CHAPTER 1 INTRODUCTION

Corporate Governance (CG) has emerged as one of the key elements of public policy reforms individuals. It is still in its infancy; it has been around only for the last three to four years. It is however not a foolproof concept as it relies heavily on data available from insiders. But it has specific and special role to play to enhance the strength of a particular unit and of the entire corporate sector. Corporate Governance is to be maintained or observed as effective tool to assure the stakeholders of their long-term interests without prejudice to public interest. Corporate Governance is the term given to the management practices followed by the business organizations. We believe that good business practices, transparency in corporate financial reporting and the highest levels of corporate governance must be maintained. These channels in turn are activated through several structural and institutional factors pertaining to the corporation. They are as follows: [1]The ownership structure of the organization. [2] The financial structure of the corporation. [3] The structure and functioning of the company boards and the associated internal control systems. [4] The legal, political and regulatory environment within which the Corporate functions Thus Corporate Governance (CG) is the way the firm ought to be run, managed and controlled. It is related with supervision and holding the responsibility of those who direct and control the management. Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general. However, the concept of corporate governance is poorly defined because it potentially covers a large number of distinct economic phenomenons. As a result different people have come up with different

definitions that basically reflect their special interest in the field. It is hard to see that this 'disorder' will be any different in the future so the best way to define the concept is perhaps to list a few of the different definitions rather than just mentioning one definition.

OBJECTIVE
To attain highest standard of procedures and practices followed by the corporate world so as to have transparency in its functioning with an ultimate aim to maximise the value of various stakeholders.

WHAT IS CORPORATE GOVERNANCE

Joanna Sheiton, described corporate governance as a set of relationships between a companys management, its Board of directors, shareholders and other stakeholders. In a broader sense, he defined good corporate governance as important for overall market confidence, the efficiency of international capital allocation, the renewal of countries industrial bases, and ultimately nations overall wealth and welfare. The framework for corporate governance is not only an important component affecting the longterm prosperity of companies, it is a leading species of large genus namely, National Governance, Humane Governance, societal governance, economic governance and political governance. Government provides necessary conditions or environment to Corporates to operate. However, value can be added by achievements of technological achievement, enhancement of productivity and optimal use of available resources by corporate sector. It is to be noted that new technologies are on the anvil e.g. Information Technology thereby improving the speed of communication and dearth of distance. It is known fact that vital needs of success of any organization lingers on its ability to mobilize and utilize all kinds of resources to meet the objectives clearly set as part of the planning process. Managing well depends on internal and external factors, the latter include availability, cost effectiveness; technological advancement. Increasingly, revelations of deterioration in quality and transparency, have called for adoption of internationally accepted Best Practices. The acceptance
Page 2

of the concept gave rise to Corporate Governance. Corporate Governance encompasses commitment to values and to ethical business conduct to maximize shareholder values on a sustainable basis, while ensuring fairness to all stakeholders including customers, employees, and investors, vendors, Government and society at large. Corporate Governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimized. Sound Corporate Governance is therefore critical to enhance and retain investors trust. Corporate governance is about ethical conduct in business. Ethics is concerned with the code of values and principles that enables a person to choose between right and wrong, and therefore, select from alternative courses of action. Further, ethical dilemmas arise from conflicting interests of the parties involved. In this regard, managers make decisions based on a set of principles influenced by the values, context and culture of the organisation. Ethical leadership is good for business as the organization is seen to conduct its business in line with the expectations of all stakeholders. What constitutes good Corporate Governance will evolve with the changing circumstances of a company and must be tailored to meet these circumstances. The very definition of corporate governance stems from its organic link with the entire gamut of activities having a direct or indirect influence on the financial health of corporate entities. The Cadbury Report (1992) simply describes Corporate Governance as the system by which companies are directed and controlled. So far as corporate governance is concerned, it is financial integrity that assumes tremendous importance. This would mean that the directors and all concerned should be open and straight/forthright about issues where there is conflict of interest involved in financial decision making. When it comes to even the purchase/procurement procedures, there is need for greater transparency. Prof. Kenneth Scott of Stanford Law School described, corporate governance as to include every force that bears on the decision-making of the firm, that would encompass not only the control rights of stockholders, but also the contractual covenants and insolvency powers of the debt holders, the commitments towards employees, customers and suppliers, the regulations and the statutes. In addition, the firms decisions are powerfully affected by competitive conditions in the
Page 3

various markets in which it operates. Despite the various attempts to define corporate governance and its elements, there is no single model of good corporate governance. Although the general principles are widely accepted, they are not set in concrete and must be adjusted to reflect the specific circumstances and needs of individual organizations. The Business Roundtable states: Good corporate governance is not a one size fits all proposition, and a wide diversity of approaches to corporate governance should be expected and entirely appropriate. Moreover, a corporations practices will evolve as it adapts to changing situations. The one size fits all approach has also been rejected by the OECD, which, instead, has advocated the need for pluralism, flexibility and adaptability in corporate governance. The OECD has recently reinforced this view and stated that to remain competitive in a changing world, corporations must innovate and adapt their corporate governance practices so that they can meet new demands and grasp new opportunities. The Corporate system and diverse ownership did contribute in a substantial measure to prosperity, employment potential and living standards of the subjects across the globe. Notwithstanding the contributions, the failures too caused concerns among the regulators. Existing laws, rules and controls did not adequately address the issues related to the failures caused by deficient or intentional fraudulent managements. In USA, the Sarbanes-Oxley Act 2002 was passed to address the issues associated with corporate failures, achieve quality governance and restoring investor confidence. The Securities and Exchange Commission of USA initiated action against multinational accounting firms for failure to detect blatant violation of accounting standards, and penalities running to several million dollars were recovered, from certain multinational consultancy firms.

WHY CORPORATE GOVERNANCE?

