INTRODUCTION

Corporate governance is the set of processes, customs, policies, laws, and

institutions affecting the way a corporation is directed, administered or
controlled. Corporate governance also includes the relationships among the
many stakeholders involved and the goals for which the corporation is
governed. The principal stakeholders are the shareholders, management, and
the board of directors. Other stakeholders include employees, customers,
creditors, suppliers, regulators, and the community at large
Corporate Governance is not just the rules, regulations and law prescribed but
it the culture of relationships. The working of corporate governance depends on
how the participants behave and interact with each other. An important part of
corporate governance deals with accountability, fiduciary duty, disclosure to
shareholders and others, and mechanisms of auditing and control. In this sense,
corporate governance players should comply with codes to the overall good of
all constituents.
Corporate Governance is the mechanism by which the values, principles,
policies and procedures of a corporation are inculcated and manifested. The
essence of corporate governance lies in promoting and maintaining integrity,
transparency and accountability in the working of management.

Good corporate governance plays a vital role in underpinning the integrity and
efficiency of financial markets. Poor corporate governance weakens a

companys potential and at worst can pave the way for financial difficulties and
even fraud. If companies are well governed, they will usually outperform other
companies and will be able to attract investors whose support can help to
finance further growth though the concept and form of Corporate Governance
is evolving over the years, it inherently requires continuous nurturing and
adapting to the dynamic business environment.
Corporate Governance Framework
The Board of Directors is responsible for management oversight,
supervising the business execution functions of the Management Council,
an executive organ under its authority. The Management Council
deliberates upon fundamental policies and strategy regarding business
management, as well as makes decisions on important matters regarding
operational execution. Issues discussed by the Management Council and
a summary of its discussions are reported to the Board of Directors,
which makes decisions on items of particular importance. In principle, the
Management Council meets three times a month, but meetings may be
convened whenever necessary. The auditing function is carried out by
statutory auditors (Board of Statutory Auditors), who review the Board of
Directors as well as operational execution functions, and attend important
meetings, including meetings of the Board of Directors as well as the
Management Council.

PURPOSE OF CORPORATE
GOVERNANCE
1. Protecting shareholders wealth.
2. Enhancing the wealth through proper utilization of assets.
3. Maintenance of that wealth and not frittering away in unconnected
and non profitable venture.
4. through expropriation, and above all safeguarding he interests of
the shareholders.
The main objective behind corporate governance is to protect long term
share holder value along with the other stakeholders. It is the foundation
to build market confidence and encouraging stable and long term
investment flows. Corporate institutions should have a sound frame work
for their operation to achieve their objective and creating wealth for the
welfare of the society as a whole. Corporate governance is very wide
term, which covers a wide range of activities that relate to the way
business organization is directed and governed. It deals with the policies
and practices that directly impact on the organizations performance,
stewardship sand its capacity to be accountable to its various
stakeholders.

OBJECTIVES OF CORPORATE
GOVERNANCE
Over all objectives of corporate governance are as follows :
1. Enhancement of shareholder value, keeping in view the interest of
other stakeholder.
2. follow provisions of the companies Act, FEMA factory Act and other
statutes .
3. deloy the funds of the company in attaining institutional goal as
enshrined in the memorandum.
4. utilize funds taken from financial institutions and the capital market for
the purposes for which they were intended.
5. develop core competence to effectively manage its diversifications.
6. manage and check the diversification of funds by the way of loans,
advances or investment to subsidiary or investment companies.
7. control over the bad practices .
8. conduct ethical and fair practices towards its share holders, customers,
suppliers, employees and the public at large.
9. provide complete information to the directors on the working of the
company.

PRINCIPLES OF CORPORATE
GOVERNANCE
Commonly accepted principles of corporate governance include
Rights and equitable treatment of shareholders: Organizations
should respect the rights of shareholders and help shareholders to
exercise those rights. They can help shareholders exercise their
rights

by

effectively

communicating

information

that

is

understandable and accessible and encouraging shareholders to

participate in general meetings.
Interests of other stakeholders: Organizations should recognize
that they have legal and other obligations to all legitimate
stakeholders.
Role and responsibilities of the board: The board needs a range
of skills and understanding to be able to deal with various business
issues and have the ability to review and challenge management
performance. It needs to be of sufficient size and have an
appropriate level of commitment to fulfill its responsibilities and
duties. There are issues about the appropriate mix of executive and
non-executive directors.
Integrity and ethical behavior: Ethical and responsible decision
making is not only important for public relations, but it is also a

necessary element in risk management and avoiding lawsuits.

