A COMPARITIVE STUDY OF CORPORATE GOVERNANCE IN INDIA AND COMPANIES AROUND THE WORLD SHAKTI SINGAL-2010A58 DIVYA CHADHA-2010A60 UJJWAL SINGH -2010A62 Under the Guidance of MR. SHREEDHAR BHAT SYMBIOSIS CENTRE FOR MANAGEMENT AND HUMAN RESOURCE DEVELOPMENT, SYMBIOSIS INTERNATIONAL UNIVERSITY ACKNOWLEDMENT This project would not have been possible without the help and support of Mr. Shreedhar Bhat, our mentor for the project. Our deepest gratitude goes out to him for guiding us at various stages with attention and care. He has taken pain to go through our project and make the necessary changes when required.
We extend our thanks to Prof. K. S. Subramanian – Director, SCMHRD for extending his support to us. We would also thank our institute and our faculty members without whom this project would have been a distant reality, and a deep sense of gratitude goes out to our friends and family for their constant support and love. 2 TABLE OF CONTENTS Serial No. 1 Particulars Page No. Introduction ? Definition of Corporate Governance 4 4 2. Literature Review ? Basic Structure ? Corporate Governances roles and responsibilities ? Benefits of Corporate Governance ? Corporate Governance in India ? Background of Corporate Governance in India ?
Changes since liberalization ? Corporate Governance in Indian Banks ? Corporate Governance in Public Sector Units in India ? Corporate Governance in Private Sector Units in India 1. ITC 2. Bajaj Auto ltd 3. Hindustan Unilever 5 5 5 7 7 8 8 10 11 12 12 13 14 3. Analysis and Conclusion ? Shortcomings of Corporate Governance practices in India as compared to other developed Countries ? Comparison of Corporate Governance Practices followed in India and China ? Comparison of Corporate Governance Practices followed in India and US ? Comparison of Corporate Governance Practices followed in India and 6 other Asian Countries ?
Comparison of Corporate Governance Practices in India and OECD ? Comparison of Corporate Governance Practices followed in India and UK ? Comparison of Corporate Governance Practices followed in India and Japan 4. References 16 16 17 18 19 20 21 22 23 3 1. INTRODUCTION CORPORATE GOVERNANCE The concept of corporate governance, which emerged as a response to corporate failures and widespread dissatisfaction with the way many corporates function, has become one of the wide and deep discussions across the globe recently. It primarily hinges on complete transparency, integrity and accountability of the management.
There is also an increasingly greater focus on investor protection and public interest. Corporate governance is concerned with the values, vision and visibility. It is about the value orientation of the organisation, ethical norms for its performance, the direction of development and social accomplishment of the organisation and the visibility of its performance and practices. Definition “Corporate governance refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, board of directors, controlling hareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital”. This definition focuses on three key elements: – Direction refers to all the decisions that relate to setting the overall strategic direction of the company such as: (i) long-term strategic decisions; (ii) large-scale investment decisions; (iii) mergers and acquisitions; and (iv) Succession planning and appointment of key senior managers, such as the CEO of the company. Control refers to all the actions necessary to oversee the management’s performance and follow up on the implementation of the strategic decisions set above. – Relationship among the main governing bodies of the firm refers to the interactions among the shareholders, the directors of the board, and the managers. An important element of any good corporate governance structure is the clear definition of the role, duties, rights, and expectations of each of these governing bodies. 4 2. LITERATURE REVIEW Basic Structure
Basic structure of corporate governance consists of ? ? ? ? Director CEO Chairman The Board The board relies on independent outside directors to monitor management performance. Some of the important committees are ? ? ? ? Audit Committee Remuneration Committee Nomination Committee Finance Committee Corporate Governances roles and responsibilities Roles of Directors A director assumes two roles while governing the activities of an organization. They are ? The Performance role ? The conformance role Roles of the Chairman ? ? ? The role of the chairman is to manage the board and ensures that its policies are put into practice by the management. He also has to work closely with the company secretary to address the legal issues. The chairman must have a good understanding of the financial standing of the company. He must keep a strict watch on the company’s actual performance. Role of the CEO ? ? Primary role of a CEO is to run the organization in an efficient manner to produce the desired results. He is expected to have a constructive relationship with the chairman and the directors
Role of the Board The board has the following roles ? Strategic role 5 ? ? Policy making role Monitoring and supervisory role Audit Committee The committee usually consists of independent directors who report to the board. The functions of the audit committee are: ? To discuss with independent auditors any problems that they experience in completing the audit ? To review the interim and final accounts in total. ? Internal control and quality of financial reporting as pointed out by the independent auditors ?
