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Certificate Course

Study Materials


I. Introduction
II. Ownership vs. Management.
III. Principles of Good Governance.
IV. Ethics in Governance
V. Corporate Governance
VI. Parties to Corporate Governance.
VII. Board of Directors
VIII. Audit Committee.
IX. Disclosures
X. Company law Provisions-
Corporate Governance
XI. Recent Developments in Corporate Governance in India
XII. Case Study
XIII. Conclusion

Certificate Course in Corporate Governance

Study Materials

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

the business for a suitable remuneration. The managers
have been given required freedom to run the business
they deem fit and had to be accountable for their
actions to the owners of the business. The
Management’s view of the business will be to run
successful business under competition and earn a
reasonable return for the owners in the long range.
The relationship between the Managers and the Owners is
defined by the following factors:
1. Powers: Managers need power to run business and the
owners have to delegate powers to Managers to the
extent required for successful running of business. This
means that owners should trust and delegate sufficient
powers to managers–sufficient enough to allow the
managers to perform well using their expertise in
running the business. The delegation of powers should
be clearly expressed to managers and others in the
organisation, so that managers are truly empowered
and can be accepted as leaders by others.
2. Accountability- The delegation of powers comes with
accountability. The managers are accountable to the
owners for the results. They managers have obligation
to owners to use the powers delegated to them and
achieve good working results for the benefit of the
owners. They have to ensure that investors’ wealth
grows due to their efforts and the business follows all
the legal procedures and investors’ interests are well
3. Remuneration- The managers have to be paid
remuneration to match with the powers delegated and
tasks assigned to them. If remuneration does not
commensurate with the tasks assigned to managers,
there will be no motivation for the managers to perform
well. Remuneration, should match the position, powers
delegated and tasks assigned to Managers.
4. Reports- Reporting is an important part of the managers’
responsibilities. Not only doing the job, but informing
the concerned about what is being done is equally

important. Other wise, the owners will be ignorant
about their position, either relating to the status of their
investment or the protection of their business. The
Reporting covering all important aspects of business
should be done in a systematic manner and with a fixed

III. Principles of Good Governance.

Governance is the activity of governing. It relates to taking

decisions that meet and define expectations, granting power, or
verifying actual performance against the expectations. It consists
either of a separate process or of a specific part
of management or leadership processes. Sometimes people set up
a governing authority to administer these processes and systems.
In the case of business organisations, governance relates to
conducting consistent management of the organisation, lying down or
defining cohesive policies, processes and decisions-rights for a given
area of responsibility. For example, managing at a corporate level
might involve evolving policies on privacy, on internal investment,
and on the use of data.
Perhaps the moral and natural purpose of governance consists of
assuring, on behalf of those governed, a worthy pattern of good
behavior, while avoiding an undesirable pattern of bad. The ideal
purpose, obviously, would assure a perfect pattern of good with no
bad behavior.
In business, people who are trusted with the function of Governance,
should exhibit that they have ability to govern the affairs of the
organisation in a good manner. Unless the Governance is good, the

working result can never show the desired results to the owners and
owners will have no trust and confidence in those governing the
Key elements of good governance principles include
a. Honesty,
b. Trust and integrity,
c. Openness/ Transparency,
d. Performance orientation,
e. Responsibility and accountability,
f. Mutual respect between the owners and Managers, and
commitment to causes of the organisation.
It is a matter of great importance to know as to how directors and
management develop a model of governance that aligns the values of
the business participants and then evaluate this model periodically
for its effectiveness.
In particular, senior executives should conduct themselves honestly
and ethically, especially concerning actual or apparent conflicts of
interest, and disclosure in financial reports.

IV. Ethics in Governance

By virtue of existing in the social and natural environment, business

is duty bound to be accountable to the natural and social environment
in which it survives. Irrespective of the demands and pressures upon
it, business by virtue of its existence is bound to be ethical, for at least
two reasons, because:
1. Whatever the business does affects its stakeholders, and

2. Every juncture of action, has side effects of ethical as well as
unethical behavior wherein the existence of the business is justified
by ethical behavior, it responsibly chooses.

