Project Cg

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Project report on

Corporate Governance in Public Sector Undertakings in India

International School of Business & Media

Submitted to:-

Prof. I. Sridhar

Submitted by:-

Anand Doshi(12073)

SecD


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Table of Content

1. Introduction ... 4

2. Conceptual Discussion (Basic concepts to be discussed) . .. 7

3. State and explain the implementation of the existing system . . 15

4. Alternative systems prevailing in other countries .. .26

5. Data Analysis and Interpretation 37

6. Conclusion 41

7. Bibliography . 43


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Introduction


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Introduction

Corporate Governance involves a set of relationships between a companys

management, its Board, its shareholders and other stakeholders. Corporate

governance provides a principled process and structure through which the

objectives of the company, the means of attaining the objectives and systems of

monitoring performance are also set. Corporate governance is a set of accepted

principles by management of the inalienable rights of the shareholders as a true

owner of the corporation and of their own rule as trustees on behalf of the

shareholders. It is about commitment to values, ethical business conduct,

transparency and makes a distinction between personal and corporate funds in

the management of a company.

There are about 240 Central Public Sector Enterprises. A large number of them

do not make enough profits. There may be many reasons for such companies

incurring losses and becoming sick. It is imperative that ethics, probity and public

accountability are maintained in the functioning of all public enterprises. In other

words good Corporate Governance practices should be inbuilt in the

management system of Public Enterprises.

These guidelines on corporate governance are formulated with the objective that

the Central Public Sector Enterprises follow the guidelines in their functioning.

Proper implementation of these guidelines would protect the interest of

shareholders and relevant stakeholders.

The Department of Public Enterprises (DPE) has issued guidelines on

composition of Board of Directors of Central Public Sector Enterprises (CPSEs)

According to these guidelines at least one-third of the Directors on the Board of a

CPSE should be non-official Directors. The Navratna and Miniratna schemes

provide that exercise of the enhanced powers delegated to these CPSEs is


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subject to the condition that their Boards are professionalised by inducting

adequate number of non-official Directors, with minimum four in case of Navratna

and minimum three in case of Miniratnas. The schemes for Navratna and

Miniratna CPSEs also provide for setting up of Audit Committees.

In November 2001 DPE issued further guidelines on composition of Board of

Directors of listed CPSEs . It provided that the number of Independent Directors

should be at least one-third of the Board if the Chairman is non-executive and not

less than 50% if the Board has an executive Chairman. Relevant extracts of

Clause 49 of the Listing Agreement with Stock Exchanges issued by Securities

and Exchange Board of India (SEBI) form part of the said guidelines.

Apart from these instructions of DPE, the CPSEs are governed by the

Companies Act, 1956 and regulations of various authorities like Comptroller and

Auditor General of India (C&AG), Central Vigilance Commission, administrative

Ministries, other nodal Ministries, etc. The Right to Information Act 2005 is also

applicable to the CPSEs. The CPSEs fall under the definition of State as

provided in Article 12 of the Constitution of India Further, some principles of

corporate governance are already in vogue in public sector because (a) theChairman, Managing Director and Directors are appointed independently through

a prescribed procedure; (b) Statutory auditors are appointed independently by

the C&AG; (c) Arbitrary actions, if any, of the Management could be challenged

through writ petitions; (d) remuneration of Directors, employees, etc. are

determined on the basis of recommendations of Pay Committees constituted for

this purpose; etc.

Corporate Governance as a concept is fast rising as a decisive conceptual tool to

control, contain and also facilitate corporate operations across the world. In these

days of globalization, dominated by the flows of global capital, corporate

governance is a means of assuring investors both individual and institutional

shareholders that the corporation does not intend to misuse their money in their


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operations. The structures of corporate governance ensue that the corporate

entities do not engage in fraud and continue to grow and make profits. The public

sector utilities with important social responsibilities to fulfill other than make

profits also come under the scanner because they use the taxpayers money for

their operations. The non-government organizations use donor moneys for their

non-profit programmers and are answerable to the donors for proper and

befitting use of funds.

Corporate governance is high on the agenda of company Boards worldwide. As

institutional investments from financial institutions such as lending institutions,

insurance companies and pension funds are growing; investors have been

increasingly demanding transparency in company accounts, fair treatments and

periodic updates about the companys performance. Corporate governance,

however, does not mean protecting the interests of investors alone; it aims at

achieving fairness and transparency in transactions with all the stakeholders

including customers, employees, investors, vendors, government and the society

at large. Corporate governance seeks to build confidence and trust of the

stakeholders by observing fairness and transparency in all company affairs.

Shareholders, in the technical sense, are the owners of a company but theymostly regard themselves as investors. As shareholders are residual claimants,

in well performing capital and financial markets, whatever maximize shareholder

value should maximize corporate security and best satisfy the claims of creditors,

employees and society at large. Moreover, there exist well defined laws to

protect the interest of employees and creditors. Therefore, corporate governance

regulations in India promote the rights of shareholders; while at the same time

ensure the interests of other stakeholders are also simultaneously protected.


