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TABLE OF CONTENTS

SR. NO. TOPIC PAGE NO.

1 INTRODUCTION TO CORPORATE GOVERNANCE 3

2 PRINCIPLES OF CORPORATE GOVERNANCE 4

3 CORPORATE GOVERNANCE MODELS AROUND THE WORLD 5

4 EVALUATION OF CORPORATE GOVERNANCE IN INDIA

I. National Task Force Chaired by Rahul Bajaj II. Kumar Mangalam Birla Committee Report III. Naresh Chandra Committee Report on Corporate Audit

and Governance (2002) IV. N R Narayana Murthy Committee Report (2003) V. Naresh Chandra Committee Report (2009)

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6 8

10 12 14

6 SEBI AND CORPORATE GOVERNANCE 15

7 SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE 21

8 REFERENCES 22

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1. INTRODUCTION TO CORPORATE GOVERNANCE

he system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company - these include its shareholders, management,

customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

As Per Investopedia.com : Corporate governance became a pressing issue following the 2002 introduction of the Sarbanes-Oxley Act in the U.S., which was ushered in to restore public confidence in companies and markets after accounting fraud bankrupted high-profile companies such as Enron and WorldCom. Most companies strive to have a high level of corporate governance. These days, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior and sound corporate governance practices.

Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed. A governance structure identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and includes the rules and procedures for making decisions in corporate affairs. Corporate governance includes the processes through which corporations' objectives are set and pursued in the context of the social, regulatory and market environment. Governance mechanisms include monitoring the actions, policies and decisions of corporations and their agents. Corporate governance practices are affected by attempts to align the interests of stakeholders.

“Corporate Governance is the acceptance by management of the inalienable rights of the 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, about ethical business conduct and about making a distinction between personal and corporate funds in the Management of the Company.”

- By N. R. Narayana Murthy, Committee on Corporate Governance (SEBI).

T

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2. PRINCIPLES OF CORPORATE GOVERNANCE

Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and OECD reports present general principles around which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports.

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 openly and effectively communicating information and by encouraging shareholders to participate in general meetings.

Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.

Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment.

Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.

Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders 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.

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3. CORPORATE GOVERNANCE MODELS AROUND THE WORLD

There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. The Anglo-American "model" tends to emphasize the interests of shareholders. The coordinated or Multistakeholder Model associated with Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. A related distinction is between market-orientated and network-orientated models of corporate governance

I. Continental Europe Some continental European countries, including Germany and the Netherlands, require a two-tiered Board of Directors as a means of improving corporate governance. In the two-tiered board, the Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation, and reviews major business decisions.

II. India India's SEBI Committee 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, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company."

III. United States, United Kingdom The so-called "Anglo-American model" of corporate governance emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Because of this, it is also known as "the unitary system". Within this system, many boards include some executives from the company (who are ex officio members of the board). Non-executive directors are expected to outnumber executive directors and hold key posts, including audit and compensation committees. The United States and the United Kingdom differ in one critical respect with regard to corporate governance: In the United Kingdom, the CEO generally does not also serve as Chairman of the Board, whereas in the US having the dual role is the norm, despite major misgivings regarding the impact on corporate governance. In the United States, corporations are directly governed by state laws, while the exchange (offering and trading) of securities in corporations (including shares) is governed by federal legislation. Many US states have adopted the Model Business Corporation Act, but the dominant state law for publicly traded corporations is Delaware, which continues to be the place of incorporation for the majority of publicly traded corporations.