To make recommendations regarding the audit fee, selection and replacement of auditors Remuneration Committee Shareholders are becoming concerned about the lack of transparency regarding the remuneration of directors and top-level managers. The board sets up the remuneration or compensation committee to objectively review the remuneration packages of the executive directors and the other top-level managers. Nomination Committee These committees are usually set up to select the new non-executive directors. Usually, it is headed by the chairman and it shortlists and interviews the final candidates.
Finance Committee The Finance Committee is established as a committee of the Board of Directors whose primary duties are to oversee and review the financial plans and policies of the Company and the implementation of such plans and policies, and to review investment policies of the retirement plans of the Company and its subsidiaries. 6 Benefits of Corporate Governance ? ? ? ? ? ? ? ? Good corporate governance ensures corporate success and economic growth. Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficiently and effectively.
It lowers the capital cost. There is a positive impact on the share price. It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization. Good corporate governance also minimizes wastages, corruption, risks and mismanagement. It helps in brand formation and development. It ensures organization in managed in a manner that fits the best interests of all. Corporate Governance in India Corporate Structure and Ownership ? ? ? Private limited companies Public limited companies Government companies(PSUs) Legal Framework ? ? ? ? ?
Companies Act 1956 Securities and Exchange Board of India Act 1992 Securities Contract Act 1956 Listing Agreement with Stock Exchanges Clause 49 Regulatory and Institutional Bodies 7 ? ? ? Securities and Exchange Board of India (SEBI) Reserve Bank of India (RBI), Bombay Stock Exchange (BSE), National Stock Exchange (NSE) Codes, Standards and Good Practice Guidelines ? ? ? ? ? Narayanmurthy Committee Report (2003) Naresh Chandra Committee on Corporate Audit and Governance (2002) Kumar Mangalam Birla Committee Report (2000) Desirable Course of Corporate Governance (1998) Clause 49 Background of Corporate Governance in India
The turn towards socialism in the decades after independence marked by the 1951 Industries (Development and Regulation) Act as well as the 1956 Industrial Policy Resolution put in place a regime and culture of licensing, protection and widespread red-tape that bred corruption and stilted the growth of the corporate sector. The situation grew from bad to worse in the following decades and corruption, nepotism and inefficiency became the hallmarks of the Indian corporate sector. Exorbitant tax rates encouraged creative accounting practices and complicated emolument structures to beat the system.
In the absence of a developed stock market, the three all-India development finance institutions (DFI’s) – the Industrial Finance Corporation of India, the Industrial Development Bank of India and the Industrial Credit and Investment Corporation of India – together with the state financial corporation’s became the main providers of long-term credit to companies. Along with the government owned mutual fund, the Unit Trust of India, they also held large blocks of shares in the companies they lent to and invariably had representations in their boards.
In this respect, the corporate governance system resembled the bank-based German model where these institutions could have played a big role in keeping their clients on the right track. Unfortunately, they were themselves evaluated on the quantity rather than quality of their lending and thus had little incentive for either proper credit appraisal or effective follow-up and monitoring. Their nominee directors routinely served as rubber-stamps of the management of the day. With their support, promoters of businesses in India could actually enjoy managerial control with very little equity investment of their own.
Borrowers therefore routinely recouped their investment in a short period and then had little incentive to either repay the loans or run the business. Frequently they bled the company with impunity, siphoning off funds with the DFI nominee directors mute spectators in their boards. Changes since liberalization The years since liberalization have witnessed wide-ranging changes in both laws and regulations driving corporate governance as well as general consciousness about it. Perhaps the single most 8 mportant development in the field of corporate governance and investor protection in India has been the establishment of the Securities and Exchange Board of India (SEBI) in 1992 and its gradual empowerment since then. Established primarily to regulate and monitor stock trading, it has played a crucial role in establishing the basic minimum ground rules of corporate conduct in the country. Concerns about corporate governance in India were, however, largely triggered by a spate of crises in the early 90’s.
