CHAPTER IINTRODUCTION

Corporate governance is the new buzzword or rather a concept in corporate management that is yet to catch up in India but that has the potential to significantly improve corporate performance. In the case of corporate governance shareholders is considered as god. Corporate governance has assumed significance in India because it has been given importance by institutions like, World Bank.The focus on improving corporate governance and enhancing shareholder wealth is relatively new in India. Earlier, the managements were least concerned with how the shareholders were benefited from the companys performance. The role of company was to pay dividends and hold annual general meeting. There was minimum communication between company management and shareholders. Investors had to depend on news reports to get information about their companies. But all these have changed now.Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general. However, the concept of corporate governance is poorly defined because it potentially covers a large number of distinct economic phenomenon. As a result different people have come up with different definitions that basically reflect their special interest in the field. It is hard to see that this 'disorder' will be any different in the future so the best way to define the concept is perhaps to list a few of the different definitions rather than just mentioning one definition.Corporate Governance is the system, set of processes, customs, policies, and laws by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board of directors management, shareholders and other stakeholders (include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large) and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.Corporate Governance issues are receiving greater attention in both developed and developing countries as a result of the increasing recognition that a firm's corporate governance affects both its economic performance and its ability to access long-term, low-cost investment capital. Numerous high-profile cases of corporate governance failure have focused the minds of governments, companies and the general public on this issue.

Moreover, the whole issue of corporate governance became a matter of concern especially because of major shifts in public opinion and societal change on an international scale, together with the strategic requirements of newly emergent forms of business structure, new technologies, globalization and new forms of competition and particularly the investment by the foreign financial institutions in the emerging markets. In other words, when investments take place across national borders, the investors want to be sure that not only is their capital handled effectively and adds to the creation of wealth, but the business decisions are also taken in a manner which is not illegal or involving moral hazard. Corporate governance therefore calls for four factors:

a) To build up an environment of trust and confidence amongst those having competing and conflicting interest b) Transparency in decision-making c) Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or not taken, and d) The accountability is for the safeguarding the interests of the stakeholders and the investors in the organization.

Thus, Corporate Governance is a set of rules stipulated for according due weight-age to foster ethical behavior which would help in enhancing the reputation. Thus the code of Governance is as applicable to individuals; the same is also applicable to Corporate.

Definition Of 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, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.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 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 the international organizational environment; 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 centered on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause. 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, 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.HistoryIn the 19th century, state corporation lawless 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) 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 "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 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. 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.

CHAPTER IICOMPANY PROFILEINDIA INFOLINE LTD.The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoIe bonds and other small savings instruments to loan products and Investment banking. India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.com

The company has a network of 758 business locations (branches and sub-brokers) spread across 346 cities and towns. It has more than 800,000 customers.India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are offered to clients as different schemes, which are based on differing investment strategies made to reflect the varied risk-return preferences of clients.

India Infoline Media and Research Services Limited.The content services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. Revenue generation is through the sale of content to financial and media houses, Indian as well as global.It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. India Infoline's research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where India Infoline is amongst the most read Indian brokers.

India Infoline Commodities Limited.India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Our experience in securities broking empowered us with the requisite skills and technologies to allow us offer commodities broking as a contra-cyclical alternative to equities broking. We enjoy memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. We have a multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities.

India Infoline Marketing & ServicesIndia Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.(a) India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking. We have applied to IRDA for the insurance broking license and the clearance for the same is awaited. Post the grant of license, we propose to also commence the general insurance distribution business.

India Infoline Investment Services LimitedConsolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singapore-based investment institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused expansion and capital raising in the said subsidiaries for various lending businesses like loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. India Infoline Investment Services Private Limited consists of the following step-down subsidiaries.(a) India Infoline Distribution Company Limited (Distribution of Retail Loan Products)(b) Money line Credit Limited (Consumer Finance)(c) India Infoline Housing Finance Limited (Housing Finance)

IIFL (Asia) Pte LimitedIIFL (Asia) Pte Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.

