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Corporate Governance may be defined as a set of systems,

processes and principles which ensure that a company is

governed in the best interest of all stakeholders.

It ensures:

Adequate disclosures and effective decision making to achieve

corporate objectives;

Transparency in business transactions;

Statutory and legal compliances;

Protection of shareholder interests;

Commitment to values and ethical conduct of business.

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Enactment

A committee on Corporate Governance under the chairman of Mr. Kumarmangalam

Birla, on the lines of Cadbury Committee of UK was constituted by SEBI.

The Birla Committee submitted its recommendations on Corporate Governance to

SEBI.

All the Stock Exchanges have accordingly inserted clause 49 in their Listing Agreement,

which contains the recommendations on Corporate Governance.

Mr N R Narayanmurthy, recommended number of amendments in Clause 49 of the

Listing Agreement. Presently, Clause 49 of the Listing Agreement contains the

provisions of Corporate Governance, based on the Narayanmurthy Committee Report.

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Narayanmurthy Committee Report.

The key mandatory recommendations focused on:

strengthening the responsibilities of audit committees;

improving the quality of financial disclosures, including those related to related party

transactions and proceeds from initial public offerings;

requiring corporate executive boards to assess and disclose business risks in the

annual reports of companies;

introducing responsibilities on boards to adopt formal codes of conduct; the position

of nominee directors; and

stock holder approval and improved disclosures relating to compensation paid to non-

executive directors.

.

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Non-mandatory recommendations included:

moving to a regime where corporate financial statements are not qualified;

instituting a system of training of board members; and

evaluation of performance of board members

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Why Is It Important?

A level of confidence is associated with a company that is known to have good

corporate governance.

Corporate governance is known to be one of the criteria that foreign institutional

investors are increasingly depending on when deciding on which companies to invest.

Creates a positive influence on the share price of the company.

Make it easier for companies to source capital at more reasonable costs.

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Current Scenario

Corporate governance becomes the centre of discussion only after theexposure of a large scam.

2001 Enron scandal in the US.

The collapse of Lehman Brothers.

Followed with Satyam Scandal. Satyam's fabricated balance

sheets fiasco went like an eye opener and it is only then that we raise

the question on the role of corporate governance.

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India ranks 134, out of 183 countries on the World Bank's index of 'Ease of

Doing Business'.

It clearly shows the level of confidence of foreign investors worldwide.

Lack of transparency coupled with series of scams without a strong response from

the regulators to address the fundamental issues can be pointed out some of the

reasons to it.

Some hope could be revived if the proposed Companies' Bill is cleared by Parliament,

since it has provisions that would strengthen the role and increase the responsibility of

independent directors on the companies' board.

"The proposed bill is defining the role of independent directors and auditors more

clearly. Also, this proposed bill has a whistle blower policy which gives enough

security to person who reveals any such corporate governance related irregularities.

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Future Prospects

As the global environment is changing continuously, there is a greater need of adopting and

sustaining good corporate governance practices for value creation and building corporations

of the future.

There is still lack of awareness about its various issues, like, quality and frequency of

financial and managerial disclosure, compliance with the code of best practice, roles and

responsibilities of Board of Directories, shareholders rights, etc.

But, with the integration of Indian economy with global markets, industrialists and

corporate in the country are being increasingly asked to adopt better and transparent

corporate practices.

If companies are to reap the full benefits of the global capital market, capture efficiency

gains, benefit by economies of scale and attract long term capital, adoption of corporate

governance standards must be credible, consistent, coherent and inspiring.

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Quality of corporate governance primarily depends on

following factors:

Integrity of the management;

Ability of the board;

Adequacy of the processes;

Commitment level of individual board members;

Quality of corporate reporting;

Participation of stakeholders in the management;

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Conclusion

In the last few years the thinking on the topic in India has gradually crystallized into the

development of norms for listed companies.

Development of norms and guidelines are an important first step in a serious effort to

improve corporate governance.

The bigger challenge in India, however, lies in the proper implementation of those rules at the

ground level.

More needs to be done to ensure adequate corporate governance in the average Indian

company.

As we have seen the topic is raised only after a debacle the issue needs to be addressed more

seriously at a larger level, With less saying and more enactment.