Module II Corporate Governance and Business Ethics

Module II

Corporate Governance Theories

The following theories elucidate the basis of corporate governance:

(a)    Agency Theory

(b)    Shareholder Theory

(c)    Stake Holder Theory

(d)    Stewardship Theory

Agency Theory

According to this theory, managers act as 'Age nts' of the corporation. The owners or directors set the central objectives of the corporation. Managers are responsible for carrying out  these objectives in  day-to-day work of the company. Corporate Governance is control of management through designing the structures and processes.

In agency theory, the owners are the principals. But principals may not have knowledge or skill for getting the objectives executed. The principal authorises the mangers to act as 'Agents' and a contract between principal and agent is made. Under the contract of agency, the agent should act in good faith. He should

protect the interest of the principal and should remain faithful to the goals.

In modern corporations, the shareholdings are widely spread. The management (the agent) directly or indirectly selected by the shareholders (the Principals), pursue the objectives set out by the shareholders. The main thrust of the Agency Theory is that the actions of the management differ from those required by the shareholders to maximize their return. The principals who are widely scattered may not be able to counter this in the absence of proper systems in place as regards timely disclosures, monitoring and oversight. Corporate Governance puts in place such systems of oversight.

Stockholder/shareholder Theory

According to this theory, it is the corporation which is considered as the property of shareholders/ stockholders.

They can dispose of this property, as they like. They want to get maximum return from this property.

The owners seek a return on their investment and that is why they invest in a corporation.  But this narrow role has been expanded into overseeing the operations of the corporations and its mangers to ensure that the corporation is in compliance with ethical and legal standards set by the government. So the directors are responsible for any damage or harm done to their property i.e., the corporation. The role of managers is to maximize the wealth of the shareholders. They, therefore should exercise due diligence, care and avoid conflict of interest and should not violate the confidence reposed in them. The agents must be faithful to shareholders.

Stakeholder Theory

According to this theory, the company is seen as an input-output model and all the interest groups which include creditors, employees, customers, suppliers, local-community and the government are to be considered. From their point of view, a corporation exists for them and not the shareholders alone.

The different stakeholders also have a self interest. The interest of these different  stakeholders is at times conflicting. The managers and the corporation are responsible to mediate between these different stakeholders interest. The stake holders have solidarity with each other. This theory assumes that stakeholders are capable and willing to negotiate and bargain with one another. This results in long term self interest.

The role of shareholders is reduced in the corporation. But they should also work to  make their interest compatible with the other stake holders. This requires integrity and managers play an important role here.

They are faithful agents but of all stakeholders, not just stockholders.

Stewardship Theory

The word 'steward' means a person who manages another's property or estate. Here, the word is used in the sense of guardian in relation to a corporation, this theory is value based. The managers and employees are to safeguard the resources of corporation and its property and interest when the owner is absent. They are like a caretaker. They have to take utmost care of the  corporation. They should not use the property for their selfish ends. This theory thus makes use of the social approach to human nature.

The managers should manage the corporation as if it is their own corporation. They are not agents as such but occupy a position of stewards. The managers are motivated by the principal's objective and the behavior pattern is collective, pro-organizational and trustworthy. Thus, under this theory,  first of all values as standards are identified and formulated. Second step is to  develop training programmes that help to achieve excellence. Thirdly, moral support is important to fill any gaps in values.

REGULATORY FRAMEWORK OF CORPORATE GOVERNANCE IN INDIA

Corporate Governance means set of rules and regulations by which an organization is governed, controlled and directed. It is conducted by the Board of Directors or the concerned committee for the benefit of the company’s stakeholders. The Indian statutory framework has, by and large, been in consonance with the international best practices of corporate governance. Broadly speaking, the corporate governance mechanism for companies in India is enumerated in the following enactments/ regulations/ guidelines/ listing agreement:

1. The Companies Act, 2013. The new Companies Law contains many provisions related to good corporate governance like Composition of Board of Directors, Admitting Woman Director, Admitting Independent Director, Directors Training and Evaluation, Constitution of Audit Committee, Internal Audit, Risk Management Committee, SFIO Purview, Subsidiaries Companies Management, Compliance center,etc. All such provisions of new Company Law are instrumental in providing a good Corporate Governance structure.

