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INDEX
1. EXECUTIVE SUMMARY 2. CORPORATE GOVERNANCE 3. CORPORATE GOVERNANCE ISSUES
4. COMPONENTS OF CORPORATE GOVERNANCE BOARD OF DIRECTORS THE CEO, COMPANY SECRETARY AND CFO REPORTING AND MEETINGS CODES AND GUIDELINES OF CORPORATE GOVERNANCE 5. LITERATURE REVIEW 6. RESEARCH DESIGN
7. CONCLUSION
8. WEBLIOGRAPHY
EXECUTIVE SUMMARY
Corporate governance is the set of policies, people, laws, regulations and reporting of corporate business entities. It is a primary focus of regulators in todays world. Sound corporate governance brings prosperity to the masses in the economy by raising investor confidence and proper management of the investments. Good corporate governance is vital for organizations to survive. Corporate Governance-The Biology of Incorporated Businesses The major components of corporate government are; the Board of Directors, the Executive Offices, Regulators, Reports, Upper Management, and Company Policies. The flow of corporate governance comes from the top through the board; it is molded into the organization through the CEO and reflected in the reporting process with transparency. The overall flow is influenced by external stakeholders. Corporate governance in INDIA is still at the developing stage. The regulators mainly; the Securities and Exchange Commission of INDIA and the State Bank of INDIA, are constantly engaged in developing corporate governance in the country. The government has formed an institute of corporate governance which promotes good corporate practices through various means. Cases of poor corporate governance can be found around the world. They are mostly connected to fraudulent practices. The other major malpractices were; irregularities in accounts, non-compliance with law, nepotism, and exploitation of minority share holders.
CORPORATE GOVERNANCE
The term corporate governance refers to all the activities, policies, personnel, regulations and reporting which is related to the control of the companys actions. Corporate governance is done through all those individuals who have a controlling influence in a corporation such as creditors or stock holders. It focuses on reducing principal-agent problems and undermines stakeholders view in company operations. Corporate governance is at the centre of attention in todays business world. This is greatly due to the large number of stakeholders whose wealth and interests are at stake in the business. What has further highlighted corporate governance today has been the increasing influence and awareness of these stake holders. Without sound corporate governance a business cannot survive. Corporate governance is not just related to core business activities. Good corporate governance caters to various other issues present in the society. Corporations today have developed a concept of corporate social responsibility. The major components of corporate governance comprise of company policies, Board of Directors, the role of the CEO, creditors, Stockholders, regulators, reporting and maintaining overall transparency about the business operations. Corporate governance can be both good and bad. The Securities
and Exchange Commission trys to ensure that sound corporate governance is maintained in all businesses by regulating corporations. Further business expansion is also dependent on sound corporate governance. 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 a multi-faceted subject.[1] An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below). There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance.
dividend policy
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. 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.
BOARD OF DIRECTORS:Corporate governance is not just related to human elements. As mentioned earlier, it comprises of all the policies, practices, activities, individuals and stakeholders of the business. The Major components of corporate governance could be stated as: The Board of Directors The Upper Management The BOD must be of sufficient size and must be fully aware of shareholder and other stakeholder objectives apart from the business environment. The BOD primarily is consisting of individuals who have a significant share of ownership in the entity. However other directors maybe hired if felt necessary. Those members of the BOD who are also shareholders are termed Non-Executive Directors, whereas the directors who are specifically hired on the basis of need and are not shareholders to the business are called Executive directors. There is no specified mix of the number of executive and non-executive directors in the board. However the regulators have assigned the minimum number of directors to a specified number which varies from country to country. The selection of the Directors is done through elections at company meetings on defined time intervals.
office of CFO. CFOs are usually the second highest ranked officers in organizations and receive a healthy remuneration. The regulators The regulators are usually comprised of a number of government institutions which try to ensure that the best methods of corporate governance are being practiced in an organization. The Regulators are of two types; 1) Primary Regulatory Bodies, 2) Secondary Regulatory Bodies. Primary Regulatory Bodies are those regulators that are the same for all businesses regardless of the industry. The securities and exchange commission of INDIA (SECP) is one such example. The SECP is the primary regulator for limited liability companies. Each corporation must register itself with the SECP in INDIA. The companies are also obliged to provide a number of documents and information to the SECP. Secondary regulators are those regulators which are industry specific. For example the State Bank of INDIA for the Banking industry. These regulators are responsible for developing rules and regulations in order to maintain best practices in the respective industry. e.g. the Food and Drug administration is the regulator for the companies in the food and drug industry of the United States. The primary task of all regulators is to monitor, generate and enforce laws, and to take suitable action for any deviations from the defined laws and codes of governance.
