CHAPTER 1 INTRODUCTION

INTRODUCTION WHAT IS ENTREPRENEURSHIP

Entrepreneurship is universal in any human activity be it economic, political or social. Entrepreneurship has been defined as a creative human act involving the mobilization of resources from one level of productive use to a higher level. Or, as "combining together factors of production" and the supply of entrepreneurship has been identified as critical in determining the wealth and growth of a nation's economy. In fact, entrepreneurship is a vital source of structural change and productivity improvement within economies. First-generation entrepreneurs quite often start small firms with small investments and then, once established, some of them grow to larger firms. With shorter technology life cycles, the survival rate of these new small firms is expected to be low. India's accelerated growth, post-liberalization, has not been accompanied by a commensurate expansion in employment. This suggests a restructuring in many sectors of the economy and also highlights the importance of entrepreneurship and new units in creating employment. With development in knowledge and technology, the capital intensity of most production functions has increased. Simultaneously, this substitution of labour with capital has improved labour productivity. Productivity improvements have been significant in manufacturing. But , of late, the production of many services has also become capital intensive.

The infusion of technology and capital has enriched the content of many jobs; the capital required to set up even small firms has gone up. Entrepreneurship involves a willingness to take responsibility and the ability to put the mind to a task and see it through. An ingredient of entrepreneurship is sensing opportunities and serving as a change agent. An entrepreneur has to be a risk-taker; a calculated risk-taker and not a gambler. An entrepreneur has to have a clear vision, be innovative and have a commitment to his goals with strong management and organizational skills. Factors such as thrift, hard work, tenacity, honesty and tolerance are the key, though the main aspect is that of being a risk taker Entrepreneurship can be described as a process of action an entrepreneur undertakes to establish his enterprise. Entrepreneurship is a creative activity. It is the ability to create and build something from practically nothing. It is a knack of sensing opportunity where others see chaos, contradiction and confusion. Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks and derive benefits by setting up a venture. It comprises of numerous activities involved in conception, creation and running an enterprise. According to Peter Drucker Entrepreneurship is defined as a systematic innovation, which consists in the purposeful and organized search for changes, and it is the systematic analysis of the opportunities such changes might offer for economic and social innovation. Entrepreneurship is a discipline with a knowledge base theory. It is an outcome of complex socio-economic, psychological, technological, legal and other factors. It is a dynamic and risky process. It involves a fusion of capital, technology and human

talent. Entrepreneurship is equally applicable to big and small businesses, to economic and non-economic activities. Different entrepreneurs might have some common traits but all of them will have some different and unique features. If we just concentrate on the entrepreneurs then there will be as many models as there are ventures and we will not be able to predict or plan, how and where, and when these entrepreneurs will start their ventures. Entrepreneurship is a process. It is not a combination of some stray incidents. It is the purposeful and organized search for change, conducted after systematic analysis of opportunities in the environment. Entrepreneurship is a philosophy- it is the way one thinks, one acts and therefore it can exist in any situation be it business or government or in the field of education, science and technology or poverty alleviation or any others. Entrepreneurship is the process whereby an individual or a team of individuals create a business idea; test it to see if it has the promise of a real opportunity in the market and then, having evaluated the risk, proceed to combine people and resources like money, investors, etc. and to implement the idea. Currently, even the professional managers are learning from entrepreneurs, because, the key of success depends not on how to be great at managing a business rather, it is always on how to be great at making products and service that meet customers needs. If entrepreneurship is primarily about identifying opportunities and facing the challenges which can arise naturally in the growth of anything substantial, why the term modern entrepreneur? Yes, the time of today, named the modern time, or across the globe people say 21st century is something extremely different from the past. lf entrepreneurship is about facing challenges, the kind and quality of challenges of 21st century is very different. The environment is no more simple and local. Now it 4

is global nvironment. People say global village. It is subject to influences from across the world. Creating and sustaining an enterprise is a matter of choice. But, about the mindsetting of entrepreneurship, without which nobody can ever create an enterprise. Many people, even the government, at that time, were believing that if we have money we can start and run businesses. What they did not know is that it requires the entrepreneurial competencies, which you know now. The issue opportunities Now, we can be more or less aware of the challenges, but what about opportunities? We cannot think that the so-called opportunities will be listed by somebody and available through newspaper advertisements. But, of course, on job opportunities one may come to know. ln the context of entrepreneurship, it is a 100 per cent responsibility of the entrepreneur to discover the opportunity. lt is needless to reiterate that it is the creative competencies which is important. lf one has it, many other entrepreneurs would hunt for him. Even you dont have to start an enterprise yourself. Therefore, it is unnecessary bothering now much about the challenges, opportunities, and threats of the modern times that you cannot foresee in advance. But prepare yourself with regard to your own enterprise- You as an enterprise and you as a products and you as an entrepreneur yourself. Thus, the challenge is primarily with yourself. Look at yourself, beyond your surrounding limits, try to identify your abilities, competencies, your mind setting and be in competition with your own self. lf you compete with other, you will do so with the people around and when you go outer limits, you may come across individuals who are far above the people whom you

knew before, prepare yourself: mentally, intellectually and, of course behaviorallylike we entrepreneurs say- Total Quality Management. Total Quality Management of your own self. Only total quality products and services will have a future. In India, you have examples of Tatas, Birlas, Ambanis, etc. who have made valuable contribution to the industrial development of the country. Mr. D.H. Ambani, the son of a school teacher came from a small village of Gujarat. At the age of sixteen, he travelled by boat to Aden to work as a clerk in a French Company. Later on he rose to the position of marketing manager of Burma Shell Products. In 1958, he returned to India and started a modest import-export business. Today, his company Reliance is one of the few Indian enterprises truly on the world stage employing thousands of people and with a turnover of many crores of rupees. Mr. D.H. Ambani is a perfect example of an ENTREPRENEUR. Let us now think why Mr. Ambani is an entrepreneur. An entrepreneur is a creative thinker. He is an innovator, who volunteers to take risk and invest money. In the process he generates jobs, solves problems, adds values and seeks excellence. This is what Mr. Ambani did and therefore he is called an Entrepreneur. Thus we find, entrepreneurship consists of practices and skills of a person constantly trying for growth and excellence. This is being done by innovating an idea, object, product or service and put it to social use. To be an entrepreneur you need to possess some qualities. However, entrepreneurship is also referred as a career oriented purposeful task that can be learnt. It may be noted here that, in the context of countrys economic development, entrepreneurship is not always confined to big business. It is equally important to have small enterprises. As a

matter of fact the economic growth and prosperity of many developed and developing countries is because of emergence of small enterprises. In summary, (i) Entrepreneurship is viewed as a function involving identification and use of opportunities which exist in the market. (ii) Entrepreneurs bear risks in converting the ideas into action and pursuing opportunities. (iii) Entrepreneurship involves creative and innovative action (iv) Entrepreneurs undertake managerial activities as part of their work. (v) An entrepreneur constantly strives for excellence in his/her field of work.

REDEFINING ENTREPRENEURSHIP
A theory of evolution of economic activities. A continuous process of economic development. An ingredient to economic development. Essentially a creative activity or an innovative function. A risk taking factor which is responsible for an end result. Usually understood with reference to individual business. The name given to the factor of production, which performs the functions of enterprise. Creates awareness among people about economic activity. Generates Self-employment and additional employment

CHARACTERISTICS OF ENTREPRENEURSHIP
1. 2.

The entrepreneur has an enthusiastic vision, the driving force of an enterprise. The entrepreneur's vision is usually supported by an interlocked collection of specific ideas not available to the marketplace.

3.

The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving.

4. 5.

The entrepreneur promotes the vision with enthusiastic passion. With persistence and determination, the entrepreneur develops strategies to change the vision into reality.

6.

The entrepreneur takes the initial responsibility to cause a vision to become a success.

7.

Risks; Entrepreneurs take prudent risks. They assess costs, market/customer needs and persuade others to join and help.

8.

An entrepreneur is usually a positive thinker and a decision maker.

BASIC TYPES OF ENTREPRENEURSHIP

Apparently, it can be said that the starting point of entrepreneurship would define its type. The two types of entrepreneurship may be classified as: 1. Opportunity-based entrepreneurship- an entrepreneur perceives a business opportunity and chooses to pursue this as an active career choice. 2. Necessity-based entrepreneurship- an entrepreneur is left with no other viable option to earn a living. It is not the choice but compulsion, which makes him/her, choose entrepreneurship as a career. Entrepreneurship is often difficult and tricky, as many new ventures fail. 8

Entrepreneur is often synonymous with founder. Most commonly, the term entrepreneur applies to someone who creates value by offering a product or service. Entrepreneurs often have strong beliefs about a market opportunity and organize their resources effectively to accomplish an outcome that changes existing interactions. Business entrepreneurs are viewed as fundamentally important in the capitalistic society. Some distinguish business entrepreneurs as either "political entrepreneurs" or "market entrepreneurs," while social entrepreneurs' principal objectives include the creation of a social and/or environmental benefit. Entrepreneurship and the study of new ventures is an emerging research area. The phenomenon of liability of newness, or the greater propensity to fail of new ventures, combined with the fact that some new ventures are outstanding successes, generates both academic as well as practitioners interest in the correlates of new venture performance. While both anecdotal and intuitive knowledge suggests that the entrepreneur would influence the performance of the new venture, a review of the literature in the area reveals that associations between entrepreneurial characteristics and new venture performance have not been found to be significant. Moreover, entrepreneurs are not a homogeneous set who can be distinguished from no entrepreneurs on the basis of personality characteristics. Researchers now consider it more meaningful to study differences within entrepreneurs, based on certain commonalities. This leads to a trend towards typology research. However, literature also reveals inconsistencies in operational zing the entrepreneur as an empirical construct. The lack of theoretical grounding in the choice of variables used in categorization, as well as definitional and sample selection issues have hampered the process of theory building in the area. It was proposed in this study that the 9

measurement of entrepreneurial skills would capture the effect of the knowledge and abilities acquired by founders through their education, training and work experience. Entrepreneurial skills, in combination with the motivations of the entrepreneur, i.e., their reasons for starting a business, would define different types of entrepreneurs. This typology was expected to have significant association with the strategic direction the business would take, as well as its performance. Moreover, this research design would test an integrated model of New Venture Performance by considering independent as well as international effects of the type of entrepreneur as well as the new venture strategy. In this context, it was decided to carry out an exploratory study that would address the gaps and inconsistencies detailed above with the following research. Are combinations of skills and motivations associated with certain entrepreneurial? Are these skill-motivation sets associated with competitive strategy decisions taken by entrepreneurs? Does the entrepreneur-strategy alignment lead to higher performance? The research adopted a survey method to collect data on the background characteristics, skills, motivations, competitive strategy, and performance of the new venture to test an interaction model of New Venture Performance. The sample for the research consisted of 107 new ventures located in Delhi and Bangalore. The sample was defined as independent start-ups (not part of a business house) that were between 1 and 7 years old, in the software development sector. The skills and motivations of the entrepreneur were factor analyzed into a smaller number of components. A cluster analysis of the skill and motivation factors yielded a typology of entrepreneurs. An entrepreneur is one who organizes a new business venture in the hopes of making a profit. Entrepreneurship is the process of being an entrepreneur, of gathering

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and allocating the resourcesfinancial, creative, managerial, or technological necessary for a new venture's success. One engages in entrepreneurship when one begins to plan an organization that uses diverse resources in an effort to take advantage of the newly found opportunity. It usually involves hard work, long hours, and, usually, the hope of significant financial returns. More importantly, entrepreneurship is characterized by creative solutions to old or overlooked problems; ingenuity and innovation are the entrepreneur's stock in trade. By taking a new look at difficult situations, the entrepreneur discerns an opportunity where others might have seen a dead end. Entrepreneurship is also a source of more entrepreneurship. Societies around the world have always been fueled by the innovations and new products that entrepreneurs bring to the market. All big businesses started out small, usually as one man or woman with a good idea and the willingness to work hard and risk everything. While it is true that many new businesses fail, the ones that succeed contribute a great deal to the creation of other new ventures which leads, in turn, to a dynamic national economy. Indeed, today's economists and business researchers cite entrepreneurship as a key component of future economic growth in North America and around the world. "Entrepreneurship is viewed as the catalyst to transfer a segment of our new generation of [downsized] people into self-employed business owners who will, in turn, provide jobs for the rest, It is viewed as the necessary component to the creation of new wealth; and hopefully represents the fountainhead from which will spawn innovative management techniques for the design, manufacture and marketing of products that will compete globally." Successful entrepreneurship depends on many factors. Of primary importance is a dedicated, talented, creative entrepreneur. The person who has the ideas, the 11

energy, and the vision to create a new business is the cornerstone to any start-up. But the individual must have ready access to a variety of important resources in order to make the new venture more than just a good idea. He or she needs to develop a plan of action, a road map that will take the venture from the idea stage to a state of growth and institutionalization. In most instances, the entrepreneur also needs to put together a team of talented, experienced individuals to help manage the new venture's operations. Entrepreneurship also depends on access to capital, whether it be human, technological, or financial. In short, entrepreneurship is a process that involves preparation and the involvement of others in order to exploit an opportunity for profit.