2. Securities and Exchange Board of India (SEBI) Guidelines: SEBI is a regulatory authority having jurisdiction over listed companies and which issues regulations, rules and guidelines to companies to ensure protection of investors.

3. Standard Listing Agreement of Stock Exchanges: For companies whose shares are listed on the stock exchanges.

4. Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI): ICAI is an autonomous body, which issues accounting standards providing guidelines for disclosures of financial information. Section 129 of the New Companies Act inter alia provides that the financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under s 133 of the New Companies Act. It is further provided that items contained in such financial statements shall be in accordance with the accounting standards.

5. Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI): ICSI is an autonomous body, which issues secretarial standards in terms of the provisions of the New Companies Act. So far, the ICSI has issued Secretarial Standard on "Meetings of the Board of Directors" (SS-1) and Secretarial Standards on "General Meetings" (SS-2). These Secretarial Standards have come into force July 1, 2015. Section 118(10) of the New Companies Act provide that every company (other than one person company) shall observe Secretarial Standards specified as such by the ICSI with respect to general and board meetings.

Securities and Exchange Board of India (SEBI) guidelines 

SEBI is a regulatory authority established on April 12, 1992. SEBI was established with the main purpose of curbing the malpractices and protecting the interest of its investors. Its main objective is to regulate the activities of Stock Exchange and at the same time ensuring the healthy development in the financial market. In order to ensure good corporate governance SEBI came up with detailed Corporate Governance Norms.

1.      As per the new rules the companies are required to get shareholders approval for RPT (Related Party Transactions), it established whistle blower mechanism, clear mandate to have at least one woman director in the Board and moreover it elaborated disclosures on pay packages.

2.      Clause 35B of the Listing Agreement is being amended by the regulatory authority. Now as per the amended clause, Listed companies are required to provide the option of e-voting to its shareholders on all proposed or passed at general meetings. Those who do not have access to e-voting facility, they should be provided to cast their votes in writing on Postal Ballot. There was the need to amend the provision so that the provisions of the listing agreement can be aligned with the provisions of Companies Act, 2013. By doing so an additional requirement can be provided to strengthen the Corporate Governance norms in India with respect to Listed companies.

3.      Clause 49 of the Listing Agreement was also amended by SEBI in order to strengthen the Corporate Governance framework for Listed companies in India. The revised clause forbids the independent directors from being eligible for any kind of stock option. Whistle blower policy is also added in the revised clause whereby the directors and employees can report any unethical behavior, any fraud or if there is violation of Code of Conduct of the company. By the amendment Audit Committee is also enhanced, now it will include evaluation of risk management system and internal financial control, will keep a check on inter-corporate loans and investments. The amendment now requires all the companies to form a policy for the purpose of determination of ‘material subsidiaries’ and that will be published online.

SEBI ALSO IMPLEMENTED VARIOUS REGULATIONS FOR EFFECTIVE WORKING OF THE COMPANIES, FEW OF THESE REGULATIONS ARE AS FOLLOWS-

1.      SEBI (Issue of Capital and Disclosure Requirements) regulation, 2009. This Regulation contains provisions for public issue wherein the issuer shall satisfy the conditions mentioned under the regulation, it also contains provisions regarding restriction on right issue. It also contains provisions regarding listing of Securities on stock exchange wherein in-principle is to be obtained by the issuer from recognised stock exchange.

2.      SEBI (Listing obligations and Disclosure Requirements), 2015. The LODR Regulations were notified with the aim of simplifying the existing provisions of listing agreements for different segment of capital markets like convertible and non-convertible debt securities, equity shares etc. it requires all listed entities to make disclosure and abide by the provisions of these regulations. The intent here is to ensure that once the shares of a company is listed on a Stock Exchange they are easily accessible to the normal public. 

3.      SEBI (Prohibition of Insider Trading) Regulations,2015. Insider trading per se is not a violation of Law but what is prohibited is trading by an insider on the basis of Non-public information. To prevent such trading SEBI came up with this regulation. Under this, the restriction is corporate insiders who arrive at trading decisions by using the price sensitive information directly or indirectly.

4.      SEBI came up with many other regulations like Regulation on Fraudulent and Unfair Trade Practices, Regulations on Substantial Acquisition of Shares and Takeovers, Issue of Sweat Equity etc. The main aim behind coming up with such Regulation, rules etc is to ensure good corporate governance in a company. 

