OAE1499

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High Level Design Document (HLD) Effects of Corporate Governance practices on of an Organization on its value to its stakSshareeholders values: A comparative analysis case study of Infosys and Wipro
Gaurav Yadav (1110220)
University Canada West Professor: Dr. Abera Demeke MBA: MBAR 660 June 7th, 2013
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2 HIGH LEVEL DESIGN DOCUMENT Introduction Corporate Governance of an organization refers to the manner in which it is controlled and directed. Rights and responsibilities (among various members such as directors, shareholders, managers, creditors, creditors etc.) within an organization are distributed in accordance with the organizations governance (Venkatraman & Selvam, 2013). Furthermore, procedure, rules and regulations when taking decisions related to corporate affairs are defined in line with the governance structure of an organization (Venkatraman & Selvam, 2013). Governance of an organization provides the basic layout which helps in defining goals for the future and pursuing them while being consistent with social, economic and environmental considerations (Venkatraman & Selvam, 2013). Research in the domain of corporate governance suggests that organizations, which are ranked high for their governance practices significantly, outperform their competitors with low governance rankings (Venkatraman & Selvam, 2013). Further, it is also suggested that better governance in organizations leads to an enhanced image and brand value thus making end customers of the organization loyal and enhancing business value (Venkatraman & Selvam, 2013). Research also suggests that good governance practices followed by an organization encourage the organization to maintain an appropriate level of communication with immediate stakeholders (employees, creditors and customers) as well as with all shareholders. These practices have been equated with an establishment of improved levels of trust thereby proving profitable for the organization (Venkatraman & Selvam, 2013).
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3 HIGH LEVEL DESIGN DOCUMENT In addition to enhancing an organizations credibility, instilling trust, improving its brand image and financial condition, good governance practices have also been associated with strengthening risk management practices (Venkatraman & Selvam, 2013). In other words, companies who score high in terms of their governance practices have been proved to be better equipped to avoid unforeseen losses and project stronger financial credibility (Venkatraman & Selvam, 2013). Furthermore, companies with good governance structures in place are encouraged to integrate social and environmental activities as a part of their businesses thereby enhancing their value to the community as a whole (Venkatraman & Selvam, 2013). In light of these facts, the current research is aimed at presenting a comparative analysis of the manner in which corporate governance has helped Infosys and Wipro in enhancing their value to their stakeholders. These two companies have been chosen in specific as both are leading technology giants and regularly boast the role of their governance practices in the enhanced value that they deliver to their stakeholders. Research Problem In accordance with research literature, corporate governance of an organization impacts various aspects of value delivery such as brand image, financial value, social responsibility, environmental responsibility and risk management (Subramanian & Reddy, 2012). Under these circumstances, it becomes extremely important to study the exact relationship between aspects of value delivery that are important for an organization and its governance practices (Subramanian & Reddy, 2012). Both Infosys and Wipro rank high in terms of their corporate governance by adopting practices that are unique and altered to their business specifications (Subramanian & Reddy, 2012).
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4 HIGH LEVEL DESIGN DOCUMENT In this context, the research would aim at examining corporate governance practiced deployed by each organization and determining the manner in which these help the concerned organization in delivering greater value to stakeholders. By comparing and contrasting various aspects of practices deployed by both organizations, the research would also comment on suitability and adaptability of these practices to future business needs of the organization. Research Questions Following questions would be answered by the research study: 1. value? 2. 3. How does corporate governance help Infosys and Wipro in enhancing their brand value? How does corporate governance help Infosys and Wipro in enhancing their risk How does corporate governance help Infosys and Wipro in enhancing their financial
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Comment [A3]: CG has several dimensions. Which dimensions are you going to consider in this research? Formatted: Font: Times New Roman, 12 pt Formatted: Normal, Left, No bullets or numbering Comment [A4]: Do you mean profit? Formatted: Font: Times New Roman, 12 pt Comment [A5]: What do you mean by brand value? Formatted: Font: Times New Roman, 12 pt
management? 4. Corporate governance practices if which of the two organizations are better aligned with
their future business needs? Research Hypothesis In context of this research study, research hypothesis can be stated as: H1: Better corporate governance helps in improving value delivered by the organization to its stakeholders.
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Comment [A7]: Which value? Profit? Formatted: Font: Times New Roman, 12 pt
Contents
Introduction ................................................................................................................................................ 84
5 HIGH LEVEL DESIGN DOCUMENT

Research Problem ....................................................................................................................................... 95 Research Questions .................................................................................................................................. 106 Research Hypothesis ................................................................................................................................. 106 Literature review....................................................................................................................................... 117 Corporate governance and structural reforms ..................................................................................... 128 The corporate internal control theory .................................................................................................. 139 Corporate governance and equity and debt financing ....................................................................... 1511 Corporate governance and dividend policy ........................................................................................ 1813 Corporate governance and agency theory ......................................................................................... 2117 Corporate governance and behaviour theory of boards .................................................................... 2318 Table 1: Research on streams of corporate governance ................................................................ 2419 Formal structure ................................................................................................................................. 2521 Interactions and Relationships ........................................................................................................... 2723 Decisions ............................................................................................................................................. 2925 Studying the behaviour of the board of directors: In the quest of a rational behavioural guideline. 3126 Political Bargaining in the Context of Corporations as Coalitions of Stakeholders ............................ 3228 The Canadian Coalition for Good Governance ................................................................................... 3429 Corporate governance and firm performance .................................................................................... 3530 Research Methods .................................................................................................................................. 4436 Research Design .................................................................................................................................. 4436 Instruments of Data Collection ........................................................................................................... 4436 Research Participants.......................................................................................................................... 4437 Data Analysis ........................................................................................................................................... 4537 Reliability................................................................................................................................................. 4537 Limitations of the study .......................................................................................................................... 4537

Deliverables............................................................................................................................................. 4538 Proposed Timeline .................................................................................................................................. 4638 References .............................................................................................................................................. 4739 Introduction .................................................................................................................................................. 2 Research Problem ......................................................................................................................................... 3 Research Questions ...................................................................................................................................... 4 Research Hypothesis ..................................................................................................................................... 4 Literature review........................................................................................................................................... 5 Corporate governance and structural reforms ......................................................................................... 6 The corporate internal control theory ...................................................................................................... 7 Corporate governance and equity and debt financing ............................................................................. 9 Corporate governance and dividend policy ............................................................................................ 12 Corporate governance and agency theory ............................................................................................. 15 Corporate governance and behaviour theory of boards ........................................................................ 17 Table 1: Research on streams of corporate governance .................................................................... 18 Formal structure ..................................................................................................................................... 19 Interactions and Relationships ............................................................................................................... 21 Decisions ................................................................................................................................................. 23 Studying the behaviour of the board of directors: In the quest of a rational behavioural guideline..... 25 Political Bargaining in the Context of Corporations as Coalitions of Stakeholders ................................ 26 The Canadian Coalition for Good Governance ....................................................................................... 28 Corporate governance and firm performance ........................................................................................ 29 Research Methods ...................................................................................................................................... 35 Research Design ...................................................................................................................................... 35 Instruments of Data Collection ............................................................................................................... 35