Page 4

a) The liberalization and de-regulation world over gave greater freedom in management. This would imply greater responsibilities. b) The players in the field are many. Competition brings in its wake weakness in standards of reporting and accountability. c) Market conditions are increasingly becoming complex in the light of global developments like WTO, removal of barriers/reduction in duties. d) The failure of corporates due to lack of transparency and disclosures and instances of falsification of accounts/embezzlement and the effect of such undesirable practices in other companies. It is the increasing role of foreign institutional investors in emerging economies that has made the concept of corporate governance a relevant issue today. In fact, the expression was hardly in the public domain. In the increasingly close interaction of the economies of different countries lies the process of globalisation. This involves the rapid migration of four elements across national borders. These are (i) Physical capital in terms of plant and machinery; (ii) Financial capital; (iii) Technology; and (iv) Labour The increasing concern of the foreign investors is that the enterprise in which they invest should not only be effectively managed but should also observe the principles of corporate governance. In other words, the enterprises will not do anything illegal or unethical. This need for re-assurance is felt by the FIIs due to the fact that there have been cases of dramatic collapse of enterprises which were apparently doing well but which were not observing the principles of corporate governance. In India corruption is an all embracing phenomenon. In this, if the respective players in the field were to adopt healthy principles of good corporate governance and avoid corruption in their transactions, India could really take a step forward to becoming a less corrupt country and improving its rank in the Corruption Perception Index listed by the Transparency International. Studies in India and abroad show that markets and investors take notice of well managed companies respond positively to them and reward such companies with higher valuations.
Page 5

CHAPTER-2 CLAUSE 49 OF THE LISTING AGREEMENT (LISTING AGREEMENT)

KUMAR MANGALAM BIRLA COMMITTEE
Page 6

Securities and Exchange Board of India constituted a Committee on Corporate Governance under the Chairmanship of Mr. Kumar Mangalam Birla. The committee observed that there are companies, which have set high standards of governance while there are many more whose practices are matters of concern. There is increasing concern about standards of financial reporting and accountability especially after losses are suffered by investors and leaders in the recent past, which could have been avoided with better and more transparent reporting practices. Companies raise capital from market and investors suffered due to unscrupulous managements that performed much worse than past reported figures. Bad governance was also exemplified by allotment of promoters share at preferential prices disproportionate to market value, affecting minority holders interests. Many corporates did not pay heed to investors grievances. While there were enough rules and regulations to take care of grievances, yet the inadequate implementation and the absence of severe penalty left much to be desired. The Kumar Mangalam Committee made mandatory and non-mandatory recommendations. Based on the recommendations of this Committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreements (Listing Agreements). The important aspects, in brief, are:
(i) Boards of Directors are accountable to shareholders.

(ii) Board controls are laid down code of conduct and accountable to

shareholders for creating, protecting and enhancing wealth and resources 5 of the Company reporting promptly in transparent manner while not involving in day to day management. (iii) Classification of non-executive directors into those who are independent and those who are not. (iv) Independent directors not to have material or pecuniary relations with the Company / subsidiaries and if had, to disclose in Annual Report.

Page 7

(v) Laying emphasis on calibre of non-executive directors especially independent directors. (vi) Sufficient compensation package to attract talented non-executive directors. (vii) Optimum combination of not less than 50% of non-executive directors and of which companies with non-executive Chairman to have at least one third of independent directors and under executive Chairman at least one half of independent directors. (viii) Nominee directors to be treated on par with any other director, (ix) Qualified independent Audit committee to be setup with minimum of three all being nonexecutive directors with one having financial and accounting knowledge. (x) Corporate governance report to be part of Annual Report and disclosure on directors remuneration etc., to be included.

SUBSEQUENT RECOMMENDATIONS BY NARESH CHADRA COMMITTEE Naresh Chandra Committee recommendations relate to the Auditor-Company relationship and the role of Auditors. Report of the SEBI Committee on Corporate Governance recommended that the mandatory recommendations on matters of disclosure of contingent liabilities, CEO/CFO Certification, definition of Independent Director, independence of Audit Committee and

Page 8

independent director exemptions in the report of the Naresh Chandra Committee, relating to corporate governance, be implemented by SEBI. SUBSEQUENT RECOMMENDATIONS BY NARAYAN MURTHY COMMITTEE Narayana Murthy Committee recommendations include role of Audit Committee, Related party transactions, Risk management, compensation to Non- Executive Directors, Whistle Blower Policy, Affairs of Subsidiary Companies, Analyst Reports and other non-mandatory recommendations.

CHAPTER-3 DIRECTORS RESPONSIBILITY

The following major responsibilities of the board of directors reflect the broad purposes of governance:

Define and uphold the mission and purpose of the company.

Page 9

Develop and approve strategic directions (with management); monitor achievement of strategic goals. Oversee management performance, including selection, support and evaluation of CEO. Ensure that the company manages risks effectively; assume fiduciary responsibility. Foster effective organizational planning, including succession planning. Ensure adequate resources to achieve the mission, including assisting in raising of equity and debt. Represent the company to the community and the public; ensure that organization fulfills its responsibilities to the larger community. Ensure that the organization changes to meet emerging conditions; particularly in times of distress, temporarily assume management responsibilities.

The further responsibilities address board and board member conduct:

Uphold the ethical standards of the organization, with transparency and avoidance of conflicts of interest. Represent the interests of the company as a whole and not those of one shareholder or group of shareholders. Evaluation and commitment for improving their performance.

Chapter-4 INDEPENDENT DIRECTOR

The purpose of identifying and appointing independent directors is to ensure that the board includes directors who can effectively exercise their best judgment for the exclusive benefit of the Company, judgment that is not clouded by real or perceived conflicts of interest. IFC expects that in each case where a director is identified as independent the board of directors will affirmatively determine that such director meets the requirements established by the board and is otherwise free of material relations with the Companys management,
Page 10

controllers, or others that might reasonably be expected to interfere with the independent exercise of his/her best judgment for the exclusive interest of the Company. An indicative definition follows. In each case, the Company and IFC should consider changes tailored to those sorts of relationships that would impair a directors independence, taking into account the circumstances of the particular Company. "Independent Director" means a director who is a person who: 1. has not been employed by the Company or its Related Parties in the past five years; 2. is not, and is not affiliated with a company that is an advisor or consultant to the Company or its Related Parties; 3. is not affiliated with a significant customer or supplier of the Company or its Related Parties; 4. has no personal service contracts with the Company, its Related Parties, or its senior management; 5. is not affiliated with a non-profit organization that receives significant funding from the Company or its Related Parties; 6. is not employed as an executive of another company where any of the Company's executives serve on that company's board of directors; 7. is not a member of the immediate family of an individual who is, or has been during the past five years, employed by the Company or its Related Parties as an executive officer; 8. is not, nor in the past five years has been, affiliated with or employed by a present or former auditor of the Company or of a Related Party; or 9. is not a controlling person of the Company (or member of a group of individuals and/or entities that collectively exercise effective control over the Company) or such persons brother, sister, parent, grandparent, child, cousin, aunt, uncle, nephew or niece or a spouse, widow, in-law, heir, legatee and successor of any of the foregoing (or any trust or similar arrangement of which any such persons or a combination thereof are the sole
Page 11

beneficiaries) or the executor, administrator or personal representative of any Person described in this sub-paragraph who is deceased or legally incompetent, and for the purposes of this definition, a person shall be deemed to be "affiliated" with a party if such person (i) has a direct or indirect ownership interest in; or (ii) is employed by such party; Related Party shall mean, with respect to the Company, any person or entity that controls, is controlled by or is under common control with the Company.