Listing agreement – Applicable to the listed companies

SEBI has amended the Listing Agreement with effect from October 1, 2014 to align it with New Companies Act. Clause 49 of the Listing Agreement can be said to be a bold initiative towards strengthening corporate governance amongst the listed companies. This Clause intends to put a check over the activities of companies in order to save the interest of the shareholders. Broadly, clause 49 provides for the following:

1. Composition of Board

·         Optimum Combination of Executive & Non Executive Directors,

·         Not less than 50% of the board should comprise Non-Executive Directors,

·         At Least one Women Director,

·         A relative of a promoter or an executive director shall not be regarded as an independent director.

·         Where chairman is non executive Director as least 1/3^rd of the board should comprise Independent Director, and if

·         Chairman is executive director then ½ of the board should comprise Independent Director.

Chairman	Executive Director	1/2  of Board shall be Independent Director
Chairman	Non-Executive Director	1/3rd of Board shall be Independent Director

2. Audit Committee

The audit committee is a committee of the board of directors responsible for oversight of the financial reporting process, selection of independent auditor, receipt of audit results from both internal & external auditors. The committee assists the board to fulfil its corporate governance and overseeing responsibilities in relation to an entity’s financial reporting, internal control system.

·         Minimum 3 directors shall be the members of Audit Committee,

·         2/3^rd shall be the Independent Director

·         All the members shall be financially literate & at least one member must have expertise in accounts & finance field.

·         Chairman shall be Independent Director and must be present at annual general meeting.

At least four meeting in a year shall be held by audit committee with maximum time gap between two meetings shall not be more than 120 days. Quorum shall either two members or 1/3^rd members of the committee which shall be higher but at least two independent directors must be present.

Powers of Audit Committee

·         To investigate any activity within its terms of reference,

·         To seek information from any employee,

·         To obtain outside or legal advice,

·         To secure attendance of outsider with relevant expertise, if any

Role of Audit Committee

·         Overseeing the Financial reporting and disclosure process,

·         Monitoring choice of accounting policies and principles,

·         Overseeing hiring, performance and independence of the external auditor

·         Oversight of regulatory compliance , ethics & whistle blower’s hotline

·         Monitoring the internal control process,

·         Overseeing the performance of internal audit function,

·         Discuss risk management policies etc.

3.Subsidiary Companies

o    At least one independent director on the Board of Directors of the holding company shall be a      director on the Board of Directors of a material non listed Indian subsidiary company.

o    The Audit Committee of the listed holding company shall also review the financial statements, in         particular, the investments made by the unlisted subsidiary company.

o    The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company

4. Disclosure Requirements

Periodical disclosures relating to the financial and commercial transactions, remuneration of directors, etc, to ensure transparency. For good corporate governance company should make all necessary disclosures. It is also a responsibility on management to make disclosures of all material matters which all stakeholders are suppose to know. Stakeholders like creditors and customers can not attend meetings so the disclosure is only way through which they can get information

5. CEO/ CFO Certification

Any managing director, CFO or whole time finance director, who is in discharging of finance function, must certify to the board that the financial statements have been reviewed by him and present the true & fair view and do not contain any material untrue statement or misstatement.

He also indicate to auditor or audit committee if

·         There is any material change in internal control system,

·         Change in accounting policies,

·         Knowledge of any fraudulent activity being noticed by them

6. Report and Compliance

A company must give a separate section on Corporate Governance in annual report, where all the disclosures regarding compliance & non compliance with mandatory requirement and the extent to which non mandatory requirements have been adopted. Quarterly compliance report shall be given to stock exchange within 15 days from the date of closure

A separate section in the annual report on compliance with Corporate Governance, quarterly compliance report to stock exchange signed by the compliance officer or CEO, company to disclose compliance with non-mandatory requirements in annual reports

