CORPORATE GOVERNANCE PRACTICE IN SSI UNITS : AN EMPERICAL STUDY BASED ON KOLKATA REGION

Ajay Kumar Ganguly

Lecturer in B.Com(h) marketing department

Abstract:
Corporate Governance includes the relationship of a company to its shareholders and to the society; the promotion of fairness, transparency and accountability. The primary goal of Corporate Governance is to create a balance of power-sharing among shareholders, directors, and management to enhance shareholder value and protect the interests of other stakeholders. In India the small-scale industrial sector plays a pivotal role in the Indian economy in terms of employment and growth has recorded a high rate of growth since independence inspite of stiff competition from large-scale industries. Thus in our paper, we want to envisage on the different problems faced by the SSI units especially located in Kolkata and its suburb region and also we are trying to focus on the awareness of ethical governance and its implementation in Indian SSI units and how they are running on and what would be their future action. It has been seen that, there is no formal structure of Board of Directors in most of the cases but they have their own code of conducts which they want to follow in a very stringent pattern. Indian SSI sectors have to strengthen their ethical governance issue so that they can create sustainable and enduring stakeholders value. Key words: Corporate, Governance, SSI units, governance Stake- holder, ethical

1. INTRODUCTION : Good governance is a relatively new term that is often used to describe the desired objective of a nation-states political development. The principles of good governance, however, are not new. Good governance is, in short, anti-corruption whereas authority and its institutions are accountable, effective and efficient, participatory, transparent, responsive, consensus-oriented, and equitable. These are the major characteristics of good governance as outlined by the United Nations. For good governance to exist in both theory and practice, citizens must be empowered to participate in meaningful ways in decision-making processes. They have a right to information and to access. Although widespread accessibility remains a barrier for many countries, one of those ways is through Information and Communication Technology (ICT) applications such as the Internet. E-governance has emerged as a viable means to address development issues and challenges because citizens find empowerment through access to information. 1.1 What is Corporate Governance?

Corporate governance covers a large number of distinct concepts and phenomenon as we can see from the definition adopted by Organization for Economic Cooperation and Development (OECD) Corporate governance is the system 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, managers, shareholders and other stakeholders and spells out the rules and procedures for making decisions in 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 From this definition, we see that corporate governance includes the relationship of a company to its shareholders and to society; the promotion of fairness, transparency and accountability; reference to mechanisms that are used to govern managers and to ensure that the actions taken are consistent with the interests of key stakeholder groups. The primary goal of Corporate Governance is to create a balance of power-sharing among shareholders, directors, and management to enhance shareholder value and protect the interests of other stakeholders. The key points of interest in corporate governance therefore include issues of transparency and accountability, the legal and regulatory environment, appropriate risk management measures, information flows and the responsibility of senior management and the board of directors. The primary mission of a public company is to create sustainable and enduring shareholder value. Thus blending the share holders value with organizational transparency gives a birth of Good Governance oftenly termed out as Corporate Governance. But it should be remembered that, Codes of business ethics and conduct are intended to govern

behavior, but they cannot substitute for moral principles, culture, and character. 1.2 SSI UNITS An Indian Perspective: In indian context there are four categories SSI units. a)An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs 10 million (Roughly average) is called Small Scale Industrial Units. b) There are also Ancilliary Industrial Undertakings which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 50 per cent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or on lease or on hire-purchase, does not exceed Rs 10 million. c) There are also some Tiny Enterprises whose investments limit in plant and machinery of Rs 2.5 million irrespective of location of the unit. And Last but not least, d) there are some small scale Industrial Units/ Industry related service or business enterprises, managed by one or more women entrepreneurs in proprietary concerns, or in which she/ they individually or jointly have a share capital of not less than 51% as Partners/ Shareholders/ Directors of Private Limits Company/ Members of Cooperative Society. But in our study we will only consider the first one i.e. small scale Industrial Units and last one i.e. women-led SSI Units.

