CORPORATE GOVERNANCE The definition of corporate governance most widely used is "the system by which companies are directed

and controlled" (Cadbury Committee, 1992). More specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC states, "the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders". According to CII Corporate governance deals with laws, procedures, practices and implicit rules that determine a companys ability to take informed managerial decisions vis--vis its claimantsin particular, its shareholders, creditors, customers, the State and employees. There is global consensus about the objective of good corporate governance: maximizing long-term shareholder value. According to ICSI, We may define corporate governance as a blend of rules, regulations, laws and voluntary practices that enable companies to attract financial and human capital, perform efficiently and thereby maximise long term value for the shareholders besides respecting the aspirations of multiple stakeholders including that of the society. The OECD Principles of Corporate Governance states: "Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. Corporate governance also 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 is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society" (Sir Adrian Cadbury in 'Global Corporate Governance Forum', World Bank, 2000) Traditionally defined as the ways in which a firm safeguards the interests ofits financiers (investors, lenders, and creditors). The modern definition calls it the framework ofrules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with its all customers ,management, employees , government, and the community). stakeholders (financiers,

This framework consists of 1. explicit andimplicit contracts between the firm and the stakeholders

fordistribution of responsibilities, rights, and rewards, 2. procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties,privileges, and roles, and 3. procedures for proper supervision, control, and information-flows to serve as asystem of checks-andbalances. Also called corporation governance. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders,debtholders, trade creditors, suppliers, customers and communities affected by the corporations activities. Internal stakeholders are theboard of directors, executives, and other employees. Corporate governance consists of two elements: 1. The long term relationship which has to deal with checks and balances, incentives for manager and communications between management and investors; 2. The transactional relationship which involves dealing with disclosure and authority. (It is) the system by which companies are directed and controlled. It may also be defined as a system of structuring, operating and controlling a company with the following specific aims:Fulfilling long-term strategic goals of owners; Taking care of the interests of employees; A consideration for the environment and local community; Maintaining excellent relations with customers and suppliers; Proper compliance with all the applicable legal and regulatory requirements.

What are the objectives of corporate governance?

The development of corporate governance concept is naturally and essentially related to the objectives of corporate governance and it may be important to note what the Introductory framework has to say on this: Good governance is integral to the very existence of a company. It inspires and strengthens investors confidence by ensuring companys commitment to higher growth and profits. Objectives of Corporate Governance Good governance is integral to the very existence of a company. It inspires and strengthens investor's confidence by ensuring company's commitment to higher growth and profits. It seeks to achieve following objectives: 1. That a properly structured Board capable of taking independent and objective decisions is in place at the helm of affairs; 2. That the Board is balanced as regards the representation of adequate number of non-executive who will take care of the interests and well-being of the independent directors and all the stakeholders; 3. That the Board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information; 4. That the Board has an effective machinery to sub serve the concerns of stakeholders; 5. That the Board keeps the shareholders informed of relevant developments impacting the company; 6. That the Board effectively and regularly monitors the functioning of the management team, and 7. That the Board remains in effective control of the affairs of the company at all times, The overall endeavor of the Board should be to take the organization forward to maximize long-term value and shareholders wealth.

Elements of good Corporate Governance

Role and powers of Board Good governance is decisively the manifestation of personal beliefs and values, which configure the organizational values, beliefs and actions of its Board. The foremost requirement of good governance is the clear identification of powers, roles, responsibilities and accountability of the Board, CEO, and the Chairman of the Board. Legislation Clear and unambiguous legislation and regulations are fundamental to effective corporate governance. Legislation that requires continuing legal interpretation or is difficult to interpret on a day-to-day basis can be subject to deliberate manipulation or inadvertent misinterpretation.