Organizations should develop a code of conduct for their directors
and executives that promotes ethical and responsible decision
making. It is important to understand, though, that reliance by a
company on the integrity and ethics of individuals is bound to
eventual failure. Because of this, many organizations establish
compliance and ethics programs to minimize the risk that the firm
steps outside of ethical and legal boundaries.
Disclosure and transparency: Organizations should clarify and
make publicly known the roles and responsibilities of board and
management to provide shareholders with a level of accountability.
They should also implement procedures to independently verify
and safeguard the integrity of the company's financial reporting.
Disclosure of material matters concerning the organization should
be timely and balanced to ensure that all investors have access to
clear, factual information.
Transparency-: This means accurate, adequate and timely
disclosure of relevant information to the stakeholders. It is not at
all possible to make any progress towards better governance
without transparency. But it is seen that information sharing is
hindered under the excuse of confidentiality. There is need to move
towards international standards in terms of disclosure of
information by the corporate sector and through this the companies
develop a high level of public confidence in business. The scenario

at international level makes transparency and disclosure the key

pillars of corporate governance.

IMPORTANCE OF CORPORATE
GOVERNANCE
* Corporate governance has succeeded in attracting a good deal of public
interest because of its apparent importance for the economic health of
corporations and society in general.
* Corporate governance provides the structure through which the
objectives of the company are set, and the means of attaining those
objectives and monitoring performance are determined.
* Corporate governance provides proper incentives for the board and
management to pursue objectives that are in the interests of the company
and shareholders and should facilitate effective monitoring, thereby
encouraging firms to use resources more efficiently
* Corporate governance is used to monitor whether outcomes are in
accordance with plans and to motivate the organization to be more fully
informed in order to maintain or alter organizational activity. Corporate
governance is the mechanism by which individuals are motivated to align
their actual behaviors with the overall participants.
* Corporate governance is a tool for competitive advantage. Normally
when we look at the issue of competitive advantage from a managerial

point of view, we can look at those factors, which are within the control
of the enterprise. This relates to the focus on quality, productivity as well
as innovation, which are the basic requirements, in a highly competitive
environment. This is needed for getting the competitive edge in a market
where the customer is king.
* The corporate governance framework should ensure the equitable
treatment

of

all

shareholders,

including

minority

and

foreign

shareholders. All shareholders should have the opportunity to obtain

effective

redress

for

violation

of

their

rights.

* The corporate governance framework recognizes the rights of

stakeholders as established by law and encourage active co-operation
between corporations and stakeholders in creating wealth, jobs, and the
sustainability

of

financially

sound

enterprises.

* The corporate governance framework ensures the timely and accurate

disclosure of all material matters regarding the corporation, including the
financial situation, performance, ownership, and governance of the
company. A strong disclosure regime can help to attract capital and
maintain confidence in the capital markets. Disclosure also helps improve
public understanding of the structure and activities of enterprises,
corporate policies and performance with respect to environmental and
ethical standards, and companies' relationships with the communities in
which

they

operate.

COMPANY OVERVIEW

Vision
Our vision is to be the most respected company in the financial services
space.

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline
Limited and its wholly-owned subsidiaries, straddle the entire financial
services space with offerings ranging from Equity research, Equities and
derivatives trading, Commodities trading, Portfolio Management Services,
Mutual Funds, Life Insurance, Fixed deposits, GoIe bonds and other small
savings instruments to loan products and Investment banking. India Infoline
also

owns

and

manages

the

websites

www.5paisa.com

www.indiainfoline.com

and

The company has a network of 758 business locations (branches and subbrokers) spread across 346 cities and towns. It has more than 800,000
customers.

India Infoline Ltd.

India Infoline Limited is listed on both the leading stock exchanges in India,
viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange
(NSE) and is also a member of both the exchanges. It is engaged in the
businesses of Equities broking, Wealth Advisory Services and Portfolio
Management Services. It offers broking services in the Cash and Derivatives
segments of the NSE as well as the Cash segment of the BSE. It is registered
with NSDL as well as CDSL as a depository participant, providing a one-stop
solution for clients trading in the equities market. It has recently launched its
Investment banking and Institutional Broking business.