Case Study for M.Com 1st Semester Corporate governance and Business Ethics

Corporate Goveranace Failear Companies.
Sl. No.	Case Study	Name of Student
1	satyam Computer services ltd. (india)	Aingel Devassia
2	Chanda Kochhar-Videocon Case	Aparna K
3	Enron (USA)	Bhavya C
4	Harshad Mehta scam	Divya P
5	ICICI	Fathima Farsana
6	Kingfisher airlines	Fathima Sherin
7	Lehman Brothers (USA)	Hilma Pmubashira C
8	Maxwell communication Corporation and Mirror Group newspapers (UK)	Mubashira K
9	PNB Scam	Munjitha K
10	Ricoh India	Neethu P
11	Sahara India Pariwar Scam	Rashida Sherin PP
12	Bank of Credit and Commerce International (UK)
13	Vivendi (France)
Excellent management strategies and success Corporates
14	Flipkart	Rasna
15	Infosys ltd	Rida Noor
16	IPL	Subisha K
17	Wipro	Thahsin Nazer
18	Relience Industries ltd	Thashreefa
19	Tata Group	Thasneem AP
20	The Mumbai Dabbawala story	Zumurud Abdul Rasaque

Module I - Corporate Governance and Business Ethics

The term ‘governance’ is derived from the Latin word gubernare, meaning ‘to steer’, usually applying to the steering of a ship, which implies that corporate governance involves the function of direction rather than control. Corporate or a Corporation is derived from Latin term “corpus” which means a “body”.

Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires.  Corporate governance is the system of rules, practices and processes by which a company is directed and controlled.

 It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals.

The heart of corporate governance is transparency, disclosure, accountability and integrity. It is to be borne in mind that mere legislation does not ensure good governance. Good governance flows from ethical business practices even when there is no legislation.

“Corporate Governance is about promoting corporate fairness, transparency and accountability”. James D. Wolfensohn (Ninth President World Bank) “Accountability to providers of capital.” — Bruce Weber

Need for Corporate Governance:

Corporate Governance is needed to create a corporate culture of Transparency, accountability and disclosure. It refers to compliance with all the moral & ethical values, legal framework and voluntarily adopted practices.

Corporate Performance: Improved governance structures and processes help ensure quality decision-making, encourage effective succession planning for senior management and enhance the long-term prosperity of companies, independent of the type of company and its sources of finance. This can be linked with improved corporate performance- either in terms of share price or profitability.

Enhanced Investor Trust: Investors consider corporate Governance as important as financial performance when evaluating companies for investment.

Better Access To Global Market: Good corporate governance systems attract investment from global investors, which subsequently leads to greater efficiencies in the financial sector.

Combating Corruption: Corporate Governance enables a corporation to compete more efficiently and

prevent fraud and malpractices within the organization.

Easy Finance From Institutions: Evidences indicate that well-governed companies receive higher market valuations. The credit worthiness of a company can be trusted on the basis of corporate governance practiced in the company.

Enhancing Enterprise Valuation: Improved management accountability and operational transparency fulfill investors’ expectations and confidence on management and corporations, and in return, increase the value of corporations.

Reduced Risk of Corporate Crisis and Scandals: Effective Corporate Governance ensures efficient risk mitigation system in place. The transparent and accountable system that Corporate Governance system makes the Board of a company aware of majority of the mask risks involved in a particular strategy, thereby, placing various control systems in place to facilitate monitoring the related issues.

Accountability: Good Corporate Governance practices create the environment where Boards cannot

ignore their accountability to these stakeholders.

Scope of Corporate Governance

Corporate governance covers the following functional areas of governance:

1. Preparation of company’s financial statements: Financial disclosure is a very important and critical component of corporate governance. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

2. Internal controls and the independence of entity’s auditors: Internal control is implemented by the board of directors, audit committee, management, and other personnel to provide assurance of the company achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations.

Review of compensation arrangements for chief executive officer and other senior executives:

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.

The way in which individuals are nominated for the positions on the board: The Board of Directors have the power to hire, fire and compensate the top management. The owners of a business who have decision-making authority, voting authority, and specific responsibilities, which in each case is separate and distinct from the authority, and responsibilities of owners and managers of the business entity.

5. The resources made available to directors in carrying out their duties: The duties of the

directors are the fiduciary duties similar to those of an agent or trustee. They are entrusted with adequate power to control the activities of the company.

6. Oversight and management of risk: It is important for the company to be fully aware of the risks facing the business and the shareholders should know that how the company is going to tackle the risks. Similarly the company should also be aware about the opportunities lying ahead.

Principles of Corporate Governance

Corporate governance includes principles such as honesty, trust, integrity, responsibility, accountability and commitment to the organization. Apart from these, the other principles of corporate governance are as follows:

Rights and equitable treatment of shareholders: The organizations must acknowledge the rights of the shareholders and they must help the shareholders in exercising their rights effectively. Shareholders must also be encouraged to participate in the general meetings of an organization.