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Conceptual Discussion

The Government of India (GOI) has taken a number of steps over the years to

improve the efficiency and performance of its Central Public Sector Enterprises

(CPSEs). Corporate governance has been an important part of GOIs broader

CPSE and economic reforms, aimed at improving the performance and

competitiveness of some of Indias most important national assets, allowing

companies easier access to the capital markets, and making companies more

transparent and accountable. The underlying goal is to reorient the states role

away from a market player to a market regulator and away from day-to-day

management of CPSEs towards exercising its core ownership rights based on

sound corporate governance principles.

To this end, the Department of Economic Analysis (Ministry of Finance) and the

Department of Public Enterprises (Ministry of Heavy Industry and Public

Enterprises) requested World Bank support in assessing CPSE corporate

governance in light of good practice based on the OECD Guidelines on

Corporate Governance of State-Owned Enterprises, and in light of Indias ownGuidelines on Corporate Governance of State-Owned Enterprises issued in

2007. This report carries out the review and offers recommendations for

improving CPSE governance. It is based on a review of the legal and regulatory

framework, the findings and reports carried out by various government

commissions and expert groups on CPSEs, background research on CPSE

performance, discussions with key stakeholders and corruption others.

The governance framework for CPSEs is consistent with several aspects of

international good practice. Substantial progress has been made in removing

barriers to competition, reducing government financial support, and listing of

CPSEs on the capital markets. Almost all CPSEs are corporatized and come

under the same laws as private sector companies. Key decision making powers


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have been delegated to leading enterprises and other profitable CPSEs.

Memorandums of Understanding (MOUs) have been signed by most CPSEs and

have emerged as a key tool in monitoring and motivating performance. Clause

49 of the Listing Agreement has helped put listed CPSEs on the same footing as

private companies and the 2007 Corporate Governance Guidelines have helped

to extend these practices to non-listed CPSEs. CPSE boards are required to

have independent members and are now bringing in directors with private sector

experience. Extensive information is provided on CPSEs to the public, at both the

sector and enterprise level.

Yet governance challenges still remain and further reforms are needed to build

on the substantial gains that have already been achieved. There are still critical

differences with the private sector that distort competition and market incentives.

These include certain legal and financial privileges that favor CPSEs on the one

hand and social obligations and human resource rules that constrain them on the

other .A complex ownership framework combines the conflicting roles of policy-

making and ownership in some ministries, allows political interference in board

appointments and commercial decision-making to continue, and weakens board

powers. CPSE boards continue to be oriented to the public sector and are rarelyif ever evaluated on their performance. Implementing disclosure requirements is

a challenge for many CPSEs, particularly in light of relatively weak internal audit

and control functions, lack of guidance on disclosure for non-listed firms, and

potential duplication and delays in the various CPSE audits. This report

addresses these challenges. The main findings and recommendations of the

report are summarized blow.

First, corporate governance reforms are and should be seen as part and

parcel of the broader CPSE reform program rather than as a stand-alone or

substitute reform. Reforms aimed at improving governance and increasing

CPSE autonomysuch as board appointment and empowerment, separation of

ownership from policy functionscan facilitate broader policy reforms aimed at


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increasing market discipline through exposure to competition, tightening of

budget constraints, listing of CPSEs on the stock exchange, and bringing in

private sector participation. Market discipline in turn puts pressure on CPSE to

adopt further governance reforms and ensure transparency and accountability. It

also helps maximizeand sustainthe gains from improved governance.

Second, GOI should target corporate governance efforts at Navratnas,

Miniratnas, and other profitable companies. In tandem with other policy

reforms, this would help achieve even higher levels of performance of some of

Indias most important companies. It would allow companies to graduate to

higher categories, giving them greater delegation of powers and more autonomy

while requiring higher levels of transparency and accountability. It would also

help facilitate listing of such companies on the capital markets. For consistently

loss-making or unviable companies, the focus should be on restructuring through

freeing up land for more productive use elsewhere in the economy,

implementation of VRS and retraining programs, and closure or liquidation.

Third, expanding and deepening corporate governance reforms requires

action on three main fronts.These are as follows (detailed recommendationsare provided in Table 1):

Strengthening the states ownership role: How the state organizes and

exercises its ownership rights is central to improving CPSE governance. The

main challenge lies in making a complex and control oriented ownership

framework more effective in striking the right balance between CPSE autonomy

and accountability. This can be achieved by: (i) reforming ownership

arrangements with a view to focusing the role of administrative ministries on

policy-making and limiting their day-to-day role in commercial decision-making,

giving boards greater decision-making powers in practice, and considering

moving to a more centralized ownership model in the longer-term; (ii) improving

the ways in which GOI exercises its key ownership functions, in particular


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enhancing transparency in the board appointment process and improving

performance monitoring; (iii) enhancing the role and capacity of the Department

of Public Enterprises as a nodal agency to make it a more active promoter of the

governance agenda; and (iv) improving the Corporate Governance Guidelines so

that they become a more effective governance tool.

Professionalizing CPSE boards: While boards have come a long way in

becoming more professional over the years, there is still substantial room for

improvement. Particularly in the case of Navratnas, Miniratnas, and other profit-

making companies, boards could be made more effective by bringing in

independent directors from the private sector, empowering boards with greater

decision-making authority while ensuring fair and responsible behavior through

integrity and accountability mechanisms, strengthening audit committees,

introducing performance-based board evaluation and remuneration practices,

and making board development and leadership programs mandatory.