Research Participants.............................................................................................................................. 35 Data Analysis ............................................................................................................................................... 36 Reliability..................................................................................................................................................... 36 Limitations of the study .............................................................................................................................. 36 Deliverables................................................................................................................................................. 36 Proposed Timeline ...................................................................................................................................... 37 References .................................................................................................................................................. 38
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Preliminary Literature Review
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Introduction
Corporate Governance of an organization refers to the manner in which it is controlled and directed. Rights and responsibilities (among various members such as directors, shareholders, managers, creditors, creditors etc.) within an organization are distributed in accordance with the organizations governance (Venkatraman & Selvam, 2013). Furthermore, procedure, rules and regulations when taking decisions related to corporate affairs are defined in line with the governance structure of an organization (Afsharipour, 2010). Governance of an organization provides the basic layout which helps in defining goals for the future and pursuing them while being consistent with social, economic and environmental considerations (Balasubramanian & Satwalekar, 2011). Research in the domain of corporate governance suggests that organizations, which are ranked high for their governance practices significantly, outperform their competitors with low governance rankings (Bhasin & Lal, 2012). Further, it is suggested that better governance in organizations leads to an enhanced image and brand value thus making end customers of the organization loyal and enhancing business value (Marisetty, 2011). Research also suggests that good governance practices followed by an organization encourage the organization to maintain an appropriate level of communication with immediate stakeholders (employees, creditors and customers) as well as with all shareholders. These practices have been equated with an establishment of improved levels of trust thereby proving profit for the organization (Larcker & Tayan, 2011).
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9 HIGH LEVEL DESIGN DOCUMENT In addition to enhancing an organizations credibility, instilling trust, improving its brand image and financial condition, good governance practices have also been associated with strengthening risk management practices (Fernando, 2009). In other words, companies who score high in terms of their governance practices have been proved to be better equipped to avoid unforeseen losses and project stronger financial credibility (Venkatraman & Selvam, 2013). Furthermore, companies with good governance structures in place are encouraged to integrate social and environmental activities as a part of their businesses thereby enhancing their value to the community as a whole (Yoshikawa & Rasheed, 2009). In light of these facts, the current research is aimed at presenting a comparative analysis of the manner in which corporate governance has helped Infosys and Wipro in enhancing their value to their stakeholders. These two companies have been chosen in specific as both are leading technology giants and regularly boast the role of their governance practices in the enhanced value that they deliver to their stakeholders.
Research Problem
In accordance with research literature, corporate governance of an organization impacts various aspects of value delivery such as brand image, financial value, social responsibility, environmental responsibility and risk management (Subramanian & Reddy, 2012). Under these circumstances, it becomes extremely important to study the exact relationship between aspects of value delivery that are important for an organization and its governance practices (Subramanian & Reddy, 2012). Both Infosys and Wipro rank high in terms of their corporate governance by adopting practices that are unique and altered to their business specifications (Subramanian & Reddy, 2012).
10 HIGH LEVEL DESIGN DOCUMENT In this context, the research would aim at examining corporate governance practiced deployed by each organization and determining the manner in which these help the concerned organization in delivering greater value to stakeholders. By comparing and contrasting various aspects of practices deployed by both organizations, the research would also comment on suitability and adaptability of these practices to future business needs of the organization.
Research Questions
Following questions would be answered by the research study: 1. How dos corporate governance strategies help Infosys and Wipro in increasing their financial growth? 2. How does implementation of corporate governance practices help Infosys and Wipro in enhancing their brand image 3. How does corporate governance help Infosys and Wipro in enhancing their risk management? 4. Which of these two firms corporate governance practices are better aligned with their future business needs?
Comment [A8]: CG has several dimensions. Which dimensions are you going to consider in this research? Comment [A9]: Do you mean profit?
Comment [A10]: Not clear.
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Research Hypothesis
In context of this research study, research hypothesis can be stated as:
11 HIGH LEVEL DESIGN DOCUMENT H1: Better corporate governance helps in improving financial growth and brand image delivered by the organization to its stakeholders.
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Literature review
The last two decades have witnessed an upsurge in corporate governance following a series of ethical malpractices including frauds and scandals in the corporate world. This is especially true for many organizations in the United States of America and Canada. The past few years have witnessed heated corporate governance debate on the protection of the shareholder value. In fact several arguments have been presented for optimizing the value of relevant shareholders by means of stringent corporate governance policies and practices. The OCED Principles of Corporate Governance were first released in the year 1999 and was subsequently revised in the year 2004. These principles displays networked corporate governance that is mainly aimed for organizations and law makers in new markets (Siems & Alvarez-Macotela, 2013). A phase of international convergence is being entered by means of corporate governance mechanisms that are augmented by the increased recognition that all nations have to protect and attract both domestic and foreign investors. In countries like Great Britain, the legal system is embedded in the common law and hence most corporate decisions value the shareholders interests. However, this is not true for most nations in the world. A system of corporate governance comprises of a broad range of institutions and processes and from the standards of accounting and legal restrictions concerning disclosures in finances to composition and size of the board of directors to the compensation received by executives. The system of corporate governance tries to explain the owner of the organization, and spells out the regulations and rules by the means of which economic profits are aptly distributed among the
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12 HIGH LEVEL DESIGN DOCUMENT supervisors, employees, shareholders and other relevant stakeholders. The corporate governance practices and systems existent in a nation have a considerable impact on the systems of employment, organizations, capital markets and trading associations. In the widest meaning, a complementary series of social, economic and legal institutions, which protect the interests of the owners of the corporation, is corporate governance (Javed, Iqbal & Hassan, 2006). The significant aspect of this current study is to find out the manner in which corporate governance policies and practices succeed in influencing positive performance of an organization. Several factors including the conduct of the board of directors, optimization of the interests of the shareholders, dividend payouts and agency theory has been explored to find out the linkages between corporate governance and organizational performance. In addition, the diverse styles of corporate governance have distinct implications on the total performance of the organization. On the other hand, the performance of the organization may be impacted by the integrated impact of all three styles of corporate governance prevailing in an organization (Rehman & Hussain, 2013).
Corporate governance and structural reforms

Corporate governance has started emphasizing on structural reform. One of the key policy reforms has emphasized on the activities of the shareholders and individual board aspects of organizations. One of the aims of the corporate organizations has been to provide maximized value to shareholders. The ultimate objective is to ensure effective corporate governance in the organization. In this case, there is a mandatory pre-commitment among the supervisors and the shareholders with respect to certain organizational objectives. Next, the inclusion of corporate governance policies helps in necessitating increased flow of particular information related to the organization and the disaggregation of information with respect to corporate finance. Corporate
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13 HIGH LEVEL DESIGN DOCUMENT finance mandates lucid organizational justification of objectives and information relevant to the organization is significant because of certain incomplete agreements between superiors and shareholders. This requires exhaustive information related to the firm in order to remove certain communication gaps between the shareholders and the senior executives of the firm. Effective corporate governance policies and processes may be formulated and implemented by means of shareholder value management methods. Lastly, the objective of optimizing the wealth of the shareholder requires a higher level of interdependence between the formulation of particular organizational strategies and accordingly setting operational goals to ensure efficient decision making by the senior managers and supervisors of the firm (Sinha, 2006). Corporate supervisors have the capacity to augment value to the stockholders without lessening the welfare obtained by other corporate stockholders. The supervisors of a business establishment can increase the value of all involved corporate stakeholders including the broad society, labour and capital owners.
The corporate internal control theory