Products and ServicesWe are a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology.EquitiesIndia Infoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to India Infoline. India Infoline leveraged technology to bring the convenience of trading to the investors location of preference (residence or office) through computerized access. India Infoline made it possible for clients to view transaction costs and ledger updates in real time. PMSOur Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. We at India Infoline invest your resources into stocks from different sectors, depending on your risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio.ResearchSound investment decisions depend upon reliable fundamental data and stock selection techniques. India Infoline Equity Research is proud of its reputation for, and we want you to find the facts that you need. Equity investment professionals routinely use our research and models as integral tools in their work.CommoditiesIndia Infolines extension into commodities trading reconciles its strategic intent to emerge as a one-stop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Companys commodities business provides a contra-cyclical alternative to equities broking. The Company was among the first to offer the facility of commodities trading in Indias young commodities market (the MCX commenced operations only in 2003). Average monthly turnover on the commodity exchanges increased from Rs. 0.34 bn to Rs 20.02 bn. The commodities market has several products with different and non-correlated cycles. On the whole, the business is fairly insulated against cyclical gyrations in the business.MortgagesDuring the year under review, India Infoline acquired a 75% stake in Money tree Consultancy Services to mark its foray into the business of mortgages and other loan products distribution. The business is still in the investing phase and at the time of the acquisition was present only in the cities of Mumbai and Pune. The Company brings on board expertise in the loans business coupled with existing relationships across a number of principals in the mortgage and personal loans businesses. India Infoline now has plans to roll the business out across its pan-Indian network to provide it with a truly national scale in operations. Invest OnlineIndia Infoline has made investing in Mutual funds and primary market so effortless. All you have to do is register with us and thats all. No paperwork no queues and No registration charges.INVEST IN MF India Infoline offers you a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly.APPLY IN IPOsYou could also invest in Initial Public Offers (IPOs) online without going through the hassles of filling ANY application form/ paperwork. SMSStay connected to the marketThe trader of today, you are constantly on the move. But how do you stay connected to the market while on the move? Simple, subscribe to India Infoline's Stock Messaging Service and get Market on your Mobile!

There are three products under SMS Service: Market on the move. Best of the lot. VAS (Value Added Service

InsuranceAn entry into this segment helped complete the clients product basket; concurrently, it graduated the Company into a one-stop retail financial solutions provider. To ensure maximum reach to customers across India, we have employed a multi pronged approach and reach out to customers via our Network, Direct and Affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service providers commenced operations aggressively and helped grow the market.

The Companys entry into the insurance sector derisked the Company from a predominant dependence on broking and equity-linked revenues. The annuity based income generated from insurance intermediation result in solid core revenues across the tenure of the policy. Wealth Management ServiceImagine a financial firm with the heart and soul of a two-person organization. A world-leading wealth management company that sits down with you to understand your needs and goals. We offer you a dedicated group for giving you the most personal attention at every level.NewslettersThe Daily Market Strategy is your morning dose on the health of the markets. Five intra-day ideas, unless the markets are really choppy coupled with a brief on the global markets and any other cues, which could impact the market. Occasionally an investment idea from the research team and a crisp round up of the previous day's top stories. That's not all. As a subscriber to the Daily Market Strategy, you even get research reports of India Infoline research team on a priority basis.The India Infoline Weekly Newsletter is your flashback for the week gone by. A weekly outlook coupled with the best of the web stories from India Infoline and links to importantInvestment ideas, Leader Speak and features are delivered in your inbox every Friday evening.

Multi-channel delivery model:

The Company is among the few financial intermediaries in India to offer a complement of online and offline broking. The Companys network of branches also allows customers to place orders on phone or visit our branches for trading.Integrated middle and back office:The customer can trade on the BSE and NSE, in the cash as well as the derivatives segment all through the available multiple options of Internet, phone or branch presence.