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4. EVALUATION OF CORPORATE GOVERNANCE IN INDIA

CORPORATE GOVERNANCE COMMITTEES IN INDIA AND THEIR RECOMMENDATIONS:

I. National Task Force Chaired by Rahul Bajaj

In 1996, CII took a special initiative on Corporate Governance – the first institutional initiative in Indian industry. The objective was to develop and promote a code for Corporate Governance to be adopted and followed by Indian companies, be these in the Private Sector, the Public Sector, Banks or Financial Institutions, all of which are corporate entities. This initiative by CII flowed from public concerns regarding the protection of investor interest, especially the small investor; the promotion of transparency within business and industry; the need to move towards international standards in terms of disclosure of information by the corporate sector and, through all of this, to develop a high level of public confidence in business and industry. A National Task Force set up with Mr. Rahul Bajaj , Past President ,CII and Chairman & Managing Director, Bajaj Auto Limited, as the Chairman included membership from industry, the legal profession, media and academia. This Task Force presented the draft guidelines and the code of Corporate Governance in April 1997 at the National Conference and Annual Session of CII. This draft was then publicly debated in workshops and Seminars and a number of suggestions were received for the consideration of the Task Force. Desirable Code of Corporate Governance

1. No need for German style two-tiered board. 2. In case of listed company with turnover exceeding Rs.100 crores, independent directors

should consist of: (a). 30% if Chairman is non-executive director, (b).50% if Chairman & MD is the same person.

3. No single person should hold directorships in more than 10 listed companies. 4. Non-executive directors should be competent and active.

5. Commission not exceeding 1% (3%) of net profits for a company with (out) a MD. 6. Attendance record of directors should be made explicit at the time of reappointment;

less than 50% no re-appointment. 7. Key information that must be reported to and placed before the board. 8. Listed companies with turnover over Rs. 100 crores or paid-up capital of Rs. 20 crores

should have an audit committee. 9. Additional Shareholders’ Information of Listed Companies.

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10. Compliance certificate signed by CEO & CFO. 11. Credit Rating. 12. Companies that default on fixed deposits should not be permitted to:- Accept further deposits and make inter-corporate loans or investments until the

default is made good Declare dividends until the default is made good.

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II. Kumar Mangalam Birla Committee Report (2000) In early 1999, Securities and Exchange Board of India (SEBI) had set up a committee under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of good corporate governance. The report submitted by the committee is the first formal and comprehensive attempt to evolve a ‘Code of Corporate Governance', in the context of prevailing conditions of governance in Indian companies, as well as the state of capital markets. The Committee's terms of the reference were to:

suggest suitable amendments to the listing agreement executed by the stock exchanges with the companies and any other measures to improve the standards of corporate governance in the listed companies, in areas such as continuous disclosure of material information, both financial and non-financial, manner and frequency of such disclosures, responsibilities of independent and outside directors;

draft a code of corporate best practices; and suggest safeguards to be instituted within the companies to deal with insider

information and insider trading. The primary objective of the committee was to view corporate governance from the perspective of the investors and shareholders and to prepare a ‘Code' to suit the Indian corporate environment. The committee had identified the Shareholders, the Board of Directors and the Management as the three key constituents of corporate governance and attempted to identify in respect of each of these constituents, their roles and responsibilities as also their rights in the context of good corporate governance. Corporate governance has several claimants –shareholders and other stakeholders - which include suppliers, customers, creditors, and the bankers, the employees of the company, the government and the society at large. The Report had been prepared by the committee, keeping in view primarily the interests of a particular class of stakeholders, namely, the shareholders, who together with the investors form the principal constituency of SEBI while not ignoring the needs of other stakeholders. Mandatory and non-mandatory recommendations

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The committee divided the recommendations into two categories, namely, mandatory and non- mandatory. The recommendations which are absolutely essential for corporate governance can be defined with precision and which can be enforced through the amendment of the listing agreement could be classified as mandatory. Others, which are either desirable or which may require change of laws, may, for the time being, be classified as non-mandatory. A. Mandatory Recommendations: Applies To Listed Companies With Paid Up Capital Of Rs. 3 Crore And Above Composition Of Board Of Directors – Optimum Combination Of Executive & Non-

Executive Directors Audit Committee – With 3 Independent Directors With One Having Financial And

Accounting Knowledge. Remuneration Committee Board Procedures – At least 4 Meetings of the Board in a Year with Maximum Gap of