Enhancing transparency and disclosure: CPSE disclosure standards are

comparable to many OECD countries while the Right to Information Act has

pushed the frontier even further on transparency and accountability.

Implementation is the main challenge. These requires improving company

reporting and disclosure, strengthening internal audit functions, and continue to

streamline the audit system to avoid duplication and ensure timeliness.


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Fourth, successful implementation requires careful management of the

corporate governance reform process.A number of commissions and expert

groups have studied CPSE governance in depth and have offered

recommendations for improvement. Indeed, much of this report draws from and

reflects on the findings of these studies. In short, the policy and technical

solutions are known. The challenge going forward is instead one of

implementation. Entrenched groups may oppose or find other ways to resist

governance reforms. Implementation requires fundamental changes in

organization, incentives, and behavior that can be difficult to achieve. And

governance reforms are ongoing processes that evolve and unfold over time.

Managing these challenges will therefore require attention to the reform process

itself, in particular to the need for: (i) political leadership and commitment; (ii)

phasing or sequencing of reforms based on the political and institutional

feasibility of reform; (iii) creation of strong institutions with dedicated reform

teams to manage and sustain the process; (iv) building of public support to

overcome stakeholder resistance to reform; and (v) development of monitoring

systems early in the process to evaluate impacts, ensure transparency and

accountability, and provide a feedback loop to adjust course as needed.

Fifth, the following steps are suggested for taking the CPSE corporate

governance agenda forward.These include:

Development of a strategy for implementing the CPSE reform agenda: A

sequenced or phased strategy could be considered, based on political and

institutional feasibility. Based on further political economy analysis,

recommendations and actions can be categorized into two groups: (i) low-

hanging fruit or a set of recommendations that are not particularly controversial

and can be relatively easily donefor example, bringing in more independent

directors from the private sector, improving MOU indicators, enhancing

disclosure; and (ii) the more difficult set of recommendations that may require


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time and a change in mindset, for example, development of a more centralized

approach to managing the states ownership functions, disinvestment of state

shares, and exit of unviable companies.

Revision of the CG Guidelines: As discussed in the report, the current

Guidelines are too narrow in scope and may also require making certain

provisions mandatory in order to give it teeth and enforce implementation. DPE

should take stock of CPSE compliance with the Guidelines to date and based on

the findings the Guidelines should be revised with a view to also making them

more comprehensive.

Monitoring of compliance with the CG Guidelines: In developing such a

monitoring system, DPE could draw from the monitoring requirements

established for listed companies and from international experience with

performance monitoring systems in general.

Implementation of company-level governance reforms in 2-3 pilot cases of

Miniratnas and profitable companies. A pilot exercise along these lines may

help upgrade their status and facilitate listing on the stock exchange. It wouldalso provide tangible improvements and benefits that could create momentum for

more widespread implementation across CPSEs.

Enhance DPEs capacity to carry out the above steps. Some of the above

activities (e.g. development of the strategy, revision of the Code, monitoring

indicators) may require inputs from specialized experts or consultants to help

with design and implementation and/or exposure of DPE staff to training and

international good practice. Donor agencies could help support this process.


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State and explain the

implementation of the

existing system


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State and explain the implementation of the existing system

Corporate Governance as a Development Tool

At a first glance, corporate governance may seem like an odd answer to the

questions outlined above. After all, the popular perception of corporate

governance is that it is something more applicable to multinational corporations,

large stock exchanges, and CEOs rather than average entrepreneurs, SME

loans, and job creation. Corporate governance is frequently discussed in the

context of complex accounting procedures and disclosure mechanisms and

certainly not in the context of poverty alleviation. Yet, a closer look at corporate

governance, its broader application, and, most importantly, its institutional

underpinnings, underscores its role as an essential component of public

governance and private sector development, both of which are recognized

poverty alleviation solutions. This paper uncovers some of these linkages.

The conventional view of corporate governance has much to do with separation

of ownership and control issues that arise between owners and managers of

corporations. Managers and owners, the theory holds, may have differentinterests, and fully removed from managing the day-to-day activities of the

enterprise, owners need guarantees that managers act in the interest of a

company (or its owners) rather than in their own interest. This is where corporate

governance comes in it establishes the mechanisms necessary to ensure

proper actions on behalf of managers of a corporation. For example, it helps

prevent theft of property or its misuse by management.

How Does Corporate Governance Affect Development?

Increased access to external financing by firms ,which can lead to greater

investment, higher growth, and more employment creation.


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Lower cost of capital and associated higher firm valuation, which makes more

investments attractive to investors and leads to growth and employment.

Better operational performance, through better allocation of resources and

better management, which creates wealth.

Reduced risk of financial crises, a particularly important effect, as financial

crises can impose large economic and social costs.

Better relationships with all stakeholders, which helps improve social and labor

relationships and areas such as environmental protection.

From this simple concept, corporate governance extends into many areas of creating

sustainable business. How do boards of directors actually function? What is the role of

the board of directors? How do you define the rights of stakeholders? Whatmechanisms are available to prevent the abuse of minority shareholders rights? What

are the key disclosure mechanisms and which areas of company operations should not

be disclosed to the general public?

