INTRODUCTION:

Corporate
Corporate is adjective meaning of or relating to a corporation derived from the noun corporation. A corporation is an organization created (incorporated) by a group of shareholders who have ownership of the corporation. The elected Board of directors appoints and oversees management of the corporation.

Governance
Oxford English Dictionary defines Governance as the act, manner, fact or function of governing, sway, control The word has Latin origins that suggest the notion of 'steering'. It deals with the processes and systems by which an organization or society operates.

Corporate Governance
It is a broad concept and has been defined and understood differently by different groups and at different points of time. The Cadbury Committee report defines it as the system by which companies are directed and controlled. It is generally understood as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations.

"Corporate governance is maximizing the shareholder value in a corporation while ensuring fairness to all stakeholders, customers, employees, investors, vendors, the government and the society-at-large. Corporate governance is about transparency and raising the trust and confidence of stakeholders in the way the company is run. It is about owners and the managers operating as the trustees on behalf of every shareholder - large or small." - Shri N.R. Narayan Murthy, Chief Mentor, Infosys Limited.

Corporate Governance generally refers to the practices by which organizations are directed, controlled and held to account. Corporate Governance includes the relationships among the many players involved (the stakeholders) in the context of the goals of the company. The principal players are the shareholders, management and the Board of Directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. The Corporate Governance structure spells out the rules and procedures for making decisions on corporate affairs. It provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives. It is about commitment to values, ethical business conduct and transparency. Thus, in essence, Corporate Governance translates into conducting the affairs of a company in a manner that ensures fairness to customers, employees, shareholders, fund providers, suppliers, the regulators and society as a whole. The absence of good governance structures and lack of adherence to the governance principles increases the risk of public corruption and misuse of entrusted power by the management in public sector.

With the goal of promoting better corporate governance practices in India, the Ministry of Corporate Affairs, Government of India, has set up National Foundation for Corporate Governance (NFCG) in partnership with Confederation of Indian Industry (CII), Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI).

EVOLUTION: The word corporate governance has become a buzzword these days because of two factors. The first is that after the collapse of the Soviet Union and the end of the cold war in 1990, it has become the conventional wisdom all over the world that market dynamics must prevail in economic matters. The concept of government controlling the Commanding heights of the economy has been given up. This, in turn, has made the market the most decisive factor in settling economic issues. This has also coincided with the thrust given to globalization because of the setting up of the WTO and every member of the WTO trying to bring down the tariff barriers. Globalization involves the movement of four economic parameters namely, physical capital in terms of plant and machinery, financial capital in terms of money invested in capital markets or in FDI, technology, and labour moving across national borders. The pace of movement of financial capital has become greater because of the pervasive impact of information technology and the world having become a global village. When investments take place in emerging markets, the investors want to be sure that not only are the capital markets or enterprises with which they are investing, run competently but they also have good corporate governance. Corporate governance represents the value framework, the ethical framework and the moral framework under which business decisions are taken. In other words, when investments take place across national borders, the investors want to be sure that not only is their capital handled effectively and adds to the creation of wealth, but the business decisions are also taken in a manner which is not illegal or involving moral hazard.

Objectives of good corporate governance 1. Strengthen management oversight functions and accountability 2. Balance skills, experience and independence on the board appropriate to the nature and extent of company operations 3. Establish a code to ensure integrity 4. Safeguard the integrity of company reporting 5. Risk management and internal control 6. Disclosure of all relevant and material matters

7. Recognition and preservation of needs of shareholders 8. To enhance the reputation of a business/entity, which is in the public sector includes meeting expectations of model behaviors from public entities. 9. To comply with the laws and Acts. 10. To make the business entity more efficient and effective and to avoid disasters.

PLAYERS IN CORPORATE GOVERNANCE: Corporate governance systems vary across countries and these differences directly affect both the process for developing global strategies that can be adopted... They seek maximize profit and global competitiveness. There are five critical stakeholder players that affect the company's decision. They are y y y y y Employees The management teams Shareholders Board of directors Government

Some other key players are y y y y Regulators Customers Suppliers Community (people affected by the actions of the organization)

