INTRODUCTION

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In simpler terms it means the extent to which companies are run in an open & honest manner. Corporate governance has three key constituents namely: the Shareholders, the Board of Directors & the Management. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large. The concept of corporate governance identifies their roles & responsibilities as well as their rights in the context of the company. It emphasises accountability, transparency & fairness in the management of a company by its Board, so as to achieve sustained prosperity for all the stakeholders. Corporate governance is a synonym for sound management, transparency & disclosure. Transparency refers to creation of an environment whereby decisions & actions of the corporate are made visible, accessible & understandable. Disclosure refers to the process of providing information as well as its timely dissemination. In A Board Culture of Corporate Governance, business author Gabrielle O'Donovan defines corporate governance as An internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate
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governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes.

Objectives
To analyze corporate governance practice of companies with reference of rules described by SEBI for Indian companies. To find out importance of corporate governance in Indian companies. To find out the awareness of functioning of Corporate Governance amongst investors who are fundamental analyst. To evaluate the importance of corporate governance as a parameter for investor before investing.

DEFINITIONS OF CORPORATE GOVERNANCE

"Corporate governance is a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation. This is often limited to the question of improving financial performance, for example, how the corporate owners can secure/motivate that the corporate managers will deliver a competitive rate of return" - www.encycogov.com, Mathiesen [2002]. Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. -The Journal of Finance, Shleifer and Vishny [1997]. "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance". The Cadbury Committee U.K, defined corporate governance as follows: It is a system by which companies are directed & controlled.

SCOPE and IMPORTANCE OF CORPORATE GOVERNANCE

Corporate governance is all about ethics in business. It is about transparency, openness & fair play in all aspects of business operations. The key aspects to corporate governance include:

1. Accountability of Board of Directors & their constituent responsibilities to the ultimate owners- the shareholders. 2. Transparency, i.e. right to information, timeliness & integrity of the information produced. 3. Clarity in responsibilities to enhance accountability. 4. Quality & competence of Directors and their track record. 5. Checks & balances in the process of governance. 6. Adherence to the rules, laws & spirit of codes.

An active & involved board consisting of professional & truly independent directors plays an important role in creating trust between a company & its investors and is the best guarantor of good corporate governance.

Good corporate governance is integral to the very existence of a company. It is important for the following reasons:

1. Corporate governance ensures that a properly structured Board, capable of taking independent & objective decisions is at the helm of affairs of the company. This lays down the framework for creating long-term trust between the company & external providers of capital.

2. It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience & a host of new ideas.

3. It rationalizes the management & monitoring of risk that a corporation faces globally.

4. Corporate governance emphasises the adoption of transparent procedures & practices by the Board, thereby ensuring integrity in financial reports.

5. It limits the liability of top management & directors, by carefully articulating the decision making process. 6. It inspires & strengthens investors confidence by ensuring that there are adequate number of non-executive & independent directors on the Board, to look after the interests & well-being of all the stakeholders.

7. Corporate governance helps provide a degree of confidence that is necessary for the proper functioning of a market economy, as it contemplates adherence to ethical business standards.

8. Finally, globalisation of the market place has ushered in an era wherein the quality of corporate governance has become a crucial determinant of survival of corporates. Compatibility of corporate governance practices with global standards has also become an important constituent of corporate success. Thus, good corporate governance is a necessary pre-requisite for the success of Indian corporates.

