ASSIGNMENT ON CORPORATE GOVERNANCE

SUBMITTED TO: SUBMITTED BY: Mr. MANOJ SHARMA N SRINIVASA RAO G SEC- B ROLL NO: 120.

WHAT IS 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. Corporate governance in terms of a system of structuring, operating and controlling a company with a view to achieving 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. Corporate Governance philosophy stems from our belief that corporate governance is a key element in improving efficiency and growth as well as enhancing investor confidence.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth. 2. Strong corporate governance maintains investors confidence, as a result of which, company can raise capital efficiently and effectively. 3. It lowers the capital cost. 4. There is a positive impact on the share price. 5. It provides proper inducement to the owners as well as managers to achieve objectives that

are in interests of the shareholders and the organization. 6. Good corporate governance also minimizes wastages, corruption, risks and mismanagement. 7. It helps in brand formation and development. 8.It ensures organization in managed in a manner that fits the best interests of all.

EXPERTS VIEW ON CORPORATE GOVERNANCE: A) BRIAN COYLE: Major corporate scandals in recent years have highlighted the need for companies to maintain high levels of corporate governance. This major new reference work covers all aspects of corporate governance, providing up-to-date guidance and practical advice for companies, investors and their advisors. The detailed commentary is divided into a series of chapters devoted to the issues at the heart of corporate governance: 1. 2. 3. 4. The role of company directors The composition of boards, including the role of non-executive directors Directors remuneration Shareholder relations

B) VASUDHA JOSHI The Indian Scenario Corporate governance is part of an economy's system, which has today become the most important mechanism for resource allocation. It is affected by capital market, block holders, institutional investors, proxy wars, company law and capital market regulations, and many other macro-economic as well as political factors. Historical evolution of corporate governance naturally has a bearing on current developments. This book is an attempt to weave these factors together coherently. Much of the concerned literature revolves around the agency problem, while in developing countries expropriation of small shareholders is the governance problem. However, shareholder activism is not likely to resolve the issue. Many more measures, from audit committees of the board, rigorous disclosures, exercise of voting rights by institutional investors, strict monitoring by capital market regulator to takeover bids are required to ensure corporate accountability. Corporate governance is part of an economy's system, which has today become the most important mechanism for resource allocation. It is affected by capital market, block holders, institutional investors, proxy wars, company law and capital market regulations, and many other macro-economic as well as political factors. Historical evolution of corporate governance naturally has a bearing on current developments.

C) SOLOMAN Traditional corporate governance models have tended to be finance dominated and play a role in aligning the interests of shareholders and company management. This type of governance is often referred to as the shareholder model and focuses on the maximization of shareholder wealth and profitability. Recent times have seen the emergence of another model of corporate governance that requires companies to be not only accountable to their shareholders but also to their stakeholders. Stakeholders can include employees, customers, suppliers, society and the environment. This much more inclusive way of treating corporate governance and tends to be referred to as the stakeholder model. The stakeholder model is attracting greater attention, as issues of accountability and corporate social responsibility are brought to the forefront of policy and practice in the UK and elsewhere This is evidenced in the recent overhaul of company law in the United Kingdom as Section 172 of the Companies Act 2006 states that: A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole A. Institution-building for a market economy In a market economy, private corporations raise funds from investors and, combining these funds with other inputsnotably labor and land, conduct business. Their objective is simple: to seek profits. The recognition of the vital role and superior performance of private sector corporations in economic growth was a powerful

motivator for widespread privatization in many developed and developing economies in the last 2 decades. In transition countries, a transfer of corporate ownership on an unprecedented scale was undertaken in the context of economic transformation over the last ten years. In order for these countries to develop an efficient and competitive corporate sector, privatization is rightly considered an indispensable step. It has been undertaken in more or less all of them, but its implementation has been uneven. B. Efficient allocation of capital Corporate governance is closely related to corporate finance and investment. Under communism, corporations depended entirely on the government for their investment needs. In contrast, in a market economy, they have to raise funds from the public directly or indirectly through financial institutions; and/or generate enough earnings to fund their own development.

The public and the financial institutions provide their money to corporations not as a gift but in expectation of sufficient financial returns. In seeking maximum returns, fund providers try to discipline corporate managers to work for their interests. C. Promotion of foreign investment Because of the relative scarcity of domestic savings, development and transition economies need to raise funds from foreign countries. The establishment of proper corporate governance has become increasingly important in this

context, as foreign investors tend to put greater importance in selecting their investments.