BASIC PRINCIPLES OF CORPORATE GOVERNANCE: The Business Round table supports the following guiding principles: 1. The main duty of the board of directors of a public corporation is to select a Chief Executive Officer and to oversee the CEO and other senior management in the competent and ethical operation of the corporation on a day-to-day basis. 2. It is the responsibility of management to operate the corporation in an effective and ethical manner in order to produce value for stock holders. Senior management is expected to know how the corporation earns its income and what risk the corporation is undertaking in the course of carrying out its business. Management should never put personal interest ahead of or in conflict with the interest of corporation. 3. It is the responsibility of management under the oversight of the board and its audit committee to produce financial statements that fairly present the financial conditions and results of operations of the corporation and to make the timely disclosures investors need to permit them to assess the financial and business soundness and risks of the corporation. 4. It is the responsibility of the board and its audit committee to engage an independent accounting firm to audit the financial statements prepared by management and to issue an opinion on those statements based on Generally Accepted Accounting Principles. The board, its audit committee and management must be vigilant to ensure that no actions are taken by the corporation or its employee that compromise the independence of the outside auditor. 5. 5. It is the responsibility of the independent accounting firm to ensure that it is in fact independent without conflicts of interest, employs highly competent staff and carries out its work in accordance with Generally Accepted Auditing Standards. Another five key principles of corporate governance are as follows: (1) Peoples are more important than processes One lesson of recent corporate collapses in the U.S.A and in Europe seems to be that no corporate structure can guarantee success if the individual with in it do not operate with the right

degree of independence with the right kind of expertise and do not devote the required amount of time to the important role of executive director. The main thing is too many companies no executive directors are chosen for reasons quite unrelated to their suitability for the task. (2) Shareholders accountability. It is found that shareholders accountability does not always work as effectively as one would like. It is because shareholders frequently do not vote on important resolutions. They do not vote on the appointment of Auditors and generally remains entirely passive until a crisis hits. In my view share holders must accept their own responsibilities if we are to achieve a truly robust corporate governance system. Shareholders should not abdicate their responsibilities to boards. So companies need active shareholders prepare to make their views heard.

(3) The effectiveness of Audit. The external audit must be independent and penetrating. The Enron case has already an important consequence for the Audit functions in U.S.A. It certainly appears that, in some cases, auditors have lost sight of their essential function as agent of shareholders and lost sight of public interest dimension of their role. If investors cannot be confident that the prime responsibility of the auditor is to his or her professional standard and to market integrity, then they will lose confidence will be reflected in lower share prices and higher cost of capital. (4) Disclosure and Transparency. The disclosure and transparency are crucial to market integrity. Over the last 15 years as concern about corporate governance have grown, a series of codes of practice have been put together, largely by British companies themselves. Sir Adrian Cadbury designed the basic corporate governance code .Since it has been supplemented by another Greenbury code on disclosure of pay and together with a number of other requirements into the combined code, which has known as Hampel code. The main principle is that the companies should disclose in their annual report

and accounts whether they meet the terms of these codes of good practice. Remuneration policies are a particularly crucial feature of corporate governance today. Enron points up the danger of incentives for directors to take huge financial risk which bring immediate financial benefit to them and longer term disaster for the company. (5) Regulatory Discipline. The prime responsibility for developing codes of good corporate governance has rested with companies themselves. In fact the Bank of England simulated the first corporate governance code in U.K but since company has typically taken then the lead chairman them. The corporation has responsibility to deal with its employees in a fair and equitable manner. These responsibilities and others are critical to the functioning of modern public corporation and the integrity of the public corporation and the integrity of the public markets. No law or regulation alone can be a substitute for the voluntary adherence to these principles by corporate directors and management and by the accounting firms retained to serve American corporations. In the nut shell effective corporate governance requires a clear understanding of the respective roles of the board and of senior management and their relationships with others in the corporate structure.

Information and Data disclosure by Companies:

1. Information about Capital Expenditure. 2. Non-operating Incomes/Losses: This item influences earnings per share of company. A company may perform badly on the operating front but non-operating incomes may shore up its profits figure or sometimes reverse happens. So disclosure of this item on a separate basis enables the users to arrive at the correct decision. 3. Earnings per Share (EPS): EPS is perhaps the single most important item that is used by the investors to assess the performance of a company. Many companies have been reporting EPS through annual and interim reports for a long time. Recently, Companies Act, 1956, Part IV of Schedule VI has

made it mandatory to disclose this item through notification No. GSR 288(E), dated May 15, 1995. This item is to be disclosed under Balance Sheet Abstract and General Business ProfileInternational Accounting Standards Committee has brought out IAS-33 on EPS. The Institute of Chartered Accountants of India has issued AS-20 on the EPS recently. 4. Highlights: These are usually shown at the beginning of reports entitled differently, e.g.