Effectively handling the relationship among the diverse corporate stakeholders is related to effective management of corporate governance. The political opinion on corporate governance is based on certain assumptions of the banks being the lenders to corporations and hence would not impact the payoffs to the stockholders. The modern opinion on corporate governance represents informal and formal contracts and agreements among the diverse corporate stakeholders. These may contain the structure of payoffs for lenders and stockholder (in other words, the capital suppliers), organizational structure for effectively balancing the employees power to bargain and the corporate supervisors incentive structure. The manmade formulated structure of the
14 HIGH LEVEL DESIGN DOCUMENT organization involves costs of transaction for enforcing as well as maintaining diverse agreements and contracts. On the contrary, the neoclassical view on corporate governance does not believe in the existence of such institutions. Academic scholars such as Modigliani & Miller (1985) presuppose that the firms investment policy is already known to the market, and then the overall value would not be dependent on the mix of equity and debt applied in the firms asset financing. This translates to the fact that the organizations capital claims structure does not affect the total capital cost. Because of this, financing and investment decisions taken by the organization are not dependent on each other. Hence, the structure of corporate governance of the organization would not help in value creation of the shareholders. A totally antagonist view to the neoclassical approach is the one proposed by Williamson (1988) which maintains that equity and debt are not the core alternate instruments of finance but they rather form an alternate structure of governance. In addition, whether a particular project should be financed by equity or debt fundamentally depends on the asset characteristics. Assets that can be re-deployed may be financed by means of debt and those assets that cannot be re-deployed may be financed by means of equity. Another view provided by Meyers (1977) and Jensen & Meckling (1976), maintain that the structure of the capital is impacted by type of income which may be distributed by the capital suppliers. Since stockholders jointly share the firms risk and those holding the bonds of the firm, optimizing the wealth of the shareholder may not necessarily optimize the overall wealth of the organization.
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15 HIGH LEVEL DESIGN DOCUMENT In addition to this, the structure of the incentive of the makers of corporate decisions may play an important function in drawing a mix of equity and debt applied in the firms asset financing and the capital investments of the firm. History depicts that supervisors cannot only develop but also add value to the organization by taking excellent financing and investment decisions. They are also in a position to redistribute and transfer wealth among the diverse stakeholders, thereby destroying the wealth of the shareholders. A possible impact of this is that distribution; financing and investment of the enterprise revenue are dependent rather being independent of each other (Lashgari, 2004).
Corporate governance and equity and debt financing

This topic will try to determine the corporate governance quality and the manner in which it influences debt versus equity financing. According to the extant literature, the policy on corporate financing is highly impacted by certain agency challenges that are faced by an organization (Berger, Oferk, & Yermack, 1997; Jensen & Meckling, 1976; Myers & Mailuf, 1984). A decline in the conflicts in the agency is impacted by means of establishing best quality corporate governance processes and systems and thereby augments the organizations tendenc ies to issue equity financing. Issues with agency rise because of ownership separation and control of operation by an organization. Supervisors may acquire uses by controlling the operations of the company and thereby entrench themselves by means of engaging in self-service practices which may lead shareholders to suffer (Jensen & Meckling, 1976). Supervisors establish themselves in diverse manners thereby conducting sub-optimal investment decision and thereby tactically augmenting the power to vote (Shleifer & Vishny, 1989; Stulz, 1988). Academic research in this area has displayed that supervisors successfully establish themselves due to certain market transaction
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16 HIGH LEVEL DESIGN DOCUMENT costs which require higher control (Jensen, 1986; Jensen & Meckling, 1976). Associated studies suggest that it may be substantially expensive for the shareholders to gain control back from the established supervisors (Shleifer & Vishny, 1989; Stulz, 1988).
Risks to the agency may arise due to supervisory establishment that may seem debt financing to be less attractive than equity financing (Myers & Mailuf, 1984). This is due to the fact that established supervisors tend to choose risky and opportunistic investment despite the fact that these investments may not reflect the shareholders interests (Dittmar & Mahrt -Smith, 2007; Masulis, Wang & Xie, 2007). At the same time the establishment of the management may also negatively impact the interests of the debt holders and the impacts tend to be higher to the holders of equity finance (Chava, Kumar & Warga, 2010).
Management and ownership separation also outcomes in asymmetrical information with respect to the performance of a firm. Supervisors have adequate data about their own organizations that may not be available to the shareholders provided the firms supervisors choose to release them. The asymmetry in information also leads to issues in agency i.e. Supervisors may apply their private data to conduct activities which supports their personal interests and which may be detrimental to the interest of the shareholders (Jensen & Meckling, 1976).
The narrative proposes that by investing in excellent quality of corporate governance a potential remedy is provided to several issues concerning the agency and this result in a decline in the equity cost. In the beginning, excellent corporate governance helps the investors of equity direct protection from the selfish conduct of supervisors. In the absence of corporate governance
17 HIGH LEVEL DESIGN DOCUMENT monitoring policies, established supervisors may take ineffective decisions with reference to investment and expend resources leading to shareholder value destruction (Dittmar & MahrtSmith, 2007; Masulis et al. 2007).
Next, excellent corporate governance leads to the decline in the asymmetrical information by taking care of the release of valid information of finances (Ajinkya, Bhoiraj & Sengupta, 2005). Excellent corporate governance helps in ensuring excellent financial reporting quality that helps in the decline in the costs associated with monitoring and evaluation for the equity capital providers because they would not need costly information garnering for this purpose (Cohen, Krishnamoorthy & Wright, 2004). When corporate governance is strong, it helps in lessening the equity cost and augments the investors willingness to garner funds (Mande, Park & Son, 2012).
Excellent corporate governance quality helps in expected reduction to the debt financing cost. Such efficient corporate governance leads to the supervisors to use efficient resource allocation with in turn leads to decline in the default risk and further helps in lessening the debt cost (Bhojraj & Sengupta, 2003). But, the corporate governance effect on equity financing is less direct as compared with the impact on debt financing. Direct protective tools are available with the holders of debt like debt covenants, which takes care of repayments related to fixed amount principal and interest (Chava et al. 2010), and hence, they need to depend less on corporate governance tools which offers only indirect protection.
Corporate governance and dividend policy