Corporate Social Responsibility

The 21st century is characterized by unprecedented challenges and opportunities, arising from globalization, the desire for inclusive development and the imperatives of climate change. Indian business, which is today viewed globally as a responsible component of the ascendancy of India, is poised now to take on a leadership role in the challenges of our times. It is recognized the world over that integrating social, environmental and ethical responsibilities into the governance of businesses ensures their long term success, competitiveness and sustainability. This approach also reaffirms the view that businesses are an integral part of society, and have a critical and active role to play in the sustenance and improvement of healthy ecosystems, in fostering social inclusiveness and equity, and in upholding the essentials of ethical practices and good governance. This also makes business sense as companies with effective CSR, have image of socially responsible companies, achieve sustainable growth in their operations in the long run and their products and services are preferred by the customers. Indian entrepreneurs and business enterprises have a long tradition of working within the values that have defined our nation's character for millennia. India's ancient wisdom, which is still relevant today, inspires people to work for the larger objective of the well-being of all stakeholders. These sound and allencompassing values are even more relevant in current times, as organizations grapple with the challenges of modern-day enterprise, the aspirations of stakeholders and of citizens eager to be active participants in economic growth and development
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The idea of CSR first came up in 1953 when it became an academic topic in HR Bowens Social Responsibilities of the Business. Since then, there has been continuous debate on the concept and its implementation. Although the idea has been around for more than half a century, there is still no clear consensus over its definition. One of the most contemporary definitions is from the World Bank Group, stating, Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local India, Ministry of Corporate Affairs, Corporate Social Responsibility Voluntary Guidelines 2009 community and society at large, to improve their lives in ways that are good for business and for development.

Corporate Social Responsibility Voluntary Guidelines 2009

In order to assist the businesses to adopt responsible governance practices, the Ministry of Corporate Affairs has prepared a set of voluntary guidelines which indicate some of the core elements that businesses need to focus on while conducting their affairs. These guidelines have been prepared after taking into account the governance challenges faced in our country as well as the expectations of the society. The valuable suggestions received from trade and industry chambers, experts and other stakeholders along with the internationally prevalent and practiced guidelines, norms and standards in the area of Corporate Social Responsibility have also been taken into account while drafting these guidelines. Fundamental Principle: Each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals. The policy should be framed with the participation of various level executives and should be approved by the Board.

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Core Elements:

The CSR Policy should normally cover following core elements: 1. Care for all Stakeholders: The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur. 2. Ethical functioning: Their governance systems should be underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive. 3. Respect for Workers' Rights and Welfare: Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis. They should uphold the freedom of association and the effective recognition of the right to collective bargaining of labour, have an effective grievance redressal system, should not employ child or forced labour and provide and maintain equality of opportunities without any discrimination on any grounds in recruitment and during employment.

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4. Respect for Human Rights: Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party. 5. Respect for Environment: Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water, should proactively respond to the challenges of climate change by adopting cleaner production methods, promoting efficient use of energy and environment friendly technologies. 6. Activities for Social and Inclusive Development: Depending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include: - education, skill building for livelihood of people, health, cultural and social welfare etc., particularly targeting at disadvantaged sections of society.

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Implementation Guidance:

1. The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organizational mechanism and responsibilities, time schedules and monitoring. Companies may partner with local authorities, business associations and civil society/non-government organizations. They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development. They may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected

projects/activities from time to time.

2. Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter.

3. To share experiences and network with other organizations the company should engage with well established and recognized programmes/platforms which encourage responsible business practices and CSR activities. This would help companies to improve on their CSR strategies and effectively project the image of being socially responsible.

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4. The companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports, and other communication media

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Coverage The following categories of companies registered under the Companies Act would be covered by the provisions relating to CSR: A company having a net worth of Rs.500 Crores or more. A company with a turnover of Rs. 1000 Crores or more. A company with a net profit of Rs. 5 Crores during any financial year. Though the threshold limit of net worth and turnover are high the profit criteria is relatively low which would bring in a number of companies under the CSR ambit.

Commitment Companies which meet the above financial criteria will have to spend at least 2% of their average net profits of the past three years on any of the specified CSR activities. The draft Rules also specify the methodology of calculating the net profits for the purpose of CSR outlay. As per the draft Rules unspent amount can be rolled over to the subsequent years, though it is unclear whether excess spent in a particular year can b carried forward and adjusted in subsequent years.