One of the conditions that brought business ethics to the forefront is

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

Stanley Krolick identifies four individual ethical decision-making

The first style is the Individualist and this decision maker is driven by
natural reason, personal survival, and preservation. The self is the
only criteria involved in decisions for this style while ignoring other
The second style is Altruists who are primarily concerned for others.
This approach is almost opposite to that of the Individualist. Altruists
will disregard their own personal security for the benefit of others.
The primary mission of Altruists is to generate the greatest amount of
good for the largest number of people.
The third style is Pragmatists who are concerned with current
situations and not with the self or others. It is facts and the current
situation that guide this decision maker’s decision.
The fourth and final style is the Idealist who is driven by principles
and rules. It is values and rules of conduct that determine the
behaviors exhibited by Idealists. Idealists display high moral
standards and tend to be rigid in their approach to ethical situations.

The different types of Governance may be noted as given below:

1. Global governance
2. Corporate governance
3. Project governance
4. Information Technology Governance
5. Participatory Governance
6. Non-Profit Governance
7. Islamic Governance

V. Corporate Governance

Corporate governance consists of the set of processes, customs,

policies, laws and institutions affecting the way people direct
administer or control a corporate.
Corporate governance also includes the relationships among the
many players involved -the stakeholders and the corporate goals. The
principal players include the shareholders, management, and
the board of directors. Other stakeholders include employees,
suppliers, customers, banks and other lenders, regulators, the
environment and the community at large.
Gabrielle O'Donovan defines corporate governance as 'an internal
system encompassing policies, processes and people, which serves the
needs of shareholders and other stakeholders, by directing and
controlling management activities with good business savvy,
objectivity, accountability and integrity.
Report of SEBI committee (India) on Corporate Governance defines
corporate governance as the acceptance by management of the
inalienable rights of shareholders as the true owners of the

corporation and of their own role as trustees on behalf of the
Hence Corporate Governance can be understood as a system of
structuring, operating and controlling a company with a view to
achieve long term strategic goals to satisfy shareholders, creditors,
employees, customers and suppliers, and complying with the legal
and regulatory requirements, apart from meeting environmental and
local community needs.
A Healthy Corporate Governance assures to take care of interests of
different stakeholders, which ultimately results in a strengthened
economy, and hence good corporate governance is a tool for socio-
economic development.

Commonly accepted principles of corporate governance include:

1. Rights and equitable treatment of shareholders:

Organizations should respect the rights of shareholders and help

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

2. Interests of other stakeholders:

Organizations should recognize that they have legal and other

obligations to all legitimate stakeholders.

3. Role and responsibilities of the board:

The board needs a range of skills and understanding to be able to deal

with various business issues and have the ability to review and
challenge management performance. It needs to be of sufficient size
and have an appropriate level of commitment to fulfill its

responsibilities and duties. There are issues about the appropriate
mix of executive and non-executive directors.

4. Integrity and ethical behavior:

Ethical and responsible decision making is not only important for

public relations, but it is also a necessary element in risk management
and avoiding lawsuits. Organizations should develop a code of
conduct for their directors and executives that promotes ethical and
responsible decision making. It is important to understand, though,
that reliance by a company on the integrity and ethics of individuals is
bound to eventual failure. Because of this, many organizations
establish Compliance and Ethics Programs to minimize the risk that
the firm steps outside of ethical and legal boundaries.

5. Disclosure and transparency: Organizations should clarify

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

Issues involving corporate governance principles include:

1. Internal Checks and Controls.

2. Internal audit.

3. External audit or Statutory Audit.

4. Management of Risk

5. Managerial Remuneration.

6. Dividend policy.

Let us look into the details of each point now.

1. Internal Checks and Controls:

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

Internal Control can be defined as “… a process, effected by an

entity’s board of directors, management and other personnel,
designed to provide reasonable assurance regarding the achievement
of objectives in the following categories:
-Effectiveness and efficiency of operations;
-Reliability of financial reporting and
- Compliance with applicable laws and regulations.
The management should introduce proper internal checks and
control to regulate business and prevent losses on account of frauds,
mis-appropriations by persons dealing with the business as

employees, creditors or customers; they may act on their own or in
collusion with other including insiders. Regular review and revision
of the internal checks and controls, where ever found necessary is a
part of the Company managements function.