Despite the fact that previous narrative took care of the dividend policy from diverse angles, finance academics are continuously trying to determine the reason as to why organizations pay dividends. In this aspect, corporate governance to resolve the dividend puzzle explained b y Black (1976) has provided new mechanisms. According to academic scholars, Modigliani & Miller (1958 & 1961), in frictionless markets it has been depicted that when the investment policies of an organization are assumed to be constant then the dividend policy is no longer relevant because the dividend per share has not impact on the share price of a firm or its capital cost. However, other academic finance scholars suggest that dividend alterations helps in conveying data to supervisors about the future revenue and growth of an organization (Bhattacharya, 1979; John & Williams, 1985; Miller & Rock 1985). Hence, the dividend procedures help in asymmetrical information mitigation between the shareholders and the management. Empirical analysis on this subject has displayed that there is a favourable association with the increase in dividend announcement and reaction from the stock market and vice versa (Asquith & Mullins, 1983; Adjaoud, 1984; Healy & Palepu, 1988). Such empirical outcomes support the signalling description of the dividend.
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The signalling function of dividends is challenged by other studies, which suggest that the costs of the potential agency related with the ownership, and management separation may lead to a conflict minimization function for dividend payments. An instance of this is that dividends lead to the reduction of free flow of cash, which supervisors have at their own wish (Jensen 1986; Lang & Litzenberger, 1989). According to another academic scholar, Easterbrook (1984), dividend payments force organizations to approach equity markets for raising extra capital, thereby lessening the costs associated with the agency due to augmented scrutiny of the capital
19 HIGH LEVEL DESIGN DOCUMENT market on the firm providing external stakeholders the chance to conduct supervisory monitoring activities.
The interaction between corporate governance and dividend procedures have come from crossnational reviews where diverse academic studies have listed down the legal and institutional environments, which affect the payout policies of an organization. According to La Porta et al. (2000), organizations in common law nations pay increased dividends as compared with the nations that operate under civil law where the shareholders are in the minority and thereby suffer the consequences of weak legal protection. Hence, dividend payout helps in serving as a tool to protect the investors against the management and the expropriation of large shareholders.
Previous empirical research has determined the association between the dividend procedures and corporate governance aggregate score and dividend processes and the individual part of corporate governance. Supervisors (Rozeff, 1982; Hu & Kumar, 2004) own an adverse relationship between the equity fraction and dividend policy. Academic scientists have also determined an adverse association between institutional ownership and the ratio of the dividend payout (Short et al. 2002). In addition, it has been determined that firms that are controlled by the state display an increased dividend payment rather than those that are controlled by families (Gugler, 2003). From the above researches, only one aspect of corporate governance has been emphasized and that is of the structure of ownership. Further studies have rectified this limitation by depending on the total corporate governance scores that takes into consideration diverse aspects of the practices related to corporate governance thereby giving an increased comprehensive review of
20 HIGH LEVEL DESIGN DOCUMENT the quality of corporate governance. Academic works have displayed a favourable relationship between corporate governance scored formulated by Credit Lyonnais Securities Asia (CLSA) and the dividend payout in a population of organizations from developing nations (Mitton, 2004). Applying a corporate governance score that is based on the framework proposed by the Institutional Shareholder Service (ISS), academic scholars Brown & Caylor (2004) have found almost similar outcomes in the United States of America. According to another academic scholar, Farinha (2003), a favourable association between the compliant structures of organizations with respect to the best practices report of Cadbury concerning the framework for corporate governance and dividend payments in Great Britain has been determined. Despite the fact that the above discussion supports the assumption of the result-oriented function of dividends, it may still be argued that excellent corporate governance policies and practices help in protecting the investors from expropriation thereby resulting in decreased aspiration for dividend payouts. Hence, it may be possible to substitute dividend payments with tools of corporate governance and firms could formulate dividend payout level depending on the soundness of corporate governance policies and practices. This implies that a firm having strong corporate governance practices would induce decreased payouts on dividend and vice versa.
Academic scholars John & Knyazeva (2006) also depicts similar outcomes in their study by maintaining that the dividend payout level declines in firms which have strong corporate governance systems because of the general perception to have lesser conflicts in the agency. These scholars have further determined that organizations having augmented agency expenses have a crucial function in corporate governance as compared with dividends. Other academic
21 HIGH LEVEL DESIGN DOCUMENT scholars have also confirmed the existence of adverse relationship between the dividend policy and the shareholder rights strength (Jiraporn & Ning, 2006).
From the above, it may be determine that the above outcomes do not result in any definite conclusion with respect to the kind of relationship between dividend payouts and the quality of corporate governance. One of the academic viewpoints is that dividends will permit a reduction in the agency costs with respect to free flow of cash and thereby serve as a protection to investors from the expropriation by the management. This would lead to a favourable relationship between dividend policy and the corporate governance quality. Another opinion based on academic studies is a proposition of dividends playing a substitute function in protecting the investors despite organizations having excellent corporate governance mechanisms. According to this view, the lower the dividend payouts in an organization the higher is the quality of corporate governance. But the function of the dividend is of extreme significance during the condition when firms have a weak corporate governance mechanism and this in turn leads to an adverse association between corporate governance and dividend.
Corporate governance and agency theory

The agency theory of corporate governance, in its fundamental level, tries to analyze and resolve issues which may crop up in a cooperative exchange due to the contract between a particular party (principal) with another party (agents) to take certain decisions on the behalf of the principal party (Fama & Jensen, 1983). But, most contracts are usually not complete and hence are prone to hazards due to individual natures like bounded rationality, self-interest, aversion to risk; organizations (conflict of opinions and objectives among the employees) and the
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22 HIGH LEVEL DESIGN DOCUMENT distribution of asymmetrical information in most firms which in turn makes it expensive for the principals to understand the accomplishment of the agents. Issues in agency arise due to the nature of the agents to conceal information and take certain actions that may aid in fulfilling their own personal self interests and goals. Hence, the principal chooses to invest in incentives and monitoring and the agents on the other hand, choose to invest in post performance bonds that act as a shield against possible loss in revenues. According to academic scholars Jensen & Meckling (1976), the base theory to these issues was fundamentally rooted due to the separation of control from ownership. The central view of the principal agent governance frameworks is that a de facto delegation of supervisory accountability from the principals of an organization and their senior management executives is caused because of shareholding. A misalignment in incentives is perceived due to this delegation as diverse individuals have diverse risk preferences. Principals should not be bothered with an unsystematic or specific risk posed by a particular organization because they may diversify this source as a result of variations in earnings by having a diversified investment portfolio. However, their exposure to the variations in the returns filed by each organization will not be reduced and this is particularly linked with the economic uncertainties in general. Given the assumption of having two investment projects that has similar systematic uncertainty, principals will prefer the project that has an increased level of expected profits (Alchian & Woodward, 1988).
In perfect contract to the principals, the executives are highly bothered about specific uncertainties which an organization may face because their personal investment to a particular organization is exposed due to the uncertainty surrounding the performance and survival of that particular organization. This risk is not covered under the contract of employment and also the risk cannot be diversified by holding the contracts of employments in a number of organizations.
23 HIGH LEVEL DESIGN DOCUMENT Hence, it may be maintained that the uncompensated uncertainties and delegation may become a potential risk to executives. Hence, executives have the incentive to search for extra compensation by means of optimistic non-pecuniary solutions like shirking and free riding (Eisenhardt, 1989; Jensen, 1988).
Corporate governance and behaviour theory of boards

The corporate governance function tries to determine and resolve the type of associations and interactions between the relevant stakeholders and the organization with reference to control and decision making procedures over the resources available with the organization. The narrative on corporate governance has displayed considerable interest in the board of directors. Maximum studies on board have been conducted on the perspective of the agency theory (Jensen & Meckling, 1976; Fama & Jensen, 1983). Academic study in this domain focuses on control and formal incentive tools with an emphasis on the manner in which the board of directors strive to protect the interests of the shareholders from self-service and opportunistic supervisors by monitoring or bonding activities, especially in conditions of incomplete contracts. Despite its growing popularity in the domain of corporate governance, the extensive empirical study has provided vague and inconsistent outcomes. Prior to summarizing the main tenets of the behavioural theory of corporate governance and boards, this study will strive to explain the behavioural approach from important streams of academic study in a contemporary research of corporate governance and boards. There are six important streams of research which has tried to address the domain of corporate governance and its impact on interactions, processes of decision and the corporate structure (Van Ees & Postma, 2004). The below table display these research streams.
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Table 1: Research on streams of corporate governance