The Harshad Mehta stock market scam of 1992 followed by incidents of companies allotting preferential shares to their promoters at deeply discounted prices as well as those of companies simply disappearing with investors’ money. These concerns about corporate governance stemming from the corporate scandals as well as opening up to the forces of competition and globalization gave rise to several investigations into the ways to fix the corporate governance situation in India. One of the first among such endeavors was the CII Code for Desirable Corporate Governance developed by a committee chaired by Rahul Bajaj.
The committee was formed in 1996 and submitted its code in April 1998. Later SEBI constituted two committees to look into the issue of corporate governance – the first chaired by Kumar Mangalam Birla that submitted its report in early 2000 and the second by Narayana Murthy three years later. Table 1 provides a comparative view of the recommendations of these important efforts at improving corporate governance in India. The SEBI committee recommendations have had the maximum impact on changing the corporate governance situation in India.
The Advisory Group on Corporate Governance of RBI’s Standing Committee on International Financial Standards and Codes also submitted its own recommendations in 2001. A comparison of the three sets of recommendations reveals the progress in the thinking on the subject of corporate governance in India over the years. An outline provided by the CII was given concrete shape in the Birla Committee report of SEBI. SEBI implemented the recommendations of the Birla Committee through the enactment of Clause 49 of the Listing Agreements.
They were applied to companies in the BSE 200 and S&P C&X Nifty indices, and all newly listed companies, on March 31, 2001; to companies with a paid up capital of Rs. 10 crore or with a net worth of Rs. 25 crore at any time in the past five years, as of March 31, 2002; to other listed companies with a paid up capital of over Rs. 3 crore on March 31, 2003. The Narayana Murthy committee worked on further refining the rules. The recommendations also show that much of the thrust in Indian corporate governance reform has been on the role and composition of the board of directors and the disclosure laws.
The Birla Committee, however, paid much-needed attention to the subject of share transfers which is the Achilles’ heel of shareholders’ right in India. 9 Corporate Governance in Indian Banks Need for Corporate Governance in Banks ? ? ? ? ? Since banks are important players in the Indian financial system, special focus on the Corporate Governance in the banking sector becomes critical. The Reserve Bank of India, as a regulator, has the responsibility on the nature of Corporate Governance in the banking sector. To the extent that banks have systemic implications, Corporate Governance in the banks is of critical importance.
Given the dominance of public ownership in the banking system in India, corporate practices in the banking sector would also set the standards for Corporate Governance in the private sector. With a view to reducing the possible fiscal burden of recapitalising the PSBs, attention towards Corporate Governance in the banking sector assumes added importance. The Basel Committee Recommendations The Basel Committee published a paper for banking organisations in September 1999. The objectives of Basel II are the following: 1. To promote adequate capitalisation of banks 2.
To ensure better risk management and 3. To strengthen the stability of banking system Essentials of Accord of Basel II ? ? ? Capital Adequacy Risk Based Supervision Market Disclosures Steps to be taken To overcome from these challenges, banks are required to emphasize on certain factors, which will increase their transparency and lead to higher foreign investment. ? ? ? Self- Appraisal System The directors evaluate themselves through self-introspection. The Board’s Committees: The board needs to be assisted by the some committee. Transparency: Transparency can reinforce ound corporate governance. Therefore, public disclosure is desirable. 10 Corporate Governance in Public Sector Units (PSUs) in India Perception of Corporate Governance in the Public Sector ? While listed PSUs are required to comply with Clause 49 of the SEBI Listing Agreement, it is now mandatory for all Central Public Sector Enterprises (CPSEs) to comply with the corporate governance norms rolled out by the Department of Public Enterprises. Hence, the general view is that from a regulatory perspective, PSUs are not lagging behind.
PSU CMDs expressed the view that non-executive directors on their boards have been making a significant contribution to improving the overall functioning of PSUs through their insights and external perspectives. When it comes to corporate governance, it is also an issue of perception. PSUs and especially those that are unlisted should be transparently disclosing their corporate governance practices which has hitherto not been the case. Also, Maharatna, Navratna and Miniratna PSUs that are listed should lead the way in implementing the MCA’s voluntary guidelines on corporate governance. ? ? Compliance with the SEBI Listing Agreement ? At a time when the Ministry of Corporate Affairs is placing greater emphasis on how corporate India implements the voluntary guidelines on corporate governance, it is disconcerting to note that the PSUs are falling behind in complying with minimum requirements envisaged in Clause 49. The important thing here is that the government should act swiftly and take corrective action failing which wrong signals may go out to India Inc. on the seriousness of the government’s intentions in raising the overall standards of corporate governance.
