Prof(Dr).

Haradhan Das

We have seen how the concept of the corporate form took its birth. Enabled entrepreneurs to grow their firms to greater sizes and economies to depend on them for their own growth and industrialization. How the modern corporations saw wide dispersal of shareholding compared to the earlier concentrated ownership. How this puts the responsibility of looking after the shareholders on to the boards. How and why committees get fromed for better administration of Governance processes.

How Directors under go the development process ? How the Directors get compensated ? How the Directors performance is reviewed ? How the multitude aspects of governance are dealt with ? How governance happens in different types of firms where ownership structures differ ? How share holder activism can discipline Corporation or Boards ?

How failures of corporates and businesses continue to occur ?

Best suggested practices are: Engagement of Independent Directors Separation of the chairman and CEO position Constitution of certain committees Review of performance of individual Directors and the Board as a whole

Follow up actions of the Cadbury Code. General Motors could achieve the benefit terming workers as a resource rather than just a cost (Peter Drucker). Assembly-line mentality denotes efficient workers more machine like and the less human oriented.

Best practices are: Separating the chairman and CEO positions Regulators and regulations incentivize The compensation paid to the Directors be designed to align with the interest of the shareholders Independent Directors can have access to external professional advice

While some of the above best practices contributed better governance of some of the companies but many of them are primarily structural. Such structural initiatives not necessarily, always lead to better governance. Loopholes in the laws and regulations put a limit on the structural changes and hence could not fetch the desired results. Examples:- Relatives of Directors are often engaged in the name of appointment of Independent Directors.

A re-look at the very purpose of corporate governance Governance should become a culture Develop social capital within the Boardroom Give importance to values The Directors talent-pool shall be expanded Number of directorships Auditing

 Auditors

independence and indulgence Audit of corporate governance practices Verification by Regulators and Certain institutions Regulators to play a developmental role Have a governance charter Take an oath of the Office

Some of the tools of politics will be used in dealing with corporate governance issues. Such as : Debates Negotiations Bargaining

Will have a broader view that they have a responsibility to all the stakeholders. The sizes of the boards will be decided by the need for expertise. The chairman and CEO positions will be separate. All new Directors would have undergone a development process. An overwhelming majority of boards will be independent. Directors will be on a fewer number on boards.

Conformance and Performance confront everyone. Legal compliance worries everyone on the Board which, not necessarily, always yields its positive results. Raises question about improvements for better performance or just compliance ? Examples of Enron and Satyam, inspite of Independent Directors, audit committees, compensation committees made up of only Independent Directors, but still adopted unethical practices leading to corporate misgovernance.

company

Year

No. of BMS 7 6 10 8 5

No. of ACMs 5 4 7 6 9

No of ACMs on the same date as BMs NA 0/4 4/7 NA 4/9

RIL Infosys L&T ICICI Bank ITC

2008-09 2008-09 2008-09 2008-09 2008-09

HDFC Hero Honda

2008-09 2008-09

5 4

NA 7

5/5 4/7

Future depends upon the relations as under: Power relationship Effective control of power enjoyed by the CEO This again, depends upon the following: Is the power sufficient to control the CEO ? Independence to ensure that the CEO is honestly evaluated. Board procedures that allow the out side Directors to evaluate managers performance.

Model roles of good corporate governance are characterized as follows: Expertise sufficient to allow the Board to add value to the decision making process. Incentives to ensure that the Board is committed to creating corporate value. Procedures that foster open debate to attune to the shareholders concerns .

The governance conundrum-no straight solutions but issues are raised which are as follows: Should the functioning of the Board be regulated externally or they be better self regulated ? Share holders who are also part of management, pose a great challenge to the corporate governance pundits. Being on the management, they have a great privileged information which out side shareholders are deprived of. Should Independent Directors hold shares in the company ?

How many Directors are required on the Board of a company ? Can there be a number related to the companys size ? Should there be a lead Director ? Should Independent Directors meet separately under the leadership of the lead Director ? Should outside Independent Directors be generalists or specialists ?

Should Independent Directors be compensated with stock related items such as Stock options etc. How much time shall an outside Directors devote to a company ? Can Directors perform the duty of diligence and care expected of them ? Can we expect that the Directors will take care of the interest of all the shareholders alive ?

Can we expect a Director (institutional Investors) taking care of the interest of other shareholders as well ? How can Independent Directors monitor the chairman/CEO ? How can the Board ensure monitoring management from entering into risky action ? How can each Director be made to understand that a Director is a Director with responsibilities like all others ?

Who is interested in corporate governance ? Apparently, seems to be nobody, except everybody with their vested interest specific to them.