Other External Stake Holders Apart from the BOD, Executives, Regulators and upper Management there are various other elements which play a key role in a companys corporate governance. The extent of their role is defined by the influence or controlling interest they hold in the organization. Some of the major indirect corporate governors are: Creditors Customers Society Media The general public Other rights groups Many provisions are provided in the corporate law to increase in the influence of these stake holders in the corporate governance of the company. The provisions are based on the magnitude of the stake these parties possess. e.g. the creditors are given a right to assign their candidate on the BOD just to ensure that the money of the creditors is being utilized properly. Similarly, minority shareholders are also allowed to nominate their candidate for a Board Seat.
is increasing debate on the extent to which the reports are window dressed and influenced by biasness.
LITERATURE REVIEW
(By Karen Hopper Wruck Ohio State University - Fisher College of Business, April1997): the concepts of corporate governance and control, and examines their relation to the organizational rules of the game, and to the creation and distribution of value. The "organizational rules of the game" refers to an organization's systems for 1) allocating decision rights, 2) measuring performance, and 3) meting out rewards and punishments. (By Rodolpho, April 2007): In this article, The writer put forward an alternative approach to dealing with the Charter of any organization, that essential document which ought to be regarded as the mainstay of governance. In the first place, an organization carries out its tasks by becoming a responsive mechanism to fulfill stakeholders' demands as well as costly restraints stemming from transactional environments. In the second place, organizations behave like conflict-systems within which political issues are of the essence when coping with power, influence, control and authority; on these grounds, we give heed to agenda building and the problem of factions. We argue that such three-tiered structure stands for the preconditions of any Charter. Lastly, we set up the Charter as a compact of regulatory and discretionary governance, comprised not only by the articles and certificate of incorporation, but also internal bylaws of the organization, the Statute of Governance, the Code of Good Practices, and provisions for upgrading, overhauling, and even changing the architecture of governance in its entirety. (Louise Gorman, Theodore G. Lynn, june 1, 2009 ) The writer putting light on that While a great deal of research has focused on the factors driving adoption of codes of best practice in corporate governance, only recently has the influence of the news media been considered. Corporate governance literature has largely converged upon internal monitoring and shareholder activist strategies as methods of shareholder protection following the decline of the market for corporate control. Commentators and activists alike have generally neglected the opportunity for an independent party, which watches over the management of companies, to guard shareholders interests. Ireland is just one country where the value of media coverage of corporate governance violations to: (i) shareholders, (ii) policymakers and (iii) company directors has not been assessed. This article investigates the reaction of these groups to newspaper coverage of corporate governance violations so as to determine the influence of the newspaper media on the corporate governance practices of public limited companies listed on the Irish Stock Exchange. Using newspaper articles, media activity was analyzed and measured in 15 instances of corporate governance violations and the relationships between this activity and the actions and behaviors of investors, policymakers and company directors as indicated by stock market data, government reports and newspaper articles respectively were examined. Evidence from this study suggests that the Irish newspaper media influences (i) the boards of directors of Irish listed places, in that subsequent newspaper articles report reformatory measures taken by the boards in the vast majority of companies in the sample; (ii) the government authorities who are responsible for the legislative and regulatory infrastructure in which they operate, with statistical evidence of increases in government attention to corporate governance issues following increased newspaper coverage of theses issues and (iii) the investing decisions of investors in Irish listed places, with statistical
verification of a relationship between movements in share price and volumes of newspaper articles relating to corporate governance violations by listed companies. (By Piotr Tamowicz , June 2002): Mr. Piotr emphasized that the draft Code - being presented - is an example of a bottom-up selfregulatory process that addresses the problem of loosing confidence faced by the Polish capital market. The problem was caused by numerous cases of minorities' rights violations, ranging from transfer pricing and insider trading, to tunneling and blocking effective exercise of corporate rights. It is now a common view among the domestic and international capital market community that regaining market confidence requires better protection of minority shareholders' rights. This will in turn contribute to a more effective and dynamic capital market, which the Polish economy needs. The draft Code, therefore, adopts the perspective of minority shareholders; at the same time it reflects cognizance of the fact that proper company development can only happen in the context of due balance of, and respect for, the rights of all stakeholders engaged in its operations, including controlling shareholders. The draft Code principles and provisions address problems associated with both ownership structures dominated by a controlling shareholder (which is most common structure among Polish public companies) as well as dispersed shareholder base. It stresses the need of a stronger supervisory board vis-avis the dominant shareholder and the management. Thus it is recommended that at least two members of the supervisory board be independent and elected without any decisive influence of the controlling shareholder. The draft Code also advocates more transparency in access to information through corporate websites, increased credibility of audits and restricted availability of anti-take-over defenses. The Code is based on a diagnosis of the most evident weaknesses of the corporate governance system in Poland. This analysis covered such issues as: the extent and sources of ownership and control concentration, control separation devices, cases of most evident shareholder right abuses, checks and balances between company governance bodies, disclosures to shareholders. Some examples of good corporate governance practices were found in Polish corporations, including independent board members and internal regulations addressing insider trading. All these cases were analyzed and reflected in the provisions of the Code. In its philosophy and particular solutions proposed, the draft Code adopts or refers to many principles, recommendations and codes of good practice issued in other countries or by international organizations. The most important benchmarks used were: the OECD Principles of Corporate Governance, British corporate governance codes - mainly Cadbury (the prototype for many national codes) and Hampel, the EASD Corporate Governance Principles, as well as the recommendations and guidelines issued by Euro shareholders. Implementation of the Code should be achieved by the way of including relevant provisions in the company's articles of association. The Code requires that companies report on compliance with its recommendations or on the reasons for non-compliance. The Warsaw Stock Exchange is empowered to put this obligation as a formal requirement for company share listing. Independently, to promote the implementation of the Code, the Polish Corporate Governance Forum - in co-operation with the Association of Individual Shareholders intends to publish annually a corporate governance rating, with the Code serving as a benchmark.