The role played by the small-scale industral unit in the economic activities of advanced industrialised countries like Japan, Germany, Great Britain and the United States of America is significant. Many nations, both developed and developing exteriorized that the small industry sector is a useful vehicle for growth, in the later for the creation of new employment opportunities on a wide scale in the shortest possible time. India is not an exception and Government of India(GOI) is also encouraging SSI units by imparting the right education and by giving a right direction to their owner so that they can develop their project on their own and can identify the the area of thrust where they can easily explore and not only that the GOI is also envisaging the funding issue which is very pertaining and significant issue. In this context, the role of SIDBI is worth to mention. Inspite of that, some pertinent questions can arise: Are the Indian SSI units free from any problems? Are they growing day by day? Do they have any significant contribution in our present GDP? And the most important Question, are they adopting and following good governance? In this paper, we are trying to find out the answers of these questions. Investment Enterprises Slabs in Manufacturing

Micro Enterprises Up to Rs. 25 lack Small Enterprises Rs.25 lakh to Rs.5crore Medium Enterprises Rs.5crore & up to Rs.10crore

Investment Slabs in Service Enterprises Micro Enterprises Up to Rs. 10 lack Small Enterprises Rs.10 lakh to Rs.2crore

Medium Enterprises Rs.2 crore to Rs.5 crore

1.3 SSI Unit its impact on Indian Economy: The Government has supported the small scale industries by the way of implementing policies like investment ceiling for the SSI sector and priority lending. The small-scale industrial sector plays a pivotal role in the Indian economy in terms of employment and growth has recorded a high rate of growth since Independence inspite of stiff competition from large-scale industries. The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million of Rupees of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points. The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units[registered & unregistered] has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000-01 and over 12 million in the year 2011-12. Since the launching of five-year plans in country the SSI sector has grown at a phenomenal rate. This sector comprises 95 per cent of the total industrial units in the country, accounting for 40 per cent of the total industrial production, 34 percent of the national exports, and 250 lakh persons of industrial employment. So, this sector emerged as a bosom and dynamic part of the Indian economy. In fact, it is one side of the coin. Another side there is another story that tells us the declining position of the small-scale industries in India. Due to the

Liberalization, Privatization and Globalization (LPG), the importance of the government is shifted from labor intensive industries to capital intensive industries. It leads to decline of small-scale industrial units gradually during post LPG period. 2. PURPOSE OF THE STUDY: The key purpose of the study is to find out: What types of problems the Indian SSI units are facing? Most importantly, Do they able to adopt good Governancane?

3. METHODOLOGY:
In order to assess the corporate governance of small businesses, this study employed both quantitative and qualitative techniques. The sample for this study was thirty participants consisting of owners of small businesses industry located in Kolkata & its suburb region. The Sample was purposive in nature due to their vast experience and total inclinanation towards SSI units. Amongst these thirty owners of small businesses, ten female owner are selected purposefully to justify our objective and proposition. The highest level of education achieved by the participants was a bachelors degree and over 50% in this sample were technically qualified. Interviews were conducted using a structured interview schedule containing both closed and open ended questions.

4. MAJOR FINDINGS:
4.1 FINDING #1: The Indian small scale enterprises are suffered with severe problems, which are mainly depending on the level of economic and social development of the country. India as a developing country is not an exceptional one to the above condition.

Though, there are unlimited problems connected with SSIs, some of them which has been revealed in our interviewing process are given below. They are: a) Difficulty in obtaining loans from commercial banks[including Nationalized & Privatized Bank] b) Financial & Economic inability to provide security; c) Inability to offer liberal credit terms in the sale of their products d) Abscene of management expertise and proper professional training e) Difficulty in competing with imported products due to high production costs f) Under capitalization g) Difficulty in identifying appropriate technology and technical assistance and lack of adequate knowledge. h) Bureaucratic red tapisam and regulations i) Mal-adjusted project preparation due to lack of proper knowledge. j) Lack of quality control and testing facilities. k) Lack of promotional & marketing expertization. l) Lack of R&D activities.

provide security. 50% of the respondents told us regarding abscence of management expertize. Around 50 % of the owners commented on their inappropriate testing facilities etc.

4.2 Finding #2: Respondents Views of Corporate Governance Practices of Small Corporations 1. Formal Board of Directors: 60% respondents mentioned that they have a formal structure of Board of Directors and 40 % respondents confessed that they dont have any formal structure of Board of Directors they are having owner and he is acting as CEO of this organization. 2. Less than 20% of small business members have a succession plan. Where there was one, the plan was most likely to be directed towards the senior management or the owner manager position. 3. Two areas would be envisaged for good governance : a code of conduct and independent auditing. Sixty percent of the respondents were reported to have a proper code of conduct. Only four of the thirty respondents [13.33%]reported that their entities were audited properly [Internally and externally]. 4. Small Industries [especially our respondents] considered financial record keeping complex to understand and follow as well as time consuming, especially due to their lack of skills & experience for preparing financial documents. As a result, this task was left to their accountants, which was cost effective also.

