INTRODUCTION

Corporate governance is "the system by which companies are

directed and controlled". It involves regulatory and market

mechanisms, and the roles and relationships between a

company’s management, its board, its shareholders and other

stakeholders, and the goals for which the corporation is

governed. In contemporary business corporations, the main

external stakeholder groups are shareholders, debt holders,

trade creditors, suppliers, customers and communities affected

by the corporation's activities. Internal stakeholders are the

board of directors, executives, and other employees.

Historical Background In India, SEBI and CII have been in the forefront to introduce better

governance in the corporate sector specially for listed companies. In 1988’s, a CII Committee under the Chairmanship of Shri Rahul Bajaj published a report on Corporate Governance. Later SEBI constituted a committee to formulate the Code of Corporate Governance under the Chairmanship of Shri Kumarmangalam Birla (Member of SEBI Board) to promote and raise the standards of Corporate Governance in respect of listed companies. The recommendations of SEBI Committee on Code of Corporate Governance infact were given a legal shape by inclusion of Clause 49 of the Listing Agreement, with stock exchanges and issuing guidelines for investors’ protection etc. Thus enforcement of Corporate Governance has been through introducing new provisions in various laws.

What is Corporate Governance?

According to Cadbury, the “corporate governance is a system by which companies are directed and controlled .” It goes on to say that: “Board of Directors are responsible for the governance of their companies. The shareholders role is to appoint the directors and the auditors and to satisfy themselves that appropriate governance is in place”.

Some Definitions

1. “Good corporate governance practices instill in companies the essential vision, processes, and structures to make decisions that ensure longer-term sustainability. More than ever, we need companies that can be profitable as well as achieving environmental, social, and economic value for society.”

-Rachel Kyte | Vice President, Business Advisory Services, IFC

2. “Good corporate governance is the glue that holds together responsible business practices, which ensures positive workplace management, marketplace responsibility, environmental stewardship, community engagement, and sustained financial performance. This is even more true now as we work worldwide to restore confidence and promote economic growth.”

-Thierry Buchs (head, private sector development division of Switzerland’s state secretariat For economic affairs (seco)

A balancing act

Principles of corporate governance

• Principles of corporate governance• Interests of other stakeholders• Role and responsibilities of the board• Integrity and ethical behavior• Disclosure and transparency

Main Objective of Corporate Governance

• To make the markets safe and investors friendly• To provide investor protection• To empower the shareholders• To provide greater value to their holdings

The primary objective is entity’s growth and shareholders prosperity.

Mechanisms and controls Internal corporate

governance controls• Monitoring by the board of

directors• Internal control procedures

and internal auditors• Balance of power• Remuneration Performance• Monitoring by large

shareholders• Banks and other large

creditors

External corporate governance controls

• Competition• Debt covenants• Demand for and

assessment of performance information

• Government regulations• Managerial labour market• Media pressure• Takeovers

CONCLUSIONThe quality of corporate governance is often reflected in thequality of decision making. Public sector bodies mustcombine reliable information produced by ‘hard’ systems andprocesses with the ‘softer’ issues of openness and integrity toinform their judgment on key decisions. The more open andhonest organisations are with themselves about theirperformance, the more open and honest they can be withservice users and the public. This honesty is the foundationfor deciding appropriate action to remedy poor performance.Better quality services are then more likely; improvedperformance and being more open will increase public trust.