One way of dealing with non-compliance is to make unambiguous disclosures within the director’s report and the corporate governance report and thereby hold the PSU boards and managements accountable. The corporate governance norms for Central Public Sector Enterprises (CPSEs) released in 2007 being made mandatory for a lot of PSUs including unlisted PSUs is a good step, but the implementation needs to be considered. ? ? ? 11 Corporate Governance in Private Sector Companies in India 1. ITC ITC’s Corporate Governance initiative is based on two core principles. These are: 1.
Management must have the executive freedom to drive the enterprise forward without undue restraints 2. This freedom of management should be exercised within a framework of effective accountability. ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations.
Cornerstones From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC’s governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. Trusteeship: ITC believes that large corporations like itself have both a social and economic purpose.
They represent a coalition of interests, namely those of the shareholders, other providers of capital, business associates and employees. This belief therefore casts a responsibility of trusteeship on the Company’s Board of Directors. They are to act as trustees to protect and enhance shareholder value, as well as to ensure that the Company fulfils its obligations and responsibilities to its other stakeholders. Inherent in the concept of trusteeship is the responsibility to ensure equity, namely, that the rights of all shareholders, large or small, are protected.
Transparency: ITC believes that transparency means explaining Company’s policies and actions to those to whom it has responsibilities. Therefore transparency must lead to maximum appropriate disclosures without jeopardizing the Company’s strategic interests. Internally, transparency means openness in Company’s relationship with its employees, as well as the conduct of its business in a manner that will bear scrutiny. We believe transparency enhances accountability.
Empowerment and Accountability: Empowerment is an essential concomitant of ITC’s first core principle of governance that management must have the freedom to drive the enterprise forward. ITC believes that 12 empowerment is a process of actualizing the potential of its employees. Empowerment unleashes creativity and innovation throughout the organization by truly vesting decision-making powers at the most appropriate levels in the organizational hierarchy. ITC believes that the Board of Directors is accountable to the shareholders, and the management is accountable to the Board of Directors.
We believe that empowerment, combined with accountability, provides an impetus to performance and improves effectiveness, thereby enhancing shareholder value. Control: ITC believes that control is a necessary concomitant of its second core principle of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. Control should prevent misuse of power, facilitate timely management response to change, and ensure that business risks are pre-emptively and effectively managed.
Ethical Corporate Citizenship: ITC believes that corporations like itself have a responsibility to set exemplary standards of ethical behaviour, both internally within the organization, as well as in their external relationships. We believe that unethical behaviour corrupts organizational culture and undermines stakeholder value. 2. Bajaj Auto Limited Code of Conduct for Directors and Members of Senior Management this code of conduct shall apply to the directors and members of the senior management of Bajaj Auto Limited (referred to hereinafter as BAL or the Company).
For this code, members of the senior management (hereinafter referred to as `senior managers’) shall mean those personnel of the company, who are members of the core management team, but shall exclude the whole-time directors. Directors and senior managers shall observe the highest standards of ethical conduct and integrity and shall work to the best of their ability and judgement. Directors and senior managers shall be governed by the rules and regulations of the company as are made applicable to them from time to time.
Directors and senior managers shall affirm compliance with this code on an annual basis as at the end of each financial year. Code of conduct: 1. Directors and senior managers shall ensure that they use the company’s assets, properties and services for official purposes only or as per the terms of appointment. 13 2. Directors and senior managers shall not receive directly or indirectly any benefit from the company’s business associates, which is intended or can be perceived as being given to gain favour for dealing with the company. . Directors and senior managers shall ensure the security of all confidential information available to them in the course of their duties. 4. No director or senior manager, other than the designated spokespersons shall engage with any member of press and media in matters concerning the company. In such cases, they should direct the request to the designated spokespersons. 5. Directors and senior managers shall not engage in any material business relationship or activity, which conflicts with their duties towards the company. 6.