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

3. External Audit.

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

well as how the management is planning to mitigate the adverse
effects of these risky activities. As a part of regular review and
information to shareholders, company may post in its annual report,
comments such as”
“The Board regularly discusses the significant business risks identified by the management
and the mitigation process being taken up.
A detailed note on the risk identification and mitigation is included in Management Discussion
and Analysis annexed to the Directors Report.”

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

6. Dividend Policy.
Dividend is the return paid to the owners of the company-
Shareholders on the amount invested in the business. This dividend
may be paid, when the company earns profit. But at the same time,

paying dividend to shareholders means outflow of Cash from
Business operations. Cash outflow represents lower liquidity in
business. Hence how much dividend to be paid to shareholders has to
be decided very carefully and companies generally formulate a
dividend policy to ensure transparency to shareholders and
recommendation for paying dividend will be made by Board but has
to be approved by the shareholders themselves.
Hence we can understand that a Dividend Policy is a Policy used by
companies to decide as to how much dividend should be paid to

VI. Parties to Corporate Governance.

Parties involved in corporate governance include people who regulate

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

All parties to corporate governance have an interest, whether direct or

indirect, in the effective performance of the organization. Directors,
workers and management receive salaries, benefits and reputation,
while shareholders receive capital return. Customers receive goods
and services; suppliers receive compensation for their goods or
services. In return these individuals provide value in the form of
natural, human, social and other forms of capital.
Let us Study the role of above in the corporate governance.

A Director is a person who directs the operations of the corporate. A
Director is a representative of the owners or stake holders, who are
interested in ensuring that organisation operates in systematic
fashion and protects the interests of the owners and stake holders.
Board of Directors is a collective group of Directors.
Directors must be individuals.
Directors can be owners, managers, or any other individual elected by
the owners of the business entity.
Directors who manage the operations are Called Managing
Executive Director executes the instructions of Managing Director
and / or Board of Director and is involved in running the day to day
affairs of the company.
The lenders also may nominate their representatives also as Directors
to guide and watch the performance of the borrower company. They
are known as Nominee Directors. Company may also request some
experienced and eminent persons to accept directorship of the
company and make available their expertise to guide and monitor the
performance of the company. Similarly persons acting as directors
who are not owners or managers are sometimes referred to as outside
directors, outsiders, disinterested directors, independent directors, or
non-executive directors.
Generally in most of the companies, the persons investing majority of
the equity nominate themselves or their representatives to the
position of Managing Director.

Chief Executive Officer is a person who is in charge of operations of

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

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

1. Governing the organization by establishing broad policies and

objectives in line with Vision and Mission Statements of the

2. Selecting, appointing, supporting and reviewing the performance

of the chief executive;

3. Ensuring the availability of adequate financial resources to the


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

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

The legal responsibilities of boards and board members vary with the
nature of the organization, and with the jurisdiction within which it
operates. For public corporations, these responsibilities are typically
much more rigorous and complex than for those of other types.
Typically the board chooses one of its members to be the chairman.
Board should regularly meet and review the functioning of the
company and takes decisions for which it is authorised and
recommend resolutions for consideration and passing the same by
shareholders in Annual General Body Meetings (AGM) or Extra
Ordinary General Body Meetings (EGM) in other cases.
The role and responsibilities of a board of directors vary depending
on the nature and type of business entity and the laws applying to the
entity. For example, the nature of the business entity may be one that
is traded on a public market (public company), not traded on a public
market (a private, limited or closely held company), owned by family
members (a family business), or exempt from income taxes (a non-
profit, not for profit, or tax-exempt entity). There are numerous types
of business entities available throughout the world such as a
corporation, limited liability company, cooperative, business trust,
partnership, private limited company, and public limited company.