Internal relationships External relationships
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Structure
Command and control: 1. Codification and compliance Incentives and alignment 2. Law, codes, contracts and monitoring and bonding regulation
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Interactions
Collaboration and conflict: 3. Coordination and cooptation: Political bargaining, power 4. Social networks and direct and trust, conflicts and interlocks, social elites and social movements
emotions Decision
Cognition and competence: Conformity and ceremony: 6. 5. Decision making biases, Institutional cohesiveness and and embeddedness norms, and
identity,
commitment, diversity and symbolism, competence rhetoric
language
The initial two streams of research try to address the challenges relating to that of a formal structure or the organizational design. The next two streams discuss the behavioural interactions and thereby take into consideration the interplay among the diverse actors who closely work both in and out of the boardroom. The last two streams of academic study try to address the decision process, which is associated with the shaping and formulation of the strategic decision and their probable implications and the systems that fosters the evolvement of these decisions.
25 HIGH LEVEL DESIGN DOCUMENT Every single pair of the steams of academic research may be further categorized by their means of emphasis that tries to posit on either external or internal associations (Hambrick et al. 2008). The associations formed inside or around the surroundings of the board are referred to as internal relationships and may take place among the members of the board, coalitions and groups of internal stakeholders and actors. On the other hand, external relationships are those interactions that take place between the members of the board and the coalitions or teams of external stakeholders or external players. Corporate governance research has witnessed the practice of distinction between the internal and external players and most of the research in this stream revolves around the probable conflict in interest among the diverse players inside and around the firm. A very common manner in which external and internal players may be recognized is to distinguish between these two actors by means of their operation. This may be conducted depending on whether the actors have the power to make certain decisions and take particular course of actions in the organization or whether they do not form a part of this team ie. They are the ones who strive to control and influence actions and decisions (Mintzberg, 1983). In the narrative with reference to corporate governance, one of the most critical external players is the shareholders (Monks & Minnow, 2008). But the entire list of outer shareholders may also include suppliers, customers, competitors, government agents and the collectors of taxes (Freeman & Reed, 1983; Huse & Rindova, 2001). On the contrary, the critical internal actors include the top management group including the Chief Executive Officer of the firm. Hence, the control of shareholders, in several instances, is considered to be conducted by internal players.
Formal structure
Control and command The research on corporate governance has been dominated by certain economic propositions and theories that assume that the organizations functions in lieu with the
26 HIGH LEVEL DESIGN DOCUMENT formal structure (Daily et al. 2003). Due to this the main stream of academic study in the domain of corporate governance and boards has mainly dealt with certain control and command issues which have been faced by internal stakeholders in an organization. This is in line with the classical construct of the agency theory (Jensen & Meckling, 1976; Eisenhardt, 1989) which emphasizes on the contract between the agents (the senior management team) and the principals (firm owners). As per the agency framework, both agents and principals are hypothesised to behave in an opportunistic and rational manner. Other than this main assumption, both the players have also been presupposed to have opposing objectives (which may be present in different levels) and to suffer from the challenges of asymmetrical information. The above two assumptions posits that the association between agents and principals may be ineffective and inefficient to such an extent that the information asymmetry may lead to preventing efficient monitoring and assessment o the actions of the agents by the principals. In order to resolve these issues, the agency theory has proposed a model, which has led to the development of control mechanisms, and formal incentive structures and the examination of a formal evaluation function to the board of directors (Fama & Jensen, 1983). Because of this, academic study on this area has emphasized to determine maximum monitoring and incentive structures by trying to find out the effects of diverse structures of the board. For example., the composition of the board, duality in Chief Executive Officer, performance of the organization and the independence enjoyed by board members (Rhoades, Rechner and Sundaramurthy, 2001; Ellstrand, Tihyani and Johnson, 2002; Randy and Nielsen, 2002). Compliance and codification one of the associated research domains has tried to find out and compare the corporations formal structures with that of the external shareholders. In this case, the corporation is thought to contain a contractual nexus and hence the dominant propositions in
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27 HIGH LEVEL DESIGN DOCUMENT this domain also include the transactions cost economics theories as well as the agency theory (Williamson, 1984, 1988; Jensen & Meckling, 1976) and other diverse contract based propositions. In this case also the diverse players are assumed to conduct in a rational manner and have the ultimate goal of optimizing their own self interests under the conditions of asymmetrical or incomplete data. The corporate governance design regulation is thought to be a component of governance which codifies and structures the associations between the external stakeholders and the corporation (Kirkbride and Letza, 2004; Monks and Minow, 2008).
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Interactions and Relationships

Economics and law mainly dominate conflict and collaboration these two domains of study and research on the dynamics of behavioural conduct inside and around the board has been assessed from the fields of social psychology and sociology. However, another area of corporate governance focuses on the behaviour displayed by the board. It has tried to find out interactions and associations between internal actors and board members. In this case, the emphasis has been on certain conditions that contribute either to conflict or to collaboration in the relationships between the board and the Chief Executive Officer. The narrative tries to focus on diverse disciplines of theoretical views. One of the prominent propositions in this regard is the stewardship theory that is challenging the perspective of the agency theory (Donaldson & Davis, 1991; Davis, Schoorman & Donaldson, 1997). It may be noted that despite the assumptions underlying the stewardship proposition is in total contrast to that of the agency theory, more recently it has been considered complementary to the agency theory rather than a competitor to this proposition (Shen, 2003; Sundaramurthy & Lewis, 2003). The most popular areas in this domain of study are the characteristics of the Chief Executive Officer such as his experience and tenure, demographic similarity, social ties and politics prevailing in the senior levels of the firm.
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28 HIGH LEVEL DESIGN DOCUMENT Also, the timings related to the appointment of the director and the manner in which power relationships are associated in the firm also matter in this domain (Finkelstein & DAveni, 1994; Westpal & Zajac, 1995; Zajac and Westphal, 1996a; Westphal, 1999; Westphal and Bednar, 2005; Westphal and Stern, 2006). Cooptation and coordination the next stream of study has emphasized increasingly on the challenges related to cooptation and coordination by means of the inter-organizational networks of directors. These challenges have originally been reviewed by the resource dependency proposition which seeks to describe the manner in which firms search in order to link with the environment to secure stability in the flow of available resources (Pfeffer, 1972; 1973; Pfeffer and Salancik, 1978; Provan 1980). From the perspective of the resource dependency theory, the boards have an important function of associating the organization with its environment by striving to establish critical contacts and providing accessibility to timely data by means of professional and personal networks (Boyd, 1990;Hillman, Cannella and Paetzold, 2000; van Ees and Postma, 2004). A manner of associating the firm with its environment is by using the representatives of co-opting from significant environmental constituencies. These practices of cooptation may be viewed to be instrumental activities that strive to attain the organizational objectives by leading to the reduction in uncertain conditions, diffusing data and acquisition of resources (Pfeffer and Salancik, 1978).
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Exhaustive study on the interlocks between directors is an associated research area which provides further light into the dynamics of power related with diverse members of the board (Richardson, 1987; Davis, 1991; Haunschild, 1993; Mizruchi, 1996; Zajac and Westphal, 1996b; Haunschild and Beckman, 1998; Gulati and Westphal, 1999; McDonald, Khanna and
29 HIGH LEVEL DESIGN DOCUMENT Westphal, 2008). Particularly speaking, these bodies of research has emphasized on the manner in which the director interlocks tend to influence the diffusion of strategy, policy and technology and at the same time provide social context which encourages and supports the dominance of the supervisors. This stream of academic research has further analyzed the manner in which resources, power and trust flows between firms and promote cooperation to augment the effectiveness of the organization.
Decisions
Competence and cognition the previous domains of academic studies emphasized on associations and interactions between actors and board members and the research streams of competence and cognition address the strategic decision making approach. In particular, both these research streams try to determine the shaping and developing of diverse strategic decisions and also the processes and context by which these strategic decisions involve among the external and internal actors. The penultimate research stream is concerned with academics that tries to address the context of decision making existing around and in the boardroom. The initial point of diverse studies is the observation that contrast observations in corporate governance studies may be credited to certain board decision-making complexities. Diverse academic scholars have further maintained that there may not be another manner in which this proposition may be reviewed other than emphasizing on the actual behaviour during the decision making process and the underlying processes of conducts of the boards (Huse, 1998; Pye and Pettigrew, 2005). Although the studies on this field may be characterised to be increasingly eclectic, there are further studies which have used theories and certain approaches from small group decision making and cognition (Forbes and Milliken, 1999; Rindova, 1999; Gabrielsson and Winlund,
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30 HIGH LEVEL DESIGN DOCUMENT 2000; Huse, Minichilli and Schning, 2005; van Ees, van der Laan and Postma, 2008). Another research characteristic is that the research stream influences the experience, knowledge and competency of the director and efficient functioning of the board and the development and formulation of strategic decisions (Westphal and Fredrickson, 2001; Zahra and Filatotchev, 2004; Kula and Tatogly, 2006). Ceremony and conformity ultimately, a sixth stream of study has been recognized which is fundamentally linked with the manners of ceremony and conformity in the outcomes and decisions influencing external actors. The core view in this research domain is the institutional theory, which tries to determine the interdependencies between societal and corporate institutions that make firms conform to certain accepted rules governing the general population (DiMaggio & Powell, 1983). Social network links and board appointments, according to this view, are witnessed to help the board members to learn already existing rules, behaviours and beliefs present in a nation or an industry (Westphal et al. 2001, Jonnergard, Karreman & Svensson, 2004, Aguilera & Cuervo-Cazurra, 2004). Persuation among the board members regarding particular corporate governance policies and systems are effective despite lacking evidence in this respect. Boards may also be subject to social construction processes, wherein adopting practices helps in satiating symbolic requirements as compared with the needs for effectiveness (Westphal et al. 2001). Due to this, multiple memberships in the board and interlocks between directors helps in promoting limitations, although not consciously, but also triggers a lackadaisical conduct of the board by means of declined processes of socialization (Carpenter & Westphal, 2001). Another view in this research stream highlights the impression management and rhetoric domains. According to this view, symbolic management practices acts as a manner in which the
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31 HIGH LEVEL DESIGN DOCUMENT conduct and decisions of the firm are linked with the norms, rules and aspirations in the business surrounding. Hence, the firm may conform with the formal behaviour and special order aspired by customers (Zajac and Westphal, 1994; Westphal and Zajac, 1998; Pye, 2002; 2004).
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Studying the behaviour of the board of directors: In the quest of a rational behavioural guideline
As per the above, the streams of research takes place from the behavioural construct and thereby depict an alternative path to the already dominant economic theories on corporate governance and boards. The analysis displays the proposal that studies related to the behavioural aspect of corporate governance are found across diverse traditions and disciplines thereby using the application of diverse behavioural assumptions and research methodologies. This view conforms to the already growing approval of academic scholars who believe in pluralism of theories on corporate governance. The notion for diverse theories provide complementary views and none of them can help in providing a conclusive description in alienation (Hung, 1998; Hillman and Dalziel, 2003;Lynall, Golden and Hillman, 2003). The value of pluralism of theories in this context is identified in this corporate governance research stage. But, the behavioural view also needs certain fundamental accepted important constructs. There is very little empirical research done on the behavioural conduct of boards that have challenged the agency theory. Instead, most researches in this domain maintain the requirement to include behavioural processes and interactions as variables between the structures characteristics of the boards and the performance of the organizations (Gabrielsson & Huse, 2007). The latest study on corporate governance and boards with respect to behavioural aspects does not provide an actual alternative to the economic research perspective of corporate
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32 HIGH LEVEL DESIGN DOCUMENT governance. Accordingly, the capability to develop an alternative to the economic research view needs to develop clear and precise behavioural constructs that are commonly accepted. On the other hand, some areas of research have been used in diverse constructs of the behavioural theory. These academic studies present several alternatives to the economics approach to a certain extent of incorporating certain presuppositions that may correctly help in capturing the behavioural processes and dynamics around and inside the boardroom (Pettigrew, 1992; Huse, 1998). A particular construct which has been used by academic scholars is that of bounded rationality along with the associate challenge of satiating conduct among certain decision making agents (Osterloh, Frey and Frost, 2001;Hendry, 2002; 2005). Another perspective on this domain has been used in the daily application of heuristic decision making systems (Ocasio, 1999;Rindova, 1999; Carpenter and Westphal 2001; Zahra and Filatotchev, 2004). Other studies which has used the construct of political bargaining in the corporation as well as the stakeholder coalition context (Pearce, 1995; Huse and Rindova, 2001). This study poses as a challenge to the presupposition that the relevant shareholders are actually have the a priori described corporate objectives and principals of optimizing the value of shareholders which is consistent, given and unique. The above-mentioned constructs and issues have been traced to an already existing research conducted around four and a half decades ago in A Behavioral Theory of the Firm.
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Political Bargaining in the Context of Corporations as Coalitions of Stakeholders