Senior managers shall not, without the prior approval of the managing director of the company, accept employment or a position of responsibility with any organization for remuneration or otherwise. In case of Whole-time Directors, such prior approval must be obtained from the board of directors of the company. 7. Directors and senior managers shall declare information about their relatives (spouse, children and parents) employed in the company. Senior managers shall follow all prescribed safety and environment-related norms. 3. HINDUSTAN UNILEVER
Hindustan Unilever Limited believes that for a Company to be successful, it must maintain global standards of Corporate Conduct towards all its stakeholders. The Company’s foundation has therefore been rooted to stringent Corporate Governance principles. At Hindustan Unilever, we believe that the principles of fairness, transparency and accountability are the cornerstones for good governance. The HUL Code of Business Principles reflects the Company’s commitment to these principles. It is the Company’s endeavour to continue to achieve highest governance levels.
As regards the compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchanges, the Company is in full compliance with the norms and disclosures. Board of Directors The Board of Directors of the Company represents an optimum mix of professionalism, knowledge and experience. The total strength of the Board of Directors of the Company is 10 Directors comprising a Non-Executive Chairman, four Executive Directors and five NonExecutive Independent Directors. Audit Committee The Audit Committee of the Company is entrusted with the responsibility to supervise the 14
Company’s internal control and financial reporting process. The Audit Committee also looks into controls and security of the Company’s critical IT applications. Remuneration and Compensation Committee The Remuneration Committee is vested with all the necessary powers and authority to ensure appropriate disclosure on the remuneration of whole-time Directors and to deal with all the elements of remuneration package of all such Directors within the limits approved by the members of the Company.
The Compensation Committee administers the stock option plan of the Company. Shareholder/Investor Grievances Committee The Committee specifically looks into redressing of investors’ complaints with respect to transfer of shares, non-receipt of shares, non-receipt of declared dividends and ensure expeditious share transfer process. The Committee also monitors and reviews the performance and service standards of the Registrar and Share Transfer Agents of the Company and provides continuous guidance to improve the service levels for investors..
Other Functional Committees Apart from the above statutory committees, the Board of Directors have constituted other functional committees such as committee for approving disposal of surplus assets of the Company, committee for allotment of shares under ESOP to raise the level of governance as also to meet the specific business needs. 15 3. ANALYSIS AND CONCLUSION Shortcomings of Corporate Governance practices in India as compared to other developed Countries ? ? ? ? ? Noncompliance with disclosure norms and even the failure of auditor’s reports to conform to the law attract nominal fines with hardly any punitive action. The Institute of Chartered Accountants in India has not been known to take action against erring auditors. While the Companies Act provides clear instructions for maintaining and updating share registers, in reality minority shareholders have often suffered from irregularities in share transfers and registrations – deliberate or unintentional.
Sometimes non-voting preferential shares have been used by promoters to channel funds and deprive minority shareholders of their dues. Minority shareholders have sometimes been defrauded by the management undertaking clandestine side deals with the acquirers in the relatively scarce event of corporate takeovers and mergers. Boards of directors have been largely ineffective in India in monitoring the actions of management. They are routinely packed with friends and allies of the promoters and managers, in flagrant violation of the spirit of corporate law.
The nominee directors from the DFIs, who could and should have played a particularly important role, have usually been incompetent or unwilling to step up to the act. Consequently, the boards of directors have largely functioned as rubber stamps of the management. For most of the post-Independence era the Indian equity markets were not liquid or sophisticated enough to exert effective control over the companies. ? Listing requirements of exchanges enforced some transparency, but non-compliance was neither rare nor acted upon.
All in all therefore, minority shareholders and creditors in India remained effectively unprotected in spite of a plethora of laws in the books. Financial disclosure norms in India have traditionally been superior to most Asian countries though fall short of those in the USA and other advanced countries. 16 Comparison of Corporate Governance Practices followed in India and China Criteria Regulation India Companies Act 1956, Listing Agreement with Stock Exchanges, SEBI Listed Companies China
Corporate Law 1993, Securities Law 1998, CSRC Publicly held corporations that can be listed or non-listed Applicability of corporate governance codes Shareholders and institutional investors Part family, part financial institutions ownership in key sectors; some public ownership; lack of significant role for institutional investors Between 33%-50% independent Board of directors; No requirement for Directors and separate meeting of nonSupervisors management directors; Family owned businesses influence independence of directors.