CHAPTER-5 INSIDER TRADING

Another important aspect of corporate governance relates to issues of insider trading. It is important that insiders do not use their position of knowledge and access to inside information about the company, and take unfair advantage of the resulting information asymmetry. To prevent this from happening, Corporates are expected to disseminate the material price sensitive information in a timely and proper manner and also ensure that till such information is made public, insiders abstain from transacting in the securities of the company. The principle should be disclose or desist. This therefore calls for companies to devise an internal procedure for adequate and timely disclosures, reporting requirements, confidentiality norms, code of conduct and specific rules for the conduct of its directors and employees and other insiders. For example, in many countries, there are rules for reporting of transactions by directors and other senior executives of companies, as well as for a report on their holdings, activity in their own shares and net year to year changes to these in the annual report. The rules also cover the dealing in the securities of their companies by the insiders, especially directors and other senior executives, during sensitive reporting seasons. However, the need for such procedures, reporting requirements and rules also
Page 12

goes beyond Corporates to other entities in the financial markets such as Stock Exchanges, Intermediaries, Financial institutions, Mutual Funds and concerned professionals who may have access to inside information. This is being dealt with in a comprehensive manner, by a separate group appointed by SEBI, under the Chairmanship of Shri Kumar Mangalam Birla.

CHAPTER-6 SHAREHOLDERS
The shareholders are the owners of the company and as such they have certain rights and responsibilities. But in reality companies cannot be managed by shareholder referendum. The shareholders are not expected to assume responsibility for the management of corporate affairs. A companys management must be able to take business decisions rapidly. The shareholders have therefore to necessarily delegate many of their responsibilities as owners of the company to the directors who then become responsible for corporate strategy and operations. The implementation of this strategy is done by a management team. This relationship therefore brings in the accountability of the boards and the management to the shareholders of the company. A good corporate framework is one that provides adequate avenues to the shareholders for effective contribution in the governance of the company while insisting on a high standard of corporate behavior without getting involved in the day to day functioning of the company. RIGHTS AND RESPONSIBILITIES OF SHAREHOLDERS The basic rights of the shareholders include right to transfer and registration of shares, obtaining relevant information on the company on a timely and regular basis, participating and voting in
Page 13

shareholder meetings, electing members of the board and sharing in the residual profits of the corporation. The Committee therefore recommends that as shareholders have a right to participate in, and be sufficiently informed on decisions concerning fundamental corporate changes, they should not only be provided information as under the Companies Act, but also in respect of other decisions relating to material changes such as takeovers, sale of assets or divisions of the company and changes in capital structure which will lead to change in control or may result in certain shareholders obtaining control disproportionate to the equity ownership. The Committee recommends that information like quarterly results, presentation made by companies to analysts may be put on companys web-site or may be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. The Committee recommends that the half-yearly declaration of financial performance including summary of the significant events in last six-months, should be sent to each household of shareholders. A company must have appropriate systems in place which will enable the shareholders to participate effectively and vote in the shareholders meetings. The company should also keep the shareholders informed of the rules and voting procedures, which govern the general shareholder meetings. The annual general meetings of the company should not be deliberately held at venues or the timing should not be such which makes it difficult for most of the shareholders to attend. The company must also ensure that it is not inconvenient or expensive for shareholders to cast their vote. Currently, although the formality of holding the general meeting is gone through, in actual practice only a small fraction of the shareholders of that company do or can really participate therein. This virtually makes the concept of corporate democracy illusory. It is imperative that this situation which has lasted too long needs an early correction. In this context, for shareholders who are unable to attend the meetings, there should be a requirement which will enable them to vote by postal ballot for key decisions. This would require changes in the Companies Act. The Committee was informed that SEBI has already made recommendations in this regard to the Department of
Page 14

Company Affairs. The Committee believes that the General Body Meetings provide an opportunity to the shareholders to address their concerns to the board of directors and comment on and demand any explanation on the annual report or on the overall functioning of the company. It is important that the shareholders use the forum of general body meetings for ensuring that the company is being properly stewarded for maximising the interests of the shareholders. This is important especially in the Indian context. It follows from the above that for effective participation shareholders must maintain decorum during the General Body Meetings. The effectiveness of the board is determined by the quality of the directors and the quality of the financial information is dependent to an extent on the efficiency with which the auditors carry on their duties. The shareholders must therefore show a greater degree of interest and involvement in the appointment of the directors and the auditors. Indeed, they should demand complete information about the directors before approving their directorship. The Committee recommends that in case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information:

A brief resume of the director; Nature of his expertise in specific functional areas; and Names of companies in which the person also holds the directorship and the membership of Committees of the board.

Page 15

CHAPTER-7 ESSENTIAL GOVERNANCE PRINCIPLES

A company should: 1. Lay solid foundations for management and oversight, recognise and publish the respective roles and responsibilities of board and management. 2. Structure the board to add value - Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. 3. Promote ethical and responsible decision-making - Actively promote ethical and responsible decision-making. 4. Safeguard integrity in financial reporting - Have a structure to independently verify and safeguard the integrity of the companys financial reporting. 5. Make timely and balanced disclosure - Promote timely and balanced disclosure of all material matters concerning the company.

Page 16

6. Respect the rights of shareholders - Respect the rights of shareholders and facilitate the effective exercise of those rights. 7. Recognise and manage risk - Establish a sound system of risk oversight and management and internal control. 8. Encourage enhanced performance 9. Remunerate fairly and responsibly 10. Recognise the legitimate interests of stakeholders 11. Corporate Governance Rating be made mandatory for listed companies.

