Corporate Governance in 21 Century

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Index

Chapter 1: Introduction

Corporate Governance-Meaning and Definition……………………………………………………………………………………2

Chapter 2: Conceptual Discussion

2.1> Some basic terminologies in corporate governance……………………………………..………………………………..5

2.2> Major Corporate Governance Failures…………………………………………………………….……………………………..6

2.3.1> Need for Corporate Governance in the 21st Century ………………………………………….……………………..10

2.3.2> Linkage of Good Governance to Good Performance ………………………………………….………………………11

2.4> Theories of Corporate Governance………………………………………………………………..…………………………….11

Chapter 3: State of existing system and its implementation:

3.A> Current state of affairs in corporate governance in India……………………………………………………………..10

3.1> Do’s under Corporate Governance in the 21st century…………………………………………..……………………..11

3.1.1> Legal Do’s….……………………………………………………………………....…………………………………….………………11

3.1.2> Structure and Functions of Board Committees………………………………………………...……………………….16

3.2> Recommendatory Do’s apart from the existing state(3.2.1 to 3.2.12-some practices that must be adopted in the 21st century………………………………………………………………………………………………………………….19

3.3> Corporate governance –Don’t s…………………………………….……………………………………………………………..21

3.4> Current state of implementation of corporate governance in India………………………………………………22

Chapter 4: Alternate ways of corporate governance (Other countries)………………….………………24

Chapter 5: Data analysis and interpretation (5.1 to 5.6)……………………………….……….……………….25

Conclusion…………………………………………………………………………………………….................................29

Bibliography………………………………………………………………………………………….................................30

Chapter 1: Introduction

1. Corporate Governance-Meaning and Definitions

The term Governance finds its roots in the Latin word Gubernare, which means ‘to steer”. Likewise corporate governance means mechanisms and processes to control and give direction to a company. However there is no single definition of corporate Governance acceptable to all. Different experts have defined the term Corporate governance in their own ways.

Historical Perspective

At the time of independence, India had a well-developed banking sector, flourishing trade and functioning stock market. That time the concept of joint stock ownership was very common as it helped to disperse risk in a more effective manner.

However the Indians treated company as their personal property and hardly altered their style of functioning. They still worked as they worked under sole proprietorship. People used to appoint their kins etc. as the managing agents with unbridled powers.

There were weak governance norms. PSUs and public sector banks etc. were epitomes of weak governance. In order to tackle the crisis of 1991, government came up with certain reforms. Opening up Indian economy to the world meant exposure to new forms of governance models. SEBI was granted authority to regulate the securities market.

The first initiative at corporate governance was started in 1998. It consisted of voluntary set of governance norms that companies could adopt. However in a country like India, voluntary regulations are not enough. Hence to ensure widespread adoption of corporate governance norms, it is necessary to have rules for compliance. Hence a committee under Kumaramangalam Birla was formed in 1999. However all these regulation were meant only for the companies that were listed. For the comprehensive adoption of the law, we needed to tap the legislative route. Hence came the 2002 recommendations.

Narayan Murthy Committee was set up to review and improve the corporate governance standards.

Chapter 2: Conceptual Discussion

Corporate governance is almost like an internal police. In a layman’s language it’s a way of governing your company like a sovereign state with a set of rules etc. it’s a way to mitigate risk before some big disaster happens.

2.1> Some basic terminologies in corporate governance:

Director: They are elected to serve on the company’s board of directors by shareholders and usually can be removed only by a majority of the shareholders. They are not employees of the company. They serve for a defined term and at the pleasure of the shareholders.