(Igor Filatotchev , may,2009): This analysis suggests that analytic and regulatory approaches to corporate governance issues should move from a 'one-size-fits-all' template to taking into account organizational, institutional and national contexts. We highlight a number of research themes where future governance research may prove fruitful. This includes taking a more holistic approach to corporate governance issues and developing an inter-disciplinary perspective by building on agency theory while considering the rich new insights offered by complementary theories, such as behavioral theory, institutional theory and the resource-based views of the firm. In particular, future corporate governance research needs to be conducted in multiple countries, particularly in emerging economies, if we want to move closer to the journal's aim of producing a global theory of corporate governance.
RESEARCH DESIGN
The research design will consist of two parts. A) Data collection: Data will be primarily collected from secondary data,as it will prove to be a very usefull source of authentic and relevant data, the various secondary sources of data would be newspaper, internet , magazines. Data collection technique would be simple and general. the collected data will be first analyzed and then re-evaluated for further selection of more appropriate data.
B) Sampling: Sampling is very important in research, and specially the method of sampling adopted for the particular research. I will use probability sampling technique because this technique is more appropriate and gives equal chance to every item in the population to be included in the sample, and hence more accurate results will be obtained, because the participation of each item will incorporate enormous changes in the research. The sample size will be 1000,and the method of collecting information will be by preparing questionnaires. the questionnaires will consist of different open ended questions and close ended questions to satisfy the need of the person who will be answering the questions.
Data analysis: This section deals with the analysis of data collected from a secondary source and in relation to this research the data collected and presented in literature review is quite relevant to the research problem, and from the data collected I analyzed that the concepts of corporate governance and control, and examines their relation to the organizational rules of allocating decision rights, measuring performance, and meting out rewards and punishments. The company is not concerned only to the profit earning or maximizing wealth but responsive to their shareholders, shareholders, employees, society as well. Corporate governance literature has largely converged upon internal monitoring and shareholder activist strategies as methods of shareholder protection following the decline of the market for corporate control. Corporate governance is a self-regulatory process. Some examples of good corporate governance practices were found in Polish corporations, including independent board members and internal regulations addressing insider trading. The concept of CEO and Board chair separation is well accepted in Europe, and American companies are steadily moving in that direction. This would bring a better balance in the boardroom. ROLE OF BOARD: Selection committee should choose independent directors, mandatory training, performance assessments, limit on directorships and compulsory attendance of Board meetings, two key areas relating to CEO/Board chair segregation and number of independent directors could be the right steps forward. Shareholders should ensure that the composition of Board of Directors is a balanced mix of independent directors and management appointees. This would help keep a check on the internal processes of the company. With shareholder activism on the rise, the proactive role of institutional investors will also make the company management more accountable. While things have improved substantially over the last five years, experts believe that more needs to be done, which will further improve disclosure levels and make managements accountable. In particular, future corporate governance research needs to be conducted in multiple countries, particularly in emerging economies, if we want to move closer to the journal's aim of producing a global theory of corporate governance. analytic and regulatory approaches to corporate governance issues of a company should move from a 'one-size-fits-all' template to taking into account organizational, institutional and national contexts.
CONCLUSION
Corporate governance is an inevitable phenomenon of corporate business. Whether it is good or bad is determined by the performance of the components. Good corporate governance is being promoted in almost all parts of the world. The benefits of corporate governance are as follows. Increase in investor confidence Economic prosperity Transparency in business activities Better management of investment of the public Corporate governance is the evolutionary stage in developing countries. However that does not mean that poor corporate governance is not present in the developed world. With cases such as the Enron bankruptcy, it is evident that corporate governance mal-practices are present everywhere. Major issues in corporate governance are ethical dilemmas, window dressing, board composition and interaction with minority shareholders.
WEBLIOGRAPHY