CORPORATE GOVERNANCE AT UNIVERSAL LEVEL: Traditionally the matters with corporate sector were involved with esoteric branch of commercial law. Limited generally to a narrow view of how to ensure the managers follow the interests of shareholders. Basic standards of Corporate Governance structure and processes have been slowly evolving over last two decades. Traditionally it was observed only in respect of the operation of market pressure. Looking beyond India the scenario in general is different. In the country like U.S. and U.K. there is an active market for corporate control to discipline managers, if they fail to maximize shareholders wealth. They largely adopted three main instruments they are- "Proxy Contests". Friendly mergers and Hostile takeover. The first among the above said there is considered more effective Friendly mergers have hardly succeeded to solve the "agency problem". While takeover is not appealing strongly on the ground of heavy cost incurred in it and also for want of political will conducive to the policy. In Germany and Japan the system that prevails in U.K. and U.S. is absent. Unlike that
Page 17

system there is "Banking Supervision". The main bank financing the corporate unit acts as an external control mechanism. In such case very least intervention is found and that only when financial problem arises. It is in light of these experiences that innovative approach to the concept is formed. Several credit rating agencies have stepped in the market and they are offering services of the kind, which meets with the Quality of Governance in corporate entities. Institutional investors in companies based in emerging markets claim to be willing to pay as much as 30 percent more for shares in companies that are well-governed. Do these investors mean what they say? The survey examined 188 companies from India, Korea, Malaysia, Mexico, Taiwan and Turkey to test the link between market valuation and corporate governance practices. They found that companies with better corporate governance has higher price-to-book ratios, indicating that investors do indeed reward good governance, and with quite a large premium: companies can expect a 10 to 12 percent boost to their market valuations by going from worst to best on any single element of governance(MC Kinsey survey). One can relatively easily develop financial market, through a determined effort to improve corporate governance practices.

CORPORATE GOVERNANCE SCORES For calculation of corporate governance score we used the six major variables, which are then divided into sub components. Weights are assigned to each of these components. (As shown in Table 1). The variables and weights have been taken after careful study of existing literature. The CG Score has been calculated by assigning to each variable component points on a 5 to 1 Linkers Point scale. Table 1 Following Variables are assessed 1) Structure, Composition and Management of Board : (20%) a) Independence of the Board b) Qualifications of the Board 6% 5% Weights

Page 18

c) Authority to hire External Consultants d) Board Member Terms and Meetings of the Board e) Presence and implementation of Code of Ethics 2) Board Committees : (20%) a) Audit Committee b) Remuneration Committee c) Nominations Committee d) Other Board Committees 3) Transparency (20%) a) Related Party Transactions b) Executive Compensation 4) Shareholder Rights: (15%) a) Confidential Voting and Proxy Voting b) Voting for Corporate Changes 5) Other Shareholder Rights Issues : (15%) a) Ownership Structure b) Takeover Defences 6) Value Creation and Social Awareness: (10%) a) Credit Rating b) Growth in Number of Employees c) Social Responsibility Total Score

2% 4% 3%

6% 6% 5% 3%

10% 10%

7% 8%

9% 6%

4% 3% 3% 100%

Section II : Analysis of Variables Used.

Page 19

1) Structure and Composition of Board : Board members owe a duty to make decisions based on what ultimately is best for the long term interest of shareholders. In order to do this effectively, the board members need a combination of three things:

Independence: A board should be composed of at least a majority of Independent Board Members with the autonomy to act independently from management.

Experience: Board members who have appropriate experience and expertise relevant to the companys business are capable to evaluate what is in the best interest of shareholders. Depending on the nature of the business, this may require specialized expertise by at least some board members.

Resources : There needs to be internal mechanisms to support the independent work of the board, including the authority to hire outside consultants without managements intervention or approval. This mechanism alone preserves the integrity of the boards independent oversight function.

a) Independence : Independence, as it relates to board members, refers to the degree to which

they are not biased or otherwise controlled be company management or other groups who exert control over management.

Case I
Page 20

CORPORATE GOVERNANCE PRACTICES IN INFOSYS TECHNOLOGIES LTD.

Infosys was incorporated in 1981 with the vision of building a globally respected corporation a vision that has translated into a strong organization commitment towards discipline, fair play and good corporate governance. Infosys was the first Indian company to emphasise on strong corporate governance practices in India. The company expanded its corporate governance practices significantly beyond what was required by the letter of the law. It voluntarily complied with the US GAAP accounting requirements, and was the first company to prepare financial statements in compliance with the GAAP requirements of eight countries. The company was also among the first in the country to incorporate a number of innovative disclosures in its financial reporting, including human resources valuation, brand valuation, value-added statement and EVAR report Integrity, fairness and transparency across its operations has been the main mantra for Infosys. Infosys emphasizes its commitment to a strong value system and corporate governance practices, by making this and integral part of the training of every employee. Infosys was a pioneer in inducting independent directors to its Board, thus greatly strengthening Board oversight of senior management in the company. Over the years, the management emphasized continuous dialogue with its investors and placed a high priority on investor relations and feedback. For example, Infosys early investments in stock markets ended as soon as it was apparent that investors felt that these added no value. Infosys focus on corporate governance not only brought global visibility to the company but also created pressure on other Indian firms to raise their governance standards. This led to an encouragement trend of companies across industries scaling up their corporate governance standards and going beyond mandatory requirements. Infosys believes that good corporate governance must also translate into being a responsible corporate citizen. The senior executives of Infosys have also served on various task forces set up by the Indian government to develop meaningful corporate governance codes and ethical industry practices. Over the last 25 years, Infosys has remained committed to being ethical, sincere and open in its dealings with all its stakeholders. It has enabled the company to build an organization that is trusted and admired not just in India but also by companies across the world. Its disclosure
Page 21

standards, detailed segmental data, presentation of accounts as per GAAP of eight countries, detailed cost break-ups are among the best in the industry. Infosys also provides the most detailed manpower data- very important in its space. Age profiles, experience, education levels and gender mix are all elaborated in detail. Infosys is one of the very few companies in India to have a nomination committee, which provides training to its non-executive directors and appraises their performance. Where Infosys loses out is on the issue of stock options, high cash levels impacting return ratios and a relatively large board with about 15 board members. Corporate governance has emerged as the foundation of successful companies both in India and globally. Today shareholders, institutional investors, lenders and other stakeholders demand more information on the capability and integrity of boards and management of companies they deal with and the processes these companies follow. They believe that sound corporate governance is critical to enhance and retain stakeholders' trust. Accordingly, they always seek to ensure that they attain their performance rules with integrity. Their Board exercises its fiduciary responsibilities in the widest sense of the term. Their disclosures always seek to attain best practices in international corporate governance. They also endeavor to enhance long-term shareholder value and respect minority rights in all our business decisions.