Principles Of Corporate Governance

The OECD (Organization for Economic CoOperation and Development) Principles of Corporate Governance states: "Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined." While the conventional definition of corporate governance and acknowledges the existence and importance of 'other stakeholders' they still focus on the traditional debate on the relationship between disconnected owners (shareholders) and often self-serving managers. Indeed it has been said, rather ponderously, that corporate governance consists of two elements: The long-term relationship, which has to deal with checks and balances, incentives for manager and communications between management and investors; The transactional relationship, which involves dealing with disclosure and authority. The OECD Principles of Corporate Governance

cover five aspects: A) The rights of shareholders B) The equitable treatment of shareholders C) The role of stakeholders D) Disclosure and transparency E) The responsibility of the board These principles can be used by a nation state to design its own corporate governance rules. Auditors may use them to assess the adequacy of any corporate governance regime in the absence of more immediate standards. WHAT ARE THE PRINCIPLES OF GOOD CORPORATE GOVERNANCE? The 1992 Cadbury Report includes a Code of Best Practice for companies, which is built around the principles of accountability, probity and transparency. These principles, along with the concept of equity, became the benchmark for good corporate governance. They were reinforced by the public sector equivalent. From these foundations other organizations have developed their own ideas of what good corporate governance looks like. The Organization for Economic and Co-operation and Development PRINCIPLES OF CORPORATE GOVERNANCE has gained worldwide recognition as an international benchmark for good corporate governance. The revision of the principles in 2004 takes into account the lessons learnt from a number of governance failures. The UK Independent Commission for Good Governance in Public

Services is ed a Governance Standard in 2005, which sets out core principles of good corporate governance. The document provides a list of supporting principles and a number of practical applications.

The tables not only show us that governance is about direction, structure, and process and control it also about the behavior of the people who own and represent the organization and the relationship that the organization has with society. Key elements of good corporate governance therefore include honesty and integrity, transparency and openness, responsibility and accountability. Many people believe that organizations have a moral duty to stakeholders: employees, local communities, customers as well shareholders and institutional investors.

5.Corporate governance of
Satyam:Set up in the year 1987 to provide services in IT sector. On 26th August 1991 it was converted into a Public Limited Company and went for PUBLIC ISSUE in 1992.In 2001, The American depositary shares (ADS) of Satyam Computer Services on May 16 was listed at .16 $ on the New York Stock Exchange (NYSE) at a premium of 14.9 per cent to the offer price. Fraud: Total fraud amount was 7136 crores. Details of cash balances with Scheduled banks were not there in the Annual report.Companies have to keep bank statements for the current and preceding years at registered offices. It is suspected that the files vanished, as they would have given away the fraud. The Indian Government has decided to take direct action to looking at a salary bailout for the 53,000 Satyam Computer Services employees. A Rs. 2,000 crore package is under consideration to ensure that Satyam employees get their salary on time after it the new board said that they are looking for funds. The government is looking at giving three installments of Rs 500 crore to Satyam for the next three months and is planning another infusion of about Rs 400 crore.

Bhopal Gas: Disaster: 45 tons of Methyl Isocyanate (MIC) gas escaped from two underground storage tanks at a Union Carbide pesticide plant. Among the 500,000 people exposed to the gas: 20,000 have died till date 1,00,000 to 2,00,000 continue to suffer Out of every 3 children born after the Bhopal disaster, only 1 survived. Bhopal continues to suffer the environmental contamination produced by the release of MIC. Responsible care: The industry creates products and services that makes life better for people around the world- both today and tomorrow. The benefits of the industry are accompanied by enduring commitments to responsible care in the management of chemicals worldwide. It will make continuous progress towards the vision of no accidents, injuries or harm to the environment and will publicly report our global health, safety and environmental performance. It will lead the companies in ethical ways that increasingly benefit society, the economy and the environment while adhering to the following principles. WORLDCOM:

WorldCom is a telecommunications company, which was lead by CEO, Bernard Ebbers, and CFO, Scott Sullivan. -In 1999, WorldCom was not meeting Wall Streets revenue and earnings expectations, and it appeared that the coming year would produce more bad news. Beginning modestly in mid-year 1999 and continuing at an accelerated pace through May 2002, the company (under the direction of Ebbers (CEO) and Sullivan (CFO)) used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldComs stock. The fraud was accomplished primarily in two ways: Underreporting line costs (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them. Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts.Over the five quarters leading up to July 2002, WorldCom misclassified almost $4 billion of telecoms-maintenance costs as capital spending that could be depreciated over several years, not one. This egregious error is even more offensive to common sense than Enron's use of off-balancesheet vehicles.