TYPES OF SKILLS REQUIRED IN ENTREPRENEURSHIP

Technical Skills Business Management Skills Writing Planning and goal setting Oral communication Decision making Monitoring environment Human relations Interpersonal Marketing Ability to organize Finance Management style Accounting Network building Management Listening Technical management Control business Managing growth Personal Entrepreneurial Skills Disciplined Risk taker Innovative Change oriented Persistent Visionary leader Ability to manage change

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CORPORATE GOVERNANCE
Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations. A well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels. In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.

THE NEED FOR CORPORATE GOVERNANCE

A corporation is a congregation of various stakeholders, namely, customers, employees, investors, vendor partners, government and society. A corporation should be fair and transparent to its stakeholders in all its transactions. This has become imperative in todays globalized business world where corporations need to access global pools of capital, need to attract and retain the best human capital from various parts of the world, need to partner with vendors on mega collaborations and need to

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live in harmony with the community. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. 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 organization. Ethical leadership is good for business as the organization is seen to conduct its business in line with the expectations of all stakeholders. Corporate governance is beyond the realm of law. It stems from the culture and mindset of management, and cannot be regulated by legislation alone. Corporate governance deals with conducting the affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest number of stakeholders. It is about openness, integrity and accountability. What legislation can and should do, is to lay down a common framework the form to ensure standards. The substance will ultimately determine the credibility and integrity of the process. Substance is inexorably linked to the mindset and ethical standards of management. Corporations need to recognize that their growth requires the cooperation of all the stakeholders; and such cooperation is enhanced by the corporation adhering to the best corporate governance practices. In this regard, the management needs to act as trustees of the shareholders at large and prevent asymmetry of benefits between various sections of shareholders, especially between the owner-managers and the rest of the shareholders.

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Corporate governance is a key element in improving the economic efficiency of a firm. Good corporate governance also helps ensure that corporations take into account the interests of a wide range of constituencies, as well as of the communities within which they operate. Further, it ensures that their Boards are accountable to the shareholders. This, in turn, helps assure that corporations operate for the benefit of society as a whole. While large profits can be made taking advantage of the asymmetry between stakeholders in the short run, balancing the interests of all stakeholders alone will ensure survival and growth in the long run. This includes, for instance, taking into account societal concerns about labor and the environment. The failure to implement good governance can have a heavy cost beyond regulatory problems. Evidence suggests that companies that do not employ meaningful governance procedures can pay a significant risk premium when competing for scarce capital in the public markets. In fact, recently, stock market analysts have acquired an increased appreciation for the correlation between governance and returns. In this regard, an increasing number of reports not only discuss governance in general terms, but also have explicitly altered investment recommendations based on the strength or weakness of a company's corporate governance infrastructure. The credibility offered by good corporate governance procedures also helps maintain the confidence of investors both foreign and domestic to attract more patient, long-term capital, and will reduce the cost of capital. This will ultimately induce more stable sources of financing. Often, increased attention on corporate governance is a result of financial crisis. For instance, the Asian financial crisis brought the subject of corporate governance to the surface in Asia. Further, recent scandals disturbed the otherwise placid and complacent corporate landscape in the US. These scandals, in a sense, proved to be 15

serendipitous. They spawned a new set of initiatives in corporate governance in the US and triggered fresh debate in the European Union as well as in Asia. The many instances of corporate misdemeanours have also shifted the emphasis on compliance with substance, rather than form, and brought to sharper focus the need for intellectual honesty and integrity. This is because financial and non-financial disclosures made by any firm are only as good and honest as the people behind them. By this very principle, only those industrialists whose corporations are governed properly should be allowed to be part of committees. This includes the Prime Minister and Finance Ministers advisory councils, committees set up by the Confederation of Indian Industry (CII), the Securities and Exchange Board of India (SEBI), the Department of Company Affairs, ministries, and the boards of large banks and financial institutions. Corporate governance initiatives in India began in 1998 with the Desirable Code of Corporate Governance a voluntary code published by the CII, and the first formal regulatory framework for listed companies specifically for corporate governance, established by the SEBI. The latter was made in February 2000, following the recommendations of the Kumarmangalam Birla Committee Report. The term corporate governance is susceptible to both broad and narrow definitions. In fact, many of the codes do not even attempt to articulate what is encompassed by the term. The motives for the several corporate governance postulates engaged in these definitions vary, depending on the participant concerned. The focal subjects also vary accordingly. The important point is that corporate governance is a concept, rather than an individual instrument. It includes debate on the appropriate management and control structures of a company. Further it includes the rules relating to the power

16

relations between owners, the Board of Directors, management and, last but not least, the stakeholders such as employees, suppliers, customers and the public at large. The majority of the definitions articulated in the codes relate corporate governance to control of the company, of corporate management, or of company conduct or managerial conduct. Perhaps the simplest and most common definition of this sort is that provided by the Cadbury Report (U.K.), which is frequently quoted or paraphrased: Corporate governance is the system by which businesses are directed and controlled. The definition in the preamble of the OECD Principles is also all encompassing Corporate governance . . . involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. The most common school of thought would have us believe that if management is about running businesses, governance is about ensuring that it is run properly. All companies need governing as well as managing. The aim of Good Corporate Governance is to enhance the long-term value of the company for its shareholders and all other partners. The enormous significance of corporate governance is clearly evident in this definition, which encompasses all stakeholders. Corporate governance integrates all the participants involved in a process, which is economic, and at the same time social. This definition is deliberately broader than the frequently heard narrower interpretation that only takes account of the corporate governance postulates aimed at shareholder interests. Studies of corporate governance practices across several countries conducted by the Asian Development Bank (2000), International Monetary Fund (1999), Organization 17

for Economic Cooperation and Development (OECD) (1999) and the World Bank (1999) reveal that there is no single model of good corporate governance. This is recognized by the OECD Code. The OECD Code also recognizes that different legal systems, institutional frameworks and traditions across countries have led to the development of a range of different approaches to corporate governance. Common to all good corporate governance regimes, however, is a high degree of priority placed on the interests of shareholders, who place their trust in corporations to use their investment funds wisely and effectively. In addition, best-managed corporations also recognize that business ethics and corporate awareness of the environmental and societal interest of the communities within which they operate, can have an impact on the reputation and long-term performance of corporations.

THE

KUMARMANGALAM

BIRLA

COMMITTEE

ON

CORPORATE GOVERNANCE
SEBI had constituted a Committee on May 7, 1999 under the chairmanship of Shri Kumarmangalam Birla, then Member of the SEBI Board to promote and raise the standards of corporate governance. Based on the recommendations of this Committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreements (Listing Agreements). The recommendations of the Kumarmangalam Birla Committee on Corporate Governance (the Recommendations) are set out in Enclosure I to this report.

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FINANCIAL REPORTING AND DISCLOSURES

Financial disclosure is a critical component of effective corporate governance. SEBI set up an Accounting Standards Committee, as a Standing Committee, under the chairmanship of Shri Y. H. Malegam with the following objectives: To review the continuous disclosure requirements under the listing agreement for listed companies; To provide input to the Institute of Chartered Accountants of India (ICAI) for introducing new accounting standards in India; and To review existing Indian accounting standards, where required and to harmonize these accounting standards and financial disclosures on par with international practices. SEBI has interacted with the ICAI on a continuous basis in the issuance of recent Indian accounting standards on areas including segment reporting, related party disclosures, consolidated financial statements, earnings per share, accounting for taxes on income, accounting for investments in associates in consolidated financial statements, discontinuing operations, interim financial reporting, intangible assets, financial reporting of interests in joint ventures and impairment of assets. With the introduction of these recent Indian accounting standards, financial reporting practices in India are almost on par with International Accounting Standards.

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IMPLEMENTATION REQUIREMENTS

OF

CORPORATE

GOVERNANCE

The Recommendations were implemented through Clause 49 of the Listing Agreements, in a phased manner by SEBI. They were made applicable to all companies in the BSE 200 and S&P C&X Nifty indices, and all newly listed companies, as of March 31, 2001. The applicability of the Recommendations was extended to companies with a paid up capital of Rs. 100 million or with a net worth of Rs. 250 million at any time in the past five years, as of March 31, 2002. In respect of other listed companies with a paid up capital of over Rs. 30 million, the requirements were made applicable as of March 31, 2003. The accounting standards issued by the ICAI, which are applicable to all companies under sub-section 3A of Section 211 of the Companies Act, 1956, were specifically made applicable to all listed companies for the financial year ended March 31, 2002, under the Listing Agreements.

COMPLIANCE WITH THE CODE AND SEBIS EXPERIENCE

In terms of SEBIs Circular No. SMD/Policy/CIR-03/2001 dated January 22, 2001: All companies are required to submit a quarterly compliance report to the stock exchanges within 15 days from the end of a financial reporting quarter. The report has to be submitted either by the Compliance Officer or by the Chief Executive Officer of the company after obtaining due approvals. SEBI has prescribed a format in which the information shall be obtained by the Stock Exchanges from the companies. The companies have to submit compliance status on eight sub-clauses namely:

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Board of Directors; Audit Committee; Shareholders / Investors Grievance Committee; Remuneration of directors; Board procedures; Management; Shareholders; and Report on Corporate Governance. Stock exchanges are required to set up a separate monitoring cell with identified personnel, to monitor compliance with the provisions of the Recommendations. Stock exchanges are also required to submit a quarterly compliance report from the companies as per the Schedule of Implementation. The stock exchanges are required to submit a consolidated compliance report within 30 days of the end of the quarter to SEBI. Both the Mumbai and National Stock Exchanges have submitted a consolidated quarterly compliance report for the quarter ended September 30, 2002. It was observed that 1,848 and 741 companies were required to comply with the requirements of the Code, for the Mumbai and National Stock Exchanges, respectively. Of these, compliance reports were submitted in respect of 1,026 and 595 companies, for the Mumbai and National Stock Exchanges, respectively. The status of compliance with respect to provisions of corporate governance analyzed from data submitted by the Mumbai Stock Exchange for the quarter ended September 30, 2002 is set out below. The key observations contained in the consolidated compliance report sent by the Mumbai and National Stock Exchanges are set out below. 21

The compliance level in respect of requirements relating to Board of Directors, Audit Committee, Shareholders Grievance Committee and Shareholders is very high; Many companies are yet to comply with the requirements relating to Remuneration Committee (which is not mandatory), Board Procedures, Management and Report on Corporate Governance; and Few companies have submitted that the provisions relating to Management and Board Procedures are not applicable. SEBI observed that the compliance with the requirements in clause 49 of the Listing Agreement is, by and large, satisfactory; however, an analysis of the financial statements of companies and the report on corporate governance discloses that their quality is not uniform. This is observed on parameters such as the nature of qualifications in audit reports, the quality of the corporate governance report itself (which is often perfunctory in nature), and the business transacted and the duration of audit committee meetings. Variations in the quality of annual reports, including disclosures, raises the question whether compliance is in form or in substance; and emphasize the need to ensure that the laws, rules and regulations do not reduce corporate governance to a mere ritual. This question has come under close scrutiny in recent times. SEBI has analyzed a few recently published annual reports of companies to assess the quality of corporate governance. The directors reports could be classified into the following categories: Reports where there is no mention about the compliance with corporate governance requirements;

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Reports that state that the company is fully compliant with clause 49 of the Listing Agreement, but where independent auditors have made qualifications in their audit reports; Reports that mention areas of non-compliance with clause 49 of the Listing Agreement and provide explanation for non-compliance; and Reports that mention areas of non-compliance with clause 49 of the Listing Agreement but provide no explanation for auditors qualification or for reasons for non-compliance. SEBI also observed that there is a considerable variance in the extent and quality of disclosures made by companies in their annual reports. RATIONALE FOR A REVIEW OF THE CODE SEBI believes that efforts to improve corporate governance standards in India must continue. This is because these standards are themselves evolving, in keeping with market dynamics. Recent events worldwide, primarily in the United States, have renewed the emphasis on corporate governance. These events have highlighted the need for ethical governance and management, and for the need to look beyond mere systems and procedures. This will ensure compliance with corporate governance codes, in substance and not merely in form. Again, one of the goals of good corporate governance is investor protection. The individual investor is at the end of a chain of financial information, stretching from corporate accountants and management, through Boards of Directors and audit committees, to independent auditors and stock market analysts, to the investing public. Many of the links in this chain need to be strengthened or replaced to preserve its integrity.