Portfolio Management ServicesYou get recessions. You have stock market declines. If you don't understand that's going to happen, then you're not ready; you won't do well in the markets. No need to worry. We at India Infoline would take care of all issues related to managing your hard earned money.Our Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. We at India Infoline invest your resources into stocks from different sectors, depending on your risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio.It is all about your money, being managed by the experts, while you continue with your routine life. Isn't it simple and totally hassle free.What's more, you can keep track of your dividends / bonus / rights issues with paperless tracking. So you always know how fast your investment is growing. It basically means assigning the right job to the right person.Salient Features of India Infoline PMS: Expert team of Research Analysts Stock Picking done by the Investment Committee Dedicated Relationship ManagerTechnology:The Company has extended the trading terminal to the investors home/workplace reinforced with real-time commodity information and ledger position.Rates:The Company harnessed technology to offer services at among the lowest rates in the business. Membership: The Company widened client reach in trading on the domestic and international exchanges.*Key Features Enjoys memberships with the MCX and NCDEX, two leading Indian commodities exchanges. Recently acquired membership of the DGCX. Multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities. Extended commodity trading to retail investors, among the few Indian financial intermediaries to do so. Online business at 80% of revenues dominates commodities trading revenues. Provides regular commodity updates pertaining to the Indian and international environment.

CHAPTER III : CORPORATE GOVERNANCE Corporate Governance FrameworkThe Board of Directors is responsible for management oversight, supervising the business execution functions of the Management Council, an executive organ under its authority. The Management Council deliberates upon fundamental policies and strategy regarding business management, as well as makes decisions on important matters regarding operational execution. Issues discussed by the Management Council and a summary of its discussions are reported to the Board of Directors, which makes decisions on items of particular importance. In principle, the Management Council meets three times a month, but meetings may be convened whenever necessary. The auditing function is carried out by statutory auditors (Board of Statutory Auditors), who review the Board of Directors as well as operational execution functions, and attend important meetings, including meetings of the Board of Directors as well as the Management Council.

Requirement Of Good Corporate GovernanceAccording to the Australian standard on corporate governance (AS8000, 2003), it requires a structural component requiring identification of requirements, requirements of laws, codes, best practice, links to risk-requirement, and reporting, so as to create a functioning series of systems and a maintenance component requiring education and training, communications monitoring, assessment, review, liaison and accountability. But, note that corporate governance has neither a static, nor a prescribed form. The Australian standard says, "there is no single model of corporate governance" (AS8000, 2003). The OECD principles of corporate governance (OECD, 2004) says "To remain competitive in changing world, corporations must innovate and adapt their corporate governance practices so that they can meet new demands and grasp new opportunities.

The Nation Archives of Australia is a leader in developing records management procedures, particularly in e-records. One that is of particular interest deals with source records that have been copied converted or migrated. This policy allows Commonwealth agencies to dispose of source records that have been copied or converted if proper processes are in place. But the procedure also requires, importantly, that the policy can be put in place only. If it has been implemented with the "explicit agreement" of the head of the agency. This means that the agency head must be satisfied of the integrity of the IT and administrative systems in place for the copying of the source records before the policy is adopted and source records are destroyed. Boards and other governing bodies for records management throughout an organization should also undertake such high level sign off on records management policies. So requirement of good corporate governance may be summarized as follows: due process doing things in an agreed, documented, controlled and appropriate way. transparency- doing things in a way which is open to appropriate way. Accountability- having to answer for the things one does. compliance- having systems to ensure that things are done properly. laws- meeting applicable legal obligations. Security- having systems to ensure protection of information

Purpose Of Corporate Governance1. Protecting shareholders wealth.1. Enhancing the wealth through proper utilization of assets.1. Maintenance of that wealth and not frittering away in unconnected and non profitable venture.1. through expropriation, and above all safeguarding he interests of the shareholders.The main objective behind corporate governance is to protect long term share holder value along with the other stakeholders. It is the foundation to build market confidence and encouraging stable and long term investment flows. Corporate institutions should have a sound frame work for their operation to achieve their objective and creating wealth for the welfare of the society as a whole. Corporate governance is very wide term, which covers a wide range of activities that relate to the way business organization is directed and governed. It deals with the policies and practices that directly impact on the organizations performance, stewardship sand its capacity to be accountable to its various stakeholders. Over all objectives of corporate governance are as follows :1. Enhancement of shareholder value, keeping in view the interest of other stakeholder.2. follow provisions of the companies Act, FEMA factory Act and other statutes .3. deloy the funds of the company in attaining institutional goal as enshrined in the memorandum.4. utilize funds taken from financial institutions and the capital market for the purposes for which they were intended.5. develop core competence to effectively manage its diversifications.6. manage and check the diversification of funds by the way of loans, advances or investment to subsidiary or investment companies.7. control over the bad practices .8. conduct ethical and fair practices towards its share holders, customers, suppliers, employees and the public at large.9. provide complete information to the directors on the working of the company.10.motivate institutional and non executive directors to play active role in the functioning of the company.11.make internal control sound and powerful.12. adopt transparent financial reporting and audit practices and the accounting practices. Business Goal & Corporate GovernanceCorporate governance is also related to corporate financial goals. It is a nave assumption that such goals are culture free. Wimer (1995) interviewed Dutch, German, and U.S business executives. Besides making profits, the Dutch talked about assets, the German about independence from banks and the American about shareholder value. This reflects the institutional differences among the countries but also the prevailing ideologies. Some people assume that globalization and acquisition of companies across borders will wipe out such differences and thus business leaders will become like the Americans. Others argue that these differences are rooted in national cultures that have centuries old roots, which make such convergence unlikely. The studies here were based on a comparison of institutions across countries. Another approach is to focus on the persons of the business leaders and to compare the goals they are seen to pursue. Corporate governance practices have become an essential prerequisite for the ability to acquire and retain financial resources necessary for restructuring long-term investment and sustainable growth.