Financial Highlights: Year at a Glance 1 Year in Review, and Facts in nutshell, etc. Highlights prove very useful to investors and they can skip the details. They can know about the working of the company instantly without going into detail. Highlights usually mention: 1. Production Statistics 2. Turnover 3. Profits before Taxes 4. Depreciation 5. Taxes 6. Profits after Taxes 7. Orders Executed and in Hand 8. Rate of Dividend 9. Earnings per Share 10. Net Worth Per Share (or Book Value per share) 11. Retained Earnings 12. Net Worth after Taxes as of Shareholders Equity 13. Dividend per Share 14. Earnings per Share

5. Bonus Record/Details about Bonus/Right issues: Many companies provide details about bonus/rights issues, ratio, amount at the time of each bonus/right issues during the last 5/10 years Or since inception of the company. It is useful to know about changes in capital and reserves and surplus.

6. Segment Reporting: Mostly companies operate in diverse line of business. The present system of providing aggregate data about operating and other performance measures in respect of an entity with multiple activities does not represent the nature of activities in a transparent manner. An entity may have two types of segment: (1) by line of business (industry segment), and (2) by geographic area. Segment reporting requires disaggregation of information segment-wise. IAS-14 requires Segmental Reporting. C.B.Bhave Committee has recommended segment reporting for companies with SHs funds exceeding Rs. 100crores. Recently, ICAI has come out with AS17 on Segment Reporting, (this standard was issued after the present study). 7. Summarized Data: Many companies are publishing summarized data showing financial position and results of the company for the current year as well as 2 or more preceding years under suitable headings, e.g. Results at a Glance.5 year or 10 year Summary etc. The advantage of such summarizes their clarity and simplicity which enables an average user to. Understand the financial statements statistical summary helps the users to ascertain the trend in important parameters of the corporate performance such as Sales, Profits, Earnings Per Share, Capital Employed, Return on Investment, Dividend paid, Debt-Equity Ratio, Gross Block, Net Block, Number of employees, Number of shareholders and their shareholding pattern (Foreign Holding, promoters, institutions and individuals.) 8. Ratios for Equity Shareholders Equity: Investors being the prime users of annual reports, companies usually provided 2-3 ratios concerning their interest. The ratios provided may be: Cash Earning per Share EPS growth Dividend per Share Dividend Payout ratio Book-Value per Share Price to Earnings (PE ratio) Price to Book Value Return on Investment etc.

9. Profit Forecast: After reviewing performance of the year under report, many companies give an indication about likely turnover exports and figures in next accounting year. Though the companies do not quantify their estimates in absolute figures but future prospects do find a place in directors reports usually. 10. Profitability Ratios: Lord Keynes said: Profit is the engine that drives the business enterprise and any corporate entity needs profits not only to exist but to expand and diversify also. The providers of capital want adequate return on their investment, adequate dividend/interest cover and security for their investments. These responsibilities can be discharged only through earnings. Since different users assess profitability from their point of view, companies

usually provide important profitability ratios viz. Gross Profit Ratio Operating Ratio Expense Ratio Net Profit Ratio.

II. Contemporary Accounting Issues

Under this head, seven items of voluntary disclosure have been covered Maximum number of companies are giving information about accounting policies followed and notes to the accounts, but the details and explanations vary. Such higher (percentage) due to accounting standard No.1.Next comes information under Environment reporting Here too, rather than giving financial data, most of companies are writing sentences about their activities contributing to environment and community development rather than employing any formal mechanism for disclosing information. Social reporting that too, on the lines of environment reporting even here, various techniques/models suggested for Human Resource Accounting are not being employed to value these assets. Human Resource Accounting: Brand Value: Value Added Statement: Inflation Accounting:

Ill. Information about Modernization, Research and Development

Quality Assurance: Companies making disclosure about quality assurance have talked about

getting ISO 9000 series and 14000 series Certification.

IV. Marketing Information: Maximum disclosure under this head is about market share, major customers followed by history about product. The information is sometimes provided by way of photographs, pie-charts and graphs. General Information is classified into 10 heads. Organization structure, followed by comments on information about development in industries, Annual reports usually contain charts, graphs and diagrams in order to make presentation of financial statements more lucid, intelligible and interesting to the users. These are used to show: y y y y y y Distribution of revenue; Break-up of sales of different products; Variation in sales and profit Distribution of profits Stock price movement compared to BSE/NSE stock index; and Comparative statistics for 5-10 years in respect of financial data. Further, color photographs about products 1 key personnel, plant. Laboratory, Sales/Production Centers, etc. given.

Foreign Currency Translation: Companies need to publish their main financial figures into one/ two foreign currencies.

Investors Education: Corporate sector has started paying attention to solve investors problems concerning their investments in the corporate entity. Recent developments in the capital market, actions by SEBI and stock exchange authorities are having impact on corporate sector in reporting information such as steps to improve investor services, Share Data (Market Price, Book value, Share Price

movement Vs. BSE, NSE index by way of graphs etc.) Information relating to current stock exchange, SEBI regulations though mostly indirectly. Complaints and grievances centers opened by them for handling the complaints of the investors.