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SEBI, therefore, believed that a need to review the existing code on corporate governance arose from two perspectives, (a) to evaluate the adequacy of the existing practices, and (b) to further improve the existing practices.

ENTREPRENEURSHIP IN CORPORATE GOVERNANCE THE OBJECTIVE

Corporate governance has several claimants shareholders and other stakeholders - which include suppliers, customers, creditors, the bankers, the employees of the company, the government and the society at large. This Report on Corporate Governance has been prepared by the Committee for SEBI, keeping in view primarily the interests of a particular class of stakeholders, namely, the shareholders, who together with the investors form the principal constituency of SEBI while not ignoring the needs of other stakeholders. The Committee therefore agreed that the fundamental objective of corporate governance is the "enhancement of shareholder value, keeping in view the interests of other stakeholder". This definition harmonizes the need for a company to strike a balance at all times between the need to enhance shareholders wealth whilst not in any way being detrimental to the interests of the other stakeholders in the company. In the opinion of the Committee, the imperative for corporate governance lies not merely in drafting a code of corporate governance, but in practicing it. Even now, some companies are following exemplary practices, without the existence of formal guidelines on this subject. Structures and rules are 24

important because they provide a framework, which will encourage and enforce good governance; but alone, these cannot raise the standards of corporate governance. What counts is the way in which these are put to use. The Committee is thus of the firm view, that the best results would be achieved when the companies begin to treat the code not as a mere structure, but as a way of life. It follows that the real onus of achieving the desired level of corporate governance, lies in the proactive initiatives taken by the companies themselves and not in the external measures like breadth and depth of a code or stringency of enforcement of norms. The extent of discipline, transparency and fairness, and the willingness shown by the companies themselves in implementing the Code, will be the crucial factor in achieving the desired confidence of shareholders and other stakeholders and fulfilling the goals of the company.

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CHAPTER 2 SCOPE AND IMPORTANCE

26

SCOPE AND IMPORTANCE

ENTREPRENEURS MUST NOT RELY ON THE GOVERNMENT In the pre-liberalization period, all these concepts of what was allowed and what wasnt were rather vague and discouraged creativity. You needed 22 copies of a document to import a single spare part. There were a lot of controls, some of which were unnecessary and not well thought out. However, there was a positive side to it. We became more self-reliant . The first bottle washer that we created for Gold Spot was actually made under a tree! The problem is that even post liberalization, a lot of these things havent changed. If you want to import or export anything in India, you still need piles of paperwork , which tend to affect the entrepreneurs and small and medium scale enterprises the most. According to me, liberalization means more than just allowing foreign direct investment and foreign institutional investors in India. The idea is also to reduce the cost of doing business and to simplify processes, which isnt happening in a lot of sectors. But one good thing about having some controls in the financial sector has been that we havent been as affected by the current financial crisis as the rest of the world. I remember once when I was in Chicago, somebody told me that we, in developing countries were crazy for entering into alliances with the Fortune 500 companies. These companies are hugely bureaucratic and very low on entrepreneurship and real R&D . It is easier for them to buy out a smaller company than to develop a new product from scratch, he said to me. On the other hand, the small and mid-sized companies are bustling with ideas. I have seen some of the most efficient and

27

aesthetic machinery being made in remote corners of Italy by five-member units. And you have that happening in India as well. Only here, the owner is more caught up in figuring out the MODVAT and excise duties rather than concentrating on creating something new. In the current economic situation, I think entrepreneurs and those who havent overstretched themselves will not be too affected. Only people who have overleveraged themselves who will find it a little tough to bounce back. And my only advice to them is to learn from this and not be greedy. What saddens me is that with the increasing dependence on computers, people have lost the touch and feel for numbers. Maybe I feel so strongly because I come from another generation where knowing how to work with numbers held a lot of importance. Today, people will blindly believe whatever figures that pop up on the screen in front of them without questioning it. They have forgotten to ask whether something makes sense or not. One piece of advice that I have for entrepreneurs is to not rely on the government. I remember my father telling me, that if, instead of going to Delhi, Id spend that time and money in my workshop instead it would be far more beneficial. Id like to think that Ive managed to build my business and brand in spite of the government. People management remains a critical issue, irrespective of whether the going is tough or not. Similarly, you have to make sure that you dont lose sight of your values and ethics at all times. You, and your competencies, are your only competition. Also, dont try and overdo things. When things get bad, people start chickening out and get frustrated. They dont know what to do. If people go back to he basics and start focusing once again on the things that matter, they will do well.

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CHAPTER 3 LITERATURE REVIEW

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LITERATURE REVIEW
The definition of entrepreneurship has been debated among scholars, educators, researchers, and policy makers since the concept was first established in the early 1700s. The term entrepreneurship comes from the French verb entreprendre and the German word unternehmen, both means to undertake. By grave and Hofer in1891 defined the entrepreneurial process as involving all the functions, activities, and actions associated with perceiving of opportunities and creation of organizations to pursue them. Joseph Schumpeter introduced the modern definition of entrepreneurship in 1934. According to Schumpeter, the carrying out of new combinations we call enterprise, and the individuals whose function it is to carry them out we call entrepreneurs. Schumpeter tied entrepreneurship to the creation of five basic new combinations namely: introduction of a new product, introduction of a new method of production, opening of a new market, the conquest of a new source of supply and carrying out of a new organization of industry. Peter Drucker proposed that entrepreneurship is a practice. What this means is that entrepreneurship is not a state of being nor is it characterized by making planes that are not acted upon. Entrepreneurship begins with action, creation of new organization. This organization may or may not become self-sustaining and in fact, may never earn significant revenues. But, when individuals create a new organization, they have entered the entrepreneurship paradigm.

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THE SUPPLY OF ENTREPRENEURSHIP

British economists such as Adam Smith, David Ricardo, and John Stuart Mill briefly touched upon the concept of entrepreneurship, though they referred to it under the broad English term business management. Whereas the writings of Smith and Ricardo suggest that they undervalued the importance of entrepreneurship, Mill goes out of his way to stress the significance of entrepreneurship for economic growth. In his writings, Mill claims that entrepreneurship requires no ordinary skill, and he laments the fact that there is no good English equivalent word to encompass the specific meaning of the French term entrepreneur. The necessity of entrepreneurship for production was first formally recognized by Alfred Marshall in 1890. In his famous treatise Principles of Economics, Marshall asserts that there re four factors of production: land, labour, capital and organization. Organization is the coordinating factor, which brings the other factors together, and Marshall believed that entrepreneurship is driving element behind organization. By creatively organizing, entrepreneurs create new commodities or improve the plan of producing an old commodity. In order to do this, Marshall believed that entrepreneurs must have a thorough understanding about their industries, and they must be natural leaders. Additionally, Marshalls entrepreneurs must have the ability to foresee changes in supply and demand and be willing to act on such risky forecasts in the absence of complete information. Marshall also suggests that the skills associated with entrepreneurship are rare and limited in supply. He claims that the abilities of entrepreneur are so great and so numerous that very few people can exhibit them in all in a very high degree. Marshall, however, implies that people can be taught to acquire the abilities that are

31

necessary to be an entrepreneur. Unfortunately, the opportunities for entrepreneurs are often limited by economic environment, which surrounds them. Additionally, although entrepreneurs share some common abilities, all entrepreneurs are different, and their success depend on the economic situations in which they attempt their endeavors. One school of thought on entrepreneurship suggests that role of the entrepreneur is that of a risk-bearer in the face of uncertainty and imperfect information. Knight claims that an entrepreneur will be able to bear the risk of a new venture if he believes that there is a significant chance of profits. Although many current theories on entrepreneurship agree that there is an inherent component of risk, the risk-bearer theory alone cannot explain why some individuals become entrepreneurs while others do not. Thus, in order to build a development model of entrepreneurship it is necessary to look at some of the other characteristics that help explain why some people are entrepreneurs; risk may be a factor, but it is not the only one. Modern school of thought claims that the role of the entrepreneur is that of an innovator; however, the definition of innovation is still widely debatable. Kirzner suggests that the process of innovation is actually of spontaneous undeliberate learning. Thus, the necessary characteristics of the entrepreneur is alertness, and no intrinsic skills-other than that of recognizing opportunities-are necessary. Other school of economists claims that entrepreneurs have special skills that enable them to participate in the process of innovation. Leibenstein claims that the dominant, necessary characteristics of entrepreneurs is that they are gap-fillers i.e. they have the ability to perceive where market fails and to develop new goods or processes that he market demands but which are not currently being supplied. Thus, entrepreneurs have

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the special ability to connect different markets and make up for market failures and deficiencies. Though the idea that entrepreneurs are innovators is largely acceptable, it can be difficult to apply this theory of entrepreneurship to less developed countries (LDCs). Often in LDCs, entrepreneurs are not truly innovators in the traditional sense of the word. Entrepreneurs in LDCs rarely produce brand new products: rather they imitate the products and production processes that have been invented elsewhere in the world (typically in developed countries). This process, which occurs in developed countries as well, is called creative imitation. Creative imitation takes place when when the imitators better understand how an innovation can be applied, used, or sold in their particular market niche (namely their own countries) than do the people who actually created or discovered the original innovation. Thus, the innovation process in LDCs is often that of imitating and adapting, instead of traditional notion of new product or process discovery and development. By combining the above thoughts it can be generalized that entrepreneurs are riskbearers, coordinators and organizers, gap fillers, leaders, and innovators or creative imitators. Thus, by encouraging these qualities and abilities, governments can theoretically alter their countrys supply of domestic entrepreneurship.

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CONCEPTUALIZING ENTREPRENEURSHIP
Entrepreneurship is an ill-defined, multidimensional, concept. The difficulties in defining and measuring the extent of entrepreneurial activities complicate the measurement of their impact on economic performance. Understanding their role in the process of growth requires a framework because there are various intermediate variables or linkages to explain how entrepreneurship influences economic growth. Examples of these intermediate variables are innovation, variety of supply, entry and exit of firms (competition), specific efforts and energy of entrepreneurs, etc.

HISTORY OF ENTREPRENEURSHIP
The understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter and the Austrian economists such as Ludwig von misses and von Hayek. In Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces "creative destruction" across markets and industries, simultaneously creating new products and business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Despite Schumpeter's early 20th-century contributions, the traditional microeconomic theory of economics has had little room for entrepreneurs in its theoretical frameworks (instead assuming that resources would find each other through a price system).