One of the key constructs from A Behavioural Theory of the Firm which has been research with respect to the contemporary study on corporate governance and boards is that of political bargaining in the aspect of an organization which is an integration of actors or stakeholders
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33 HIGH LEVEL DESIGN DOCUMENT (Pearce, 1995; Huse and Rindova, 2001). By means of this view, firms may be represented as complicated political bodies having agents formed by means of coalitions, and in some instances they are further divided into sub-coalitions (March, 1962; Cyert and March, 1963). Partners of the coalition may have clear goals and preferences, which makes bargaining and negotiation among the members of the coalition a common practice. Shifting the coalitions of the actors of the firm may impact the decisions concerning organization, problem solving and objective setting processes. Conflicts in objectives are resolved by means of political bargaining instead of goal aligned economic incentives. Disagreement regarding the objectives of the organization is addressed in the construct of current bargaining processes that is existent among the coalitions that pursue alternate priorities and goals. Diverse situations may not lead to conflicting objectives and firms may be surrounded by diverse probably inconsistent and conflicting objectives by sequentially pursuing them. Formulation of objectives is hence attained by a set of process, which applies accepted decision norms, sequenced attention to objectives and local rationality (Cyert and March, 1963).
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The process for conflict resolution does not lead to a stable series of objectives in a firm. This translates to the fact that firms may be aspired to have considerable amount of conflict in the formulation and implementation of objectives. In opposition to this belief, the research on corporate governance, formulation of objectives is viewed to be the result rather than the initiative of coalition bargaining. Hence, conflict and formulation of objectives may help in driving the quest for extra learning, knowledge and information. From the viewpoint of learning and knowledge management, consensus and congruence of objectives may act as a barrier instead of a stimulus to the development of an organization. In the opinion of formal functions of
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34 HIGH LEVEL DESIGN DOCUMENT the strategic head of the firm, the board of directors need to play a far critical function in this system of formulation of goals (Ees, Huse & Gabrielsson, 2009).
The Canadian Coalition for Good Governance

One of the pre-eminent bodies for effective corporate governance in organizations located in Canada is the Canadian Coalition for Good Governance. It represents the institutional investors interests and promotes excellent corporate governance practices in public companies located in this nation. Furthermore, this body also strives to enhance the regulatory environment by means of excellent alignment of the management and board interests along with the interests of the shareholders in a bid to promote and encourage effectiveness and efficiency in the capital markets in Canada (Canadian Coalition for Good Governance, 2013). The CCGG recommends certain mechanisms for disclosing information to this body. It requires documents to be organized and precisely prepared to promote enhanced understanding. This requires descriptive subheadings and headings for permitting the target audience to rapidly locate the relevant information. The CCGG requires efficient disclosures by company boards to draw attention of several significant challenges and mandates providing team related sensitive information. It further recommends one to evade the industry jargon and promote the application of visuals for explaining detailed or complex information. It also recommends the board to consider the application of simple language introduction for disclosures related to the compensation plans of the executive (Canadian Coalition for Good Governance, 2012).
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Corporate governance and firm performance