But such a narrow view of corporate governance as a tool only useful for large

corporations, with many shareholders and powerful managers, listed on stock

exchanges in developed countries is increasingly questioned by reformers and

business communities around the world. Weak corporate governance, for example, has

been linked to the inability of countries to attract investment, financial collapses,

persistent corruption, failures of privatization, weak property rights, and many other

development challenges countries around the world face. As such, many economies are

warming up to the idea that good corporate governance is essential to their overall

health. Companies are improve governance practices.

APLLICABILITY OF GUIDELINES

For the purpose of evolving Guidelines on corporate governance, CPSEs have

been categorized into two groups ,namely, (i) those listed in the Stock

Exchanges; (ii) those not listed in the Stock Exchanges.


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CPSEs listed in Stock Exchanges:-

In so far as listed CPSEs are concerned, they have to follow the SEBI guidelines

on corporate governance. In addition, they may follow those provisions in these

guidelines which do not exist in the SEBI guidelines and also do not contradict

any provisions in the SEBI guidelines

.

Non-listed CPSEs:-

Each PSE should strive to institutionalize good corporate governance practices

broadly in conformity with the SEBI guidelines. The listing of the non-listed

CPSEs in the stock exchanges may also be considered within a reasonable time

frame to be set by the Administrative Ministry concerned in consultation with the

CPSEs concerned. The non-listed CPSEs may follow the Guidelines on

Corporate Governance given in the subsequent chapters, which are voluntary in

nature.

APPLICABILITY OF GUIDELINES

GUIDELINES ON CORPORATE GOVERNANCE FOR CPSEs

the succeeding chapters under the following headings.

Board of Directors

Audit Committee

Subsidiary Companies

Disclosures

Report, Compliance and Schedule of Implementation


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Composition of Board

The Board of directors of the company shall have an optimum combination of

functional, nominee and independent directors.

The number of functional directors (including CMD/MD) should not exceed 50%

of the actual strength of the Board.

The number of nominee directors shall be restricted to a maximum of two.

In case of CPSEs listed in Stock Exchanges, the number of independent

directors shall be at least 50% of Board Members. In case of CPSEs not listed in

the Stock Exchanges, at least one-third of the Board Members should be

independent directors. The expression independent director shall mean a part-

time director of the company. (all corporate governance rule).

Part-time directors compensation and disclosures

All fees/compensation, if any paid to part-time directors, including independent

directors, shall be fixed by the Board of Directors subject to the provisions in the

DPE guidelines and Companies Act, 1956

.Other provisions as to Board and Committees

Number of Board meetings:- The Board shall meet at least once in every three

months and at least four such meetings shall be held in every year. The minimum

information to be made available to the Board is given in( Annex-IV.

www.dep.nci.in).

A director shall not be a member in more than 10 committees or act as Chairman

of more than five committees across all companies in which he is a director.

Furthermore it should be a mandatory annual requirement for every director to

inform the company about the committee positions he occupies in other

companies and notify changes as and when they take place.


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Compliance of Laws to be reviewed:- The Board shall periodically review

compliance reports of all laws applicable to the company, prepared by the

company as well as steps taken by the company to rectify instances of non-

compliances.

Code of Conduct

The Board shall lay down a code of conduct for all Board Members and senior

management of the company. The code of conduct shall be circulated and also

posted on the website of the company.

All Board members and senior management personnel shall affirm compliance

with the code on an annual basis. The Annual Report of the company shall

contain a declaration to this effect signed by the Chief Executive.

Guidelines and policies evolved by the Central Government with respect to the

structure, composition, selection, appointment and service conditions of their

Boards of Directors and senior management personnel shall be strictly followed.

There shall be no extravagance in expenditure on the part of Board members

and senior management personnel. PSE executives shall be accountable for

their performance in conformity with established norms of conduct. Any external/internal changes made from time to time, due to addition of or

amendment to laws/regulatory rules, applicable to CPSEs, need to be dealt with

carefully by the respective boards/senior management personnel.

A suggested list of items to be included in the code of conduct is given at

(Annex-Vwww.dep.nci.in)Further, to assist the CPSEs in the formulation of the

code, a model Code of Business Conduct and Ethics for Board Members and

Senior Management is given at Annex-VI.(www.dep.nci.in).

Functional Role Clarity between Board of Directors and Management

A clear definition of the roles and the division of responsibilities between the

Board and the Management is necessary to enable the Board to effectively

perform its role.
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Risk Management

Enterprise risk management helps management in achieving CPSE performance

and profitability targets. It helps to ensure effective reporting and compliance with

laws and regulations, and helps avoid damage to the entitys reputation and

associated consequences. Considering the significance of risk management in

the scheme of corporate management strategies and their oversight should be

one of the main responsibilities of the Board/Management. The Board should

ensure the integration and alignment of the risk management system with the

corporate and operational objectives and also that risk management is

undertaken as a part of normal business practice and not as a separate task at

set times.