Principles Of Corporate GovernanceKey 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 include1. 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. 1. Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. 1. 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 to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors.

1. Integrity and ethical behavior: 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. 1. 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. 1. TRANSPARENCY-: This means accurate, adequate and timely disclosure of relevant information to the stakeholders. It is not at all possible to make any progress towards better governance without transparency. But it is seen that information sharing is hindered under the excuse of confidentiality. There is need to move towards international standards in terms of disclosure of information by the corporate sector and through this the companies develop a high level of public confidence in business. The scenario at international level makes transparency and disclosure the key pillars of corporate governance.

Issues involving corporate governance principles include1. oversight of the preparation of the entity's financial statements 1. internal controls and the independence of the entity's auditors 1. review of the compensation arrangements for the chief executive officer and other senior executives 1. the way in which individuals are nominated for positions on the board 1. the resources made available to directors in carrying out their duties 1. oversight and management of risk 1. dividend policy.3.5 Importance Of Corporate Governance * Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general. * Corporate governance provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. * Corporate governance provides proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently * Corporate governance is used to monitor whether outcomes are in accordance with plans and to motivate the organization to be more fully informed in order to maintain or alter organizational activity. Corporate governance is the mechanism by which individuals are motivated to align their actual behaviors with the overall participants. * Corporate governance is a tool for competitive advantage. Normally when we look at the issue of competitive advantage from a managerial point of view, we can look at those factors, which are within the control of the enterprise. This relates to the focus on quality, productivity as well as innovation, which are the basic requirements, in a highly competitive environment. This is needed for getting the competitive edge in a market where the customer is king. * The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

* The corporate governance framework recognizes the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

* The corporate governance framework ensures the timely and accurate disclosure of all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company. A strong disclosure regime can help to attract capital and maintain confidence in the capital markets. Disclosure also helps improve public understanding of the structure and activities of enterprises, corporate policies and performance with respect to environmental and ethical standards, and companies' relationships with the communities in which they operate.

Corporate Values In recent years, There is a explosion of interest in corporate values like share holder value , stakeholder value customer value , business ethics Corporate social responsibility by and large, new value systems have been marketed as general solutions applicable to all kinds of business. These values are building blocks of corporate image. Corporate values are based on high ethical standards of managers and other employees. The firm values must ultimately be derived from the preferences or values of its stakeholders. In other words, corporate values are created when companies internalize the values of salient stakeholders. Stakeholders can influence a company directly through market transactions and contracts without imposing their values on the company, but transactional costs and information problems set a limit to use of contractual mechanisms. Internalization of stakeholder preference takes place in a hypothetical three-stage process as follows: 1. Allocation of ownership rights. 2. Board of composition. 3. The influence of important stakeholders

Related Parties To Corporate GovernanceParties 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. 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. 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.

