 2. Securities Law Primary security law in India is the SEBI Act. Since its a inception in 1992, the Board has taken a number of initiatives towards investor protection. One such initiatives to mandate information disclosure both in prospectus and in annual accounts. While the company's Act itself mandates certain standards of information disclosure, SEBI Act has added substantially to these requirements in an attempt to make these documents more meaningful. Another aspect of the SEBI regulations is that in most public issues, the promoter are required to take a minimum stake of about 20% in the capital of the company and to retain these shares for a minimum lock in period of three years. Finally, the Board constituted a committee under the chairmanship of Kumaramangalam Birla to suggest ways to promote and raise the standards of Corporate Governance in listed companies. The clause 49 provides for the optimum composition of executive and nonexecutive director's setting up of a qualified and Independent audit committee;' remuneration of director's; management discussion and analysis report to form part of annual report to the shareholders; a separate section on corporate governance in the annual reports of the company; for information to be furnished in the report on corporate governance; and auditor's compliance certificate to the effort that all the conditions of corporate governance have been complied with. 3. Discipline of The Capital Market In a well functioning capital market, there is a strong incentive for corporate management themselves to voluntarily adopt transparent processes and subject themselves to external monitoring to reassure potential investors. In last few years, Indian companies voluntarily accepting International Accounting standards though they are not legally binding. They have voluntarily gone for greater disclosures and more transparent governance practices than are mandated by law. They have sought to cultivate an image of being honest with their investors and of being concerned about shareholder value maximization. Capital market is very good at micro level judgments and decisions. In fact, the market is taking micro-decisions all the time. It is its success in doing so that makes it such an efficient allocator of capital. Capital market makes sense for the regulator to pass on as much of the burden of ensuring corporate governance to the markets as possible. The regulator can then concentrate on making the markets more efficient of performing this function. 4. Nominees on Company Boards Equity holders as investors have their nominees in the board of companies. These nominees can effectively block resolutions which may be detrimental to their interests.

5. Statutory Audit It is yet another mechanism directed to ensure good corporate governance Auditors are the conscience - keepers of shareholders, lenders and others who have financial stakes in companies. As the Cadbury committee observed "The annual audit is one of the corner stones of corporate governance. Given the separation of ownership from management, the directors are required to report on their stewardship by means of the annual report and financial statements sent to the shareholders. The audit provides an external and objective check on the way in which the financial statements have been prepared and presented and it is an essential part of the checks and balances required. 6. Codes of Conduct The code is thus based on checks and balances, especially at the level of the Board of Directors and the chief executive, to guard against undue concentration of power and adequate disclosure to enable those entitled to have the information they need, in order to exercise their rights. It comprises four sections; Role of the Board of Directors - Role of non-executive Directors - Executive Directors - Financial Reporting and Controls. The confederation of Indian Industry (CII) issued a draft code of "Desirable Corporate Governance" for the Indian Industry in April 1997 in response possibly to the finance ministries veiled threats that soften the self-regulatory regime, greater the likelihood of harsher Government regulations. The CII Code, is based on the explicit assumption that "Good governance helps to maximize shareholders value which will necessarily maximize corporate value and, thereby, satisfy the claims of creditors, employees and the state" whether the code will stimulate a change in corporate governance only time will tell. The Present The corporate governance movements in India picked up momentum after deback of big companies such as Enron, world com and BCCI Bank. Those were times when the confidence of the financial community, shareholders and investor took a beating the world over. It was around that time that foreign financial institutions started investing money in Indian companies, which also triggered the need for greater accountability. Today, fund managers view firms such as Tata Motors, ITC, Ranbaxy, Infosys and Hero Honda Motors as having higher governing standards. Luckily many companies are exhibiting good governance standards. The Economic Times did a survey of Indian corporate governance and published its finding in its issue dated August 19, 2005. The criteria used by the Economic Times Survey to identify the winners are; Accounting quality Value creation focus Fair policies and actions Communication Effective governing board Reliability

The Future As we go to the future, corporate governance will become more relevant and a more acceptable practice. Seeds are already sown towards honest but practices. More and more progressive companies are drawing and enforcing codes of conduct, are accepting tougher accounting standards and are following more stringent disclosure norms than are mandated by law. These tendencies would be further strengthened by a variety of forces that are acting today and would become stronger in years to come. Such forces are; a. Deregulation: Economic reforms have not only increased growth prospects, but they have also made markets more competitive. This means that in order to survive, companies will need to invest continuously in a large scale. b. Disintermediation: Meanwhile, financial sector reforms have made it imperative for firms to rely on capital markets to a greater degree for their needs of additional capital. c. Institutionalization: Simultaneously the increasing institution of the capital markets has tremendously enhanced the disciplining power of the market d. Globalization: Globalization of financial markets has exposed issuers, investors and intermediaries to the higher standards of disclosure and corporate governance that prevail in more developed capital markets. e. Tax Reforms: Tax reforms coupled with deregulation and competition have tilted the balance away from block money transactions. This means the worst forms of misgovernance less attractive than in the past. Roll of Board of Directors The board of directors is a corporation's primary rule-making body. Its members are generally high-level professionals with strong management backgrounds and/or an understanding of common financial and business practices. Members by and large have a common stake in the corporation's success.

Ques. 3 : "Role of Corporate Governance indifferent from the Country in which the Company operate" elaborate the statement with the help of appropriate example. Ans : Corporate governance is the convergence of economics and relationships that determine a company's direction and performance. Its purpose is to optimize resources to promote accountability and efficiency within the corporate structure. Most companies' corporate governance is set by their boards of directors, which establish and promote policies for the management and employees of the corporation. The board of directors is responsible to shareholders and customers for the corporation's outcomes.

Policies and Actions Using complicated economic modeling of various hypothetical scenarios to predict return on investment, the board develops a set of policies and actions for corporate managers and employees to carry out. Policies and actions are commonly profit-driven. In other words, the main objective of a policy or action is to produce a positive return on investment for the corporation as well as its shareholders and customers to which it's accountable. Corporate Governance Structure For a board to be effective, it must also have a way to guarantee accountability. This is an important feature of whether or not the corporate governance structure is successful. For example, if a policy or action isn't properly carried out and/or the results that were expected either didn't occur or fell short of the goal, there must be a system in place to make adjustments. The board also determines these correctional steps for management to administer to avoid future mistakes. Shareholder Accountability Corporate governance ultimately determines the success or failure of a corporation. It's therefore important that shareholder and customer input are appropriately factored into all decisions made by the board. After all, it's the financial investment of these groups that enables a corporation to operate. To ensure this occurs, the board holds regular shareholder meetings to report on earnings and to discuss the direction of the corporation. The shareholders are able to inform and guide the discussion to ensure a favorable outcome. Customer Accountability Customer feedback is collected in a less direct way than shareholder input, but is just as important to a corporation's bottom line. Customer feedback is based on consumer trends and the extent to which goods are bought and sold, which are reflected by the corporation's quarterly profits. If a corporation does well, it's said to have exceeded or met its earnings goals for the quarter. If a corporation performs poorly, it's said to have underperformed its anticipated earnings goals for the quarter.