Administration A committee of the Board of Directors of the company with at least three or more Directors with one or more independent director/s shall oversee the working of CSR activities. The committee is charged with the responsibility of helping the Board to formulate CSR policy, the activities o be undertaken, preparing the budgets for various activities and monitor the implementation of the CSR policy of the company. The draft rules given an outline of the broad contours of the CSR issue. The Board of Directors on its part have to review the recommendations made by the CSR Committee, approve a CSR Policy, publicise the policy and
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ensure that the company spends the mandatory 2% of the profits every year on approved activities. The Directors Report shall carry prescribed details about CSR activities as per the draft Rules.

Penalties A company which is mandated to spend on CSR as pes Section 135 of the Act fails to do shall explain the reason for its inability to do so in any year. A failure to do so will attract a fine of not less than Rs. 50,000/- and not more than rs. 25,00,000/-.

Activities under CSR Sceduke VII gives a list of activities which can be undertaken by the company who is mandated to spend on CSR. They include: Eradicating extreme hunger and poverty. Promotion of Education. Promoting gender equality and empowering women. Reducing child mortality and improving maternal health. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases. Ensuring environmental stability. Employment-enhancing vocational skills. Social Business Projects. Contribution to the Prime Ministers National Relief Fund or any other fund set up by the Central Government or the state governments for the socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women. Such other matters as may be prescribed.

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The Tax Angle Having seen the provisions of the Companies Act let us now turn to the taxation impact of these provisions. The draft CSR Rules leaves it to the CBDT to look at the taxation benefits which could accrue to the companies. Prima facie it looks as if companies would be able to bring the CSR spend under the Income Tax Act by Contributing to approved scientific research purposes and through contributions to approved Universities for specific purposes. The CSR initiative through the Companies Act could not have come in sooner. The corporate sector was being sensitized to the requirements on social spending in the past. This step by the new Act is a nudge to encourage them to return something to the society.

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MR. RAMALINGA RAJU AND THE SATYAM SCANDAL

On January 7, 2009, Mr. Raju disclosed in a letter, as shown in Exhibit 2, to Satyam Computers Limited Board of Directors that he had been manipulating the companys accounting numbers for years. Mr. Raju claimed that he overstated assets on Satyams balance sheet by $1.47 billion. Nearly $1.04 billion in bank loans and cash that the company claimed to own was non-existent. Satyam also underreported liabilities on its balance sheet. Satyam overstated income nearly every quarter over the course of several years in order to meet analyst expectations. For example, the results announced on October 17, 2009 overstated quarterly revenues by 75 percent and profits by 97 percent. Mr. Raju and the companys global head of internal audit used a number of different techniques to perpetrate the fraud. As Ramachandran (2009) pointed out, Using his personal computer, Mr. Raju created numerous bank statements to advance the fraud. Mr. Raju falsified the bank accounts to inflate the balance sheet with balances that did not exist. He inflated the income statement by claiming interest income from the fake bank accounts. Mr. Raju also revealed that he created 6,000 fake salary accounts over the past few years and appropriated the money after the company deposited it. The companys global head of internal audit created fake customer identities and generated fake invoices against their names to inflate revenue. The global head of internal audit also forged board resolutions and illegally obtained loans for the company. It also appeared that the cash that the company raised through American Depository Receipts in the United States never made it to the balance sheets.

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CORPORATE GOVERNANCE ISSUES AT SATYAM

On a quarterly basis, Satyam earnings grew. Mr. Raju admitted that the fraud which he committed amounted to nearly $276 million. In the process, Satyam grossly violated all rules of corporate governance (Chakrabarti, 2008). The Satyam scam had been the example for following poor CG practices. It had failed to show good relation with the shareholders and employees. As Kahn (2009) stated, CG issue at Satyam arose because of non-fulfillment of obligation of the company towards the various stakeholders. Of specific interest are the following: distinguishing the roles of board and management; separation of the roles of the CEO and chairman; appointment to the board; directors and executive compensation; protection of shareholders rights and their executives. In fact, shareholders never had the opportunity to give their consent prior to the announcement of the Matyas deal and falsified documents with grossly inflated financial reports were delivered to them. Ultimately, shareholders were at a loss and felt cheated. Surely, questions about managements credibility were raised, in addition to the nonpayment of advance taxes to the government. Together, these issues raise questions about Satyams financial health.

