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Although relatively, it a new concept which was noticed all over the world after
Sir Adrin Cadbury submitted its recommendations in 1992, but the concept of Corporate
Governance is becoming popular very fast not only in the developed countries but also in
the developing countries for variety of reasons. Developments in the field of information
technology is creating seamless countries where businesses are gradually going out of the
control of their respective Governments but is being controlled more through
international norms and ethics. Corporations have to bother about compliance of good
Corporate Governance practices to build up their positive and favorable image which is
not only becoming desirable but has become essential for its future growth, expansion
and diversification plans. Be it market expansion or deeper market penetration or raising
of funds through foreign markets or listing of its shares on the stock exchanges of
different countries to win over the confidence of the overseas investor, compliance with
good Corporate Governance practices by it are the pre-condition for the same.
With the legacy of the English legal system, India has one of the best corporate
governance laws but poor implementation together with socialistic policies of the pre-
reform era has effected corporate governance. Concentrated ownership of shares,
pyramiding and tunneling of funds among group companies mark the Indian corporate
landscape. Boards of directors have frequently been silent spectators with the DFI
nominee directors unable or unwilling to carry out their monitoring functions. Since
liberalization, however, serious efforts have been directed at overhauling the system with
the SEBI instituting the clause 49 of Listing Agreements dealing with corporate
governance. Corporate Governance of Indian banks is also undergoing a process of
change with a move towards more market-based governance.
The country‟s economy depends on the drive and efficiency of its companies.
Thus, the effectiveness with which the Boards discharge their responsibilities determines
Britain‟s competitive position. They must be free to drive their companies forward but
exercise that freedom within a framework of effective accountability. This is the essence
of any system of good corporate governance. Corporate Governance is the system by
which companies are directed and controlled. Boards of Directors are responsible for the
governance of their companies. The shareholders role in governance is to appoint the
directors and the auditors and to satisfy themselves that an appropriate governance
structure is in place. The responsibilities of the board includes setting the company‟s
aims, providing the leadership, supervising the management of the business and reporting
to shareholders. The board‟s action is subject to laws, regulations and the shareholders in
general meetings. The management becomes self perpetuating and the composition of the
Board itself is largely influenced by the likes and dislikes of the CEO. Many companies
have set up a Nominations Committee of the board to recruit independent and talented
members. There is now increased recognition of the role that the Board could play in
providing a strategic vision to the company. The Compensation Committee of the Board
has been strengthened to exercise greater control over CEO compensation following
widespread complaints that top management pay is disproportionate to performance.
Most powerful and well established of the Board Committees is the Audit Committee.
Apart from acting as a deterrent against financial improprieties and frauds, the Audit
Committee also enables the Board to keep a pulse on the financial health of the company.
As far as audit is concerned, again the dominant role is that of the Comptroller and
Auditor General (CAG). The whole concept and system of corporate governance depends
upon the ethics, values and morals of a company as well as directors.
Corporate Governance is such a burning issue for regulators that it is often
forgotten that the capital market by itself exercises considerable discipline over the
dominant shareholder. Unlike the regulator, the market is not bound by broad rules and
can exercise business judgment. It therefore makes sense for the regulator to pass on as
much of the burden of ensuring corporate governance to the markets as possible. In
addition, while regulators are keen that the corporates comply with all regulatory
requirements in operations, safety, pricing, pollution control etc., government would be
anxious that all due taxes are paid and there is support to its various schemes on health,
ecology and good citizenship.
It is the need of the hour and requires the whole-hearted commitment of all
individuals working in the company for the maximization of the stakeholders value and
not only shareholders value.
With emergence of global competition, corporate India in general has realized that
in order to grow, prosper and compete in International markets, they have to consolidate
their strengths and run them most effectively in an efficient and transparent manner by
adopting the best practices. The corporate India must commit itself to foster a culture of
prompt and innovative service provider with customer focus and become a reliable
business partner to derive consistent all-round growth in all facets of its operations.
Corporate Governance is taught even at graduate level to management students. It
analysis the understanding level of corporate governance, their overall perception about
corporate governance and the role played by business schools in promoting good
corporate culture. The issues studied were classified into five dimensions, taken from the
literature about corporate governance namely (I) management issues (II) shareholder
issues (III) customer issues (IV) social issues and (V) personal issues.
With the increasing globalization of the Indian economy, the driving forces for
business ethics are getting strengthening. Firms engaged in exports, overseas
manufacture, distribution and service agencies have to match the best global
competitive standards of ethics. It is but natural that incoming Multi National
Companies prefer Indian partners with a more ethical reputation. Ethics carry
importance from the point of view of customers, shareholders, lenders, dealers and
vendors all of whom form part of the corps of external business stakeholders. Ethics
towards customers demand truth in advertising and promotion, delivering on promises,
giving value for money, redressal of complaints and meeting appropriate expectations of
quality, price, delivery, warranties and guarantee etc., ahead of the consumer protection
law.