Audit Committee Majority of independent directors; At least 3 non-executive directors; Chairman- independent director to oversee the financial reporting; Not required to meet separately with management or the auditors Certification and CS and CFOs sign a compliance statement making them responsible financial for the accuracy of the statements; statements by certification compulsory management Internal Control Part of MD&A; Required for assessment and certification by Report independent auditors Comply or explain noncompliance Corporate of mandatory requirements, Governance external auditors issue a certificate report after assessment of compliance with corporate governance code. State investor in SOEs; some outside shareholder ownership; institutional investors lacking At least 33% independent directors; No requirement for nonmanagement directors to meet without management; Supervisory Board can overturn irector’s decisions Minority of independent directors including the chair; Committee review internal audit and controls and oversees financial disclosures; Not required to meet separately with management or the auditors Does not address this issue Not addressed by regulations Comply or explain gaps between existing practices and recommendations in the Code; no penalty for failing to do so 17 Comparison of Corporate Governance Practices followed in India and US Criteria Regulation India Companies Act 1956, Listing Agreement with Stock Exchanges, SEBI Listed Companies US Sarbanes Oxley Act(SOA), SEC, and NYSE listing requirement Public Companies Applicability of corporate governance codes Shareholders and institutional investors
Part family, part financial institutions ownership in key sectors; some public ownership; lack of significant role for institutional investors Between 33%-50% independent Board of directors; No requirement for Directors and separate meeting of nonSupervisors management directors; Family owned businesses influence independence of directors. Audit Committee Majority of independent directors; At least 3 non-executive directors; Chairman- independent director to oversee the financial reporting; Not required to meet separately with management or the auditors Certification and financial statements by management Internal Control Report Corporate Governance report
CS and CFOs sign a compliance statement making them responsible for the accuracy of the statements; certification compulsory Part of MD&A; Required for assessment and certification by independent auditors Comply or explain noncompliance of mandatory requirements, external auditors issue a certificate after assessment of compliance with corporate governance code. Individuals and companies; important role for institutional investors Majority of independent directors; Non management meet without management At least 3 independent directors; Meet separately with management and independent auditors; Resolve disagreements between management and auditors on accounting issues; Review internal controls Certification required by the CEOs and the CFOs Prepared by management; auditors independently assess the report Disclosures of corporate governance guidelines; CEO certification; Listed foreign companies must disclose practices that do not comply with US requirements 18
Comparison of Corporate Governance Practices followed in India and 6 other Asian Countries Criteria Basic Shareholders Right Participation Rights Market for Corporate Control Equal treatment of shareholders Disclosure of Interest Access to Information Disclosure Standards Accounting and Audit Standards Independent Audits Fair and Timely Dissemination India Indonesi a Observed Partly Observed Observed Largely Observed Observed Materiall y not observed Partly Partly Observed Observed Partly Partly Observed Observed Observed Partly Observed Largely Partly Observed Observed Largely Partly Observed Observed Korea Largely Observed Observed Largely Observed Largely Observed Partly Observed Observed Largely Observed Partly Observed Malaysia Philippine s Largely Largely Observed Observed Partly Observed Largely Observed Partly Observed Largely Observed Largely Observed Largely Observed Observed Largely Observed Partly Observed Partly Observed Largely Observed Partly Observed Largely Observed Largely Observed Thailand Largely Observed Partly Observed Partly Observed Partly Observed Partly Observed Largely Observed Partly Observed Partly Observed Vietnam Partly Observed Partly Observed Materially not observed Materially not observed Materially not observed Partly Observed Materially not observed Partly Observed Largely Partly Observed Observed Observed Partly Observed Largely Observed Observed Largely Observed Largely Observed Partly Observed Partly Observed Largely Observed Largely Observed Partly Observed Materially not observed 19
Comparison of Corporate Governance Practices in India and OECD OECD Principles India At present, there is Ensuring the Basis for an effective Corporate Governance multiplicity of regulators [SEBI, MCA, Stock Framework ? Promotion of Transparent and Exchanges, ROC] Efficient Markets with rule of law and division of responsibilities The Rights of Shareholders and Provided in ? The Companies Act Key Ownership Functions ? Basic shareholder rights 1956 ? Participation in Decision ? SEBI Act 1992 making at the general meetings ? Take-Over Rules and ? Structures and arrangements Regulations, Listing ? Markets for Corporate Control Requirements ? Ownership rights by all shareholders including institutional shareholders ? Consultative Process between shareholders and institutional shareholders Provided in the The Equitable Treatment of Companies Act, Shareholders ?