Fig. 01 We have plotted the above graph [Fig.01] on the basis of percentage distribution of comments obtained from the owners of the SSI units in respect of the above mentioned problems faced by them. Eg. Around 60% owners have commented about difficuty of obtaining loan from the commercial banks. Around 20% of the owners have commented on Financial inability to

5. All most all the respondents have confessed to keep disclosure of their financial performance private and provide information to their organizational lawyear to meet taxation and financial requirements and

in this respect accountant is paying a supportive role. 6. Around Sixty percent respodents are very much cordial about their stakeholders specially their raw material suppliers and distributors and the rest of the respondents are indifferent about the stakeholders actions and interests.

Small Corporations and these should be mitigated by proper planning and initiatives made by the proper department of the State Government . GOI with the help of respective State Governments should laid down the guideline of proper policy framework so that the owner of the small corporations can get the benefit.

5. Conclusion:
The small scale sector has acquired a prominent position in the economic structure of India. The contribution of the sector both towards economic development and removal of economic disparities among the cross section of society has been tremendous. SSI is one of the significant segments of the Indian economy, contributing about 7 per cent to the Indian GDP and providing employment to over 28 million people. But still this SSI units are suffering from Mal-nutrition due to lack of awareness of the key perspectives of ethical dimension of the Governance. Ethical Governance gives them a competitive edge and make them transparent & accountable to their stakeholders. Thus from this point of view, our study reveals that, lack of awareness of the power of ethical dimension of governance deprive them to make themselves accountable to their stakeholders. Thus from this point of view, our study envisages on the proper training and imparting professional excellence towards the owner of the Small Corporations so that they can keep themselves updated and excell their activities and can ensure the stakeholders a better productivity. Our study reveals that, there are several problems faced by the owners of Indian

References:
Mathew, M.(2004), Small Industry and Globalization, Economic and Political Weekly, Vol. XXXIX, No. 20, 15 May 2004, Pg: 19992000. Nag, B. (2000), WTO Regime and Its Implications for Indian Small and Medium Enterprises Sector, SEDME, Vol. 27, No. 3, September 2000, PP: 1- 17. Selvaraj.A., SSIs Deserve a Better Deal , The Hindu, June 20, 2005 Valasamma Antony., Small Scale Sector At Crossroads: An Overview, Southern Economist,Vol.,No.,July 15, 2007.p26. OECD April 1999. http:// www.encycogov.com / WhatIsGorpGov. asp. Neelam Jain, Small Scale Industries in the new Millennium, SEDME, Vol.30, No.1 March 2004 Dr. Vasanta Desai, Management of Small Scale Industry, Himalaya Publishing House Mumbai-2007, PP 564-565 S K Mandal, Ethics in Business & Corporate Governance, Tata McGraw-Hill Education, 01May-2010, Sanjay Bhayana, Corporate Governance Practices in India, Regal Publications. Sarkar, Corporate Governance In India, Sage India. Frederick D Lipman, L Keith Lipman, Corporate Governance Best Practices, John Wiley & Sons, Inc. Anil Kumar, Corporate Governance: Theory And Practice, International Book House.

Date: 04.09.2012 To The Editor, The Management Accountant, Institute of Cost Accountants of India, 12, Sudder Street, Kolkata -16
SUBJECT: GOVERNANCE SUBMISSION OF MANUSCRIPT IN THE AREA OF ETHICAL

DEAR SIR / MADAM, Please find my submission of manuscript entitled Corporate Governance Practice in SSI Units: An emerial study based on Kolkata region for possible publication in your journals. I hereby affirm that the contents of this manuscript are original. Furthermore, it has neither been published elsewhere in any language fully or partly, nor is it under review for publication elsewhere. Also, if my manuscript is accepted, I agree to comply with all the formalities as laid down by you. NAME OF AUTHOR: AJAY KUMAR GANGULY Qualifications : M.Phil, PGDBA(equiv. to MBA), MBA, MSW, PGCACS, CWM. Residential address with Pin Code: 9/7, M.B. Road, Belghoria, Kolkata 700083 Mobile Number (s): 09830448500 Landline Number (s): (033)-25413005 E-mail Address: akg.1812@yahoo.com Alternate E-mail Address: akg.1812@gamil.com With Regards, A.K.Ganguly [AJAY KUMAR GANGULY] 7