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THEORIES OF ENTREPRENEURSHIP
Entrepreneurship is an evolved thing. With the advancement of science and technology, it has undergone metamorphosis and emerged as a critical input for socioeconomic various developments. Raters have developed various theories on entrepreneurship and popularized the concept among the common people. The theories propounded by them Can be categorized as under: 1) Sociological Theories 2) Economic Theories 3) Cultural Theories 4) Psychological Theories

1) SOCIOLOGICAL THEORIES
The following theories explain how sociological factors accelerate the growth of entrepreneurship: 1) Theories of religious belief - Weber 2) Theory of entrepreneurial supply- Cochran 3) Theory of social change- Hagen 4) Theory of group level pattern- Young 1) THEORY OF RELIGIOUS BELIEF Max Weber: Max Weber has propounded the theory of religious belief. According to him, entrepreneurs are a function of religious belief and the impact of religion shapes the entrepreneurial culture. He emphasized that the entrepreneurial energies are exogenous supplied by

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means of religious belief. The central feature of this theory of social change, therefore, consists in his treatment of the protestant ethic and the spirit of capitalism. i) Spirit of Capitalism ii) Adventurous spirit iii) Protestant ethic iv) Inducement of profit 2) THEORY OF ENTREPRENEURIAL SUPPLY Thomas Cochran: The theory, propounded by Thomas Cochran, centers round the sociological aspect of entrepreneurial supply. Beginning with the premise that fundamental problems of economic development are non-economic, he emphasizes on the cultural values, role expectation and social sanctions as the key elements that determine the supply of entrepreneurs. The basic elements of Thomas Cochrans theory are: i) Entrepreneur as a societys modal personality ii) Modal personality as a derivative of social conditioning iii) Role expectations and entrepreneurial role iv) The type of childrearing and schooling and its influence on intrinsic character of the executive. v) Dynamics of entrepreneurs and thrust upon the social factors for the major changes 3) THEORY OF SOCIAL CHANGE E.E. Hagen: Everett E. Hagen, in his theory of social change, propounded how a traditional society becomes one in which continuing technical progress takes place. The theory exhorts the following features, which presumes the entrepreneurs creativity as the key element of social transformation and economic growth. i) Presentation of the general of the society ii) Economic growth: product of social change and political change 36

iii) Rejection of followers syndrome iv) Historic shift as a factor of initiating change v) Withdrawal of status respects as the mechanism for rigorous entrepreneurial activity 4) THEORY OF GROUP LEVEL PATTERN : F. Young: Frank Young, in his theory, A Micro-sociological Interpretation of Entrepreneurship, points out that entrepreneurial initiative is a function of group level pattern. Young has elaborately analyzed the shortcomings of psychogenetic interpretation of entrepreneur ship and suggested a causal sequence where transformation codes are developed by the solidarity groups to improve their symbolic position in their larger structure and thus become entrepreneurs. The theory has the following important features: i) Deficiencies in psychogenic mediation model ii) Solidarity groups iii) Disregarding single-handed concept of entrepreneurship iv) Reduction of complex economic problems

2) ECONOMIC THEORIES
Entrepreneurship and economic development are interdependent. Economic development takes place when a countrys real rational income increases over a period of time wherein the role of entrepreneurship is an integral part. The following theories propounded by eminent economists explain how economic development and entrepreneurship are complementary and supplementary to each other: i) Schumpeters theory of innovation ii) Leibenstems theory X-efficiency iii) Mark Cassons theory

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iv) Papanek and Hans theory v) Harvard School theory vi) M. Kirzners theory vii) David McClellands theory of theory viii) Knights theory of profit i) Schumpeters Definition of Entrepreneur: Joseph A. Schumpeter thus writes: The entrepreneur in an advanced economy is an individual who introduces something new in the economy a method of production not yet tested by experience in the branch of manufacture concerned, a product with which consumers are not yet familiar, new sources of raw material or of new markets and the like. Schumpeter further states that entrepreneurs function is to reform or revolutionize the pattern of production by exploiting an invention or more generally, an untried technological possibility for producing a new commodity.... Briefly, an entrepreneur is one who innovates, raises money, assembles inputs, chooses managers and sets the organization going with his ability to identify them. Innovation occurs through i) The introduction of a new quality in a product, ii) A new product, iii) A discovery of fresh demand and a fresh source of supply, and iv) By changes in the organization and management In the case of a developing economy like ours, the concept is being understood differently. Entrepreneurship in developing economics is one form of labor that tells the rest of labor what to do and sees to it that it gets things done. Unlike in the developed industrial world, emphasis is not put (nor is there any need for it) only on Schumpeterian 38

Innovations in the case of developing countries. Schumpeters entrepreneur only exists if the factors of production are combined for the first time. To him, maintenance of a combination is not entrepreneurial activity. As such, he differs from the theory of Rent enunciated by Ricardo. Ricardo included the term entrepreneurial ability as an independent factor of production. To Ricardo, profit is the reward for entrepreneurial ability. Distinction between Innovator and Inventor: Schumpeter makes a distinction between an innovator and an inventor. An inventor discovers new methods and new materials. On the contrary, an innovator is one who utilizes or applies inventions and discoveries in order to make new combinations and thus produces newer and better goods which yield both satisfaction and profits. An inventor produces ideas while the innovator implements these ideas. An inventor is concerned with his technical work of invention whereas an entrepreneur converts the technical work into economic performance. An innovator is more than an inventor because he does not only originate as the inventor does but goes much farther. In sum, the concept of the entrepreneur is intimately associated with the three elements risk- bearing, organizing and innovating. Thus, an entrepreneur can be defined as a person who tries to create something new, organizes production and undertakes risks and handles economic uncertainty involved in enterprise.

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CRITICISM
i) Schumpeters entrepreneur is a large-scale businessman who creates something new. But an entrepreneur cannot have large-scale operations from the very beginning. Moreover, in underdeveloped countries people who can adopt the existing technology are needed. ii) Schumpeter did not explain why some countries had more entrepreneurial talent than others. He only pointed out that entrepreneurs are not a class in themselves like capitalists and workers. An individual is an entrepreneur only when he actually carries out new combinations and cases to be an entrepreneur the moment he settles down to running the established business. ii) Leibensteins Theory of X-Efficiency: Harvey Leibenstein propounded the theory of Xefficiency which is popularly called Gap filling theory. According to Leibenstein, entrepreneurial functions are determined by the X-efficiency which means the degree of inefficiency on the use of resources within the firm. The theory has got the following features. i) Routine entrepreneurship ii) New entrepreneurship iii) Twin roles of entrepreneur: Harvey Leibenstein pointed out that there always exist some deficiencies in the production function or input-output relationship. Theses deficiencies or gaps exist because all the inputs in the production function cannot be marketed. So Leibenstein highlighted the twin functions of entrepreneur, namely: a) Gap filling b) Input completing c) X- efficiency factor

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iii) Mark Cassons Theory: Mark Casson was a renowned economist who propagated a functional definition of entrepreneur in his epoch-making book, The Entrepreneur An Economic Theory. He stated that now-a-days it is quite fashionable to be an entrepreneur. Most of the studies of entrepreneur make no attempt at proper definition. It may be said quite categorically that at the present moment, there is no established economic theory of entrepreneur. The subject area has been surrendered by economists to sociologists, psychologists and social scientists. However, his theory of entrepreneurship deals with the functional behavior of entrepreneur and his qualities which are crucial for his success. His theory has got the following features. a) Demand- supply relationship b) Identification of qualities iv) Papanek and Harris Theory: Economists like Papanek and Harris have propounded that when certain economic conditions are favorable, entrepreneurship and economic growth will take place. According to these two economists, economic incentives are the integral factors that have induced entrepreneurial initiatives. The main features of their theory are depicted as under: i) Economic incentives: Entrepreneurial development is a function of economic incentives. This is one of the basic traits which drive the entrepreneur to take up entrepreneurial activities and to bring about success. ii) Link between economic gains and the inner urge: According to the above economists, the link between a persons inner urge and desired economic gains play a pivotal role, for development of entrepreneurial competencies. The inner drives coupled with the hope of getting pecuniary benefits can give rise to entrepreneurial development. 41

iii) Economic gain sufficient condition: Theory of entrepreneurship, advocated by Papanek and Harris, reveals that entrepreneurs have got spontaneity in their willingness for undertaking diverse types of entrepreneurial activities because of economic gains. Thus, economic gain is considered as the sufficient condition for the origin of entrepreneurial initiatives in the economy. v) Harvard School Theory: Harvard School contemplated that entrepreneurship involves any deliberate activity that initiates, maintains and grows a profit-oriented enterprise for production or distribution of economic goods or services, which is inconsistent with internal and external forces. The following points portray some important features of Harvard School Theory i) Internal forces: These forces refer to the internal qualities of the individual such as intelligence, skill, knowledge experience, intuition, exposure etc. These forces influence the entrepreneurial activities of an individual to a great extent, ii) External forces: These forces refer to the economic, political, social, cultural and legal factors which influence origin and growth of entrepreneurship in an economy. As such, entrepreneurial activity needs an environment conducive to its growth and development. iii) Emphasis on two types of entrepreneurial activities: The Harvard School theory gives emphasis on two types of entrepreneurial activities, namely: a) Entrepreneurial functions like organization and combination of resources for creating viable enterprises b) The responsiveness to the environmental condition that influences decision-making function

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vi) M. Kirzners Theory of Adjustment: Israel M. Kirzner, the noted economist, has coined the theory of adjustment of price. According to him, the essential entrepreneurial element is the alertness to information rather than its possession alone. He contends that those entrepreneurs who have the superior telescopic faculty keep themselves all the while alert to confront any disequilibrium in the market. vii) Theory of David McClellands Theory of Achievement Motivation: In the late 1940s David McClelland and his associates developed the theory of achievement motivation, which was regarded as one of the best economic theories of entrepreneurial development. They concentrated mainly on following three aspects: i) Need for achievement: A strong need for achievement n Ach is found within certain individuals, groups and communities. McClelland emphasized that the need for achievement or achievement orientation is the most important factor for explaining economic behavior. People having this need are more likely to succeed as entrepreneurs. ii) Need for power: This pertains to the desire by a person to be influential in a group. People with need for power n Paw believe in position of authority. iii) Need for affiliation the persons with high. Need for affiliation is sensitive to social relationship. They are keen on warm and interpersonal relationship. They are associated more with popularity, social support and friendship than with decision making. viii) Knights theory of Profit: F.H. Kniight, in his book Risk, Uncertainty and Profit propounded the theory of profit. He points out that entrepreneur are a specialized group of persons who bear risk and deals with uncertainty. i) Pure profit ii) Situation of uncertainty 43

iii) Risk-bearing capability iv) Guarantee of specified sum v) Identification of socio-economic and psychological factors vi) Use of consolidation technique to reduce business uncertainty vii) Self-confidence

3) CULTURAL THEORIES
Advocates of cultural theories point out that entrepreneurship is the product of culture. Entrepreneurial talents come from cultural values and cultural systems embedded into the cultural environment. The following theories portray that the cultural factors are always responsible for the emergence of entrepreneurship: i) Hoselitzs Theory: Hoselitz explains that the supply of entrepreneurship is governed by cultural factors, and culturally minority groups are the spark-plugs of entrepreneurial and economic development. In many countries, entrepreneurs have emerged from a particular socioeconomic class. He emphasizes the role of culturally marginally groups like the Jews and the Greeks in medieval Europe, the Lebanese in West Africa, the Chinese in South Africa, and the Indians in East Africa in promoting economic development. Hoselitzs theory of entrepreneurship supply can be viewed from the following standpoints which are cultural in nature a) Hypothesis of marginal men b) Emphasis on the functions of managerial and leadership skill c) Contribution of specific social classes ii) Stokes Theory: Stokes theory portrays that entrepreneurship is likely to emerge under specific social sanctions, social culture and economic action. According to Stoke, socio-cultural values channel economic action. He suggests that personal -and

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societal opportunities and the presence of requisite psychological distributions may be seen as conditions for an individual movement to get changed into industrial entrepreneurship.

4) PSYCHOLOGICAL THEORIES
Psychological theories centre round the psychological characteristics of the individuals in a society. Psychological characteristics influence the supply of entrepreneurs in a society. The following theories clearly portray the emergence and supply of entrepreneurs 1) THEORY OF PERSONAL RESOURCEFULNESS: Personal resourcefulness is a critical factor for the growth and development of entrepreneurship. The theory of personal resourcefulness has got the following implications as far as the supply of entrepreneurs is concerned in the society: a) Cognitive function: The present theory presupposes the activities undertaken by the individuals who require cognitively mediated behavior like emotions, sentiments, inner feelings, thoughts and actions. In these situations, entrepreneur is fully apprised of the situation and knowledge which is shaded by risk and, motivational involvement. b) Hitman aspects of psychology: Different authors have given their different opinions on human aspects of psychology. For example, Bygrave and Hoffer highlight the significance of human volition. Schumpeter pointed out entrepreneur as innovator while Carland gives emphasis on organization building for entrepreneurship development. In Schumpeters words, i) will to power ii) will to conquer

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Thus, studies examining non-economic factors have brought out the fact that mere provisions of economic inputs may not itself guarantee success in entrepreneurial ventures, organizational and psychological factors also still remain a subject of further investigation. 2) THEORY OF ENTREPRENEURIAL SUPPLY: John H. Kunkel advocated the theory of entrepreneurship supply. According to him, psychological and sociological variables are the main determinants for the emergence of entrepreneurs. He contemplated that entrepreneurial talent can be found in minorities, religious, ethnic, migrated, displaced elites and these minorities have supplied most of the entrepreneurism in the society, Entrepreneurs can be dependent upon the following structures in the economy: i) Demand structure: It implies economic demand with relation to changes in economic development and government policies. Demand structure can he augmented with the help of material reward which can influence entrepreneurial behavior. ii) Limitation structure: It is originally socio-cultural in character. In this structure, entrepreneur is regarded as the most deviant individual in the society and thats why the society restricts specific activities that influence all members in the society. iii) Labor structure: It refers to the supply of skilled and willing labor. The structure is governed by a large numbers of factors such as racial stock, available jobalternatives, traditionalizing mobility of labor etc. iv) Opportunity structure: It is the most important structure governing the supply of entrepreneurs. The structure refers to the technological and managerial skills, information about techniques of production, market structure and supply of capital.