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LESSONS LEARNED FROM SATYAM SCAM

The 2009 Satyam scandal in India highlighted the nefarious potential of an improperly governed corporate leader. As the fallout continues, and the effects were felt throughout the global economy, the prevailing hope is that some good can come from the scandal in terms of lessons learned (Behan, 2009). Here are some lessons learned from the Satyam Scandal: Investigate All Inaccuracies: The fraud scheme at Satyam started very small, eventually growing into $276 million white-elephant in the room. Indeed, a lot of fraud schemes initially start out small, with the perpetrator thinking that small changes here and there would not make a big difference, and is less likely to be detected. This sends a message to a lot of companies: if your accounts are not balancing, or if something seems inaccurate (even just a tiny bit), it is worth investigating. Dividing responsibilities across a team of people makes it easier to detect irregularities or misappropriated funds. Ruined reputations: Fraud does not just look bad on a company; it looks bad on the whole industry and a country. Indias biggest corporate scandal in memory threatens future foreign investment flows into Asias third -largest economy and casts a cloud over growth in its once-booming outsourcing sector. The news sent Indian equity markets into a tail-spin, with Bombays main benchmark index tumbling 7.3% and the Indian rupee fell (IMF, 2010). Now, because of the Satyam scandal, Indian rivals will come under greater scrutiny by the regulators, investors and customers. Corporate Governance needs to be stronger: The Satya m case is just another example supporting the need for stronger CG. All public-companies must be careful when selecting executives and top-level managers. These are the people who set the tone for the company: if there is corruption at the top, it is bound to trickle-down. Also, separate the role of CEO and Chairman of the Board. Splitting up the roles, thus, helps avoid situations like the one at Satyam.

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The Satyam Computer Services scandal brought to light the importance of ethics and its relevance to corporate culture. The fraud committed by the founders of Satyam is a testament to the fact that the science of conduct is swayed in large by human greed, ambition, and hunger for power, money, fame and glory. Scandals from Enron to the recent financial crisis have time and time again proven that there is a need for good conduct based on strong ethics. Not surprising, such frauds can happen, at any time, all over the world. Satyam fraud spurred the government of India to tighten CG norms to prevent recurrence of similar frauds in the near future. The government took prompt actions to protect the interest of the investors and safeguard the credibility of India and the nations image across the world.

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Corporate Governance at Infosys: The High Priest of Corporate Governance

By the late 1990s, Infosys Technologies Limited (Infosys) had clearly emerged one of the best managed companies in India. Its corporate governance practices seemed to be better than those of many other companies in India. Because of its good governance practices, Infosys was the recipient of many awards. In 2001, Infosys was rated India's most respected company by Business World2. Infosys was also ranked second in corporate governance among 495 emerging companies in a survey conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets. It was voted India's best managed company five years in a row (1996-2000) by the Asia money poll. In 2000, Infosys had been awarded the "National Award for Excellence in Corporate Governance" by the Government of India. In 1999, Infosys had been selected as one of Asia's leading companies in the Far Eastern Economic Review's REVIEW 2000 Survey and voted India's most admired company by The Economic Times. Infosys had also provided all the information required by the Cadbury committee3 Infosys had benchmarked its corporate governance practices against those of the est. managed companies in the world. It was one of the first companies in India to publish a compliance report on corporate governance; based on the recommendations of a committee constituted by the Confederation of Indian Industries (CII).4 Infosys maintained a high degree of transparency while disclosing information to stakeholders. It had been providing consolidated financial statements under US GAAP to its global investors and
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financial statements under Indian GAAP to Indian shareholders. Infosys provided details on high and low monthly averages of share prices in all the stock exchanges on which the company's shares were listed. It was one of the few companies in India to provide segment wise breakup of revenues. Code of Corporate Governance In the late 1990s, the Confederation of Indian Industries (CII) published a code of corporate governance (Refer Exhibit II for the highlights of the report). In 1999, the Securities and Exchange Board of India (SEBI) appointed a committee under the Chairmanship of Kumar Mangalam Birla5 to recommend a code of corporate governance. The report was submitted by the committee in November 1999 and accepted by SEBI in December 1999 (Refer Exhibit III for the highlights of the report). Infosys had accepted the recommendation of both the CII and the Kumar Mangalam Birla Committee. This section provides an overview of corporate governance practices followed by Infosys. Infosys had an executive chairman and chief executive officer (CEO) and a managing director, president and chief operating officer (COO). The CEO was responsible for corporate strategy, brand equity, planning, external contacts, acquisitions, and board matters. The COO was responsible for all day-to-day operational issues and achievement of the annual targets in client satisfaction, sales, profits, quality, productivity, and employee empowerment and employee retention. The CEO, COO, executive directors and the senior management made periodic presentations to the board on their targets, responsibilities and performance.