4 Months between 2 Meetings. To Review Operational Plans, Capital Budgets, Quarterly Results, Minutes Of Committee's Meeting. Director Shall Not Be A Member Of More Than 10 Committee And Shall Not Act As Chairman Of More Than 5 Committees Across All Companies

Management Discussion And Analysis Report Covering Industry Structure, Opportunities, Threats, Risks, Outlook, Internal Control System

Information Sharing With Shareholders B. Non-Mandatory Recommendations: Role Of Chairman Remuneration Committee Of Board Shareholders' Right For Receiving Half Yearly Financial Performance Postal Ballot

Covering Critical Matters Like Alteration In Memorandum Etc. Sale Of Whole Or Substantial Part Of The Undertaking Corporate Restructuring Further Issue Of Capital Venturing Into New Businesses

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III. Naresh Chandra Committee Report on Corporate Audit and Governance (2002)

The Ministry of Corporate Affairs had appointed a high level committee in August 2002 to examine various corporate governance issues. The committee had been entrusted to analyse and recommend changes, if necessary, in diverse areas such as: The statutory auditor-company relationship so as to further strengthen the professional

nature of this interface; The need, if any, for rotation of statutory audit firms or partners; The procedure for appointment of auditors and determination of audit fees; Restrictions, if necessary, on non-audit fees; Independence of auditing functions; Measures required to ensure that the management and companies actually present

'true and fair' statement of the financial affairs of companies; The need to consider measures such as certification of accounts and financial

statements by the management and directors; The necessity of having a transparent system of random scrutiny of audited accounts; Adequacy of regulation of chartered accountants, company secretaries and other similar

statutory oversight functionaries; Advantages, if any, of setting up an independent regulator similar to the Public

Company Accounting Oversight Board in the Sarbanes Oaxley Act (SOX Act), and if so, its constitution; and

Role of independent directors, and how their independence and effectiveness can be ensured.

The Committee's recommendations relate to: Disqualifications for audit assignments; List of prohibited non-audit services; Independence Standards for Consulting, Other Entities that are Affiliated to Audit Firms; Compulsory Audit Partner Rotation; Auditor's disclosure of contingent liabilities; Auditor's disclosure of qualifications and consequent action; Management's certification in the event of auditor's replacement; Auditor's annual certification of independence; Appointment of auditors;

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Setting up of Independent Quality Review Board; Proposed disciplinary mechanism for auditors; Defining an independent director; Percentage of independent directors; Minimum board size of listed companies; Disclosure on duration of board meetings/committee meetings; Additional disclosure to directors; Independent directors on Audit Committees of listed companies; Audit Committee charter; Remuneration of non-executive directors; Exempting non-executive directors from certain liabilities; Training of independent directors; SEBI and Subordinate Legislation; Corporate Serious Fraud Office; etc.

National Foundation for Corporate Governance (NFCG) Ministry of Corporate Affairs has set up a National Foundation for Corporate Governance (NFCG) in association with CII, ICAI and ICSI, as a not-for-profit trust. It provides a platform to deliberate on issues relating to good corporate governance, to sensitise corporate leaders on importance of good corporate governance practices as well as facilitate exchange of experiences and ideas amongst corporate leaders, policy makers, regulators, law enforcing agencies and non- government organizations. The NFCG has a three-tier structure for its management, viz, the Governing Council under the Chairmanship of Minister of Corporate Affairs, the Board of Trustees and the Executive Directorate. NFCG had framed an action plan, which includes development of good corporate governance principles on identified themes i.e. (i) corporate governance norms for institutional investors, (ii) corporate governance norms for independent directors, and (iii) corporate governance norms for audit.

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IV. N R Narayana Murthy Committee Report (2003) With the belief that the efforts to improve corporate governance standards in India must continue because these standards themselves were evolving in keeping with the market dynamics, the Securities and Exchange Board of India (SEBI) had constituted a Committee on Corporate Governance in 2002 , in order to evaluate the adequacy of existing corporate governance practices and further improve these practices. It was set up to review Clause 49, and suggest measures to improve corporate governance standards. The SEBI Committee was constituted under the Chairmanship of Shri N. R. Narayana Murthy, Chairman and Chief Mentor of Infosys Technologies Limited. The Committee comprised members from various walks of public and professional life. This included captains of industry, academicians, public accountants and people from financial press and industry forums. The terms of reference of the committee were to: Review the performance of corporate governance; and Determine the role of companies in responding to rumour and other price sensitive

information circulating in the market, in order to enhance the transparency and integrity of the market.