Good governance is not simply ensuring that one has decision-makers that
understand and can follow guidelines but also the development of institutions that punish
those who do not. The costlier it is to develop these institutions, the easier it will be for
corruption to flourish. Good corporate governance is a measure of true corporate success.
It encompasses the aspiration of all stakeholders including the community at large,
guiding the organization towards a higher degree of corporate excellence.
There are Companies like Infosys Technologies Ltd, Reliance Industries Ltd,
Siemens Ltd, Hindustan Lever, Bharat Forge, Tata Motors Ltd, Wipro, Global Tele,
NIIT, Satyam and Hindustan Lever Ltd etc. are showing high ambitions to ride the
wave of corporate governance. They all have system of very good corporate governance.
Bombay Suburban Electric Supply was awarded the Golden Peapock Excellence
Award in corporate governance for business excellence for their transparency in
corporate governance and the financial disclosures reflected in Annual Reports. Infosys
is giving plenty of information in its Annual Report like the following:
1. Shareholders Information
2. Frequently asked questions
3. Ratio Analysis
4. Statutory obligations
5. Human resource accounting and value-added statement
6. Balance sheet including intangible assets
7. Intangible assets score sheet
8. Value Reporting
Judicial delays in this area are well known. The Naresh Chandra Committee
was not surprised to know that prosecutions are pending in courts for years together, it is,
astonishing nevertheless, that DCA have perhaps been unable to secure a jail term in even
a single case in the last five decades. The Committee noted that prosecutions once filed
are followed up by an officer designated for the task. Often, this post remains vacant,
with the result that this important aspect is looked after by another officer in addition to
his regular work. The committee would like to make two recommendations in this regard.
First, the prosecution wing in the DCA needs to be strengthened by increasing the
strength of personnel in the wing and supplementing it by hiring better advocates,
perhaps on a retainer basis, instead of relying only on the over-worked government
advocates. Secondly, the Department should examine the possibility of introducing
shortened procedures along with the lines of the recent amendment to the Code of Civil
Procedure e.g. recording evidence through commissioners.
The OECD Code also recognizes that different legal systems, institutional
frameworks and traditions across countries have led to the development of a range of
different approaches to corporate governance. Common to all good corporate governance
regimes, however, is a high degree of priority placed on the interests of shareholders who
place their trust in corporations to use their investment funds wisely and effectively.
The Comptroller and Auditor General (CAG) , Shri Vinod Rai said the
“Credibility of Government is at its lowest since Indepedence, the quality of governance
is below par and subject to severe criticism and decision making is a casualty.
Government is at its lowest ebb. The morale of civil servants is low. The situation is
deleterious for the nation. There is too much at stake for too many in such a situation.
Today, we are facing a testing time in the history of our nation. There has been an erosion
of people‟s faith in government. Their confidence in public institution has declined.
National trust in bureaucracy including the police force has collapsed. The integrity and
professionalism of civil servants is being questioned.” Rai said,” We have Chief
Ministers who have had to vacate their positions allegedly for graft on whom courts and
other judicial bodies have made adverse pronouncements. We have members of
Parliament who are being indicted by the judiciary for various acts including accepting
cash for exercising their vote in Parliament.” He again said,” It often provides very poor
testimony of our capabilities if members of the All India Services allow themselves to be
used if not as facilitators, certainly as a medium for wrongdoing by others. All attempts
to improve governance will come to naught if the agencies responsible for governance do
not consider probity in public life and ethical behavior as cardinal principles in their
1
official dealings.”
1
12th October, 2011, The Times of India
The bench marking of best business practices including corporate governance in
the corporations all over the world is the order of the day to stay competitive and ensure
its continual growth. Corporations have to find out newer strategies in order to retain its
market share by winning over not only the mind but also the heart of its publics by
following the best and the most ethical practices to constantly improve the quality of its
corporate governance. The number of studies world over has repeated proved strong co-
relation in the financial performance of the corporations and its good corporate
governance practices. Most of the large corporations all over the world are encashing
their old goodwill based on its initial ethical conduct and different publics are so
impressed with its conduct that they are not even willing to hear and believe their
unethical, restrictive and monopolistic conduct to perpetuate their existing market image
and market share.
SUGGESTIONS
Thus, the corporate governance to succeed, some convergence on a few economic
issues is vital. According to Raja J. Chelliah, the official economic doctrine in India has
not been modified to take account of the serious problems of governance that have arisen
over the years in our country. It is felt that the deplorable weaknesses in the system of
governance in our country can only be remedied through a movement of moral
regeneration backed by sufficient pressure by an enlightened public. Institutional and
structural changes are required in addition to moral exhortation.
