INTRODUCTION TO CORPORATE GOVERNANCE

Corporate governance is the system of defined laws, rules and regulations, principles and processes
by which a corporate company is governed and operated. The process includes responsibilities of
all the parties, Article of Association, de jure and de facto factors. The corporate governance
system must be set properly as to add value to the company and be beneficial for the shareholders
and management in the long-term. Corporate governance is made by Board of Directors and hence
the inclusion of outsiders or non-executive directors is important or else the corporate governance
system may be biased. Corporate governance varies from country to country based on legal
framework and capital market. There are three models of corporate governance found in developed
countries:
1. The Anglo-US Model: The corporations have three key players: management,
shareholders and Board of Directors. The shareholders are majorly institutional
shareholders and less of individual shareholders. There is separation of ownership and
management in the corporate governance systems following this model. This model is
followed in US and UK. The BOD comprises of executive and non-executive directors.
The disclosure requirement is very strict. The companies have to reveal every information
regarding shareholders, management, BOD’s, compensation paid to directors, names of
auditors, proposed mergers and reconstructions. Elections of directors and appointment of
auditors require shareholder approval. Shareholders possess voting rights for decisions.
There is a strong communication between shareholders and corporations. All these reasons
sack up for US and UK being huge capital and equity markets.
2. The Japanese Model: According to this model, the corporate governance consists of a
main bank which is a major shareholder with the corporation creating keiretsu, its
management and government. The BOD consists of insiders who are company’s managers
or affiliated bank’s retiring employees (when financial distress). The main bank provides
services like loans, consulting services, bond and equity issues and settlements. The board
of Japanese companies are larger than those in US and UK. The disclosure requirement is
not as strict as US. Shareholder approval is required for allocation of reserves, dividend
distribution, election of directors and appointment of auditors. The interaction between the
major players strengthens the relationship and is good for company.

3. The German Model: This model describes major shareholder as an affiliated bank and the
Board is controlled by bank employees. There are two boards: Management board which
comprises of insiders and supervisory board comprising of shareholder representative and
 employee/labour representative. No single person can be on-board at both the boards at
same time. The restriction to voting rights is legal which restricts shareholders to have
greater say in the decisions regardless of the percentage holding. Here also the bank plays
the role of lender, major shareholder, issuer of equity and depository. The disclosure
requirements are wider than or same as Japanese model but not as strict as US.

MAS Financial Services Ltd.

MAS started its financing business back then 1995 when times were quite difficult. They provided
financing solutions to those who needed it the most. The company has registered itself as a non-banking
financial company with the RBI.

The financial services are given to Micro Enterprises, SME’s, Home Loans, Vehicle Loans to satisfy varied
needs. The main focus of the company is to help the rural, semi urban areas of the country including
formal and informal sector. The network of MAS is hugely spread across the country. It has 77 branches
in almost all the major cities like- Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Tamil Nadu and
Karnataka.

MISSION

 To constantly endeavour to attain excellence.

 To create a very wide distribution network
 To be a catalyst in providing the most efficient financial service, which we term as financial
institution.

(https://mas.co.in/aboutus.html#inception-section)

Why MAS Financial services fits into Anglo- US Model?

1. KEY PLAYERS IN THE ANGLO-US MODEL

 MANAGEMENT

MAS
Financial
Services
Ltd

SHAREHOLDERS
BOARD OF
DIRECTORS

BOARD OF DIRECTORS:

 Mr. Kamlesh Gandhi

 Mr. Mukesh Gandhi
 Mrs. Darshana Pandya
 Mr. Balabhaskaran Nair
 Mr. Chetan Shah
 Mr. Umesh Shah
 Mrs. Daksha Shah

SHAREHOLDERS:
25,000 Shareholders

MMANAGEMENT:

In MAS Financial Services Ltd, the Board of Directors and Management Committee has a separate
legal entity.

 AGENCY COST: The cost of separation of ownership and control is defined as “agency cost”.
As the Board of Directors and Management are separate in MAS Financial Services they incur
agency cost.
 CORPORATE SOCIAL RESPONSIBILITY: The CSR amount which the company has
fulfilled is 2,28,51,769/- annually in sponsoring stationery, school fees and drinking water
facility to army and handicapped children.
 APPOINTMENT OF BOD: The BOD is appointed every year by the consent of other members
of BOD and shareholders.
 FIDUCIARY DUTIES: The BOD are elected to act as the fiduciary of the shareholders’
interest.