CASE ANALYSIS OF CORPORATE GOVERNANCE:

Infosys Technologies: The Best among Indian Corporate

As per the Credit Lyonnais Securities Analysis (CLSA), the corporate governance ratings of the Software firms are higher than those of other Indian firms. Infosys, based in Bangalore, is a publicly held, ISO 9001 certified company offering information technology consulting & software services. The software offered includes application development, E-Commerce & Internet Consulting, Software Maintenance. Respected across the country, with very strong systems, high ethical values & a nurturing working atmosphere. Net income of US 1,155 million and revenue of US 4,176 million.

Achievements
Voted as the Best Managed Company in Asia. Biggest exporters of Software. First to follow the US Generally Accepted Accounting Principles before going for NASDAQ listing in 1991. Championed Corporate Governance in India.

Satyam Computers: Weak example of Corporate Governance

When terrorists attacked Mumbai last November, the media called it "India's 9/11." That tragedy has been succeeded by another that has been dubbed "India's Enron." In one of the the biggest

frauds in India's corporate history, B. Ramalinga Raju, founder and CEO of Satyam Computers, India's fourth-largest IT services firm, announced on January 7 that his company had been falsifying its accounts for years, overstating revenues and inflating profits by $1 billion. Ironically, Satyam means "truth" in Sanskrit, but Raju's admission -- accompanied by his resignation -- shows the company had been feeding investors, shareholders, clients and employees a steady diet of asatyam (or untruth), at least regarding its financial performance.

Raju's departure was followed by the resignation of Srinivas Vadlamani, Satyam's chief financial officer, and the appointment of Ram Mynampati as the interim CEO. In a press conference held in Hyderabad on January 8, Mynampati told reporters that the company's cash position was "not encouraging" and that "our only aim at this time is to ensure that the business continues." A day later, media reports noted that Raju and his brother Rama (also a Satyam co-founder) had been arrested -- and the government of India disbanded Satyam's board. Though control of the company will pass into the hands of a new board, the government stopped short of a bailout -- it has not offered Satyam any funds. Meanwhile, a team of auditors from the Securities and Exchange Board of India (SEBI), which regulates Indian public companies, has begun an investigation into the fraud. Since Satyam's stocks or American Depository Receipts (ADRs) are listed on the Bombay Stock Exchange as well as the New York Stock Exchange, international regulators could swing into action if they believe U.S. laws have been broken. At least two U.S. law firms have filed class-action lawsuits against Satyam, but given the company's precarious finances, it is unclear how much money investors will be able to recover. According to experts from Wharton and elsewhere, the Satyam debacle will have an enormous impact on India's business scene over the coming months. The possible disappearance of a top IT services and outsourcing giant will reshape India's IT landscape. Satyam could possibly be sold -- in fact, it had engaged Merrill Lynch to explore "strategic options," but the investment bank has withdrawn following the disclosure about the fraud. It is widely believed that rivals such as HCL, Wipro and TCS could cherry pick the best clients and employees, effectively hollowing out Satyam. Another possible impact could be on the trend of outsourcing to India, since India's IT firms handle sensitive financial information for some of the world's largest enterprises. The most significant questions, however, will be asked about corporate governance in India, and whether other companies could follow Satyam's Raju in revealing skeletons in their own closets.

Resigning as Satyam's chairman and CEO, Raju said in a letter addressed to his board, the stock exchanges and the market regulator Securities & Exchange Board of India (SEBI) that Satyam's profits were inflated over several years to "unmanageable proportions" and that it was forced to carry more assets and resources than its real operations justified. He took sole responsibility for those acts. "It was like riding a tiger, not knowing how to get off without being eaten," he said. "The aborted Maytas acquisition was the last attempt to fill the fictitious assets with real ones." Specifically, Raju acknowledged that Satyam's balance sheet included Rs. 7,136 crore (nearly $1.5 billion) in non-existent cash and bank balances, accrued interest and misstatements. It had also inflated its 2008 second quarter revenues by Rs. 588 crore ($122 million) to Rs. 2,700 crore ($563 million), and actual operating margins were less than a tenth of the stated Rs. 649 crore ($135 million). Satyam's auditor PricewaterhouseCoopers issued a terse statement: "Over the last two days, there have been media reports with regard to alleged irregularities in the accounts of Satyam.... Price Waterhouse are the statutory auditors of Satyam. The audits were conducted by Price Waterhouse in accordance with applicable auditing standards and were supported by appropriate audit evidence. Given our obligations for client confidentiality, it is not possible for us to comment upon the alleged irregularities. Price Waterhouse will fully meet its obligations to cooperate with the regulators and others."