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In 2001, the board had sixteen directors. There were eight executive directors and eight non-executive directors. Infosys believed that the one thing that could help them to improve corporate governance was to bring international professionals on corporate boards. The board members were expected to possess the expertise, skills and experience required to manage and guide a high growth, hi-tech software company. Expertise in strategy, technology, finance, and human resources was essential. Generally, they were between 40 and 55 years of age and were not related to the other board members. They did not serve in any executive or non-executive position in any company in direct competition with Infosys. The board members were expected to rigorously prepare for, attend, and participate in all board and relevant committee meetings. Each board member was expected to ensure that other existing and planned future commitments did not interfere with the member's responsibility as a director of Infosys. Normally, the board meetings were scheduled at least a month in advance. Most of the meetings were held at the company's registered office at Electronics City, Bangalore, India. The chairman of the board and the company secretary drafted the agenda for each board meeting and distributed it in advance to the board members. Board members were free to suggest the inclusion of any item on the agenda. Normally, the board met once a quarter to review the quarterly results and other issues. The board also met on the occasion of the annual shareholders' meeting. If the need arose, additional meetings were held. The non-executive directors had to attend at least four board meetings in a year. The board had access to any information that it wanted about the company. In 2001, the board had three committees - the nominations committee, the compensation committee and the audit committee. To ensure independence of the
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board, the members of the nominations committee, the compensation committee and the audit committee were all non-executive directors. The nominations committee had four non-executive directors who looked after the issue of retirement of existing members and their re-appointment, on the basis of their performance. The nominations committee constantly evaluated the contribution of the members of the board and recommended to shareholders their re-appointment. The executive directors were appointed by the shareholders for a maximum period of five years, but were eligible for re-appointment upon completion of their term. The nominations committee adopted a retirement policy for the members of the board under which the maximum age of retirement of executive directors, including the CEO, was 60 years, which was the age of superannuation for the employees of the company. Their continuation as members of the board upon superannuation / retirement was determined by the nominations committee. The compensation committee, which had three non-executive directors, looked after issues relating to compensation and benefits for board members. It determined and recommended to the board, the compensation payable to the members of the board. The compensation of the executive directors consisted of a fixed component that was paid monthly, and a variable component, which was paid quarterly, based on performance. The annual compensation of the executive directors was approved by the compensation committee within the parameters set by the shareholders at the shareholders meetings. The shareholders determined the compensation of the executive directors for the entire period of their term. The compensation of the non-executive directors was approved at a meeting of the full board. The components were a fixed amount, and a variable amount based on their attendance of the board and committee meetings. The total compensation
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payable to all the non-executive directors together was limited to a fixed sum per year determined by the board. This sum was within the limit of 0.5% of the net profits of the company for the year calculated, as per the provisions of the Companies Act and as approved by the shareholders. The compensation payable to the non-executive directors (and the method of calculation) was disclosed in the financial statements. Since 1999, the non-executive directors were eligible for stock options. Of the compensation payable for the year 1999, 60% was paid for being on the board and the balance 40% was paid in proportion to the board/committee meetings attended. None of the directors gained financially from any other contract of significance which the company or any of its subsidiary undertakings was party to. The audit committee was responsible for effective supervision of the financial reporting process, ensuring financial and accounting controls and compliance with the financial policies of the company. The committee periodically interacted with the statutory auditors and the internal auditors to ascertain the quality of the company's transactions; to review the manner in which they were performing their responsibilities; and to discuss auditing, internal control and financial reporting issues. The committee provided overall direction on the risk management policies and also indicated the areas that internal and management audits should focus on. The committee had full access to financial data. The committee reviewed the annual and half yearly financial statements before they were submitted to the board. The committee also monitored proposed changes in the accounting policy, reviewed the internal audit functions and discussed the accounting implications of major transactions.