2. SHARE OWNERSHIP PATTERN:

74% of the shareholding in MAS Financial Services Ltd is of promoters and 26% shareholding is
by public. According to Anglo US Model there should be 61% institutional holding and at least
21% public holding.

Therefore, this aspect of the criteria is by fulfilled by the company.

3. COMPOSITION OF BOARD OF DIRECTORS

 The BOD consists of 3 insider and 4 outsider directors.
 In this model, there are more number of outsider directors as there can be fair decision
making process and no majority of insider directors can influence the decision.
 Boards are smaller than German and Japanese model. In this company the number of BOD
is less than the average BOD of other firms in US
4. REGULATORY FRAMEWORK:
 The listed companies in India are regulated by Indian Companies Act and Securities and
Exchange Board of India.
5. DISCLOSURES REQUIREMENTS:
Disclosures which are done by the company are:
 Re appointment of directors and their profile is disclosed.
 Director’s remuneration and responsibility and duties are also disclosed in the annual
report.
 Secretarial audit report and frauds reported by the auditor are also disclosed.
 Subsidiary (MAS Rural Housing and Mortgage Finance Ltd) company’s details are also
disclosed.
 Dividend distribution policy is also disclosed.
 Report on CSR is disclosed.
 The increase or decrease in director’s remuneration in comparison to the normal
employees as well as other directors is also disclosed.
 Report on corporate governance is disclosed.
 Business Responsibility report is disclosed.

6. CORPORATE ACTIONS REQUIRING SHARE HOLDER APPROVAL:

 The company takes an approval for election of directors and appointment of auditors by
the shareholders. Each and every shareholder is sent an invitation to the Annual General
Meeting and each of them is sent a copy of the annual report either a physical copy or in
a mail.
 The shareholder is asked for a consent if any matter is to be solved or brought up.
Shareholder’s consent is considered on the basis of their shareholding.
 If the shareholders are not able to attend the meeting, then they provide online facility by
which the shareholders are able to vote in the matter.
7. INTERACTION AMONG PLAYERS
The voting of shareholders for a consent is done through e- voting and ballot voting.

 WHY MAS IS NOT A GERMAN MODEL?

 The disclosures done by the company in a German model is lower.
 Whereas, MAS had disclosed almost all the matters which are laid compulsory by SEBI
and Indian Companies Act and also matters related to interest of shareholders.
 The Banks, employees and Government play a dominant role in the control of the
company.
Whereas, in MAS Banks does not have any dominant position for making the decisions
as the 74% of the stake holding is by the promoters.
MAS is a private Ltd company and therefore the government does not have any say in
their working.
 The banks and employees of the organization are the shareholders of the company but
not having major shareholding.
Government is not having any shareholding or stake-holding in the company.
 The German model consists of 2-tier board.
But in this company, the directors don’t have any segregation of responsibility among
themselves depending on the tactical and supervisory duties.

 Why is MAS not a Japanese model?

 In the Japanese model, the organization has a close relationship with the bank, which
provides loans as well as other services regarding shares, bonds and other financing
matters. The bank has a major shareholding in the company.
MAS Financial Services is a private Ltd company and there is no such main bank which
is providing such services to them. There are banks which are having their shareholding
in the company but there is no such major bank with majority shareholding.
 The key players in the Japanese model are:
Main bank
Keiretsu
Management
Government
-The government is not having any stake holding in MAS.
-MAS is not having any relation with a major company (known as Keiretsu) as it has not
done any mergers or acquisitions.
 In the Japanese model banks are key shareholders, but in MAS there is no major
shareholding done by banks.
 The board of directors in the Japanese model are almost executive directors. But in MAS
Financial Ltd the directors are both executive as well as outsiders. There are 3 insiders
and 4 outsiders.
 The disclosers which should be done in the Japanese model are semi- annual disclosers
of financial data and shareholding of ten largest shareholders.
In this aspect MAS Financial does fulfill all the requirement as they disclose the data of
their top 10 shareholders and also their financial data every half yearly.