Their corporate governance philosophy is based on the following principles: 1.

2.

Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law . Be transparent and maintain a high degree of disclosure levels. When in Make a clear distinction between personal conveniences and corporate resources. Communicate externally, in a truthful manner, about how the Company is run internally. Comply with the laws in all the countries in which we operate. Have a simple and transparent corporate structure driven solely by business
Page 22

doubt,

Disclose.
3.

4. 5. 6.

needs. 7. Management is the trustee of the shareholders' capital and not the owner.

Page 23

Corporate Governance Ratings. CRISIL : CRISIL assigned CRISIL GVC Level 1 rating to Infosys. This Governance and Value Creation (GVC) rating indicates capability to create wealth for all our stakeholders while adopting sound corporate governance practices.

ICRA : ICRA assigned CGR 1 rating to corporate governance practices of Infosys. The rating of CGR 1 is the highest on ICRAs Corporate Governance Rating (CGR) scale of CGR 1 to CGR 6. Infosys is the first company to be assigned the highest CGR by ICRA.

TNS Survey : Ranked 1 in the category of Good reputation index The financial transparency and disclosure standards of Infosys are the worlds best. It is awarded First position in SAFA ( South Asian Federation of Accountants.) Best Presented Accounts Award 2004 in the Communication and Information Technology Sector based on the evaluation of the Annual Report of the company.

Best Annual report award from the Institute of Chartered Accountants of India for the 10th successive year.

Infosys topped the regional rankings for best Corporate Governance in Asia Moneys Corporate Governance Poll.

It has also received National award for Excellence in Corporate Governance from the Institute of Company Secretaries of India

As a part of their commitment to follow global best practices, they comply with the Euro shareholders Corporate Governance Guidelines, 2000, and the recommendations of The

Page 24

Conference Board Commission on Public Trusts and Private Enterprises in the U.S. They also adhere to the UN Global Compact Programme. CG Score & Company Valuation. Taking into account the above variables and studying the corporate governance of the company in detail we got the following scores for Infosys Technologies Ltd. ( The details of the scores are given in the table below) Corporate Governance Score of Infosys Technologies (2005-2010) Period Corporate Governance score 2010 85% 2009 85% 2008 83% 2007 81% 2006 79% 2005 75%

Corporate Governance and Company Valuation : To determine the relationship between Corporate Governance and Market Valuation following three indicators have been considered. 1. Company Valuation 2. Dividend Payout Ratio 3. Operating Performance. (Turnover and Profit after Tax) Market capitalization ( the current stock price multiplied by the number of shares outstanding) also serves as a companys price tag. But market capitalization ignores debt, and with some companies, debt is substantial enough to change the picture significantly. To overcome this shortcoming the latest concept is Enterprise Value, which is a modification of market capitalistaion that incorporates debt. It represents a companys economic value the minimum amount someone would have to pay to buy it outright. Its an important number to consider when market value of a company is calculated. To calculate enterprise value, companys market capitalization value is taken, total debt added and cash and investments subtracted. Market Capitalisation = Current share price times total shares outstanding.
Page 25

Debt = long term debt + short term debt Enterprise value = Market Capitalisation Cash and Equivalents + Debt

Following table shows the CG score, Market Capitalization and Enterprise Value of Infosys Technologies Ltd. Period Market Capitalisation (in Rs. Cr) Enterprise Value(in Rs. Cr) Corporate Governance Score 2010 115307 109657 85% 2009 82154 78375 85% 2008 61073 59390 83% 2007 32909 31070 81% 2006 26847 25208 79% 2005 24654 23627 75%

Result of correlation : Between Market Capitalisation and CG Score is + 0.83 and between Enterprise value and CG Score is + 0.82 It is very interesting to note from the above table that with the rise in CG score the Market Capitalisation and Enterprise Value is also on the rise. Both of these clearly suggest a very high positive correlation between the variables. Corporate Governance and Payout Policy The major objectives of adequate corporate governance practices is the satisfactory payback to company shareholders. Under the assumptions of the original Modigliani Miller irrelevant theorems, dividend policies are irrelevant for company value and shareholders wealth. Among the various theories, the rent seeking theory of the effect of agency problems on payout policies seems to be especially relevant in India. Large and controlling shareholders have the incentives and the power to extract private benefits of control at the expense of the minority shareholders, because they receive the full benefits but only bear a fraction of the cost. In that context, a dividend payment guarantees equal treatment to all shareholders.

Page 26

In this section, we correlate the dividend per share and corporate governance score of the company for the period FY 2002 2007. CG Score and Dividend Payout Ration of Infosys Technologies (2002-2007) 2010 Dividend Payout Ratio Corporate governance score Result of Correlation : + 0.62 A moderate positive correlation has been established between CG and dividend payout. It signifies that better CG though leads to better operating performance but does not necessarily mean high payout to shareholders. Corporate Governance and Operating Performance. Indeed reputation harm and financial damage that can be caused by conflicts of interest and poor oversight are undeniable Bob Stein Improving the performance is related with profitability, which in turn is return of brand image. Therefore, the brand is the practical reason for improving the governance. Improved governance also protects the viability of business by regaining the customer confidence and market trust. In this section, we correlate the profit after tax and turnover with corporate governance score of the company for the period FY 2002-2007. 11.5 85% 2009 15 85% 2008 11.5 83% 2007 29.5 81% 2006 27 79% 2005 20 75%

CG Score, Turnover and PAT of Infosys Technologies Limited (2005-2010) Period Profit after Tax in Rs. (Cr.) 2010 3777 2009 2421 2008 1859 2007 1243 2006 958 2005 808
Page 27

Income (Turnover in Rs. Cr) Corporate Governance Score

13149 85%

9028 85%

6860 83%

4761 81%

3623 79%

2654 75%

Results of Correlation : Correlation with profit after tax is +0.83 and with turnover is +0.86. Turnover proxy of Firm size is positively correlated with good corporate governance practices. High positive correlation between PAT also suggests that better corporate governance practices result in better operating performance. Coefficient of determination confirms the inferences drawn from the coefficient of correlation. One can argue that even with the highest estimates of financial fundamentals one can achieve the same growth in value by more than twice sales growth or 35% increase in financial results demands more efforts compared to corporate governance practices improvement leading to the same value growth. But again improving the performance is related with profitability, which in turn is the return of brand image. Therefore, the brand is the practical reason for improving the governance.