Protection to minority and 1956 foreign shareholders Remarks on Indian Practices Multiplicity of regulators, rules, regulations and related laws; Attempts shall be made for articulation, harmonization of role, powers and law. Though the shareholders are provided with enough of rights, they are not adequately involved in the decision making process. The Role of Stakeholders in Corporate Governance ? In creating wealth, jobs and sustainability of financially sound enterprises Disclosure and Transparency Implicit The Responsibilities of the Board Provided in ? The Companies Act, 1956 ? SEBI (DIP) Guidelines, 2000 Changes have been proposed in the Clause 49 National Company Law Tribunal will facilitate the disposal of cases including winding-up, insolvency, rehabilitation of companies on a faster track.
Only very few of the private sector enterprises have shown keen interest in the Direction Accounting Standards for disclosure and transparency are almost at par with that of international standards Greater responsibility has been provided to the board and the senior management by the proposed revision of Clause 49 20 Comparison of Corporate Governance Practices followed in India and UK Criteria India UK Corporate Structure and Ownership ? Private limited companies ? Public limited companies ? Government companies ? Companies limited by shares ? Private companies ? Public ltd. companies ? Companies limited by guarantee ? Unlimited companies Legal Framework ? Companies Act 1956 ? Securities and Exchange Board ? Companies Act 1985 ? Companies Act 1989 of India Act 1992 ? European Union Law ? Securities Contract (Regulation) Act 1956 ?
Listing Agreement with Stock Exchanges Regulatory and Institutional Bodies Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Stock Exchanges, Bombay Stock Exchange (BSE),National Stock Exchange (NSE) UK Listing Authority (UKLA), Financial Reporting Council (FRC), London Stock Exchange (LSE), Confederation of British Industry (CBI), Institute of Directors (IOD), National Association Of Pension Funds (NAPF) ? ? ? ? The Cadbury Report (1992) The Greenbury Report (1995) The Hampel Report Original Combined code (1998) Codes, Standards ? Narayanmurthy Committee Report and Good (2003) Practice Guidelines ? Naresh Chandra Committee on Corporate ? The Turnbull Report (1990) Audit and Governance (2002) ?
The Higgs and Smith Reports and the Revised Combined Code (2003) ? Kumar Mangalam Birla Committee Report (2000) ? Desirable Course of Corporate Governance (1998) 21 Comparison of Corporate Governance Practices followed in India and Japan Criteria India Japan Corporate Structure and Ownership ? Private limited companies ? Public limited companies ? Government companies ? Family-Owned Companies ? Government Linked Companies ? Cross-shareholding Legal Framework ? Companies Act 1956 ? Securities and Exchange Board ? The Companies Law ? The Securities Trade Law of India Act 1992 ? The Exceptional Rule of ? Securities Contract Act 1956 Commercial Law for Corporate ? Sick Industrial Companies Act Auditing 1985 ?
The Manufactured Product Liability Law ? The Anti-Trust Law ? The labour Laws ? The Environmental Standards Law Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Stock Exchanges, Bombay Stock Exchange (BSE),National Stock Exchange (NSE),Confederation of Indian Industries (CII) Financial Services Agency (FSA), Securities and Exchange Surveillance Commission (SESC), Tokyo Stock Exchange (TSE), Nippon Keidanren (Japan Business Federation) Regulatory and Institutional Bodies Codes, Standards ? Narayanmurthy Committee Report and Good Practice (2003) Guidelines ? Naresh Chandra Committee on Corporate Audit and Governance (2002)
Japan Corporate Governance Forum Issued the Corporate Governance Principles in 1998 and revised it in 2001. ? Kumar Mangalam Birla Committee Report (2000) ? Desirable Course of Corporate Governance (1998) 22 5. REFERENCES ? ? ? ? ? ? ? ? http://www. bizresearchpapers. com/17. Tahmina. pdf http://www. med. govt. nz/templates/MultipageDocumentPage____11963. aspx http://www. oecd. org/dataoecd/58/27/21755678. pdf http://papers. ssrn. com/sol3/papers. cfm? abstract_id=1687757 The Handbook of International Corporate Governance-A Definitive Guide (An Institute of Directors publication) 3i Infotech – Annual Report 2009-10 SKF India Limited – Annual Report 2009-10 Bharti Airtel – Annual Report 2009-10 23