Interests of other stakeholders: It is the duty of an organization to recognize the legal and other obligations of certain stakeholders.

Role and responsibilities of the board: In order to deal with various issues of a business, an organization needs a wide range of skills among the members of the board. The members of the organization must work with great responsibility.

Integrity and ethical behaviour: In order to promote ethical and responsible decision-making, organizations must develop a code of conduct for the directors of an organization.

Disclosure and transparency: The roles and duties of directors must be clearly defined by an organization. Organizations must implement certain procedures in order to verify and safeguard the integrity of the organization. An organization must disclose the financial information to investors and shareholders.

Evolution of international corporate governance

After 2^nd world War, the United States experience strong economic growth. Which had a strong impact on the history of corporate governance. Corporations were thriving and growing rapidly. The 1980’s brought a corporate governance reform counter-reaction. The modern practice of corporate governance has its roots in the 17^th century Dutch Republic. The first recorded corporate governance dispute in history took place in 1609.

                   The history of corporate governance in Canada, China, France, Germany, Japan, India, Italy, the Netherland, Sweden, the United Kingdom and the United States, together the studies underscore the importance of path dependence, after as far pack into pre-industrial period, legal system, or financial, though in a more advanced form than more statutory share holders right, and wealthy families.

                  The topic of corporate governance is vast subject that enjoys a long and rich history. It is a topic that incorporated managerial accountability, board structure and shareholders rights. The issue of governance began with the beginning of corporations. Dating back to the 16^th & 17^th centuries.

         Advancement in technology has improved efficiency in governance and they have created new risk as well. Data breached are a new and real concern for corporate.

First generation of international corporate governance

The international corporate governance research that we label generations is largely patterned after large body of US research. The Frist generation of researcher on corporate governance mechanism generally. Concerns itself with 2 questions regarding a particular mechanisam. It affect firm performance, where performance is typically measured by profitable or relative market value.

Seconds generations of international corporate governance

The evidence discussed in section 2 indicates that blockshareholders are more common in most in most other countries of the world than in the US. The first generation of international corporate governance research does not directly address the reason for the increased prevalence and impact of large shareholders outside of US. In addition, some research downplay the legal system as an effective means of corporate governance.

§  Capititalisam at the beginning of the 21^st century is a variegated collection of economic systems. In America, capitalisam is a system where a huge number of independent corporations compete with each other for customer.

§  The corporate governance frame work in many countries of the world is largely.

§  Speaks mainly of the composition of management structure at various levels.

§  The assumption being that the structure will automatically ensure quality of delivery.

§  As a history of corporate governance around the world shows, neither conceptions is wrongly.

§  In this volume, some of the brightest minds in the field of economics present.

§  New empirical research that suggestion that each side of the debate.

                No one can say exactly now corporate governance should be incorporated in a company’s strategy. Different people have different definitions of corporate governance. In the debate concerning the impact of corporate governance is performance. There are basically 2 different model of the corporation.

Evolution of corporate governance in India

Corporate governance is the system by which companies are directed and controlled. This concerned with set of principles, ethics, values, moral, rules regulations and procedures.

§  The Indian corporate scenario was more or less stagnant till the early 90s.

§  This concept emerged in India after the second half of 1990 due to economic liberalization and deregulation of industry and business.

§  Indian approach is drawn from the Gandhian principle of trusteeship and the directive principles of Indian constitution.

§  Sir Adrian Cadburys report popularly known as Cadbury Report (1992) was the first report on corporate governance released in UK

§  In 1996,Confederation of Indian Industries (CII) took a special initiative on corporate governance. The objective was to develop and promote a code for corporate governance to be adopted and followed by Indian companies, be these in private sector, the public sector, bank or financial institutions, all of which are corporate entities. In April 1998, the CII released the code called “Desirable Corporate Governance”.

§  The second major initiative was undertaken by the Securities and Exchange Board of India (SEBI) which set up a committee under the chairmanship of Kumar Mangalam Birla in 1999 with the objective of promoting and rising of standards of good corporate governance.