The issues discussed by the committee primarily related to audit committees, audit reports, independent directors, related parties, risk management, directorships and director compensation, codes of conduct and financial disclosures. The committee's recommendations in the final report were selected based on parameters including their relative importance, fairness, accountability and transparency, ease of implementation, verifiability and enforceability. 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;

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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.

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.

As per the committee, these recommendations codify certain standards of 'good governance' into specific requirements, since certain corporate responsibilities are too important to be left to loose concepts of fiduciary responsibility. Their implementation through SEBI's regulatory framework will strengthen existing governance practices and also provide a strong incentive to avoid corporate failures. The Committee noted that the recommendations contained in their report can be implemented by means of an amendment to the Listing Agreement, with changes made to the existing clause 49.

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V. Naresh Chandra Committee Report (2009) The Naresh Chandra committee was appointed in August 2002 by the Department of Company Affairs (DCA) under the Ministry of Finance and Company Affairs to examine various corporate governance issues. The Committee submitted its report in December 2002. It made recommendations in two key aspects of corporate governance: financial and non-financial disclosures: and independent auditing and board oversight of management. The committee submitted its report on various aspects concerning corporate governance such as role, remuneration, and training etc. of independent directors, audit committee, the auditors and then relationship with the company and how their roles can be regulated as improved. The committee stingily believes that “a good accounting system is a strong indication of the management commitment to governance. The salient recommendations are as follows: Creation of a new post of Intelligence Advisor to assist the NSA and the National

Intelligence Board on matters relating to coordination in the functioning of intelligence committee.

Amendment to Prevention of Corruption Act to reassure honest officers, who take important decisions about defense equipment acquisition, so that they are not harassed for errors of judgment or decision taken in good faith.

A permanent Chairman of the Chiefs of Staff Committee Expediting the creation of new instruments for counter-terrorism, such as the National

Intelligence Grid and National Counter Terrorism Centre. Deputation of officers from services up to director's level in Ministry of Defense Measures to augment the flow of foreign language experts into the intelligence and

security agencies, which face a severe shortage of trained linguists Promotion of synergy in civil-military functioning to ensure integration. To begin with,

the deputation of armed services officers up to director level in the Ministry of Defence should be considered.

Early establishment of a National Defense University (NDU) and the creation of a separate think-tank on internal security.

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5. SEBI and CORPORATE GOVERNANCE

Securities and Exchange Board of India (SEBI) was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. It monitors and regulates corporate governance of listed companies in India through Clause 49 of the Listing Agreement. This clause is incorporated in the listing agreement of stock exchanges and it is compulsory for them to comply with its provisions. It was first introduced in the financial year 2000-01 based on the recommendations of Kumar Mangalam Birla committee. rovisions of

Clause 49 of the Listing Agreement

Board of Directors

Board of directors of a company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors. The number of independent directors would depend whether the Chairman is executive or non-executive. In case of a non-executive chairman, at least one-third of board should comprise of independent directors and in case of an executive chairman, at least half of board should comprise of independent directors. All pecuniary relationship or transactions of the non-executive director’s viz-a-viz. the company should be disclosed in the Annual Report.

Audit Committee

A qualified and independent audit committee shall be set up and that:

1. Audit committee shall have minimum three members, all being non-executive directors, with the majority of them being independent, and with at least one director having financial and accounting knowledge;

2. Chairman of the committee shall be an independent director; 3. Chairman shall be present at Annual General Meeting to answer shareholder

queries; 4. Audit committee should invite such of the executives, as it considers

appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of

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internal audit and when required, a representative of the external auditor shall be present as invitees for the meetings of the audit committee;

5. Company secretary shall act as the secretary to the committee.

The audit committee shall meet at least thrice a year. One meeting shall be held before finalization of annual accounts and one every six months. The quorum shall be either two members or one third of the members of the audit committee, whichever is higher and minimum of two independent directors.