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As per the recommendations of the Kumar Mangalam Committee, Infosys included a separate section on corporate governance in its annual report, which disclosed the remuneration paid to directors in all forms, including salary, benefits, bonuses, stock options. The annual report also carried a compliance certificate from the auditors. Infosys also laid emphasis on succession planning and management development. The chairman reviewed succession planning and management development with the board from time to time. The chairman and CEO also managed all interaction with the investors, media, and the government. Where necessary, he took advice and help from the managing director, president, and COO as well as the CFO. The managing director and COO managed all interactions with the clients, taking the advice and the help of the CEO. Both the CEO and the COO handled employee communication. Infosys-A Benchmark for Corporate Governance Some analysts felt that Infosys' corporate governance practices offered many lessons to corporate India. Infosys had shown that increasing shareholder wealth and safeguarding the interests of other stakeholders was not incompatible. Infosys had given its non-executive directors the mandate to pass judgement on the efficacy of its business plans. Every non-executive director not only played an active role in decision making, but also led or served on at least one of the three (Nomination, Compensation and Audit) committees. Infosys' founders had set very high standards, in a country where malpractices by founders were rampant. The founders only took salaries and dividends and derived no other financial benefits from the company.

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Commenting on the strengths and weaknesses of Infosys' corporate governance, Nandan M Nilekani, Managing Director, Chief Operating Officer and President of Infosys, said, "The strengths are that we have been very successful in creating a value based system with a very strong focus on ethics, and strong division between personal and professional funds etc. That has translated into brand equity, shareholder value etc. Obviously, we can do things better. We believe that we can never stand still. We will keep looking at global best practices, what the world is saying on this front. We keep trying to improve the way we manage to be on par with it." It remained to be seen whether other Indian companies could emulate Infosys form of corporate governance.

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ITC, Infosys and Reliance

CG and Corporate Social Responsibility (CSR) have become buzzwords in the post millennium corporate culture of India. This case describes the CG and CSR practices of the three Indian private companies namely ITC Ltd., Infosys Technologies Ltd., and Reliance Industries Ltd. These three companies were chosen as they represent three distinct categories among the Indian private companies. ITC Ltd is one of the very few Indian companies which does not have an identified promoter and is fully managed by professionals (Though, a foreign company has around 32% stakes in the company, it is not identified as a promoter as it does not control the company). Reliance Industries is at the other end of the spectrum, with one family and their stake is only around 16% (all the shareholding levels were as on march 31, 2007). Hence, a study of CG and CSR practices of these companies will throw light on the differences among the private companies with different management control and shareholding patterns.