§  In May 2000, the Department of Corporate Affairs (DCA) formed a broad based study group under the chairmanship of Dr. P.L. Sanjeev Reddy, Secretary of DCA. The group was given the ambitious task of examining ways to “operationalise the concept of corporate excellence on a sustained basis” so as to “sharpen India’s global competitive edge and to further develop corporate culture in the country”.

§  A committee was appointed by Ministry of Finance and Company Affairs in August 2002 under the chairmanship of Naresh Chandra to examine and recommend inter alia amendments to the law involving the auditor-client relationships and the role of independent directors. The committee made recommendations in two key aspects of corporate governance: financial and non-financial disclosures: and independent auditing and board oversight of management. 

§  Narayana Murthy Committee Report in 2002: The SEBI  constituted a committee under the chairmanship of Narayana Murthy for reviewing implementation of the corporate governance code by listed companies and issue of revised clause 49.

§  J.J. Irani Committee Report:  The Companies Act 1956 was enacted on the recommendations of the Bhaba Committee set up in 1950 with the object to consolidate the existing corporate laws and to provide a new basis for corporate operation in independent India.

§  A high powered Central Coordination and Monitoring Committee (CCMC) co-chaired by Secretary, Department of Corporate Affairs’ and Chairman, SEBI was set up by the Department of Corporate Affairs to monitor the action taken against the vanishing companies and unscrupulous promoters who misused the funds raised from the public.

§  Recently the Ministry of Company Affairs has set up National Foundation for Corporate Governance (NFCG) in association with Confederation of Indian Industry (CII), Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI).

§  Voluntary Guidelines on Corporate Governance were issued by the Ministry of Corporate Affairs in December2009.

§  Establishment of the NSE Centre for Excellence in Corporate Governance in December, 2012 to encourage best standards of corporate governance among the Indian corporate.

§  Finally the enactment of the companies Act 2013 was major development in corporate governance in 2013. The new Act replaces the Companies Act, 1956 and aims to improve corporate governance standards simplify regulations and enhance the interests of minority shareholders. 

§  Now corporate governance in India is modeled on the line of the Anglo-American system (give importance to share holders).

Objectives of Corporate Governance

Good governance is integral to the very existence of a company. It inspires and strengthens investor's confidence by ensuring company's commitment to higher growth and profits. It seeks to achieve following objectives:

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 ofthe 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.

Elements of good Corporate Governance

Good governance is decisively the manifestation of personal beliefs and values, which configure the organizational values, beliefs and actions of its Board. The Board as a main functionary is primary responsible to ensure value creation for its stakeholders. The absence of clearly designated role and powers of Board weakens accountability mechanism and threatens the achievement of organizational goals. Therefore, the foremost requirement of good governance is the' clear identification of powers, roles, responsibilities and accountability of the Board, CEO, and the Chairman of the Board. The role of the Board should be clearly documented in a Board Charter. To sub-serve the above discussion, the following are the essential elements of good corporate governance:

· Transparency in Board’s processes and independence in the functioning of Boards. The Board should provide effective leadership to the company and management for achieving sustained prosperity for all stakeholders. It should provide independent judgment for achieving company's objectives.

· Accountability to stakeholders with a view to serve the stakeholders and account to them at regular intervals for actions taken, through strong and sustained communication processes.

· Fairness to all stakeholders.

· Social, regulatory and environmental concerns

· Clear and unambiguous legislation and regulations are fundamentals to effective corporate governance.

· A healthy management environment that includes setting up of clear objectives and appropriate ethical framework, establishing due processes, clear enunciation of responsibility and accountability, sound business planning, establishing clear boundaries for acceptable behavior, establishing performance evaluation measures.

· Explicitly prescribed norms of ethical practices and code of conduct are communicated to all the stakeholders, which should be clearly understood and followed by each member of the organization.

· The objectives of the company must be clearly documented in a long-term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones.

· A well composed Audit Committee to work as liaison with the management, internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures, reporting to the Board on the key issues.

· Risk is an important element of corporate functioning and governance, which should be clearly identified, analyzed for taking appropriate remedial measures. For this purpose the Board should formulate a mechanism for periodic reviews of internal and external risks.

· A clear Whistle Blower Policy whereby the employees may without fear report to the management about unethical behaviour, actual or suspected frauds or violation of company’s code of conduct. There should be some mechanism for adequate safeguard to employees against victimization that serves as whistleblowers.