Some priority areas have been suggested by Dr Chelliah for policy action in
Fiscal Policy & Governance, National Institute of Public Finance and Policy, New Delhi:
In the area of government action, i.e., the scope of governmental activities should be
narrowed down substantially , e.g. withdrawal from the business of production of
private goods which are of no significance either from the social or strategic point of
view; public enterprises operating in competition with private enterprises and being
made fully autonomous; further liberalization and reduction in the number of controls;
governmental procedures for various types of approvals being simplified with strict
time limits; avoidance of duplication of functioning by the Center and the state
2
Vodafone International Holdings B.V. v. UOI & Another (2012) 170 Comp Cas. 369
(SC)
governments and procedural changes; introduction of a system of reward and
punishment which is correlated to quality and performance and rationalization of the tax
system.
I am of the opinion, that the company‟s system should be under constant scrutiny
for their enhancement towards greater control, reliability and integration, better product
and service quality, cost efficiencies and information transparency which will lead to
higher operational efficiency and optimize shareholder value in the long-term.
Every corporate should be aware and investigate any warning sign. Create or
preserve a record supporting the investigation and generally helpful for the cause e.g.
minutes of meetings, important documents and provide for indemnification for every
individual director/ officer who is actively involved in the decision making process.
Increase the frequency of the meetings of audit committee, remuneration committee and
nomination committee.
A very few companies have a chapter in the annual reports which covers
corporate social responsibility. In the case of Deepak Fertilizers and Petrochemicals
Corporation Limited, annual report includes social report to demonstrate that the
company remains deeply committed to its social responsibility and the cause of social
development and upliftment. The company has bagged the second runner-up award for
the corporate social responsibility by the business world – FICCI Social and Economic
Development foundation for the year 2005. As per the Companies Bill, 2011 ( likely to
be passed ), it will make mandatory for companies to earmark 2 percent of their average
profit of the preceding three years for CSR activities and make a disclosure to
shareholders about the policy adopted in the process. It is recommended that the
corporates should take care of this concept.
One of the disclosures which shareholders seek at the annual general meetings is
declaration of dividend policy and announcement of bonus shares when the company‟s
free reserves are high compared to paid up capital. Although announcement of bonus
shares is a privilege of the board of directors, only a few of the companies are stating
their dividend policy in the directors report. This sort of disclosure will reflect the good
image of the corporate. This point should be kept in the mind of management.
Under the present scenario, reference to stakeholders is mainly to shareholder
since he has a right to attend and vote at general meetings and make observations and
comments on the performance of the company reflected in the balance sheet and profit &
loss account which is required to be adopted at such meetings. The other stakeholder like
depositors, creditors, bankers, employees etc. are not entitled to attend such general
meetings and cannot make open comments and observations in the presence of all the
directors which are present at the meeting. Hence, they have an indirect role in judging
the efficacy of corporate governance. This system also requires improvement.
In the judiciary, the backlog of cases is so monumental that the Indian case has
become a perennial citation for the rest of the world. Here independent tax courts
commercial courts and the like must be considered. Only that will put in place a dynamic
judiciary and firm up some of the path breaking measures that it has recently taken to
challenge the lack of action in the other branches. In the executive branch, civil servants
are rarely complemented by professionals with specialized training and instead are
moved from one specialized department to another. There is little effective interaction or
involvement with researchers. Fundamental reform is necessary therefore to allow the
infusion of specialized knowledge from different professions into the executive branch.
To focus on good governance, It‟s time to end the boycott of Parliament by the
opposition because of the pressing economic problems confronting the nation. Continued
disruptions will mar the investment climate and the country‟s economic health. A host of
important policy decisions remains on the table. The goods and services tax, which will
create a unified market in the country, awaits rollout. Rising food prices demand a closer
look at agricultural reforms to mitigate supply-side deficiencies. The Judicial Standards
and Accountability bill, the Public Interest Disclosure Bill for the protection of whistle-
blowers and the Lokpal Bill are important legislations hanging fire in Parliament. They
need to be pushed through quickly to combat institutional corruption and ensure probity
in governance. 3
I may refer to another point that Corporate Governance is not merely compliance
and a simply a matter of creating checks and balances – it is an ongoing measure of
superior delivery of company‟s objectives with a view to translate opportunities into
reality.
It is understood that Corporate Governance is the means and not an end. They
should get reflected in the performance of the company in terms of profits, profitability,
growth, diversification, welfare, cordial industrial and other relationship at all levels.
Corporate governance is the means and corporate excellence is the end.
Corporate governance has to travel much beyond statutory bounds. I may mention
that the Board and Management is responsible in this respect and in the event they follow
ethical and moral and of course practical methods, corporate governance will lead to
emergence of responsible corporate citizens.
3
Article in The Times of India, New Delhi dated February 18, 2011
Notwithstanding the convergence towards prescriptive, self-regulatory
governance principles, there is relatively little discussion on measures to improve
corporate performance. The primary objective of sound corporate governance must
contribute to improve corporate performance, the integrity of financial markets and
ultimately to the international competitiveness of the economy. Good corporate
governance is a necessity but may not be said to be sufficient condition for achieving
performance of global standards. The economic settings along with cultural and
behavioral attitude of shareowners, directors, management, workforce and institutional
arrangements are equally important.
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