Conclusion
The relation between corporate governance and organizational performance is of fundamental importance to practitioners, academics and policy makers. Assumptions and strongly held beliefs about the importance of governance are shaping the current regulatory climate for the design of governance structures. In this study, we have developed through a comprehensive analysis a very high positive relationship between level of Corporate Governance and market valuations of the company which indicates that superior governance results in better valuations. Companies with high governance rankings enjoy superior market premiums.

To sum up: 1. We find that better corporate governance is associated with higher operating performance and higher valuations.

Page 28

2. Firms could improve investors wealth and protection rights by increasing disclosure, selecting well-functioning and independent boards, imposing disciplinary mechanisms. 3. These results are consistent with results found in Gompers et al. (2001), which find that firms with stronger corporate governance have relatively higher wealth creation in the US. 4. Better Corporate Governance leads to value creation for all the stakeholders.

Good governance requires a mindset within the corporation, which integrates the corporate code of ethics into the day-to-day activities of its managers and workers. As the sociologists Rossouw and van Vuuren note, companies must move from the reactive and compliance mode of corporate ethics, to the integrity mode, where the functions of the entire organization are completely aligned with its value system.

CASE II

CORPORATE GOVERNANCE PRACTICES IN ITC LTD.

Page 29

ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 18 billion and a turnover of over US $ 5.1 Billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC's Core Values are aimed at developing a customer-focused, high-performance organisation which creates value for all its stakeholders. Over the years, ITC has evolved from a single product company to a multi-business corporation. Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading. Each of these businesses is vastly different from the others in its type, the state of its evolution and the basic nature of its activity, all of which influence the choice of the form of governance. The challenge of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each of its businesses and yet strengthens the unity of purpose of the Company as a whole. Since the commencement of the liberalisation process, India's economic scenario has begun to alter radically. Globalisation will not only significantly heighten business risks, but will also compel Indian companies to adopt international norms of transparency and good governance. Equally, in the resultant competitive context, freedom of executive management and its ability to respond to the dynamics of a fast changing business environment will be the new success factors. ITC's governance policy recognises the challenge of this new business reality in India.

ITC has won the Golden Peacock Awards for 'Corporate Social Responsibility (Asia)' in 2007, the Award for CSR in Emerging Economies 2005 and Excellence in Corporate Governance' in the same year. These Awards have been instituted by the Institute of Directors, New Delhi, in association with the World Council for Corporate Governance and Centre for Corporate Governance
Page 30

DEFINITION AND PURPOSE

ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, we believe that the governance process should ensure that these companies are managed in a manner that meets stakeholders aspirations and societal expectations.

CORE PRINCIPLES
ITC's Corporate Governance initiative is based on two core principles. These are : i. Management must have the executive freedom to drive the enterprise forward without

undue restraints; and ii. This freedom of management should be exercised within a framework of effective

accountability. ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations.

CORNERSTONES
From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance.
Page 31

Trusteeship : ITC believes that large corporations like itself have both a social and economic purpose. They represent a coalition of interests, namely those of the shareholders, other providers of capital, business associates and employees. This belief therefore casts a responsibility of trusteeship on the Company's Board of Directors. They are to act as trustees to protect and enhance shareholder value, as well as to ensure that the Company fulfill its obligations and responsibilities to its other stakeholders. Inherent in the concept of trusteeship is the responsibility to ensure equity, namely, that the rights of all shareholders, large or small, are protected. Transparency : ITC believes that transparency means explaining Company's policies and actions to those to whom it has responsibilities. Therefore transparency must lead to maximum appropriate disclosures without jeopardising the Company's strategic interests. Internally, transparency means openness in Company's relationship with its employees, as well as the conduct of its business in a manner that will bear scrutiny. We believe transparency enhances accountability. Empowerment and Accountability : Empowerment is an essential concomitant of ITC's first core principle of governance that management must have the freedom to drive the enterprise forward. ITC believes that empowerment is a process of actualising the potential of its employees. Empowerment unleashes creativity and innovation throughout the organisation by truly vesting decision-making powers at the most appropriate levels in the organisational hierarchy. ITC believes that the Board of Directors are accountable to the shareholders, and the management is accountable to the Board of Directors. We believe that empowerment, combined with accountability, provides an impetus to performance and improves effectiveness, thereby enhancing shareholder value. Control : ITC believes that control is a necessary concomitant of its second core principle of governance that the freedom of management should be exercised within a framework of appropriate checks and
Page 32

balances. Control should prevent misuse of power, facilitate timely management response to change, and ensure that business risks are pre-emptively and effectively managed. Ethical Corporate Citizenship : ITC believes that corporations like itself have a responsibility to set exemplary standards of ethical behaviour, both internally within the organisation, as well as in their external relationships. We believe that unethical behaviour corrupts organisational culture and undermines stakeholder value.

THE GOVERNANCE STRUCTURE Flowing from the philosophy and core principles, Corporate Governance in ITC shall take place at three interlinked levels, namely Strategic supervision by the Board of Directors Strategic management by the Corporate Management Committee Executive management by the Divisional Chief Executive assisted by the Management Committee Divisional