APPROACH TO CORPORATE GOVERNANCE ITC official believes and propagates commitment beyond the market. It is also one of the pioneers to put in place a formalized system of Corporate Governance. ITC defines CG as a systematic process by which companies are directed and controlled in order to enhance their wealth generating capacity. This definition reminds one of Milton Friedman who says that businessman should concentrate only on profits and nothing more. However, that is not the case. ITC

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also believes that the growth process should ensure that these resources are utilized in manner which meets the stakeholders aspirations and societal expectations. What the company calls as the development of the triple bottom line includes the nurture and regeneration of nations economic, ecological and social capital. ITC also seems to believe that CG must simultaneously empower the executive management of the company while ensuring adequate checks and balances. The cornerstones of ITCs CG philosophy are trusteeship, transparency, emp owerment, accountability, control and ethical corporate citizenship. Trusteeship among these is predicted on the responsibility to ensure equity which essentially means that the rights of all the shareholders, large and small are protected. The board of directors has to protect and enhance the shareholders value as well as protect the interest of other shareholders. Transparency could mean making appropriate levels and as close to the scene of action as feasible. Control is meant to prevent the misuse of power and is exercised within a framework of checks and balances. ITC believes unethical corporate citizenship because, unethical behavior ultimately corrupts organizational culture and undermine stakeholder value. Reliance is the only private sector fortune 500 Indian companies and whether it is breakup of the empire, a new venture or its cg practices, corporate India are all ears to the latest happenings from this company. Reliance believes that good governance practices stem from the culture and mindset of the organization. Reliance official policy says that the firm is unequivocally committed to all its stakeholders-employees, customers, shareholders, investors, vendors and policy planners. At reliance, every team member is encouraged to ensure that stakeholders interests are uppermost. Reliance has a well defined policy
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framework in this regard consisting of values and commitments, code of ethics, business policies, and prohibition of insider trading, program of ethics and management. Infosys always seems to believe that the best cg attracts the best investors. Aryan mirths vision for infuses envisages a place where people of different genders, nationalities, races and religious beliefs work together in an environment of intense competition but with the utmost harmony, courtesy and dignity. Infosys is the first Indian company to get it listed on the NASDAQ and the first to benchmark its organizational practices to global standards. As C K Prahlad rightly points out the infosys ecosystem of meritocracy, wealth creation and CG has made an impact across Indian industry in terms of raising confidence and aspiration levels. Again as Mark Mobius of Franklin Templeton Emerging Markets fund points out the focus of Infosys on CG not only brought global visibility to the company, but also created pressure on other Indian firms to raise their governance standards. Infosys CG practices at CGR and CRISIL GVC Level 1 rating to them. Infosys has also complied with the Narayana Murthy committee recommendations on CG. Infosys is also Sarbanese- Oxley act compliant. Infosys Corporate Governance philosophy is based on satisfying the spirit of law and not just its letter, transparency to the highest degree (which other company will normally come out with a policy of when in doubt, disclose), making a clear distinction between personal conveniences and corporate resources, communicating externally about how the company is internally complying with the laws in all countries in which the company operates, and having at all the times a firm belief that the management, and not the owner, is the trustee of the shareholders capital.

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GOVERNANCE STRUCTURE AND PRACTICES

ITC has three-tier governance which includes strategic supervision by the BOD, strategic management by the corporate management committee and executive management by the divisional/ SBU chief executives. Looking at the board composition one can find that ITC has a blend of executive and non-executive directors that include independent professionals. Executive directors including the chairman do not generally exceed one third of the total strength of the board. One third of the directors retires by rotation every year and is eligible for reelection.

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CONCLUSION

Corporate governance is now the focus area of all business entities. The relation between corporate governance and organizational performance is of fundamental importance. There are few compelling results that clearly demonstrate how corporate governance produces the outcomes desired by stockholders or more broadly stakeholders. Its certainly believed that appropriate governance mechanisms are a necessary and vital part of the Indian economy. However we have considerable concern about whether any of the existing structural measures of governance rating provides a useful basis for identifying good governance. So before imposing a governance structure in a company, it must verify scientifically that the changes are likely to produce necessary outcome. To survive in the competitive world, an organization must have a value based governance system. Thus to conclude one can say that corporate governance is not the luxuries goods that only wealthier countries can afford but if the developing countries like India take one step to move toward mandatory implementation of the Corporate governance by the corporate sectors, whether public corporate or the private, then it will lead to the excellent growth of the nation as well as the economy.

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