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THE MODELS OF ENTREPRENEURSHIP

Entrepreneurship is among the most talked about concepts world over. everybody admires successful entrepreneurs, in particular those who have taken their organizations to the summit in their field The fact remains that we all admire successful entrepreneurs, especially those who have taken their organizations to the summit in their field. Entrepreneurship is among the most talked about concepts world over: According to one estimate, after self-help and do-it-yourself, books on entrepreneurship are among the perennial bestsellers. One of the components of the quintessential American Dream consists of coming up with that one million dollar idea and taking it to market. After my article on entrepreneurs was published, I exchanged notes with several readers and gathered further ideas on entrepreneurship. I have come to realize that entrepreneurs come in a variety of stripes. Following are the common models: CONSULTANT MODEL: This model is common among academicians and those with niche domain expertise gained in the industry. Management consultants, CPAs and others who gain experience and a brand name working for large consulting houses find it a convenient and lucrative area to branch off on their own and leverage the industry contacts and networking skills developed in their regular jobs. Many corporate executives, after retiring from their regular jobs also take the consulting route, either directly or by taking on director roles at different companies. Many IT professionals, especially those with niche skills and/or certifications also tend to move on to consulting roles. Note: the consulting model here does not include the more

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common contracting/subcontracting model since in that model, the consulting company or the founder takes on greater entrepreneurial risk than the subcontractor. MOONLIGHTING MODEL: This model is common among those want to experience entrepreneurship part-time without taking the risks associated with fulltime entrepreneurial activities. This model is not really new; for example, doctors working for hospitals or clinics have long taken visiting consultant roles. Professors and academicians also regularly take on consulting opportunities with industries that use their expertise to implement the research ideas fine-tuned in academia. Some professionals take the public speaking or column writing route where they try to publish their ideas outside the confines of their organizations. For instance, although I enjoy my day-job, I have been writing this weekly column for over two years because of the interaction and opportunity to network with peers that this brings. BRILLIANT IDEA MODEL: Professionals and others working in the corporate world or for regular employers sometimes have an epiphany, a eureka moment when they realize that they have a million dollar idea that they can capitalize on. Although such events are rare and too far between to generalize, a number of brilliant entrepreneurial ideas have sprung up from those with a different perspective than others who work on the same idea every day. Many times, employees take their new/innovative idea to the employer with a suggestion to implement it on the job. Sometimes, when the ideas are not taken up by the management, they contemplate the entrepreneurial route if they feel strongly about it. EXITING BUSINESS/FRANCHISE MODEL: Sometimes, individuals who do not want to continue in the corporate world decide to start their own venture in a domain

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they are comfortable. Such ventures may take the form of small businesses or franchises. In the franchise model, the wannabe entrepreneur approaches a corporation like McDonalds, a restaurant chain, an auto dealership or any other enterprise with a franchising model and takes on the responsibility of running his business using the brand and marketing support from the enterprise. There are thousands of Indians in the US successfully running their own businesses including Indian Bazaars, restaurants, motels, etc. In India, as in other parts of the world, this concept of making it big through entrepreneurship has gained popularity after endless articles in business journals and papers have eulogized the success of our self-made entrepreneurs including the usual suspects: N R Narayana Murthy, Azim Premji, Ramalinga Raju, et al. The liberalised economy of the past decade, with lesser bureaucratic interferences and bottlenecks has also led to a climate where individuals are more willing to experiment. In my recent columns I havent touched upon the risks of entrepreneurship, but needless to say, higher the rewards, bigger the risks. Whichever model of entrepreneurship you choose, it will be worthwhile to remember that it is definitely an interesting albeit risky proposition.

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CORPORATE GOVERNANCE
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labor(employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. For Not-For-Profit Corporations or other membership Organizations the "shareholders" means "members" in the text below (if applicable). Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below). There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance.

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DEFINITION
In A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'. O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.' It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.

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Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company. The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.

HISTORY
In the 19th century, state corporation laws enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance more efficient. Since that time, and because most large publicly traded corporations in the US are incorporated under corporate administration friendly Delaware law, and because the US's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for corporate governance reforms. In the 20th century in the immediate aftermath of the Wall Street Crash of 1929 legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. Means pondered on the changing role of the modern corporation in society. Berle and Means' monograph "The Modern Corporation and Private Property" (1932, Macmillan)

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continues to have a profound influence on the conception of corporate governance in scholarly debates today. From the Chicago school of economics, Ronald Coase's "The Nature of the Firm" (1937) introduced the notion of transaction costs into the understanding of why firms are founded and how they continue to behave. Fifty years later, Eugene Fama and Michael Jensen's "The Separation of Ownership and Control" (1983, Journal of Law and Economics) firmly established agency theory as a way of understanding corporate governance: the firm is seen as a series of contracts. Agency theory's dominance was highlighted in a 1989 article by Kathleen Eisenhardt (Academy of Management Review). US expansion after World War II through the emergence of multinational corporations saw the establishment of the managerial class. Accordingly, the following Harvard Business School management professors published influential monographs studying their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth MacIver (organizational behavior). According to Lorsch and MacIver "many large corporations have dominant control over business affairs without sufficient accountability or monitoring by their board of directors." Since the late 1970s, corporate governance has been the subject of significant debate in the U.S. and around the globe. Bold, broad efforts to reform corporate governance have been driven, in part, by the needs and desires of shareowners to exercise their rights of corporate ownership and to increase the value of their shares and, therefore, wealth. Over the past three decades, corporate directors duties have expanded greatly

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beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. The California Public Employees' Retirement System (CalPERS) led a wave of institutional shareholder activism (something only very rarely seen before), as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e.g., by the unrestrained issuance of stock options, not infrequently back dated). In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and WorldCom, as well as lesser corporate debacles, such as Adelphia Communications, AOL, Arthur Andersen, Global Crossing, Tyco, and, more recently, Fannie Mae and Freddie Mac, led to increased shareholder and governmental interest in corporate governance. This is reflected in the passage of the Sarbanes-Oxley Act of 2002.

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IMPACT OF CORPORATE GOVERNANCE

The positive effect of corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socioeconomic development.

ROLE OF INSTITUTIONAL INVESTORS

Many years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families, who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e.g., pension funds, mutual funds, hedge funds, exchange traded funds, other investor groups; insurance companies, banks, brokers, and other financial institutions). The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the nave institutions, of which there are many). Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts). However this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual funds. In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors.

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Program trading, the hallmark of institutional trading, averaged over 80% of NYSE trades in some months of 2007. (Moreover, these statistics do not reveal the full extent of the practice, because of so-called 'iceberg' orders. Unfortunately, there has been a concurrent lapse in the oversight of large corporations, which are now almost all owned by large institutions. The Board of Directors of large corporations used to be chosen by the principal shareholders, who usually had an emotional as well as monetary investment in the company (think Ford), and the Board diligently kept an eye on the company and its principal executives (they usually hired and fired the President, or Chief Executive Officer CEO). A recent study by Credit Suisse found that companies in which "founding families retain a stake of more than 10% of the company's capital enjoyed a superior performance over their respective sectorial peers." Since 1996, this superior performance amounts to 8% per year. Forget the celebrity CEO. "Look beyond Six Sigma and the latest technology fad. One of the biggest strategic advantages a company can have, [BusinessWeek has found], is blood lines." In that last study, "BW identified five key ingredients that contribute to superior performance. Not all are qualities unique to enterprises with retained family interests. But they do go far to explain why it helps to have someone at the helm or active behind the scenes who has more than a mere paycheck and the prospect of a cozy retirement at stake." See also, "Revolt in the Boardroom," by Alan Murray. Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing them will likely be costly (think "golden handshake") and/or time consuming, they will simply sell out their interest. The Board is now mostly chosen by the President/CEO, and may be made up primarily of their friends and associates, 56

such as officers of the corporation or business colleagues. Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). Occasionally, but rarely, institutional investors support shareholder resolutions on such matters as executive pay and anti-takeover, aka, "poison pill" measures. Finally, the largest pools of invested money (such as the mutual fund 'Vanguard 500', or the largest investment management firm for corporations, State Street Corp.) are designed simply to invest in a very large number of different companies with sufficient liquidity, based on the idea that this strategy will largely eliminate individual company financial or other risk and, therefore, these investors have even less interest in a particular company's governance. Since the marked rise in the use of Internet transactions from the 1990s, both individual and professional stock investors around the world have emerged as a potential new kind of major (short term) force in the direct or indirect ownership of corporations and in the markets: the casual participant. Even as the purchase of individual shares in any one corporation by individual investors diminishes, the sale of derivatives (e.g., exchange-traded funds (ETFs), Stock market index options, etc.) has soared. So, the interests of most investors are now increasingly rarely tied to the fortunes of individual corporations. But, the ownership of stocks in markets around the world varies; for example, the majority of the shares in the Japanese market are held by financial companies and industrial corporations (there is a large and deliberate amount of cross-holding among

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Japanese keiretsu corporations and within S. Korean chaebol 'groups'), whereas stock in the USA or the UK and Europe are much more broadly owned, often still by large individual investors.

PARTIES TO CORPORATE GOVERNANCE

Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large. In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse. A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organization's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its owners and authorities. The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and

58

Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organization. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital. A key factor is an individual's decision to participate in an organization e.g. through providing financial capital and trust that they will receive a fair share of the organizational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse.

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"ENTREPRENEURSHIP IS ABOUT MARRYING PASSION AND PROCESS WITH GOOD DOSE OF PERSEVERANCE IN CORPORATE GOVERNANCE"
Entrepreneurship is not all about opportunism, the potential start up dreamers need to pick up an important business problem right from the outset. The Millennium Indian Entrepreneur faces a challenge to create a spirit in the form of continuous, careful but rapid experimentation and capturing opportunities that emerge. In an economy as big as India there is always money to encourage an Entrepreneur. Media Tycoon Ted Turner's jocular one liner," My son Is an Entrepreneur " That's what you are called when you don't have a job, couldn't ring truer, in contrast, if you take the prevalent Indian business scenario into perspective. consider any domain of business operation creating ripples from airlines to organized retail to telecom to software, I would venture safely to state that the big poppa pop on the block today is none other in most cases but a virtual unknown, someone who would most likely have been pooled before he or she swept the rug of complacence from beneath the traditional players unsuspecting feet. The names are ubiquitous and the success stories scripted are legends in their own right and by every right that could exist. Take the undisputable king of calls, Sunil Bharti Mittal, whose company Bharti enterprises boasts of a humongous market capitalization of Rs.727 Billion. He was an entrepreneur then and remains now. Take the ingenious examples of Subhas Chandra, Exemplary kiran Mazumdar Shaw, News channel czars, Pronoy Roy and Raghav Behl to the world icons of software Azim Premji and Narayana Murthy the galaxy of India's Entrepreneurial superstars is as drawn out as it is illustrious. Not surprisingly

60

that this years Forbes listing of the wealthiest has more billionaires additions from India than any other nation, apart from the U.S. This spoke loudly of the role of entrepreneurs in the economic Development of India. on an Economic tangent, if we were to come remotely close to that very-Elusive 'Developed' nation status then poverty has to necessarily bid adieu. Ten million jobs need to be in order by the year 2020 as estimated by CII and NASSCOM. So, Entrepreneurial contribution towards this cause assumes critical importance. Entrepreneurship was previously considered to be unknown quality of an individual and hence it was believed that entrepreneurs are born and not made. But recent studies have proved that Entrepreneurial activities can be planned and developed in an individual through creation of opportunities, extended Facilities, Allowing Incentives, Developing Competence and group sensitiveness in an individual for all those factors. In the end According to Czarniawska Georges and wolft who chose the language of theoretical performance rather than Economics to distinguish among Management, Leadership and Entrepreneurship offers a very illuminating characterization of entrepreneurship. According to him management is the activity of introducing order by coordinating flows of things and people through collective action, Leadership is symbolic performance, expressing the hope of control over destiny and entrepreneurship is quite simple: "The making of Entire new world".