Roles The core roles of the various entities at the three levels of Corporate Governance will be as follows: Board of Directors (Bod) : The primary role of the Board of Directors is that of trusteeship to protect and enhance shareholder value through strategic supervision of ITC, its wholly owned subsidiaries and their wholly owned subsidiaries. As trustees they will ensure that the Company has clear goals relating to shareholder value and its growth. They
Page 33

should set strategic goals and seek accountability for their fulfillment. They will provide direction, and exercise appropriate control to ensure that the Company is managed in a manner that fulfills stakeholder aspirations and societal expectations. The Board must periodically review its own functioning to ensure that it is fulfilling its role. The ITC Board will be a balanced Board, consisting of Executive and Non-Executive Directors, the latter including independent professionals. Executive directors, including the Executive Chairman, shall not generally exceed 1/3rd of the total strength of the Board. The Non-Executive Directors shall comprise eminent professionals, drawn from amongst persons with experience in business / finance / law / public enterprises. Directors shall be appointed / re-appointed for a period of three to five years, and in the case of Executive Directors up to the date of their retirement, whichever is earlier. The Board shall determine from time to time the retirement age for both Executive and Non-Executive Directors. The Board shall specify the maximum number of company Directorships which can be held by members of the ITC Board. Non-Executive Directors are expected to play a critical role in imparting balance to the Board processes by bringing an independent judgement to bear on issues of strategy, performance, resources, standards of Company conduct, etc. The Board shall meet at least six times a year and as far as possible meetings will be held once in two months. The annual calendar of meetings shall be agreed upon at the beginning of each year. As laid down in the Articles of Association of the Company, the quorum for meetings shall be one third of members and decisions shall be taken by simple majority, unless statutorily required otherwise. Meetings shall be governed by a structured agenda. All major issues included in the agenda shall be backed by comprehensive background information to enable the Board to take informed decisions. Agenda papers, as far as practicable, shall be circulated at least three working days prior to the meeting. Normally items for the Board Agenda, except those emanating from Board Committees, shall have been examined by the CMC. Minutes shall be circulated within 15 working days of the meeting and confirmed at the next meeting. Board decisions shall record the related logic as far as practicable.

Page 34

The Board shall have the following Committees whose terms of reference shall be determined by the Board from time to time : Audit Committee : To provide assurance to the Board on the adequacy of internal control systems and financial disclosures. The Head of Internal Audit will act as coordinator to the Audit Committee, but will be administratively under the control of the Director accountable to the Board for the Finance function. Compensation Committee : To recommend to the Board compensation terms for Executive Directors and the senior most level of management below the Executive Directors. Nominations Committee : To recommend to the Board nominations for membership of the CMC and the Board, and oversee succession for the senior most level of management below the Executive Directors. Investor Services Committee : To look into redressal of shareholder and investors grievances, approval of transmissions, sub-division of shares, issue of duplicate shares, etc. Terms of Reference of the Board Committees shall include : Objectives, Role, Responsibilities Authority / Powers Membership & Quorum Chairmanship Tenure Frequency of Meetings The composition of these Committees will be as follows :Committee Audit Committee Members Chairman to be
Page 35

Directors of the Company, as may be decided by One of the Independent the Board, with not less than 3 members, all being Directors,

Non-Executive Directors with majority of them determined by the Board. being independent; and with at least one Director having financial and accounting knowledge. The Director accountable to the Board for the Finance function, Head of Internal Audit and representative of External Auditors shall be the Permanent Invitees with the Company Secretary to act as the Secretary. Compensation Committee Non-Executive Directors, as may be decided by One of the Independent the Board, with the Director accountable to the Directors, Board for the HR Function as the Secretary. Nominations Committee Investor Services Committee to be determined by the Board.

The Executive Chairman and all the Non- Executive Chairman. Executive Directors. Directors of the Company, as may be decided by One of the non-Executive the Board, with the Company Secretary as the Directors, Secretary. to be determined by the Board.

Normally meetings of the Board Committees shall be convened by their respective Chairmen. However, any member of the Committee may, with the consent of the concerned Chairman, convene a meeting of the Committee. The Chairmanship of Board Committees shall be for two years at a time. Signed minutes of Board Committee meetings shall be tabled for the Board's information as soon as possible. However, issues requiring Board's attention / approval should be tabled in the form of a note to the Board from the Committee Chairman. In the event there are no issues to be brought before the Board by the Audit Committee, the Committee Chairman shall submit a 'NIL' report to the Board. Corporate Management Committee (CMC) :
Page 36

The primary role of the CMC is strategic management of the Company's businesses within Board approved direction / framework. The CMC will operate under the superintendence and control of the Board. The composition of the CMC will be determined by the Board (based on the recommendation of the Nominations Committee), and will consist of all the Executive Directors and three or four key senior members of management. Membership of the CMC shall be reviewed by the Nominations Committee annually. The CMC shall be convened and chaired by the Executive Chairman of the Company. The Company Secretary shall be the Secretary of the CMC. The quorum for meetings will be 50% of the members, subject to a minimum of three members. Decisions will be taken by simple majority. Minutes of CMC meetings shall be tabled before the Board for its information. However, issues arising from CMC Meetings and requiring Board's approval / attention should be tabled in the form of a note from the relevant Executive Director. Agenda items shall be backed by comprehensive notes from the concerned member / invitee, along with DMC approval where applicable. Agenda papers, as far as practicable, shall be circulated at least three days prior to the meeting. The CMC shall normally meet once a month.

Executive Chairman of ITC : The Executive Chairman of ITC shall operate as the Chief Executive for ITC as a whole. He shall be the Chairman of the Board and the CMC. His primary role is to provide leadership to the Board and CMC for realising Company goals in accordance with the charter approved by the Board. He shall be responsible for the working of the Board, for its balance of membership (subject to Board and Shareholder approvals), for ensuring that all relevant issues are on the agenda, for ensuring that all directors are enabled and encouraged to play a full part in the activities of the Board. He shall keep the Board informed on all matters of importance. He shall preside over the General Meetings of shareholders. As Chairman of the CMC he will be responsible for its working, for ensuring that all relevant issues are on the agenda, for ensuring that all CMC members are enabled and encouraged to play a full part in its activities.