Training of Directors

The company concerned shall undertake training programmers for its new Board

members (Functional, Government, Nominee and Independent) in the business

model of the company including risk profile of the business of company,

responsibility of respective Directors and the manner in which suchresponsibilities are to be discharged. They shall also be imparted training on

corporate governance, model code of business ethics and conduct applicable for

the respective Directors.

AUDIT COMMITTEE

Qualified and Independent Audit Committee

A qualified and independent Audit Committee shall be set up giving the terms

of reference.

The Audit Committee shall have minimum three directors as members. Two-

thirds of the members of audit committee shall be independent directors.

The Chairman of the Audit Committee shall be an Independent Director.


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All members of Audit Committee shall have knowledge of financial matters of

Company, and at least one member shall have good knowledge of accounting

and related financial management expertise. (any many more)

Role of Audit Committee: The role of the Audit Committee shall include the

following:-

Oversight of the companys financial reporting process and the disclosure of its

financial information to ensure that the financial statement is correct, sufficient

and credible.

Recommending to the Board the fixation of audit fees.

Approval of payment to statutory auditors for any other services rendered by the

statutory auditors.

Reviewing, with the management, the annual financial statements before

submission to the Board for approval, with particular reference.

Reviewing, with the management, the quarterly financial statements before

submission to the Board for approval.

Reviewing, with the management, performance of internal auditors and

adequacy of the internal control systems.(and many more)

Powers of Audit Committee

Commensurate with its role, the Audit Committee should be invested by the

Board of Directors with sufficient powers, which should include the following:

To investigate any activity within its terms of reference.

To seek information on and from any employee.

To obtain outside legal or other professional advice, subject to the approval of

the Board of Directors.

To secure attendance of outsiders with relevant expertise, if it considers

necessary.

To protect whistle blowers.


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Meeting of Audit Committee

The Audit Committee should meet at least four times in a year and not more than

four months shall elapse between two meetings. The quorum shall be either two

members or one third of the members of the Audit Committee whichever is

greater, but a minimum of two independent members must be present.

SUBSIDIARY COMPANIES

At least one Independent Director on the Board of Directors of the holding

company shall be a Director on the Board of Directors of a subsidiary company.

The Audit Committee of the holding company shall also review the financial

statements of the subsidiary company.

The minutes of the Board meetings of the subsidiary company shall be placed at

the Board meeting of the holding company. The management should periodically

bring to the attention of the Board of Directors of the holding company,

statement of all significant transactions and arrangements entered into by the

subsidiary company.

DISCLOSURES

Transactions

A statement in summary form of transactions with related parties in the normal

and ordinary course of business shall be placed periodically before the Audit

Committee.

Details of material individual transactions with related parties, which are not in

the normal and ordinary course of business, shall be placed before the Audit

Committee.


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Details of material individual transactions with related parties or others, which

are not on an arms length basis should be placed before the Audit Committee,

together with Managements justification for the same.

Accounting Standards

Where in the preparation of financial statements, a treatment different from that

prescribed in an Accounting Standard has been followed, the fact shall be

disclosed in the financial statements, together with the managements

explanation as to why it believes such alternative treatment is more

representative of the true and fair view of the underlying business transaction

in the Corporate Governance Report. (and many more).

Board Disclosures Risk management

Remuneration of Directors

Management

Industry structure and developments

Strength and weakness

Opportunities and Threats

Segmentwise or product-wise performance

Outlook

Risks and concerns

Internal control systems and their adequacy


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REPORT, COMPLIANCE AND SCHEDULE OF IMPLEMENTATION

Report on Corporate Governance

There shall be a separate section on Corporate Governance in each Annual

Report of company, with details of compliance on Corporate Governance. The

suggested list of items to be included in the report on Corporate Governance is in

Annex-VII.(website mention above)

Compliance

The company shall obtain a certificate from either the auditors or practicing

Company Secretary regarding compliance of conditions of corporate governance

as stipulated in these Guidelines andAnnexes. The certificate with the Directors

Report, which is sent annually to all the shareholders of the company, should

also be included in the Annual Report.

Chairmans speech in Annual General Meeting (AGM) should also carry a

section on compliance with corporate governance guidelines/norms and should

form part of the Annual reports of the concerned CPSE. The grading of CPSEs may be done by DPE on the basis of the compliance with

corporate governance guidelines norms.

schedule of implementation

These Guidelines on Corporate Governance are issued for an experimental

phase of one year and suitable adjustments would be made in these guidelines

in the light of the experience gained. For this purpose, the CPSEs should submit

mid-year.

(All Annexes-www.dpe.nic.in)
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Alternative

systems

prevailing in

other countries


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Corporate Governance Principles for Caribbean Countries

The Core principles are aimed at improving the legal, institutional and regulatory

framework for corporate governance in the Caribbean and facilitating the development

of national and/or sector specific codes.

The principles represent a common basis that countries in the Caribbean consider

essential for the development of good governance practices.

Like the OECD Principles, the principles focus on publicly held companies. However

they are also intended to serve as guiding principles to improve corporate governance

in privately held, family owned and state owned enterprises as well as overall public

sector governance. They also articulate the role of all stakeholders including customers,

employees, pensioners and the public in the governance process.