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THE INCREASED IMPORTANCE OF ENTREPRENEURSHIP IN CORPORATE GOVERNANCE

The role of entrepreneurship in the economy has changed

dramatically over the last half century. During the post-World War II era, the importance of entrepreneurship and small businesses seemed to be fading away (Audretsch, 2003). Giant corporations were seen as the most powerful engine of economic and

technological progress in the early post-war period. Large firms were thought to have a competitive advantage over small and new ones, due to scale economies in the production of new economic and technological knowledge (Schumpeter, 1950). Indeed, the share of small firms in most Western economies was decreasing

constantly during this period. However, from the 1970s onwards things have changed. There is ample evidence that the share of small businesses in manufacturing in Western economies has started to rise (Acs and Audretsch, 1993; Thurik, 1999). Also, ACS Et Al. (1994) report that a majority of OECD countries experienced an increase in the self-employment rate during the 1970s and 1980s. Further evidence of a recent increase in self-employment in many OECD countries appears from EIMs data set COMPENDIA. For instance, for the United Kingdom, the number of non-agricultural self-employed (including the incorporated self-employed) as a fraction of total labour force increased from 7.8% in 1972 to 10.5%

62

in 2000, and in the United States this fraction increased from 8.0% to 10.0% in the same period (see Van Stel, 2003). There are several reasons for the revival of small business and selfemployment in Western economies. Notably, in many sectors, new technologies have reduced the necessity of scale economies to arrive at competitive advantages (Meijaard, 2001). Developments like globalization, the ICT-revolution and the increased role of knowledge in the production process have led to increased dynamics and uncertainty in the world economy from the 1970s onwards (Thurik et al., 2002). In turn, these developments have created room for (groups of) small firms to act as agents of change (Audretsch and Thurik, 2000, 2004). The larger role in technological development for small and new firms is referred to by Audretsch and Thurik (2001) as a regime switch from the managed to the entrepreneurial economy. In particular, Audretsch and Thurik argue that the model of the managed economy is the political, social and economic response to an economy dictated by the forces of large-scale production, reflecting the predominance of the production factors of capital and (unskilled) labor as the sources of competitive advantage. By contrast, the model of the

entrepreneurial economy is the political, social and economic response to an economy dictated not just by the dominance of the production factor of knowledge which Romer (1990, 1994) and Lucas (1988) identified as replacing the more traditional factors as

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the source of competitive advantage but also by a very different, but complementary, factor they had overlooked: entrepreneurship capital, or the capacity to engage in and generate entrepreneurial activity.

MEASURING ENTREPRENEURSHIP AND CORPORATE GOVERNANCE PERFORMANCE

When investigating entrepreneurship, an important question is what we understand by entrepreneurship. There is little consensus about what actually constitutes entrepreneurship (Audretsch, 2003, p. 2). This is related to the fact that it is an ill defined, at best multidimensional concept (Wennekers and Thurik, 1999). It may be argued that it covers at least three dimensions: (dealing with) risk and uncertainty, the perception of profit opportunities, and

innovation and change (Hbert and Link, 1989). Also, definitions of entrepreneurship management typically vary between the economic An and

perspectives

(Audretsch,

2003).

interesting

combination of these perspectives is reflected by the definition chosen in the Green Paper Entrepreneurship in Europe (European Commission, 2003): Entrepreneurship is the mindset and process to create and develop economic activity by blending risk-taking, creativity and/or innovation with sound management, within a new or an existing organization. For a discussion on various views on

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entrepreneurship we refer to Hbert and Link (1989) and Wennekers and Thurik (1999). Entrepreneurship has to be operational zed for empirical analysis. To this end we use entrepreneurship as a broad concept. We use several measures of entrepreneurship. Each measure represents a different aspect of entrepreneurship. In this thesis four such aspects are distinguished. First, we can think of entrepreneurship as owning and managing an incumbent business.

CORPORATE GOVERNANCE MODELS AROUND THE WORLD

Although the US model of corporate governance is the most notorious, there is a considerable variation in corporate governance models around the world. The intricated shareholding structures of keiretsus in Japan, the heavy presence of banks in the equity of German firms, the chaebols in South Korea and many others are examples of arrangements which try to respond to the same corporate governance challenges as in the US.

ANGLO-AMERICAN MODEL
There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders. The coordinated model that one finds in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers,

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and the community. Each model has its own distinct competitive advantage. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality competition. However, there are important differences between the U.S. recent approach to governance issues and what has happened in the U.K In the United States, a corporation is governed by a board of directors, which has the power to choose an executive officer, usually known as the chief executive officer. The CEO has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision making, monitoring management's performance, or corporate control. The board of directors is nominally selected by and responsible to the shareholders, but the bylaws of many companies make it difficult for all but the largest shareholders to have any influence over the makeup of the board; normally, individual shareholders are not offered a choice of board nominees among which to choose, but are merely asked to rubberstamp the nominees of the sitting board. Perverse incentives have pervaded many corporate boards in the developed world, with board members beholden to the chief executive whose actions they are intended to oversee. Frequently, members of the boards of directors are CEOs of other corporations, which some see as a conflict of interest. sons to deviate from the sound rule, they should be able to convincingly explain those to their shareholders.

CODES AND GUIDELINES

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Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect. For example, companies quoted on the London and Toronto Stock Exchanges formally need not follow the recommendations of their respective national codes. However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices. Such disclosure requirements exert a significant pressure on listed companies for compliance. In the United States, companies are primarily regulated by the state in which they incorporate though they are also regulated by the federal government and, if they are public, by their stock exchange. The highest number of companies are incorporated in Delaware, including more than half of the Fortune 500. This is due to Delaware's generally business-friendly corporate legal environment and the existence of a state court dedicated solely to business issues (Delaware Court of Chancery). Most states' corporate law generally follow the American Bar Association's Model Business Corporation Act. While Delaware does not follow the Act, it still considers its provisions and several prominent Delaware justices, including former Delaware Supreme Court Chief Justice E. Norman Veasey, participate on ABA committees.

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One issue that has been raised since the Disney decision in 2005 is the degree to which companies manage their governance responsibilities; in other words, do they merely try to supersede the legal threshold, or should they create governance guidelines that ascend to the level of best practice. For example, the guidelines issued by associations of directors (see Section 3 above), corporate managers and individual companies tend to be wholly voluntary. For example, The GM Board Guidelines reflect the companys efforts to improve its own governance capacity. Such documents, however, may have a wider multiplying effect prompting other companies to adopt similar documents and standards of best practice. One of the most influential guidelines has been the 1999 OECD Principles of Corporate Governance. This was revised in 2004. The OECD remains a proponent of corporate governance principles throughout the world. Building on the work of the OECD, other international organizations, private sector associations and more than 20 national corporate governance codes, the United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) has produced voluntary Guidance on Good Practices in Corporate Governance Disclosure. This internationally agreed benchmark consists of more than fifty distinct disclosure items across five broad categories:

Auditing Board and management structure and process Corporate responsibility and compliance Financial transparency and information disclosure Ownership structure and exercise of control rights

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The World Business Council for Sustainable Development WBCSD has done work on corporate governance, particularly on accountability and reporting, and in 2004 created an frameworks. This document aims to provide general information, a "snapshot" of the landscape and a perspective from a think-tank/professional association on a few key codes, standards and frameworks relevant to the sustainability agenda.

CORPORATE GOVERNANCE AND FIRM PERFORMANCE

In its 'Global Investor Opinion Survey' of over 200 institutional investors first undertaken in 2000 and updated in 2002, McKinsey found that 80% of the respondents would pay a premium for well-governed companies. They defined a wellgoverned company as one that had mostly out-side directors, who had no management ties, undertook formal evaluation of its directors, and was responsive to investors' requests for information on governance issues. The size of the premium varied by market, from 11% for Canadian companies to around 40% for companies where the regulatory backdrop was least certain (those in Morocco, Egypt and Russia). Other studies have linked broad perceptions of the quality of companies to superior share price performance. In a study of five year cumulative returns of Fortune Magazine's survey of 'most admired firms', Antunovich et al found that those "most admired" had an average return of 125%, whilst the 'least admired' firms returned 80%. In a separate study Business Week enlisted institutional investors and 'experts' to assist in differentiating between boards with good and bad governance and found that companies with the highest rankings had the highest financial returns.

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On the other hand, research into the relationship between specific corporate governance controls and firm performance has been mixed and often weak. The following examples are illustrative.

BOARD COMPOSITION
Some researchers have found support for the relationship between frequency of meetings and profitability. Others have found a negative relationship between the proportion of external directors and firm performance, while others found no relationship between external board membership and performance. In a recent paper Bhagat and Black found that companies with more independent boards do not perform better than other companies. It is unlikely that board composition has a direct impact on firm performance.

REMUNERATION/COMPENSATION
The results of previous research on the relationship between firm performance and executive compensation have failed to find consistent and significant relationships between executives' remuneration and firm performance. Low average levels of payperformance alignment do not necessarily imply that this form of governance control is inefficient. Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for some than for others. Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares, while other researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. The results suggest that increases in ownership above 20% cause

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management to become more entrenched, and less interested in the welfare of their shareholders. Some argue that firm performance is positively associated with share option plans and that these plans direct managers' energies and extend their decision horizons toward the long-term, rather than the short-term, performance of the company. However, that point of view came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and, in particular, the backdating of option grants as documented by University of Iowa academic Erik Lie and reported by James Blander and Charles Forelle of the Wall Street Journal. Even before the negative influence on public opinion caused by the 2006 backdating scandal, use of options faced various criticisms. A particularly forceful and long running argument concerned the interaction of executive options with corporate stock repurchase programs. Numerous authorities (including U.S. Federal Reserve Board economist Weisbenner) determined options may be employed in concert with stock buybacks in a manner contrary to shareholder interests. These authors argued that, in part, corporate stock buybacks for U.S. Standard & Poor 500 companies surged to a $500 billion annual rate in late 2006 because of the impact of options. A compendium of academic works on the option/buyback issue is included in the study Scandalby author M. Gumport issued in 2006. A combination of accounting changes and governance issues led options to become a less popular means of remuneration as 2006 progressed, and various alternative implementations of buybacks surfaced to challenge the dominance of "open market" cash buybacks as the preferred means of implementing a share repurchase plan.

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CORPORATE GOVERNANCE
SAP sees effective corporate governance as critical to achieving corporate goals and increasing the company's value. Naturally, openness about the company's corporate governance principles, practice, and structure is itself an important element in SAP's policy. SAP's corporate governance structure follows Germany's system of corporate governance. This structure separates management and supervisory functions into two distinct bodies: the Executive Board and the Supervisory Board. Since governance in Germany includes employee participation, the SAP Supervisory Board includes employee members. The German Stock Corporation Act also provides for a third body a shareholders' organization known as the General Shareholders' Meeting.

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CHAPTER-4 RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY
According to Clifford Woody-research comprises defining and redefining problems, formulating hypothesis, or suggested solutions; collecting, organizing and evaluating data, making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. The purpose of research is gaining knowledge, which will be used for solving problems (applied research) or for satisfying ones thirst for knowledge (pure research). Objective of the studyAll progress is born of inquiry. Doubt is often better than over confidence, for it leads to inquiry and inquiry leads to invention. Research is a systematic method to gain new knowledge. The purpose of research is to discover answers to questions through the application of scientific procedure. The main aim of research is to find out the truth that is hidden and has not been discovered yet. Research is thus an original contribution to the existing stock of knowledge making for its advancement. Research methodology used for the study is as follows: -

TYPE OF RESEARCH DESCRIPTIVE & ANALYTICAL RESEARCH Descriptive research includes surveys and fact findings enquiries of different kinds. The major purpose of describes research is description of the state of affairs as it exists at present. In social science and business research we quite often use the term Ex post facto research for descriptive research studies. The main

characteristic of this method is that the researcher has no control over the variable;

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he can only report what has happened or what is happening. The methods of research utilized in descriptive research are survey methods of all kinds, including comparative and correlational methods. Analytical research, on the other hand, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material.