Players In Corporate GovernanceCorporate governance systems vary across countries and these differences directly affect both the process for developing global strategies that can be adopted. Global strategic decision poses a very tough test for the effectiveness of corporate governance system. They seek maximize profit and global competitiveness. There are five critical stakeholder players that affect the company's decision. They are (1) Employees (2) The management teams (3)Shareholders (4) Board of directors (5) Government

Employees: The main variable differentiates employees as a collective group across countries. The country's labour market will influence the flexibility and mobility of employees. Country such as the U.S that have employment at will where by a contract can be terminated at any time are likely to have flexible labour market and short term labour commitment. In more rigid labour markets such as Germany and Japan companies invest a great deal in bespoke in house training that tends to result in more highly skilled labour forces and company specific skills. These in turns are less transferable from one company to another. For example in France, the union rights are extended to all employees regardless of union affiliation. Here unionization will have greater influence on corporate decision making than in U.S or U.K where only union members benefits from collective bargaining agreements. Japanese companies tend to have enterprise unionism, which leads to collective bargaining at company level, and grant a strong voice to employees. In 2004 for example employee opposition to job losses prevented the restructuring via. Merger with a foreign partner of France who is financially troubled Alston, a major producer of ships and trains. In the same year Volkswagen despite suffering from very high labour cost had to promise its Western Germany employees job security until 2011 in exchange for a wage freeze until 2007 and more flexible working hours. The company workers wield considerable power partly through co-determination rights that require employees to be consulted on corporate decision.

Top Management Teams: Managers in U.S and U.K tend to have professional background and strong functional background in finance or marketing. This is not the case in Germany where managers are more technical oriented. There is also variation in the international experience and background of managers. Managerial career mobility tends to be very fluid in U.S and U.K due to open labour markets. In Japan and France managers tend to remain with a company for a long period of time. There is also wide acceptance of leaders from across boarders in the U.K

Shareholders: Countries vary in their mix types of shareholders. At one extreme the U.S and U.K have mostly arms length, natural shareholders who are focused on shareholder value maximization. Employee shareholders typically use their ownership to block the global relocation of jobs. This applies even in the U.S where united Airlines provide a rare example of a large public company with majority ownership (55 percent owned by an employee stock ownership plan). This employee stake and hence control have greatly constrained the ability of the Airline to relocate job overseas. Government: Government intervention is usually in the form of market regulation. A representative measure for government intervention in the economy is regulation around takeovers. In countries such as France, Germany, Italy and Japan government intervention often provide strong takeover barrier such as golden shares, which bestow on the holder veto power over changes to the company's charter. The variation hindrance to hostile takeovers in many continental European countries continues to make it difficult for foreign companies to make acquisition across border in Europe. In 2001 plans for a European takeover code, which would guarantee the right of shareholder to be consulted during bids were shelved following objection from German government. The previous year Vodafone, the U.K telecoms company made a successful hostile bid for Mannesmann, a German telecoms company and the German government was worried that other local companies might fall into foreign land. For example Volkswagen is protected from takeover by special law. Sweden, which fall in the continental governance model that use multiple voting rights to help and prevent its companies from becoming vulnerable to takeover. France is also particularly active in preserving national ownership of major companies. In 2004 the French government brokered the takeover of Aventis a French Germany pharmaceutical company by France's Sanofi-synth and Laboratories.

CONTROL AND MANAGEMNTMechanisms and controlsCorporate 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 information provided by management to investors. An ideal control system should regulate both motivation and ability.Internal corporate governance controlsInternal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include:1. 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. 1. 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 controlsExternal corporate governance controls encompass the controls external stakeholders exercise over the organization. Examples include:1. demand for and assessment of performance information (especially financial statements) 1. debt covenants 1. government regulations 1. media pressure 1. takeovers 1. competition 1. managerial labour market 1. telephone tapping

Role Of The Accountant

Financial reporting is a crucial element necessary for the corporate governance system to function effectively. Accountants and auditors are the primary providers of information to capital market participants. The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors' competence.Current accounting practice allows a degree of choice of method in determining the method of measurement, criteria for recognition, and even the definition of the accounting entity. The exercise of this choice to improve apparent performance imposes extra information costs on users. In the extreme, it can involve non-disclosure of information.One area of concern is whether the accounting firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley Act (in response to the Enron situation as noted below) prohibit accounting firms from providing both auditing and management consulting services. Similar provisions are in place under clause 49 of SEBI Act in India.The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing.However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don't process it, or if the informed user is unable to exercise a monitoring role due to high costs. Role Of Institutional InvestorsMany 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 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.]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).