Consistent with the OECD principles of Corporate Governance, the Principles reflect

international best practices. They seek to provide a basis for the development and

implementation of sector specific and/or national codes of Corporate Governance

appropriate to the developmental context of the Caribbean and supportive of the

integration movement within CARICOM.

For countries in the Caribbean that are trying to attract financial capital, corporate

governance is essential in bolstering the confidence and commitment of potential

investors and contributing to corporate competitiveness. Therefore the principles are

expected to facilitate long-term economic development of the countries including the

strengthening of market discipline, improved business transparency through enhanced

disclosure, effective regulation and corporate social responsibility. Effective corporate

reporting will also assist governments and regulators to monitor markets, identify risks

and impose appropriate regulations that encourage growth and fair competition.


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Corporate Governance principles should be cognizant of the importance of public sector

governance and/or governance within State-Owned Enterprises as the public sector is a

major employer of human capital and economic resources. Accordingly, Governments

as policy makers must set the tone for the movement towards good governance

nationally, through transparency and accountability, by ensuring that good corporate

governance standards are employed within the public sector, and the governance

structures of state-owned enterprises.

CORPORATE GOVERNANCE PRINCIPLES

Principle I Overall Objective

The corporate governance framework within the Caribbean should encourage the

development of transparent and efficient markets, have its basis in the rule of law

and ethical business practices and foster the division of responsibilities among

supervisory, regulatory, and enforcement bodies.

A. The corporate governance framework should be cognizant of the economic

peculiarities of the countries of the region, promote market integrity and growth, and

underscore market transparency and efficiency and serve the public interest.

B. Corporate governance practices should be embedded in the legal and regulatory

systems and based on the rule of law.

C. Responsibilities among authorities should be clearly delineated.

D. Professionalism and objectivity should be the cornerstone of the decision-making

processes and other activities of supervisory, regulatory and enforcement bodies,

including professional and industry associations. Such bodies should have the

requisite authority and resources to fulfill their mandates. Decisions should be timely,

transparent and just.


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Principle II Shareholder Rights

The Corporate Governance framework should protect and facilitate the exercise

of shareholders rights.

A. Basic shareholder rights should include the right to:

1) secure methods of ownership registration;

2) freely convey or transfer shares subject to applicable law;

3) obtain relevant and material information on the entity on a timely and regular basis,

subject to any laws or principles of confidentiality;

4) participate and vote in general meetings of shareholders;

5) elect and remove members of the Board; and

6) share in the profits of the entity.

B. Shareholders should have the right to participate in, and to be sufficiently informed

on, decisions concerning fundamental/material corporate changes such as:

1) amendments to the statutes and/or articles of incorporation or other governing

documents of the entity;

2) the authorization of additional shares; and

3) extraordinary transactions, including the transfer of all or substantially all assets, that

in effect result in the sale of the company.

C. All shareholders should have the opportunity to participate effectively and vote in

meetings of shareholders and should be informed of the rules, including voting

procedures that govern shareholder meetings; Shareholders should be able to maketheir views known on the remuneration policy for Board members and key executives

and the equity component of compensation schemes for Board members and

employees should be subject to shareholder approval.


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D. Capital structures and arrangements that enable certain shareholders to obtain a

degree of control disproportionate to their equity ownership should be disclosed.

E. Markets for corporate control should be allowed to function in an efficient and

transparent manner. The rules and procedures governing the acquisition of corporate

control in the capital markets, and extraordinary transactions such as mergers, and

sales of substantial portions of corporate assets, should be clearly articulated and

disclosed so that investors understand their rights and are provided recourse.

Transactions should occur at transparent prices and under fair conditions that protect

the rights of all shareholders according to their class.

F. The exercise of ownership rights by all shareholders, including institutional investors,

should be facilitated and institutional investors should be encouraged to participate

actively in the governance of the entity.

Equal treatment to share holder

The corporate governance framework should ensure the equitable treatment of all

shareholders, including minority and foreign shareholders. All shareholders

should have the opportunity to obtain effective redress for violation of their

rights.

A.All shareholders of the same series of a class should be treated equally.

1. Within any series of a class, all shares should carry the same rights. All investors

should be able to obtain information about the rights attached to all series and classes

of shares prior to purchase. Any changes in voting rights should be subject to approval

by those classes of shares, which are negatively affected.

2. Minority shareholders should be protected from abusive actions by, or in the interest

of, controlling shareholders acting either directly or indirectly, and should have effective

means of redress.


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3. Minority shareholders should be encouraged to seek professional advice before

participating in key decisions with respect to corporate governance, corporate

restructuring, capital restructuring or asset transfers;

4. The forms of redress available should be made known to all shareholders;

5. Votes should be cast by custodians or nominees in a manner agreed upon with the

beneficial owner of the shares;

6. Cross border voting should be facilitated;

B. Insider trading and abusive self-dealing should be prohibited.

C. Members of the Board and key executives should be required to disclose to the

Board whether they, directly, indirectly or on behalf of third parties, have a material

interest in any transaction or matter directly affecting the entity.

D. Procedures for dealing with conflicts should be established.

Principle IV Rights of other Stakeholders

The corporate governance framework should recognize the rights of stakeholders

established by law or through mutual agreements and encourage active co-operation between entities, including family owned businesses and state-

owned/controlled enterprises, and stakeholders in creating wealth, jobs, and the

sustainability of financially sound enterprises.