India Infoline Marketing & Services

IIFL (Asia) Pte Limited
IIFL (Asia) Pte Limited is wholly owned subsidiary which has been
incorporated in Singapore to pursue financial sector activities in other Asian
markets. Further to obtaining the necessary regulatory approvals, the
company has been initially capitalized at 1 million Singapore dollars.

Products and Services

10

We are a one-stop financial services shop, most respected for quality of its
advice, personalized service and cutting-edge technology.

Equities
India Infoline provided the prospect of researched investing to its clients,
which was hitherto restricted only to the institutions. Research for the retail
investor did not exist prior to India Infoline. India Infoline leveraged technology
to bring the convenience of trading to the investors location of preference
(residence or office) through computerized access. India Infoline made it
possible for clients to view transaction costs and ledger updates in real time.

Portfolio Management Service

Our Portfolio Management Service is a product wherein an equity investment
portfolio is created to suit the investment objectives of a client. We at India
Infoline invest your resources into stocks from different sectors, depending on
your risk-return profile. This service is particularly advisable for investors who
cannot afford to give time or don't have that expertise for day-to-day
management of their equity portfolio.

Invest Online
India Infoline has made investing in Mutual funds and primary market so
effortless. All you have to do is register with us and thats all. No paperwork no
queues and No registration charges.

INVEST IN MF

11

India Infoline offers you a host of mutual fund choices under one roof, backed
by in-depth research and advice from research house and tools configured as
investor friendly.

Insurance

An entry into this segment helped complete the clients product basket;
concurrently, it graduated the Company into a one-stop retail financial
solutions provider. To ensure maximum reach to customers across India, we
have employed a multi pronged approach and reach out to customers via our
Network, Direct and Affiliate channels. Following the opening of the sector in
1999-2000, a number of private sector insurance service providers
commenced operations aggressively and helped grow the market.

Equities
India Infoline provided the prospect of researched investing to its clients,
which was hitherto restricted only to the institutions. Research for the retail
investor did not exist prior to India Infoline leveraged technology to bring the
convenience of trading to the investors location of preference (residence or
office) through computerized access. India Infoline made it possible for clients
to view transaction costs and ledger updates in real time.

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PLAYERS IN CORPORATE
GOVERNANCE
Corporate governance systems vary across countries and these differences
directly affect both the process for developing global strategies that can
be adopted. Global strategic decision poses a very tough test for the
effectiveness of corporate governance system. They seek maximize profit
and

global

competitiveness.

There are five critical stakeholder players that affect the company's
decision. They are
(1)

Employees

(2)

The management teams

(3)

Shareholders

(4) Board of directors (5) Government

Employees: The main variable differentiates employees as a collective

group across countries. The country's labour market will influence the
flexibility and mobility of employees. Country such as the U.S that have
employment at will where by a contract can be terminated at any time are
likely to have flexible labour market and short term labour commitment.
In more rigid labour markets such as Germany and Japan companies
invest a great deal in bespoke in house training that tends to result in
more highly skilled labour forces and company specific skills. These in

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turns are less transferable from one company to another. For example in
France, the union rights are extended to all employees regardless of union
affiliation. Here unionization will have greater influence on corporate
decision making than in U.S or U.K where only union members benefits
from collective bargaining agreements. Japanese companies tend to have
enterprise unionism, which leads to collective bargaining at company
level, and grant a strong voice to employees. In 2004 for example
employee opposition to job losses prevented the restructuring via. Merger
with a foreign partner of France who is financially troubled Alston, a
major producer of ships and trains. In the same year Volkswagen despite
suffering from very high labour cost had to promise its Western Germany
employees job security until 2011 in exchange for a wage freeze until
2007 and more flexible working hours. The company workers wield
considerable power partly through co-determination rights that require
employees to be consulted on corporate decision.
Top Management Teams: Managers in U.S and U.K tend to have
professional background and strong functional background in finance or
marketing. This is not the case in Germany where managers are more
technical oriented. There is also variation in the international experience
and background of managers. Managerial career mobility tends to be very
fluid in U.S and U.K due to open labour markets. In Japan and France
managers tend to remain with a company for a long period of time. There
is also wide acceptance of leaders from across boarders in the U.K
Shareholders: Countries vary in their mix types of shareholders. At one
extreme the U.S and U.K have mostly arms length, natural shareholders