Most common procedures of corporate governance apply variations in looseness or tightness of constructs which bound the decision-making processes of executives. In other words, they try to analyze the discretion that executives are permitted while taking certain organizational decisions. Bowen, Rajgopal & Venkatachalam (2008), have tried to capture diverse corporate governance tools. One such corporate governance tool is the governance score or g score that has been developed by Gompers, Ishii & Metrick (2003) and tries to determine the incidence of diverse corporate necessities associated with the rights of shareholders. This tool for corporate governance has been measured by academic scientists to provide recognition of the quality of corporate governance wherein organizations which places increased accountability of decision making processes with the shareholders as compared with the executives or the board have been opined to have excellent scales of corporate governance. However, the above view suggests that this proposition is not complete. It is complex for an organization to allocate very few decisions to its own executives and the board and at the same time provide excellent quality corporate governance. On the other hand, shareholders try to select the boards and the executives to take increased decision-making rights and be accountable for such conditions. Especially in times when the aspired agency costs are small or in conditions when the executives and boards warrant increased authority (Guay, 2010). The narrative on agency theory is a contradiction in itself as it maintains that corporate insiders including supervisors have distinct goals than external investors and hence act for the welfare of their own selfish interests whenever they get such a chance. Moreover, this usually causes harm to the external investors (Jensen & Meckling, 1976). Such opportunities for fulfilment of self-
36 HIGH LEVEL DESIGN DOCUMENT interest usually crop up in firms which have a bad quality of corporate governance and are featured by the deficiency of efficient disciplining and monitoring strategies. Organizational insiders in such firms have more chances of adopting suboptimal plans, by manipulating the performance mechanisms, expropriate value and hinder any chances of a takeover (Shleifer & Vishney, 1997). Because of this, such organizations generally display low quality of performance (Core, Guay & Rusticus, 2006; Gompers, Ishii & Metrick, 2001). Organizations may succeed in reducing the agency costs and take care of suboptimal conduct by implementing excellent corporate governance strategies and systems. This would lead to enhancement in the performance of organizations. Hence, based on the agency theory, a favourable association may be determined between the ratings from corporate governance and the performance of firms, which is applied as an alibi for practices and systems in corporate governance. Despite this, previous empirical research that has sought to investigate the linkages between the organizational performance and value and the ratings of corporate governance has come out with mixed outcomes. In the case of developing nations, the corporate governance scales have been found to have significant favourable effect on the value prevailing in the market (Black,
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2001; Black, Jang, & Kim, 2006; Durnev & Kim, 2005; Gary & Gonzalez, 2008; Khanchel El Mehdi, 2007; Klapper & Love, 2004). But, the empirical analysis does not agree on the effect of the scales of corporate governance on the measures of accounting (Black et al., 2006; Klapper & Love, 2004). However, in case of developed nations, the observations have revealed far more contradictory outcomes. In the United States of America, documents have shown to have an increased correlation between Tobins Q and anti-takeover mechanisms (Gompers et al. 2001). On the other hand, other academic scientists have revealed that only lessened evidence of linkages
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37 HIGH LEVEL DESIGN DOCUMENT between the market value and corporate governance scales are existent in the U.S. setting (Larcker, Richardson & Tuna, 2007). Another research conducted by Bhagat & Bolton (2007) has determined that post control of endogeneity, a favourable association between the measures of corporate governance and the operating performance. However, such empirical studies have failed to determine any linkages with the market value or stock performance. The same research also observes that controlling endogeneity is relevant, because there exists no relationship between operating performance and corporate governance scales if there is no control element attached with endogeneity (Bhagat & Bolton, 2007). Other academic researchers have established evidence of a favourable Tobins Q (Brown & Cavlor, 2006); whereas scholars Daines, Gow & Larcker (2008) have observed that there is no stable association between the diverse commercial scales and measures of performance. Academic scholars, Bauer, Gunster & Otten (2004), has observed that there is no important association between accounting or market performance tools with the ratings of corporate governance and in some instances, even an adverse association. Contradictory outcomes have been documented by Drobetz, Schillhofer & Zimmermann (2004) who have maintained a favourable effect of the ratings of corporate governance on the market value of companies in Germany. Previous research has not been able to establish any association between corporate performance and the ratings from corporate governance despite the existence of strong presuppositions that have been broadly believed in academic research. Derived from the agency theory, a favourable association has been expected to be established between the performance of a firm and the ratings from corporate governance (Jensen & Meckling, 1976). The degree to which increased ratings of corporate governance act as an alibi for enhanced original corporate governance systems and increased ratings of corporate governance, it translates into enhanced market value
38 HIGH LEVEL DESIGN DOCUMENT and higher operating performance. This is due to excellent evaluating forces that in turn forces insiders for project investment with favourable net current value and the reduction in waste and perks to obtain increased benefits which flows back to external investors (Shleifer & Vishny, 1997). It has however been observed that in European settings, increased ratings of corporate governance has been lucidly related with excellence in performance both accounts and market linked. Three main styles of governance, dictatorship, semi-democratic and democratic style of corporate governance have been recognized in most literature. Previous studies have observed that firms which follow the democratic style of corporate governance display enhanced levels of performance as compared with firms that follow the dictatorship style of corporate governance. This is due to the existence of a trade off between the interests of shareholders as compared with the interests of directors. This is despite the fact that directors who are the ones who appoint the directors of corporations, however if the question of distributing profits crop up then keeping the funds and the remuneration of directors in the firms capital becomes a challenge. Hence, in this case the financial guidance and satisfaction of the directors with the performance of the firm is of extreme significance. Hence every organization has to mandatorily maintain a salary committee, which is formulated of non executive directors and their main activity is to make certain recommendations and suggestions to the board of directors regarding the salaries of the executive directors. Also the decisions with reference to the salaries of non executive directors are decided among the entire board consisting of both executive and non executive directors. Also scholars have identified that there exists diverse classifications of personnel and have been broadly ranked based on three main schools of thoughts towards the corporate governance style. In the first style, personnel have the perception that the white colour labourers are accountable
39 HIGH LEVEL DESIGN DOCUMENT for taking responsibility and leading and they believe in a constructive function. The personnel believing in the next school of thought believe that excess rules and regulations of governance make employees panicky. Those believing in the last school of thought are of the opinion that corporate governance is a system that needs to monitor incompetent and hence the style of dictatorship needs to be adapted towards them. Academic scholars, Cutting & Kouzmin (2000) has portrayed that there is an enhanced way of conducting corporate governance. Most organizations have their operations based on the framework of supervisor or owner and this is mostly the case with most growing and small firms that has a single individual who has the support of various other advisors. This autocratic style of corporate governance is no longer in vogue with extreme distribution of ownership, competitive and chaotic environments, increasingly complex organizational settings, need to generate new knowledge continuously in order to be in competition and the adaption of a fast pace to adapt and modify. This warrants a shift to shared power and shared leadership in order to meet the increasing and competitive demands of the changing world of today. A vast empirical and theoretical narrative in finance and accounting has tried to determine the associations between corporate performance, management turnover, corporate governance, structure of the corporate ownership and the structure of the corporate capital (Bolton & Bhagat, 2007). Corporate governance may include diverse aspects and the decisions taken may impact the dividend payouts to shareholders and although it may bring about a negative implication to the shareholders in the short run, this is actually beneficial to the shareholders in the long term because of increase in the prices of shares. The subsequent increase in the share prices in the long run may bring about substantial gains in form of capital to the organization and also to the shareholders of the organization. However, if the management wants to pay augmented
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40 HIGH LEVEL DESIGN DOCUMENT dividends, then the earnings retained, the investments to be made in the long term and short term will be curtailed, and this will lead to a decline in the revenues and a subsequent reduction in the market prices of the shares that is available at that period. Following diverse scams like Enron and Worldcon, United States of America introduced the Sarbanes Oxley act which brought about stringent reforms and modifications in the then existent corporate governance rules and regulations. Such reforms were implemented in order to bring about confidence and trust in the minds of the shareholders. However, these reforms have been started to bring about a tendency to modify the perception of the investors rather than developing certain controls that may help in protecting shareholders rights and hence empirical and theoretical evidence does not point out any linkages between corporate governance reforms with that of the performance of the firm. Academic scholars have derived that nations having strong protection norms and laws for the shareholders have higher ratings of corporate governance in firms but the nations in which the impact of corporate governance rules and regulations on the performance of organizations is small has weak protection rules for the shareholders. In this case, the economics phenomenon of diminishing returns is stable with tools of firms and country being substitutes to each other to quite an extent. However this phenomenon is also stable having the notion that inside executives consider the number of benefits for their own selfish private gains as they may expropriate while deciding the corporate governance practices and process levels. Nations like U.S.A. and Canada have high level of corporate governance and hence enjoy lower private uses and excellent standards of corporate governance are not an expensive sign for the organizations. This leads to a less enhancement in performance for these firms as they are nearer to the zero marginal utility condition and it would be expected during the time of optimization of performance. Due to this the ratings in the corporate governance will be far from the maximization levels leading to
41 HIGH LEVEL DESIGN DOCUMENT availability of marginal benefits and any enhancement in the ratings of corporate governance would lead to augmented performance of the organization.
Overview of corporate governance at Infosys Officials at Infosys believe that their corporate governance practices play an essential role in retaining and enhancing investor trust in the organization (Fernando, 2009). In this context, the organization ensures that all performance rules are attained with integrity. Fiduciary responsibilities are fulfilled by the organizations board in the terms widest sense and disclosures made by Infosys ensure that international levels of corporate governance practices are attained (Fernando, 2009). Minority rights are always respected in all business decisions and every attempt is made at maximizing value attained by stakeholders. Infosys has attempted to benchmark all its corporate governance policies with those that are highest rated in the world (Yoshikawa & Rasheed, 2009). Furthermore, corporate governance practices followed by Infosys have been audited both by ICRA and CRISIL. While ICRA provided a rating of CRA 1, GVC Level 1 was obtained in CRISIL ratings (Yoshikawa & Rasheed, 2009). Further research on the spirit of corporate governance at Infosys indicated that several principles have been deeply ingrained in their practices (Marisetty, 2011). Corporate governance practices at Infosys seeks to satisfy the actual spirit of law as compared to merely complying with what has been written and believes that standards of corporate governance implemented by an organization should go beyond law (Marisetty, 2011). Infosys also believes in maintaining transparency in communication and disclosures (Marisetty, 2011).
Comment [A12]: Your literature review should not be restricted to Infosys and wipro. Please provide a preliminary review in general. What you have discussed here can be used in your analysis and results section in your final thesis. Formatted: Font: Cambria, 14 pt, No underline Formatted: Font: Cambria, 14 pt, Font color: Custom Color(RGB(54,95,145)), English (Australia) Formatted: Heading 1, Line spacing: single Formatted: Font: Cambria, 14 pt Formatted: Heading 1, Left, Indent: First line: 0", Line spacing: single Formatted: Font: Cambria, 14 pt, Font color: Custom Color(RGB(54,95,145)) Formatted: Font: Cambria, 14 pt Formatted: Font: Cambria, 14 pt, Font color: Custom Color(RGB(54,95,145)) Formatted: Font: Cambria, 14 pt Formatted: Font: Cambria, 14 pt, Font color: Custom Color(RGB(54,95,145)) Formatted: Font: Cambria, 14 pt
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A principle of corporate governance practice that is often rated very high can be recognised in the form of a clear distinction between corporate resources and personal conveniences (Larcker, & Tayan, 2011). In this regard, Infosys follows stringent practices of distinction and ensures that resources are never confused. Infosys also tries its level best to comply with all rules and regulations of all countries of operation and facilitates a transparent and simple business structure that is driven solely by its business needs (Larcker, & Tayan, 2011). Lastly, Infosys firmly believes that the organizations management is not the owner of its shareholders capital but only a trustee (Larcker, & Tayan, 2011). Overview of corporate governance at Wipro Officials at Wipro Ltd as a corner stone of their corporate governance practices believe that it is extremely essential to obtain a clear understanding of the exact roles and responsibilities of senior management personnel and board of directors of the organization (Afsharipour, 2010). Further, relationships of these members with others in the organization also need to be clearly understood. Also, in order to obtain clarity, roles and responsibilities of board members and management personnel needs to be defined in terms of level of seniority (Balasubramanian & Satwalekar, 2011). On the other hand, relationships with employees in an organization need to be defined in accordance with the degree of fairness (Balasubramanian & Satwalekar, 2011). Keeping these believes as the organizations cornerstone, special emphasis is paid to providing a clear definition for roles and responsibilities of every individual in the organization (Bhasin & Lal, 2012).
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Individual committees have been defined in order to cater to the aspects of risk management, nomination, compensation and handling shareholder grievances (Shah, 2011). The company also tries its level best to cater to all rules and regulations in all countries of operation and attempts to undertake every business related decision after weighing its ethical implications (Shah, 2011). Research Methods
Research Design
In accordance with the above stated research questions and the research hypothesis, qualitative data needs to be collected. Thus, a secondary research design would be followed for the purpose of this research.
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Instruments of Data Collection