Management & Corporate Governance Top managers need to recognize that they are not in sole charge. Global strategy is an equilibrium game among corporate governance players. Managers need to work on building coalition and aligning interest behind a common approach. In the continental system managers have to align trade off and meet other stakeholders' interest halfway. They have to craft their language and rhetoric to meet the other players' expectations. The main things here are consensus and social cohesion. In the extended (Japanese) system companies have generally capitalized in their export oriented model and high innovation driven employees loyalty. But because of rigid of their corporate governance system, they have not exploited as much as they could different dimension of global strategy. So the system must be open in term of the diversity of the top management team and more flexible in their governance by introducing leaner boards as well as allowing greater levels of shareholder activism. If government care to sustain national competitiveness and to help their companies toglobalize, then they should assess the degree to which the players in their corporate governance system are aligned with each other and with their intended global strategy. Government policies should become less inimical to foreign owners and use such capital to provide the much needed global knowledge. This can only be accomplished if the right mechanisms are in place to give a voice to these foreign owners. The government has the responsibility as well as the policy tools to gear the country's corporate governance system so that it enhances national competitiveness. ShareholdersThe shareholders are the owners of the company and as such they have certain rights and responsibilities. But in reality companies cannot be managed by shareholder referendum. The shareholders are not expected to assume responsibility for the management of corporate affairs. A companys management must be able to take business decisions rapidly. The shareholders have therefore to necessarily delegate many of their responsibilities as owners of the company to the directors who then become responsible for corporate strategy and operations. The implementation of this strategy is done by a management team. This relationship therefore brings in the accountability of the boards and the management to the shareholders of the company. A good corporate framework is one that provides adequate avenues to the shareholders for effective contribution in the governance of the company while insisting on a high standard of corporate behaviour without getting involved in the day to day functioning of the company.

Responsibilities of shareholders

The Committee believes that the General Body Meetings provide an opportunity to the shareholders to address their concerns to the board of directors and comment on and demand any explanation on the annual report or on the overall functioning of the company. It is important that the shareholders use the forum of general body meetings for ensuring that the company is being properly stewarded for maximizing the interests of the shareholders. This is important especially in the Indian context. It follows from the above, that for effective participation shareholders must maintain decorum during the General Body Meetings.

The effectiveness of the board is determined by the quality of the directors and the quality of the financial information is dependent to an extent on the efficiency with which the auditors carry on their duties. The shareholders must therefore show a greater degree of interest and involvement in the appointment of the directors and the auditors. Indeed, they should demand complete information about the directors before approving their directorship.Shareholders rights1. The basic rights of the shareholders include right to transfer and registration of shares, obtaining relevant information on the company on a timely and regular basis, participating and voting in shareholder meetings, electing members of the board and sharing in the residual profits of the corporation.2. The Committee therefore recommends that as shareholders have a right to participate in, and be sufficiently informed on decisions concerning fundamental corporate changes, they should not only be provided information as under the Companies Act, but also in respect of other decisions relating to material changes such as takeovers, sale of assets or divisions of the company and changes in capital structure which will lead to change in control or may result in certain shareholders obtaining control disproportionate to the equity ownership.3. The Committee recommends that information like quarterly results, presentation made by companies to analysts may be put on companys web-site or may be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site.4. The Committee recommends that the half-yearly declaration of financial performance including summary of the significant events in last six-months, should be sent to each household of shareholders.5. A company must have appropriate systems in place which will enable the shareholders to participate effectively and vote in the shareholders meetings. The company should also keep the shareholders informed of the rules and voting procedures, which govern the general shareholder meetings.6. The annual general meetings of the company should not be deliberately held at venues or the timing should not be such which makes it difficult for most of the shareholders to attend. The company must also ensure that it is not inconvenient or expensive for shareholders to cast their vote.7. Currently, although the formality of holding the general meeting is gone through,in actual practice only a small fraction of the shareholders of that company do or can really participate therein. This virtually makes the concept of corporate democracy illusory. It is imperative that this situation which has lasted too long needs an early correction. In this context, for shareholders who are unable to attend the meetings, there should be a requirement which will enable them to vote by postal ballot for key decisions. This would require changes in the Companies Act. The Committee was informed that SEBI has already made recommendations in this regard to the Department of Company Affairs.8. The Committee recommends that a board committee under the chairmanship of a non-executive director should be formed to specifically look into the redressing of shareholder complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. The Committee believes that the formation of such a committee will help focus the attention of the company on shareholders grievances and sensitize the management to redressed of their grievances.9. The Committee further recommends that to expedite the process of share transfers the board of the company should delegate the power of share transfer to an officer, or a committee or to the registrar and share transfer agents. The delegated authority should attend to share transfer formalities at least once in a fortnight.