14

who are focused on shareholder value maximization. Employee

shareholders typically use their ownership to block the global relocation
of jobs. This applies even in the U.S where united Airlines provide a rare
example of a large public company with majority ownership (55 percent
owned by an employee stock ownership plan). This employee stake and
hence control have greatly constrained the ability of the Airline to
relocate job overseas.
Government: Government intervention is usually in the form of market
regulation. A representative measure for government intervention in the
economy is regulation around takeovers. In countries such as France,
Germany, Italy and Japan government intervention often provide strong
takeover barrier such as golden shares, which bestow on the holder veto
power over changes to the company's charter. The variation hindrance to
hostile takeovers in many continental European countries continues to
make it difficult for foreign companies to make acquisition across border
in Europe. In 2001 plans for a European takeover code, which would
guarantee the right of shareholder to be consulted during bids were
shelved following objection from German government. The previous year
Vodafone, the U.K telecoms company made a successful hostile bid for
Mannesmann, a German telecoms company and the German government
was worried that other local companies might fall into foreign land. For
example Volkswagen is protected from takeover by special law. Sweden,
which fall in the continental governance model that use multiple voting
rights to help and prevent its companies from becoming vulnerable to
takeover. France is also particularly active in preserving national
ownership of major companies. In 2004 the French government brokered

15

the takeover of Aventis a French Germany pharmaceutical company by

France's Sanofi-synth and Laboratories.

CONTROL AND MANAGEMENT

4.1 Mechanisms and controls
Corporate governance mechanisms and controls are designed to reduce
the inefficiencies that arise from moral hazard and adverse selection. For
example, to monitor managers' behavior, an independent third party
attests the accuracy of information provided by management to investors.
An ideal control system should regulate both motivation and ability.
Internal corporate governance controls
Internal corporate governance controls monitor activities and then take
corrective action to accomplish organizational goals. Examples include:
Monitoring by the board of directors: The board of directors,
with its legal authority to hire, fire and compensate top
management, safeguards invested capital. Regular board meetings
allow potential problems to be identified, discussed and avoided.
Whilst non-executive directors are thought to be more independent,
they may not always result in more effective corporate governance
and may not increase performance. Different board structures are
optimal for different firms. Moreover, the ability of the board to
monitor the firm's executives is a function of its access to
information. Executive directors possess superior knowledge of the
decision-making process and therefore evaluate top management
on the basis of the quality of its decisions that lead to financial

16

performance outcomes, ex ante. It could be argued, therefore, that

executive directors look beyond the financial criteria.
Remuneration: Performance-based remuneration is designed to
relate some proportion of salary to individual performance. It may
be in the form of cash or non-cash payments such as shares and
share options, superannuation or other benefits. Such incentive
schemes, however, are reactive in the sense that they provide no
mechanism for preventing mistakes or opportunistic behaviour, and
can elicit myopic behaviour.
External corporate governance controls
External corporate governance controls encompass the controls external
stakeholders exercise over the organization. Examples include:
demand for and assessment of performance information (especially
financial statements)
debt covenants
government regulations
media pressure
takeovers
competition

17

 managerial labour market

telephone tapping

Role Of The Accountant

Financial reporting is a crucial element necessary for the corporate
governance system to function effectively. Accountants and auditors are
the primary providers of information to capital market participants. The
directors of the company should be entitled to expect that management
prepare the financial information in compliance with statutory and ethical
obligations, and rely on auditors' competence.
Current accounting practice allows a degree of choice of method in
determining the method of measurement, criteria for recognition, and
even the definition of the accounting entity. The exercise of this choice to
improve apparent performance imposes extra information costs on users.
One area of concern is whether the accounting firm acts as both the
independent auditor and management consultant to the firm they are
auditing. This may result in a conflict of interest which places the
integrity of financial reports in doubt due to client pressure to appease
management. The power of the corporate client to initiate and terminate
management consulting services and, more fundamentally, to select and
dismiss accounting firms contradicts the concept of an independent
auditor. Changes enacted in the United States in the form of the SarbanesOxley Act (in response to the Enron situation as noted below) prohibit