Data for the purpose of this research shall be collected with the help of academic databases such as Wiley Online Library, Academic Onefile, Springer and Sage Publications. Also publicly available internet sources, companies internal sources and websites will be accessed for the data collection. KKeywords such as corporate governance at Infosys and corporate governance at Wipro shall be utilised. All relevant looking articles shall be obtained and then shortlisted based on their relevance with the research topic. Annual reports and corporate governance guidelines published on websites of Wipro and Infosys shall also be consulted. It shall be ensured that all selected articles for this research have been published after 2009.
Comment [A14]: How about the companies internal sources as well as publicly available internet sources? Formatted: Font: (Default) Times New Roman, 12 pt, Not Bold, Font color: Auto, English (Canada)
Research Participants
Since the research is purely secondary in nature, there are no participants in this research.
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Data Analysis
Data collected with the help of academic resources shall be analysed by drawing meaningful insights and by plotting graphs and charts. A graphical demonstration of obtained data would aid analysis by facilitating a comparative view.
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Reliability
All data utilised for the purpose of conducting this research study shall be obtained from credible, peer reviewed academic journals and would hence be reliable in nature. However, reliability of data obtained from websites of Infosys and Wipro can be questioned as this might be biased in nature.
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Limitations of the study

Following are the limitations of this study: 1. Secondary- The research is purely secondary in nature and hence would lack insights from within the organizations. 2. Bias- Data collected might be biased in nature and might have been presented from the researchers perspective.
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Deliverables
1. Thesis- A completed thesis needs to be submitted once the proposal for this research is approved. 2. Presentation- An oral presentation needs to be delivered based on research findings.
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Proposed Timeline Plan
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References
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58 HIGH LEVEL DESIGN DOCUMENT Subramanian, S., & Reddy, V. N. (2012). Corporate governance disclosures and international competitiveness: A study of Indian firms. Asian Business & Management, 11(2), 195218. Venkatraman, K., & Selvam, M. (2013, April). Impact of Corporate Governance Mechanism and Firm Performance with Special Reference to BSE Listed Companies in India. Karpagam. V and Selvam. M (2013), Impact of Corporate Governance Mechanism and Firm Performance with Special Reference to BSE Listed Companies in India, International Conference on Emerging Issues and Global Challenges, Excel India Publishers (pp. 148155) Yoshikawa, T., & Rasheed, A. A. (2009). Convergence of corporate governance: critical review and future directions. Corporate Governance: An International Review, 17(3), 388-404.
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Gaurav Yadav (1110220)

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Preliminary Literature Review

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Corporate governance and structural reforms

The corporate internal control theory

Corporate governance and equity and debt financing

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Corporate governance and dividend policy

Corporate governance and agency theory

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Corporate governance and behaviour theory of boards

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Table 1: Research on streams of corporate governance

commitment, diversity and symbolism, competence rhetoric

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Interactions and Relationships

Political Bargaining in the Context of Corporations as Coalitions of Stakeholders

The Canadian Coalition for Good Governance

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Corporate governance and firm performance

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Instruments of Data Collection

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Limitations of the study

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Proposed Timeline Plan

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Unpublished Working Paper ( Georgia State University ).

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