OBJECTIVE OF THE STUDY

To study the concept of entrepreneurship To study the various aspects related to entrepreneurship in corporate governance. To study the impact of entrepreneurship in corporate governance To study the positive as well as negative factors related to corporate governance.

RESEARCH DESIGN
DESCRIPTIVE DESIGN: - It enables researchers to describe or present a picture of phenomena under investigation. The objective of this study is to answer the who, when, where & how of the subject. DATA TYPE SECONDARY DATA: Secondary data means data that are already available i.e., they refers to the data which have already been collected and analyzed by someone else. When the researcher utilizes secondary data, then he has to look into various sources from where he can obtain them.

Data Source

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Books Journals Magazines Reports and Internet.

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CHAPTER 5 FINDINGS AND ANALYSIS

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FINDINGS AND ANALYSIS

WHY NEED ENTREPRENEURSHIP IN CORPORATE GOVERNANCE To improve backwardness of the people. Economic development of the region. To analysis resource utilization. Proper utilization of human potentiality. Special attention to take up new activities. To create self-employment and generation of employment opportunity. Eradication of regional imbalances. Better economic gain. The early history of entrepreneurship in India reflect from the culture, customs and tradition of the India people. The Baliyatra Festival of Cuttack, Orissa reminiscence of past glory of International trade. To process of entrepreneurship therefore passed through the potential roots of the society and all those who accepted entrepreneurial role had the cultural heritage of trade and business. Occupational pursuits opted by the individual under the caste system received different meaning of value attached to entrepreneurship. Which is based on social sanctions. Vaishyas are considered to venture in to business pursuits. As society grew and the process of business occupation depended and the value work tended towards change and the various occupational role interchanged with non-role group and sub-groups. People from different castes and status also entered into the entrepreneurial role. The emergence of entrepreneurship in this part of the country got localized and spread effect, took its own time. The concept of growth theory seems to be closely related in explaining the theory of entrepreneurship development as well. After the Second World War

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entrepreneurship received new meaning for attaining economic development within the shortest possible time. But in the process they were seriously handicapped by the rigid institutional setup, political instability, marketing imperfection and traditional value system. Britishers for their own ulterior motive destabilized the then self-sufficient Indian economy. England flourished and India had to pay for that. In the process India suffered heavy industrial loss. Development of business eateries is a complex phenomenon influenced by both the internal and external factors. Internal factor originates in policies and attitude of the entrepreneur themselves. In controlling the business itself. External factors are beyond the control of the business entrepreneur. They alone account for unpredictability of returns and risks assumed by the entrepreneur. A steady growth can be observed on the business of long cherished history of entrepreneurial development in the country is certainly promised or the environment to be created by the state and its agencies. The entrepreneurial motivation is one of the most important factors which accelerates the pace of economic development by bringing the people to undertake risk bearing activities. In many of the developing countries a lot of attention is being paid to the development of entrepreneurship because it is not the proprietary quality of any caste and community. The entrepreneurship is usually understood with reference to individual business. Entrepreneurship has rightly been identified with the individual, as success of enterprise depends upon imagination, vision, innovativeness and risk taking. The production is possible due to the cooperation of the various factors of production, popularly known as land, labour, capital, market, management and of course entrepreneurship. The entrepreneurship is a risktaking factor, which is responsible for 80

the end result in the form of profit or loss. According to A Schumpeter The entrepreneurship is essentially a creative activity or it is an innovative function. The economic activity with a profit motive can only be generated by promoting an attitude towards entrepreneurship. The renewed interest in the development of

entrepreneurship to take up new venture should emphasize on the integrated approach. The developments of entrepreneurship will optimize the use of the unexploited resources, generate self-employment and a self sufficient economy. The young entrepreneur should be motivated to come out with determination to do something of their own and also to contribute to the national income and wealth in the economy. If the country wants to achieve the growth at the grass root level, through social justice and the crimination of poverty, it will have to provide institutional support and structural changes in organization of financial institutions to promote entrepreneurship development. Industrial development in any region is the outcome of purposeful human activity and entrepreneurial thrust. David Melelland emphasized the importance of achievement motivation as the basis of entrepreneurial personality and a cause of economic and social development through entrepreneurship by fulfilling the following needs such as 1) Need for power 2) Need for affiliation and 3) Need for achievement. Another school of thought says entrepreneurship is a function of several factors i.e. individual socio cultural environment and support system. Entrepreneurship is vibrant assertion of the facts that individual can be developed, then outlook can be changed and their ideas can be converted into action though on 81

organized and systematic program for entrepreneurs. It was also felt that systematic training can be given a better output and attracting people for taking up business venture can change economic scenario. Basic objective in developing entrepreneurship and multiplying them in the society has been to enable the society to generate productive human resource, mobilize and sustain the same in subsequent process of development. The spontaneity and continuity of the process would depend on the kind of people that can be prompted and groomed in the entrepreneurial career. Socilogists, Psychologists and economists have all attempted to give a clear picture of the entrepreneur. Sociologists analyze the characteristic of entrepreneurs in terms of caste, family, social value and migration. Psychologists on the other hand attempt to isolate entrepreneurs from general population on various personality trials such as need for achievement, creativity, propensity to take risk, independence leadership etc. Economists, lighted situational characteristics such as occupational backgrounds access to capital business and technological experience and managerial skills with economic gains considered as characteristic of entrepreneur. As entrepreneur by implication is one who ventures out, who prefers change as a means of growth and it the process is prepared to take a calculated risk while taking risks he is aware of the possibilities, success as well as the consequence of failure.

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ADVANTAGES GOVERNANCE

OF

ENTREPRENEURSHIP

IN

CORPORATE

Every successful entrepreneur brings about benefits not only for himself/ herself but for the municipality, region or country as a whole. The benefits that can be derived from entrepreneurial activities are as follows: 1. Enormous personal financial gain 2. Self-employment, offering more job satisfaction and flexibility of the work force 3. Employment for others, often in better jobs 4. Development of more industries, especially in rural areas or regions disadvantaged by economic changes, for example due to globalisation effects 5. Encouragement of the processing of local materials into finished goods for domestic consumption as well as for export 6. Income generation and increased economic growth 7. Healthy competition thus encourages higher quality products 8. More goods and services available 9. Development of new markets 10. Promotion of the use of modern technology in small-scale manufacturing to enhance higher productivity 11. Encouragement of more researches/ studies and development of modern machines and equipment for domestic consumption 12. Development of entrepreneurial qualities and attitudes among potential entrepreneurs to bring about significance changes in the rural areas 13. Freedom from the dependency on the jobs offered by others

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14. The ability to have great accomplishments 15. Reduction of the informal economy 16. Emigration of talent may be stopped by a better domestic entrepreneurship climate

THE FUTURE OF ENTREPRENEURSHIP

Both the Central Government and various State Governments are taking increased interest in promoting the growth of entrepreneurship. Individuals are being encouraged to form new businesses and are being provided such government support as tax incentives, buildings, roads, and a communication system to facilitate this creation process. The encouragement by the central and state governments should continue in future as more lawmakers are realizing that new enterprises create jobs and increase the economic output of the region. Every state government should develop its own innovative industrial strategies for fostering entrepreneurial activity and timely development of the technology of the area. The states should have their own state-sponsored venture funds, where a percentage of the funds has to invested in the ventures in the states. Societys support of entrepreneurship should also continue. This support is critical in providing both motivation and public support. A major factor in the development of this societal approval is the media. The media should play a powerful and constructive role by reporting on the general entrepreneurial spirit in the country highlighting specific success cases of this spirit in operation. Finally, large companies should show an interest in their special form of entrepreneurship-intrapreneurship-in the future. These companies will be increasingly interested in capitalizing on their Research & Development in the hyper competitive business environment today.

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CHANGING FACE OF ENTREPRENEURSHIP

The role of entrepreneurship in the corporate governance of a country or region is often overlooked. In any case, it is not given the importance that it deserves, particularly in economic literature. In fact, until recently, economists were reluctant to rely on entrepreneurship as a possible determinant of economic outcome. A standard economic explanation, if it is at all important, stems from testable hypotheses and quantifications. Cultures and traditions are vague in determining economic outcomes although the same situations are tackled in economic literature with the help of multiple equilibrium conditions. Even then the explanations are incomplete. For example, within a geographical boundary, sufficient connections between socio-cultural values and economic outcomes are observed. More specifically, at the household level often economic decisions are made in accordance with beliefs and traditions. For example, the choice of schools/colleges, professions to be taken up or to live in a particular area are not determined simply by economic decisions. In many of these situations ethnicity may play an important role. In India, the government realized the importance of entrepreneurship and set up institutions at the national and State levels to develop entrepreneurship and also to provide assistance to first generation entrepreneurs. Though it is difficult to arrive at a firm conclusion on the creation of a new generation of entrepreneurs, the need to do it is clearly established.

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Successful entrepreneurship requires more than merely luck and money. It is a cohesive process of planning, idea development, creativity and risk taking. The main reasons for studying entrepreneurship at postgraduate level are to create entrepreneurial awareness, to develop analytical and creative skills, and to encourage the self-development of students into entrepreneurial business owners or employees. The study of entrepreneurship and innovation has grown significantly throughout the world over recent decades, and is now one of the most popular subjects within leading business schools. As noted in the 2003 European Unions Green Paper on Entrepreneurship: Entrepreneurship is first and foremost a mindset. It covers an individuals motivation and capacity, independently or within an organization, to identify an opportunity and to pursue it in order to produce new value or economic success. It takes creativity or innovation to enter and compete in an existing market, to change or even to create a new market. To turn a business idea into success requires the ability to blend creativity or innovation with sound management and to adapt a business to optimize its development during all phases of its life cycle. This goes beyond daily management: it concerns a business ambitions and strategy. Small firms currently provide employment for about 70% of the entire workforce in Japan and Taiwan and comprise around 98% of all businesses across the APEC member countries. They are also a major source of income and opportunity for families including women within the APEC region. There is no presumption, however, that entrepreneurship can be taught, because entrepreneurs have their own peculiar way of doing things. A distinction also needs to be made between the entrepreneur, being enterprising and small business management. Each of these things can be quite different. Entrepreneurs can lead large 86

companies - e.g. Richard Branson or Bill Gates but most start out leading small firms with little initial capital. Entrepreneurship is frequently associated with innovation. For example, Schumpeter identified the role played by entrepreneurs within society as responsible for what he described as creative destruction, frequently leading radical changes within business markets through the introduction of innovations.2 However, while innovation is often associated with entrepreneurs it remains a separate concept with its own dynamics. Innovations can involve radical or evolutionary changes and may or may not involve technology. Within business, innovation is usually associated with product or process technologies that serve to add value or lower costs. Innovation can also involve enhancements to the way a business system is structured, work places are designed, markets are accessed or company finances are managed. Innovators can be equally diverse and those who can blend innovation together with entrepreneurship are likely to profoundly shape the future of their industries.

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PRINCIPLES OF ENTREPRENEURSHIP IN CORPORATE GOVERNANCE

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. Commonly accepted principles of corporate governance include:

RIGHTS AND EQUITABLE TREATMENT OF SHAREHOLDERS : Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.

INTERESTS OF OTHER STAKEHOLDERS: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.

ROLE AND RESPONSIBILITIES OF THE BOARD : The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment 88

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

INTEGRITY AND ETHICAL BEHAVIOUR: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.

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

ISSUES

INVOLVING

CORPORATE

GOVERNANCE

PRINCIPLES

INCLUDE:

internal controls and the independence of the entity's auditors oversight and management of risk oversight of the preparation of the entity's financial statements

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review of the compensation arrangements for the chief executive officer and other senior executives

the resources made available to directors in carrying out their duties the way in which individuals are nominated for positions on the board dividend policy

Nevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. In India, a strident demand for evolving a code of good practices by the corporation, written by each corporation management, is emerging.

MECHANISMS AND CONTROLS

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behavior, an independent third party attests the accuracy of

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information provided by management to investors. An ideal control system should regulate both motivation and ability.