The audit committee shall have powers, which should include the following to:

1. Investigate any activity within its terms of reference. 2. Seek information from any employee. 3. Obtain outside legal or other professional advice. 4. Secure attendance of outsiders with relevant expertise, if it considers

necessary.

The role of the audit committee shall include the following.

1. Oversight of the company's financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

2. Recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services.

3. Reviewing with management the annual financial statements before submission to the board, focusing primarily on;

i. Any changes in accounting policies and practices. ii. Major accounting entries based on exercise of judgment by

management. iii. Qualifications in draft audit report. iv. Significant adjustments arising out of audit. v. The going concern assumption.

vi. Compliance with accounting standards.

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vii. Compliance with stock exchange and legal requirements concerning financial statements

viii. Any related party transactions i.e. transactions of the company of material nature, with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of company at large.

4. Reviewing with the management, external and internal auditors, and the adequacy of internal control systems.

5. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

6. Discussion with internal auditors any significant findings and follow up there on.

7. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.

8. Discussion with external auditors before the audit commences nature and scope of audit as well as have post-audit discussion to ascertain any area of concern.

9. Reviewing the company's financial and risk management policies.

10. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors.

If the company has set up an audit committee pursuant to provision of the Companies Act, the said audit committee shall have such additional functions / features as is contained in the Listing Agreement.

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Remuneration of Directors

The remuneration of non-executive directors shall be decided by the board of directors.

The following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the annual report.

All elements of remuneration package of all the directors i.e. salary, benefits, bonuses, stock options, pension etc.

Details of fixed component and performance linked incentives, along with the performance criteria.

Service contracts, notice period, severance fees. Stock option details, if any – and whether issued at a discount as well as the

period over which accrued and over which exercisable. Board Procedure The board meeting shall be held at least four times a year, with a maximum

time gap of four months between any two meetings.

The director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.

Management

As part of the directors' report or as an addition there to, a Management Discussion and Analysis report should form part of the annual report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the company's competitive position:

1. Industry structure and developments. 2. Opportunities and Threats. 3. Segment–wise or product-wise performance. 4. Outlook 5. Risks and concerns.

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6. Internal control systems and their adequacy. 7. Discussion on financial performance with respect to operational

performance. 8. Material developments in Human Resources / Industrial Relations front,

including number of people employed.

Disclosures must be made by the management to the board relating to all material financial and commercial transactions, where they have personal interest that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.)

Shareholders

In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information:

1. A brief resume of the director; 2. Nature of his expertise in specific functional areas; and 3. Names of companies in which the person also holds the directorship

and the membership of Committees of the board.

The information like quarterly results, presentation made by companies to analysts shall be put on company's web-site, or shall 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. A board committee under the chairmanship of a non-executive director

shall be formed to specifically look into the redressing of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as ‘Shareholders/Investors Grievance Committee'.

To expedite the process of share transfers the board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight.

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Report on Corporate Governance

There shall be a separate section on Corporate Governance in the annual reports of company, with a detailed compliance report on Corporate Governance. Non-compliance of any mandatory requirement i.e. which is part of the listing agreement with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted.

Compliance

A company shall obtain a certificate from the auditors of the company regarding compliance of conditions of corporate governance as stipulated in this clause and annexed the certificate with the directors' report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual returns filed by the company.

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6. SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE Demand for information: In order to influence the directors, the shareholders

must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.

Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient-market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors.

Supply of accounting information: Financial accounts form a crucial link in

enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

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7. REFERENCES 1. https://www.google.com/images 2. http://business.gov.in/ 3. http://Investopedia.com/ 4. http://en.wikipedia.org/wiki/Corporate_governance