A. Where stakeholder interests are protected by law, stakeholders should have the

opportunity to obtain effective redress for violation of their rights.

B. Performance-enhancing policies for employee participation including employee share

ownership and option plans, pension funds and other profit sharing mechanisms should

be permitted to develop.

C. Stakeholders should have access to relevant, sufficient and reliable information on a

timely and regular basis.


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D. Procedures and safe-harbors should be established for complaints by employees,

either personally or through their representative bodies, and others outside the

company, concerning illegal and unethical behavior should be established.

E. The corporate governance framework should be complemented by an effective and

efficient insolvency framework and by effective enforcement of creditor rights.

F. Principles for public sector accountability and governance should be recognized and

implemented;

G. Public Accounts Committees should play an active role in the governance of state

owned/controlled enterprises.

H. An effective system for monitoring and reporting poor governance practices should

be instituted within the public and private sectors.

I. The development of capacity within stakeholder groups should be facilitated. The

development of business associations, shareholder advocacy groups and organized

lobbying efforts should be encouraged.

Principle V Disclosure and Transparency

The corporate governance framework should ensure that timely and accurate

disclosure is made on all material matters relating to the entity, including its

financial situation, performance, ownership, and governance.

A. All material information in relation to the company should be disclosed subject to

considerations of confidentiality;

1. The financial and operating results of the company;

2. Company objectives;

3. Major share ownership and voting rights;

4. Remuneration policy for members of the Board and key executives;


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5. Information about members of the Board, including biographical data,

qualifications, shareholding in the entity, other company directorships and whether

they are regarded as independent by the Board;

6. Related party transactions;

7. Existing and foreseeable risk factors; and

8. Issues regarding employees and other stakeholders likely to materially affect the

performance of the entity.

B. The Board of Directors should prominently and clearly disclose its approach to

corporate governance, including analyzing the entitys governance issues. The Board

should also disclose the processes it employs to ensure an effective system of

corporate governance.

C. Information should be prepared and disclosed in accordance with legal and

regulatory requirements for accounting, financial and non-financial disclosure.

1. Accounting and auditing professions should work to close the gap between accepted

international standards and actual practices;

2. The development and implementation of both accounting and auditing standards

should be overseen by effective bodies acting in the publics interest;

3. The relevant accounting standards used to prepare the financial statements and

reports should be disclosed;

4. The annual reports of companies should contain a Corporate Governance Statement

detailing the companys governance structures and/or policies;

5. The Board should ensure that adequate risk management and internal control

procedures/processes are in place.

D. An annual audit should be conducted by an independent, competent and qualified

auditor, appointed by the shareholders, in order to provide an external and objective

assurance to the Board and shareholders that the financial statements fairly represent

the financial position and performance of the company in all material respects.


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E. External auditors should be accountable to the shareholders and owe a duty to the

company to exercise due professional care in the conduct of the audit. External auditors

should be independent in fact and appearance.

F. Channels for disseminating information should provide for equal, timely and cost

efficient access to relevant information by users

G. The corporate governance framework should be complemented by the provision of

analysis or advice by analysts, brokers, rating agencies and others, that is relevant to

investors and free from material conflicts of interest that might compromise the integrity

of such analysis or advice.

H. Auditors should not provide non-audit services to the entity unless expressly

approved by the Board. Where auditors provide non-audit services, the audit committee

should maintain full records of such services in an effort to maintain auditor objectivity.

Principle VI Board Responsibilities

The corporate governance framework should ensure the strategic guidance of the

entity, the effective monitoring of management by the Board, and the Boards

accountability to the entity and to stakeholders.

A. Every company should be headed by an effective Board whose principal focus

should be on optimizing shareholder value. The Board should be the focal point of the

corporate governance system and is ultimately accountable and responsible for the

performance and affairs of the company;

B. The Board of Directors of every entity should meet regularly;

C. Board members should act on a fully informed basis, in good faith, with due diligence

and care, and in the best interest of the entity and the stakeholders.


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D. Where Board decisions may affect different shareholder groups differently, the Board

should treat all shareholders fairly.

E. The Board should seek to codify ethical conduct. At a minimum, the ethical code

should seek to set clear limits on the pursuit of private interests, including dealings in

the shares of the entity and define conflicts of interest and independence. An overall

framework for ethical behavior goes beyond compliance with the law, which should

always be a fundamental requirement, and includes consideration of the interests of

stakeholders.

F. Board training and certification should be encouraged;

G. The Board should fulfill certain key functions, including:

1. Reviewing and guiding corporate strategy, major plans of action, risk policy, annual

budgets and business plans; setting performance objectives; monitoring implementation

and corporate performance; developing management policies and overseeing major

capital expenditures, acquisitions and divestitures;

2. Monitoring the effectiveness of the companys governance practices and making

changes as needed;

3. Selecting, developing, compensating, monitoring and, when necessary, replacing key

executives and overseeing succession planning;

4. Aligning key executive and Board remuneration with the longer-term interests of the

company and its shareholders;

5. Ensuring a formal and transparent Board nomination and election process;

6. Monitoring and managing potential conflicts of interest of management, Board

members and shareholders, including misuse of corporate assets and abuse in related

party transaction.