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accounting firms from providing both auditing and management

consulting services. Similar provisions are in place under clause 49 of
SEBI Act in India.
Role Of Institutional Investors
Many years ago, worldwide, buyers and sellers of corporation stocks
were individual investors, such as wealthy businessmen or families, who
often had a vested, personal and emotional interest in the corporations
whose shares they owned. Over time, markets have become largely
institutionalized buyers and sellers are largely institutions
The rise of the institutional investor has brought with it some increase of
professional diligence which has tended to improve regulation of the
stock market (but not necessarily in the interest of the small investor or
even of the nave institutions, of which there are many). Note that this
process occurred simultaneously with the direct growth of individuals
investing indirectly in the market (for example individuals have twice as
much money in mutual funds as they do in bank accounts). However this
growth occurred primarily by way of individuals turning over their funds
to 'professionals' to manage, such as in mutual funds. In this way, the
majority of investment now is described as "institutional investment"
even though the vast majority of the funds are for the benefit of
individual investors.

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Functions of the Management

1. The management comprises the Chief Executive, Executive-directors
and the key managers of the company, involved in day-to-day activities of
the company.
2. The Committee believes that the management should carry out the
following functions:
Assisting the board in its decision making process in
respect of the companys strategy, policies, code of
conduct and performance targets, by providing necessary inputs.
Implementing the policies and code of conduct of the board.
Managing the day to day affairs of the company to best achieve the
targets and goals set by the board, to maximize the shareholder value.
Providing timely, accurate, substantive and material information,
including financial matters and exceptions, to the board, boardcommittees and the shareholders.
Ensuring compliance of all regulations and laws.
Ensuring timely and efficient service to the shareholders and to protect
shareholders rights and interests.

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Setting up and implementing an effective internal control systems,

commensurate with the business requirements.
Implementing and comply with the Code of Conduct as laid down by
the board.
Co-operating and facilitating efficient working of board committees.
3. As a part of the disclosure related to Management, the Committee
recommends 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:
Industry

structure and developments.

Opportunities

and Threats
Segment-wise

or product-wise performance.
Outlook.

Risks

and concerns
Internal

control systems and their adequacy.

Discussion

on financial performance with respect to operational

performance.

4. Good corporate governance casts an obligation on the management in

respect of disclosures. The Committee therefore recommends that
disclosures must be made by the management to the board relating to all
material financial and commercial transactions, where they have personal

21

interest, that may have a potential conflict with the interest of the
company at large (for e.g. dealing in company shares, commercial
dealings with bodies, which have shareholding of management and their
relatives etc.)

SWOT ANALYSIS
Strengths:
1. Price competitiveness ( E.g.: No brokerage is charged, Annual
maintenance charges are least)
2. India Infoline is able to respond very quickly as we have no red tape,
no need for higher management approval, etc.
3. India Infoline is able to give really good customer care, as the current
small amount of work means we have plenty of time to devote to
customers
4. Their lead consultant has strong reputation within the market
5. They change direction quickly if our approach isnt working

22

6. Management philosophy and commitment to maximize shareholders

returns of

India Infoline.

7. Ongoing activities of the company to support up gradation of

operational Performance.

Weaknesses
1. New entrant in the market which is dominated by big brand names like
ICICI, Reliance Money etc.
2.Company has a small staff with a shallow skills base in many areas.

Opportunities
1. The share trading sector is expanding, with many future opportunities
for success.
2. The competitors may be slow to adopt new technologies.

Threats
1. Developments in technology will change the share market beyond the
ability to adapt.

23

2.A small change in focus of a large competitor is a threat for the market
position.
3.Constant pressure to be cost competitive to meet customer expectations.

CONCLUSION

Competition today is at a mouse click.

Effective corporate governance is more than just putting in place
structure, such as committees and reporting mechanisms, to achieve
desired results. Such structure is only a means for developing a more
creatable corporate governance framework and is not ends in them. That
is, there be more emphasis on the substance rather than the form of good
corporate governance and to the confidence and assurance of
stakeholders.
A key aspect of corporate governance is to ensure that all participant are
aware of and accepts; their jobs, responsibilities and accountabilities and
that they have a sound understanding an appreciation of the latters
practical importance in meeting th e public interest. The framework is
very people oriented involving better communication; a more systematic
approach to corporate management; a greater emphasis on corporate and

24

ethical conduct; risk management skills development; relationship with

citizens as clients ; and quality service deliver

BIBLIOGRAPHY

Websites:
www.indiainfoline.com
www.sharekhan.com
www.moneypore.com
www.wikipedia.com

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