Management environment Management environment includes setting-up of clear objectives and appropriate ethical framework, establishing due processes, providing for transparency and clear enunciation of responsibility and accountability, implementing sound business planning, encouraging business risk assessment, having right people and right skill for the jobs, establishing clear boundaries for acceptable behavior, establishing performance evaluation measures and evaluating performance and sufficiently recognizing individual and group contribution. Board independence Independent Board is essential for sound corporate governance. This goal may be achieved by associating sufficient number of independent directors with the board. Independence of directors would ensure that there are no actual or perceived conflicts of interest. Code of conduct It is essential that the organization's explicitly prescribed norms of ethical practices and code of conduct are communicated to all stakeholders and are clearly understood and followed by each member of the organization. Systems should be in place to periodically measure adherence to code of conduct and the adherence should be periodically evaluated and if possible recognized. Strategy setting The objectives of the company must be clearly documented in a long-term corporate strategy and an annual business plan together with achievable and measurable performance targets and milestones. Business and community consultation Though basic activity of a business entity is inherently commercial yet it must also take care of community's obligations. Commercial objectives and community service obligations should be clearly documented after approval by the Board. The stakeholders must be informed about the proposed and ongoing initiatives taken to meet social responsibility obligations. Financial and operational reporting The Board requires comprehensive, regular, reliable, timely, correct and relevant information in a form and of a quality that is appropriate to discharge its function of monitoring corporate performance. Audit Committees The Audit Committee is inter alia responsible for liaison with the management; internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures, reporting to the Board on the key issues. The quality of Audit Committee significantly contributes to the governance of the company.

Risk management Risk is an important element of corporate functioning and governance. There should be a clearly established process of identifying, analyzing and treating risks, which could prevent the company from effectively achieving its objectives

Benefits of Corporate Governance 1. Good corporate governance ensures corporate success and economic growth. 2. Strong corporate governance maintains investors confidence, as a result of which, company can raise capital efficiently and effectively. 3. It lowers the capital cost. 4. There is a positive impact on the share price. 5. It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization. 6. Good corporate governance also minimizes wastages, corruption, risks and mismanagement. 7. It helps in brand formation and development. 8. It ensures organization in managed in a manner that fits the best interests of all.

SEBI website has summarized the factors which influence quality of governance in Indian companies. Integrity of the Management: A Board of Directors with a low level of integrity is tempted to misuse the trust, reposed by shareholders and other stakeholders, to take decisions that benefit a few at the cost of others. Ability of the Board: The collective ability, in terms of knowledge and skill, of theBoard of Directors to effectively supervise the executive management determinesthe effectiveness of the board. Adequacy of the process: Board of directors cannot effectively supervise the effective management if the process fails to provide sufficient and timely information to the Board, necessary for reviewing the plans and the performance of the enterprise. Commitment level of individual board of members: The quality of a boarddepends on the commitment of individual members to tasks, which thy areexpected to perform as board members. Quality of corporate reporting; the quality of corporate reporting depends on thetransparency and timeliness of corporate communication shareholders. This helpsthe shareholders in making economic decisions and in correctly evaluating themanagement in its stewardship function.

 Participation of Stakeholders in the management: The level of participation ofstakeholders determines the number of new ideas being generated in optimumutilization of resources and for improving the administrative structure and theprocess. Therefore an enterprise should encourage and facilitate stakeholdersparticipation Ethics and Compliance Good corporate governance begins with the behaviour and ethics of a companys leadership team. A factor often cited in governance failures is a poor tone at the top. Beyond overseeing and asking the right questions of management regarding an organizations ethics and compliance efforts, the board has a significant role to play in building and promoting an ethical culture. Clause 49 of the listing agreement for stock exchanges in India requires that the board lays down a code of conduct for all board members and senior management of the company and that this code of conduct be posted on the website of the company. It also requires that all board members and senior management personnel affirm compliance with the code on an annual basis and the annual report of the company contains a declaration to this effect signed by the CEO. One of the important tools of ensuring a culture of ethics and compliance is a whistle blower policy. In its simplest form, whistle blowing involves the act of reporting wrongdoing within an organization. A whistleblower policy should be approved by the board of directors. Successful whistle blowing procedures require strong leadership from the board and senior levels of management to develop a culture in which all employees are encouraged to raise their concerns without a fear of retaliation. The difficulty with implementing a culture of good corporate ethics and compliance is not so much in the resolution of issues as it is in identifying issues in the first place. In todays complex business environment, where there are countless shades of gray but little undiluted black and white, it is a challenge to foresee and deal with all situations that may present an ethical dilemma