7.. Overseeing the process of disclosure and communications;

H. The Board should be able to exercise objective independent judgment on corporate

affairs.


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1. Boards should consider assigning a sufficient number of non-executive Board

members capable of exercising independent judgment to tasks where there is a

potential for conflict of interest. Examples of such key responsibilities are ensuring the

integrity of financial and non-financial reporting, the review of related party transactions,

nomination of Board members and key executives, and Board remuneration;

2. The establishment of Board committees should be encouraged, in particular, the use

of audit committees should be mandated. The committees mandate, composition and

working procedures should be well defined and disclosed by the Board;

I. In order to fulfill their responsibilities, Board members should have access to accurate,

relevant and timely information.

J. The Board should institute mechanisms for direct interface with regulators on a

regular basis.

K. Board appointments should be made through a well managed and efficient process

that provides for a mix of proficient directors, each of whom is able to add value and to

bring independent judgment to bear on the decision making process.

L. Performance evaluation and peer reviews of Board members should be instituted.

M. The Board should maintain a system of internal controls to safeguard shareholders

investment and the corporations assets. The Board should also seek to publicly

disclose assessments of the effectiveness of internal controls within the company.

N. Members of the Board and key executives should be required to disclose to the

Board whether they, directly, indirectly or on behalf of third parties, have a material

interest in any transaction or matter directly affecting the company.


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Data Analysis

and

Interpretation


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Data Analysis and Interpretation

This study attempts to examine and compare corporate governance practices of public

bank and to study the importance of governance parameters from investors and

financial advisors perspective.

RESEARCH QUESTION

Is there any difference in corporate governance practices in Public sector banks?

To what extent Indian Banking sector has accepted & implemented corporate

governance principles compared to norms?

Which criterias and parameters have been given importance to, by Fund

Manager, Advisors, Analysts and Agents or Employees of Financial Institute or

Brokers for advising for investment in listed companies?

RESEARCH OBJECTIVE

To study the adherence of governance norms by Public sector banks

To study the correlation between corporate governance norms and growth of

companies.

To study which parameters have received major importance in different banks.


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INTERPRETATION: Weighted average score was calculated for each parameters as

per requirement and from them Weighted arithmetic mean was calculated. Later on,

each parameter is given rank. Respondents give ranks and scores to criterias of ethical

and governance practices of banks followed by sound risk management practices and

other parameters from respondents perspective by providing ease in answering

questions.


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Conclusion


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Conclusion

Experience from across the world and especially from the developed countries of thewest has shown us that there can be no single model of corporate governance. Eachcompany has its own peculiar balance of interests and power among its stakeholders

and hence, the outcome depends much on how the powers among the contendingparties are exercised and influenced. Thus, ideally the actual norms and procedures ofcorporate governance should be generated internally from within an organization.However, the guiding principles of corporate governance would have to be universal,especially in these days of globalization. This is not to overlook the fact that most legalstructures of countries and institutions during the present times are geared to serve theinterests of global capital. It is, therefore, also up to the individual countries to balancetheir own local needs and sovereignty in the face of sweeping globalization. Corporategovernance rules, thus, face a set of dilemmas of balancing the individual needs ofsome common principles guiding the diverse particulars. The rules must also balanceout among local need at the national level and the global needs of international capital.

While we admit that there can be no set of rules to completely eliminate the undesirableeffects of bad corporate governance, we must also admit that there should be somesemblance of institutionalization and normalization of corporate governance. There isthus a need for company Boards to increasingly adopt formal governance structures,well defined criteria to evaluate Board performance such as ratings, articulate cleardecision making structures and also scientific methods to arbitrate power battles amongthe stakeholders like executives, management, shareholders and the society at large.The Boards need to develop informed and scientific risk management systems in orderto be able to assess the companys strategic decisions. In an overall manner we mayconclude that the issues of corporate governance of the public sector in India revolvearound autonomy and the monitoring of that autonomy. The autonomy of the publicsector paradoxically does not reduce the role of the government, rather increases it.The role of the government however changes from a supervisor and prime decisionmaker to that of a custodian of resources.

Fundamentally, good governance arrangements increase participation, strengthenaccountability mechanisms and open channels of communication within, and across,organizations. In this way, the public sector can be more confident about deliveringdefined outcomes and being accountable for the way in which results are achieved.

A focus on good corporate governance can help public bodies deliver the ever moreexacting performance imperatives that are expected of them, whilst at the same timemeeting demanding standards of accountability. To do this, however, corporategovernance must not be simply seen as a narrow compliance obligation. By adopting amore multidimensional approach to corporate governance, there is a greater likelihoodthat it can be seen as a catalyst to achieve even better performance, allowing publicbodies to adapt to their vastly changed circumstances.


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Bibliography

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Industries: The Case of India, Annals of Public and Cooperative Economics,

63(3):489-495, 1992 www.dpe.nic.in

www.indianresearchjournals.com

Indian institute of corporate affairs report.

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ICSi corporate governance report

http://mpra.ub.uni-muenchen.de/41038/

www.econstor.eu

IIKA report.

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