INTERNAL CORPORATE GOVERNANCE CONTROLS

Internal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include:

MONITORING BY THE BOARD OF DIRECTORS: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria.

BALANCE OF POWER: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can

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veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met.

REMUNERATION: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.

EXTERNAL CORPORATE GOVERNANCE CONTROLS

External corporate governance controls encompass the controls external stakeholders exercise over the organization. Examples include:

competition debt covenants demand for and assessment of performance information (especially financial statements)

government regulations managerial labour market media pressure takeovers

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SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE

Demand for information: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgements of larger professional investors.

Monitoring costs: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.

Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

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CHAPTER 6 CONCLUSION

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CONCLUSION
THE ENTREPRENEURSHIP VS. CORPORATE WORLD The debate regarding working in a corporate environment versus becoming an entrepreneur is sure to get a large readership response these days. Everyone wants to know whats better? and why, and everyone has an opinion. The philosophical arguments are fun to listen to and evaluate, but at the end of the day, we all make choices about where and how we work, based on our individual circumstances, talents, skills, abilities, desires and fears. Much of the pro-entrepreneur supporters promote the glory of doing what you like, when you like, and the freedom to make your own schedule. Perfectly valid arguments. The pro-corporate supporters point out that access to important resources, education, and information is hugely facilitated by corporate environments. Again, perfectly valid arguments. Im a firm believer that each person decides upon a lifestyle, and makes all subsequent decisions in order to support their preferences. Even the failure to choose a career and lifestyle is a decision and model now trumpeted as Slacker. True happiness does not exist just because you are an entrepreneur or a corporate employee. There are always tradeoffs in any situation and environment.

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I moved from being an entrepreneur to a corporate environment and back several times in the course of my career. During this time I also changed my country of residence from the USA to Mexico. Every change was better, and more importantly allowed me to move closer to my lifestyle goal. But none of changes gave me more time, or more money, or more stability. Each change provide me with more of what I required at that time, but each had a price. People dont make changes unless they are unsatisfied with the current situation. To make job and career changes in your life requires an adjustment and modification of many other actions. Its never all good, and its never all bad. Next time you ponder leaving the corporate world to fly as an entrepreneur, give some serious thought to what you will be giving up as you reach for the new opportunity to change. Determine what exactly is so attractive about changing jobs and job titles. Are you just day dreaming and caught in a grass is always greener scenario? Is the new lifestyle you wish create worth the sacrifice and risk? Everyone is able to accept success, but are you willing to accept failure? Could you achieve or move closer to your goals in your present situation?

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HOW CORPORATE ENTREPRENEURS LEARN FROM FLEDGLING INOVATION INITIATIVES: Cognition and the development of a termination script. Through a parallel examination of literatures on new product development termination and entrepreneurial cognition, this study explores a specific form of human capital development: learning from failure. Specifically we advance the literature on entrepreneurial human capital by linking cognitive scripts used by corporate entrepreneurs in project termination decisions to corresponding levels of learning. Our longitudinal investigation of technology-based firms suggests that corporate entrepreneurs use three types of termination scripts: (1) undisciplined termination, (2) strategic termination, and (3) innovation drift. We illustrate the presence of each script and analyze learning implications during innovation projects (action learning) and after termination (postperformance learning). Based on our analysis we suggest that organizational learning is dependent upon the type of termination script individuals employ. Because of the strong impact that new product development has on the organization, the decision to proceed with or terminate a product development initiative is one of the most important but difficult decisions in corporate entrepreneurship. Product development initiatives may be ended too quickly, resulting in unrealized potential, or may be held on for too long, resulting in prolonged commitment to a losing course of action. This importance is underscored by the fact that failed new ventures can constrain a company's resources for decades and cost hundreds of millions of dollars In addition, a large percentage--between 25% and 35% f new product development 97

efforts end in failure. In a 4-year study of new product development at Nokia, McGrath, Keil, and Tukiainen found that 70% of corporate venturing investments from 1998 to 2002 were either discontinued or completely divested. In response, there is an emerging research stream that focuses upon learning from failure. It has been suggested that failure, specifically in the context of new product development and corporate entrepreneurship, provides valuable learning opportunities such as a greater emphasis on innovation processes, increased search for solutions, additional motivation for adaptation, greater attention to information processing, an increased risk tolerance, and greater experimentation. However, we know very little about how corporate entrepreneurs make termination decisions and how they capitalize upon the potential learning from these failed initiatives. To facilitate understanding, we turn to a cognitive perspective. In entrepreneurship, the cognitive perspective has gained strength over the past decade because it demonstrates the importance of an individual's knowledge structures to judgments and decisions involving opportunity evaluation, venture creation, and the successful growth of new ventures (Mitchell et al., 2002). The cognitive perspective is especially applicable to learning from failure, as the literature has shown that entrepreneurs are more likely to engage in decision-making biases and heuristics such as counterfactual thinking; attribution of positive outcomes to internal causes and negative outcomes to external causes; underestimation of the time required to complete a project; and selfjustification for escalation of commitment. Of particular relevance to the study of failure is the research on cognitive scripts--the process of ordered mental steps pertinent to a particular action, activity, or field of interest because scripts provide a theoretical framework from which to organize the seemingly disparate decisions made by corporate entrepreneurs. 98

In this study we explore the intersection between new product development failures and entrepreneurial cognition in order to acquire a deeper understanding of the processes associated with project termination and the resulting actions that may lead to increased organizational learning. As such, and as part of a larger research program that investigated how large corporations could build a sustainable capability for developing innovative new ventures, we explored the cognitive scripts used by corporate entrepreneurs to terminate failing new product development ventures. Additionally, we illustrate the presence of each script and analyze learning implications. We focus on the role of the corporate entrepreneurs because corporate entrepreneurs are seen as critically important to the innovation process as they make strategic choices concerning which markets to invest in, which projects to select, and how to allocate resources. In addition, the cognitions of the lead entrepreneur strongly affect the organization's belief about new product development. This report reports our iterative journey from our initial theoretical framework, through qualitative inquiry--a process of balancing theoretical discipline with openness to additional interpretation--to final theory building. We begin by exploring three research precedents (termination of new product development initiatives; failure as an opportunity to learn; and entrepreneurial cognition) that influenced our initial theorizing. Next, we explain our methodology and the 3-year longitudinal investigation of new product development in 11 of the world's largest technologybased firms. We then present our findings, which suggest that corporate entrepreneurs use three specific cognitive scripts (undisciplined termination, strategic termination, and innovation drift) when making project termination decisions. Finally, we demonstrate how these scripts may lead to varying types and amounts of 99

organizational learning. Based upon our analysis we define and detail how these findings contribute to understanding the role of human capital in technologically intensive corporate entrepreneurial settings.

THEORETICAL DEVELOPMENT Our theoretical development draws on three existing literature streams (1) termination of new product development initiatives; (2) failure as an opportunity to learn; and (3) entrepreneurial cognition--as research precedents for our study. Termination of New Product Development Initiatives it is difficult to overestimate the value of new product development, especially in highly dynamic markets with increasing levels of competition, high technical obsolescence, and short product life cycles (Griffin, 1997). In the Product Development & Management Association's study of new product development best practices, found that 49% of firm sales came from products commercialized over the previous 5 years. However, new product development is an inexact science with a large percentage of new initiatives failing prior to launch. One of the first studies exploring new product development success rates indicates that approximately 33% of new product development initiatives fail. Other research provides similar results, with Boulding et al. reporting a range of 2535% as unsuccessful; reporting a failure rate of 36%; and both Page reporting that 41% of new development initiatives are unsuccessful. Thus, even though a significant amount of research has focused on how to improve the product development process, the rate of failure in new product development initiatives has remained relatively stable over time.

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Because at least one-third of new initiatives fail, a significant responsibility for corporate entrepreneurs is to understand new product development termination processes and how firms can learn from failed initiatives, top performing product development firms place significant concern on having the right balance of projects and the right number of projects. In order to maintain this optimum balance of number and type of project, corporate entrepreneurs must make termination decisions regarding failing or poorly performing initiatives. propose that "... projects that should have been abandoned during development sometimes proceed through

commercialization only to fail in the market at substantially higher costs...." Although the costs of failure are high, the real "failure" may be in not learning from previous failures and applying that knowledge to future initiatives

FAILURE AS AN OPPORTUNITY TO LEARN

Following McGrath's lead, we define failure as "the termination of an initiative that has fallen short of its goals". Therefore, failure results when corporate entrepreneurs make the decision to terminate an ongoing new product development initiative. In his work concerning learning through failure, argues that "failure is an essential prerequisite for effective organizational learning and adaptation." The old adage "grief is far too an important emotion to waste" seems applicable to failure. In a sense, failure is far too expensive to waste--especially when it encompasses one-third of new development initiatives! An anti-failure bias may lead to the loss of important lessons and result in unanticipated negative consequences such as misrepresentation of causal connections, competence traps, reduced incentive to take action, and defensive routines. Learning

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from failure in new product development allows organizations to "improve new product developments projects and avoid earlier made mistakes". What then determines whether a firm has the ability to stop failing projects and learn from the failed process?

COGNITION IN THE LEARNING PROCESS Previous research indicates that cognition is important to understanding the continuation/termination decisions of the corporate entrepreneur. Researchers have argued for some time that an understanding of the mental processes of entrepreneurs will enable researchers to build a well-grounded foundation toward systematically explaining the individual's role within the process of entrepreneurship. These authors explain that "entrepreneurial cognitions are the knowledge structures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth". Here, we seek to extend this line of research by examining cognitions within the process of learning from failure. Cognitive dimensions that have been related to termination decisions include perception of personal responsibility and commitment; attribution bias; championing; and advocacy and unobserved performance thresholds . For example, "managers who initiate a project are less likely to perceive it is failing, are more committed to it, and are more likely to continue funding it...." While we have learned a great deal from this previous research, the difficulty in "killing bad projects" usually comes down to a more human impulse: an individual's desire to believe in something (the success of the new venture). She explains that organizations lose money persisting after new ventures that show classic signs of failure because of cognitive beliefs that begin at the individual level and move to the 102

organizational level. "This sentiment typically originates, naturally enough, with a project's champion; it then spreads throughout the organization, often to the highest levels, reinforcing itself each step of the way. How then do corporate entrepreneurs make termination decisions and take advantage of the learning that could occur from these failed initiatives? which highlights the importance of cognition to termination. which suggests that cognitive scripts are integral to new venture creation, provides an important theoretical foundation from which to study this question. Cognitive scripts, specifically ability scripts, refer to an individual's knowledge structures concerning the capabilities, skills, and knowledge required to create a new venture.

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CHAPTER 7 SUGGESTIONS AND RECOMMENDATIONS

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SUGGESTIONS AND RECOMMENDATIONS

Corporations are the prominent players in the global markets. They are mainly responsible for generating majority of economic activities in the world, ranging from goods and services to capital and resources. The essence of corporate governance is in promoting and maintaining integrity, transparency and accountability in the management of the company as well as in manifestation of the values, principles and policies of a corporation. Many efforts are being made, both at the Centre and the State level, to promote adoption of good corporate governance practices, which are the integral element for doing and managing business. However, the concepts and principles of good governance are still not clearly known to the Indian business set up. Hence, there is a greater need to increase awareness among entrepreneurs about the various aspects of corporate governance. There are some of the areas that need special attention, namely:

Quality of audit, which is at the root of effective corporate Penance; Role of Board of Directors as well as accountability of the CEOs and CFOs; Quality and effectiveness of the legal, administrative and regulatory framework; etc.

That is, it is necessary to provide the corporate desired level of comfort in compliance with the code, principles and requirements of corporate governance; as well as provide relevant information to all stakeholders regarding the performance, policies and procedures of the company in a transparent manner. There should be proper

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financial and non-financial disclosures by the companies, such as, about remuneration package, financial reporting, auditing, internal controls, etc.

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CHAPTER 8 LIMITATIONS

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LIMITATIONS

Difficulty to find secondary data that exactly the needs of some specific research investigation. The facilities or capabilities of the agency that originally collected the data might be questionable. Difficulties in the identification of the source. Accuracy: It is observed that it is rather difficult to measure the degree of approximation used in the collection of information as well as the competence of the investigator in motivating the persons to supply the desired information. Error may be there in recording or transferring information from secondary sources.

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