CHAPTER IVSWOT ANALYSIS OF INDIA INFOLINE LTD

Strengths:

1.Price competitiveness ( E.g.: No brokerage is charged, Annual maintenance charges are least)

2.India Infoline is able to respond very quickly as we have no red tape, no need for higher management approval, etc.

3.India Infoline is able to give really good customer care, as the current small amount of work means we have plenty of time to devote to customers

4.Their lead consultant has strong reputation within the market

5.They change direction quickly if our approach isnt working

6.Management philosophy and commitment to maximize shareholders returns of India Infoline.

7.Ongoing activities of the company to support up gradation of operational Performance. .8.Team of talented and committed professionals available to improve companys performance.

Weaknesses

1. New entrant in the market which is dominated by big brand names like ICICI, Reliance Money etc.

2.Company has a small staff with a shallow skills base in many areas.

Opportunities

1. The share trading sector is expanding, with many future opportunities for success.

2. The competitors may be slow to adopt new technologies.

Threats

1. Developments in technology will change the share market beyond the ability to adapt. 2.A small change in focus of a large competitor is a threat for the market position.

3.Constant pressure to be cost competitive to meet customer expectations.

4.Relentless pressure to maintain profitability due to rising input/raw material prices.

CHAPTER VFINDINGS AND CONCLUSIONfindings1. According to the study most of the customers of Infoline Ltd agrees that it is pocket friendly.

2. Coming to faith 70% say IndiaInfoline Ltd is better than others stock brokers due to customers satisfaction.

3. Lack of promotional activities undertaken by IndiaInfoline securities Ltd. in Pune Region.

4. Main purposes of investments are returns & liquidity.

5. Investors take risk as well as returns into their mind while making the investment.

6. Businessmen are more interested in the stock market than the others.

7. Commodity market is less preferred by the investors, might because of less awareness about commodity market.

8. People want to invest their money in the security market but they have not the proper knowledge.

9. People pay more emphasis on brokerage than service provided by brokerage houses.

10. 3 elements affects the economy of any country:- 1) GOLD, 2) CRUDE OIL, 3) U.S DOLLAR

conclusionToday with the growing competition it is very important to be intact. E Broking in India is going to flourish as today we have a large number of people using the internet, we have will flourished infrastructure, more and more people are getting educated due to which there will be a boom in the E Broking service.But then there are also factors which may have a negative effect on E- Broking like the market conditions etc. ignoring the risks involved, one might be drowned while sailing the in the ocean. But then it is more convenient for the people. The customers are getting a lot of comfort level and their work gets much simpler and online broking is much cheaper to than going to a broker to get your trades booked. And the most important thing is the increase and penetration of online use in the India which has increased the potential market size for online broking on an annual basis. A large share of the expected growth in Internet can be attributed to the increase in the online population and thus online trading too. Internet-based stock trading, while still in its infancy in the country, has the potential to really benefit the investor, with its ability to offer greater speed and transparency at a much lower cost. The essential component of Internet-based trading is the interface between broker, bank and depository participant, and as Net-based trading becomes a reality this interface will develop.The advent of Internet-based trading in the country will change the face of the Indian capital market very soon in terms of the volume of transactions, the nature and settlement of trade, and the profile of market participants. I personally dont think many of our colleagues in the business have really understood the impact the Net can have on the broking business. The growth of Internet-based trading as a mass trading technique in the country is unstoppable, going by the indicators available and the signals for the future. When it ultimately gathers momentum, the biggest beneficiary will be the investor, who will be able to trade with greater speed and transparency, and at lower costs.

18