VIII. Audit Committee

It is a subcommittee of board of Directors. Audit Committee members

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

Although Boards of Directors rely on management to run the daily

operations of the business, they may not be able to participate in the
regular management activities and can only supervise the work of the
Senior Managers or Corporate Management. The Board's role at best
can be described as oversight or monitoring, rather than execution.

Hence a subcommittee of directors known as Audit Committee is
formed to take more active role in Company affairs than Board of
Directors. The responsibilities of such subcommittee called as Audit
Committee typically include:

1. Reviewing and Overseeing the financial performance and

reporting the same along with proper disclosures in annual
2. Monitoring choice of accounting policies and principles,
checking adequacy of Internal controls and fixing the terms of
reference to internal auditors. It will also be involved in
reviewing the finding and reports of Internal auditors and
discussions with Statutory auditors
3. Overseeing hiring, performance and independence of the
external auditors.
4. Overseeing of regulatory compliance, ethics, and whistleblower
5. Discussing risk management policies and practices with

This Audit Committee will have power to Investigate any matter

within the purview its terms of reference and seek information from
any employee or obtain outside legal or professional expert advice in
the concerned subjects.

IX. Disclosures

Business involves risks and in the day to day management, many

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

information is important to an investor or lender using the financial
statements, that information should be disclosed within the
statement or in the notes to the statement. It is because of this basic
accounting principle that numerous pages of "footnotes" are often
attached to financial statements.

As an example, let's say a company is named in a lawsuit that

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

A company usually lists its significant accounting policies as the foot

note to its financial statements. Non disclosure will amount to
denying right of information to the stakeholders.

X. Company law provisions & Corporate Governance.

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

The Contents of model Articles of Association in case of a Public
Company limited by Shares is as given in Annexure II.

Other provisions include certain sections available in Companies Act

1956, covering

1. Disclosures on Remuneration of Directors: Section 299 of

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

2. Requirements of the Audit Committee: Audit Committee

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

The recommendations of the committee on any matter relating to

financial management including Audit Report, shall be binding on the
board. In case board does not accept the recommendations so made,
the committee shall record the reasons thereof, which should be
communicated to the shareholders, probably through the Corporate
Governance Report.
The committee shall act in accordance with the terms of reference to
be specified in writing by the board. The committee should have
periodic discussions with the auditors about the Internal Control
Systems and the scope of audit including the observations of the
auditors. If the default is made in complying with the said provision
of the Act, then the company and every officer in default shall be

punishable with imprisonment for a term extending to a year or with
fine up to Rs 50000 or both.

Director’s remuneration: The specific disclosures on the

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

Corporate Democracy: Wider participation by the shareholders

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

XI. Recent Developments in Corporate Governance In

Confederation of Indian Industries (CII) has set up A National task
Force with Mr. Rahul Bajaj, past president of CII and Chairman and
Managing Director of Bajaj Auto ltd, as the Chairman and included
members from industry, the legal profession, media.
This Task Force made an in depth study on the matters relating to
Corporate Governance by Indian Corporates and issued a set of
Guidelines outlining the desirable Procedures of Corporate
Governance, in Apr 1998. CII has recommended this Code to Indian

business and industry, for understanding and implementation. A
copy of the Guide-lines issued by CII is given in Annexure III.

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

The Guidelines also covered as to what are the desirable disclosures

(both financial and non-financial) and certain guidelines to protect
the rights of the Creditors of the companies as well.
Many of these guidelines have since become part of Companies Act
and corporate Governance practices of leading companies in India.

Many such efforts have been made to update the corporate

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

GOI CG Guidelines 2009

Ministry of Company Affairs Government of India has issued during
Dec 2009 as a part of “India Corporate Week” celebrations a set of
‘Voluntary guidelines’ to be followed by Indian Companies. These
recommendations have been meant to be followed by Indian
Corporates Voluntarily and some of the guidelines will become part of

Indian Companies Act, once approved by Parliament. A copy of the
Voluntary guide lines issued is attached .Annexure IV.

XII. Case Study

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

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

Prof. JR Kumar
Faculty Director