Executive Director :
Page 37

a) As a member of the CMC, contribute to the strategic management of the Company's businesses within Board approved direction / framework. b) As Director accountable to the Board for a business (Line Director), assume overall responsibility for its strategic management, including its governance processes and top management effectiveness. c) As Director accountable to the Board for a wholly owned subsidiary, or its wholly owned subsidiary (Line Director), act as the custodian of ITC's interest and be responsible for their governance in accordance with the charter approved by the Board. d) As Director accountable to the Board for a particular corporate function (Line Director), assume overall strategic responsibility for its performance. Divisional Management Committee (DMC) : Executive management of the divisional business to realise tactical and strategic objectives in accordance with CMC / Board approved plan. Composition of the DMC shall be determined by the Line Director with the approval of the CMC. The Divisional CEO shall convene and chair the DMC meetings. If the Divisional CEO, for any reason, is not in a position to convene a required DMC meeting, he shall in writing delegate the power to convene and chair the required meeting to one of the DMC members identified by name. Such delegation should be either for a specific meeting or for meetings to be held during a specific period of time. It cannot be a general, openended delegation. The key functions of the Division shall be represented on the DMC. Normally the Divisional Financial Controller, in addition to being a member, shall act as the Secretary to the DMC and will be responsible for circulation and custody of agenda notes and minutes. The DMC shall generally meet at least once a month to review Divisional performance and related issues. Quorum for meetings shall be 50% of the members subject to a minimum of three members. Decisions will be taken by simple majority. Minutes of meetings shall be tabled before the CMC for its information. Agenda items shall be backed by comprehensive notes from the relevant member / invitee. Agenda papers, as far as practicable, shall be circulated at least three days prior to the meeting. Divisional CEO :
Page 38

The Divisional CEO shall function as the Chief Operating Officer with executive responsibility for day-to-day operation of the Divisional business, and shall provide leadership to the Divisional Management Committee in its task of executive management of the Divisional business.

CONCLUSION FOR CASE It is ITC's belief that the right balance between freedom of management and accountability to shareholders can be achieved by segregating strategic supervision from strategic and executive management. The Board of Directors (Board) as trustees of the shareholders will exercise strategic supervision through strategic direction and control, and seek accountability for effective strategic management from the Corporate Management Committee (CMC). The CMC will have the freedom, within Board approved direction and framework, to focus its attention and energies on the strategic management of the Company. The Divisional Chief Executive, assisted by the Divisional Management Committee, will have the freedom to focus on the executive management of the divisional business. The 3-tier governance structure thus ensures that : a. Strategic supervision (on behalf of the shareholders), being free from involvement in the

task of strategic management of the Company, can be conducted by the Board with objectivity, thereby sharpening accountability of management. b. Strategic management of the Company, uncluttered by the day-to-day tasks of executive

management, remains focused and energised; and

Page 39

c.

Executive management of the divisional business, free from collective strategic

responsibilities for ITC as a whole, gets focused on enhancing the quality, efficiency and effectiveness of its business.

CONCLUSION

When it comes to corporate governance, I think we will have to look at the hardware as well as the software aspect. So far as the software aspect is concerned, I would suggest, it depends on the values cherished and practiced by the members of the Board of Directors as well as the management of an organisation. It is always possible to mouth very high principles but act in a very lowly manner. If there is going to be divergence between practice and precept, then we are not going to achieve good corporate governance. This is the first point to be realised. The most important aspect for observing corporate governance is the top management, particularly the board of directors and the senior level management of an enterprise - walking their talk. It is by walking their talk that the top management can earn credibility. This also has a direct bearing on the morale of an organisation. When it comes to the hardware aspect of corporate governance, we go into the issue of a code, which becomes a reference point for behaviour. But the sad fact in our country is that even though there is a lot of talk about corporate governance, when it comes to reality, nothing much happens.

Page 40

With the SEBI trying to bring some discipline in the stock market especially in terms of greater transparency and disclosure norms, corporate governance in the Indian context at least seems to focus primarily and rightly on the issue of transparency. It is lack of transparency that leads to corrupt or illegal behaviour. If corporate governance is concerned with better ethics and principles, it is only natural that the focus should be on transparency. But how is this transparency to be achieved? One method of course is the code. Another would be the regulatory authorities like SEBI, RBI etc. laying down guidelines so that a certain degree of transparency is automatically ensured. Another legal approach to achieve better corporate governance may be to look at the whole issue of bringing the corporate sector under the discipline of debt and equity. Perhaps amendment of the Companies Act and bringing in this discipline will also help in automatically ensuring better ethics and corporate governance. Perhaps the most important challenge we face towards better corporate governance is the mindset of the people and the organisational culture. This change will have to come from within. The government or the regulatory agencies at best can provide certain environment, which will be conducive for such a mindset taking place, but the primary

responsibility, is of the people especially the members of the board of directors and the top management. Another important aspect is to realise that ultimately the spirit of corporate governance is more important than the form. Substance is more important than style. Values are the essence of corporate governance and these will have to be clearly articulated and systems and procedures devised, so that these values are practiced.

We then come to a common moral problem in running enterprises. One can have practices which are legal but which are unethical. In fact, many a time, tax planning exercises may border on the fine razors edge between the strictly legal and the patently unethical. A clear understanding of the fundamental values which govern corporate governance and their explicit articulation in a proper
Page 41

code backed by well established structures and traditions like the ethics committee and audit committee may be the best insurance for good corporate governance under the circumstances. Corporate governance and ethical behaviour have a number of advantages. Firstly, they help to build good brand image for the company. Once there is a brand image, there is greater loyalty, once there is greater loyalty, there is greater commitment to the employees, and when there is a commitment to employees, the employees will become more creative. In the current competitive environment, creativity is vital to get a competitive edge. Corporate governance extends beyond corporate law. Its objective is not mere fulfillment of legal requirements but ensuring commitment on managing transparently for maximising shareholder values. As competition increases, technology pronounces the deal of distance and speeds up communication, environment also changes. In this dynamic environment the systems of Corporate Governance also need to evolve, upgrade in time with the rapidly changing economic and industrial climate of the country. Finally the key lesson for us to learn are that Regulations and Policies are only one part of improving governance. Existence of a comprehensive system alone cannot guarantee ethical pursuit of shareholders interest by Directors, officers and employees. Quality of governance depends upon competence and integrity of Directors, who have to diligently oversee the management while adhering to unpeachable ethical standards. Strengthened systems and enhanced transparency can only further the ability. Transparency about a companys governance process is critical. Implementing Corporate Governance structures are Important but instilling the right culture work culture is Most Essential.

Page 42

Corporate Governance in the Public Sector cannot be avoided and for this reason it must be embraced. But Corporate Governance should be embraced because it has much to offer to the Public Sector. Good Corporate Governance, Good Government and Good Business go hand in hand.

BIBLIOGRAPHY

http://en.wikipedia.org/wiki/Corporate_governance visited on 4th march 2012 Journal of the Institute of Chartered Accountants of India

www.indianmba.com www.managementparadise.com

Page 43