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Introduction
Over the last two decades, corporate governance has attracted a great deal of public interest because of
its apparent importance for the economic health of corporations and society in general. The headlines of the
previous two years in particular portrayed a sad story of corporate ethics (or lack thereof): WorldCom, Anderson,
Merrill Lynch, Enron, Martha Stewart, Global Crossing, Qwest Communications, Tyco International, Adelphia
Communications, Computer Associates, Parmalat, Putnam, Boeing, Rite Aid, Xerox ...
Falling stock markets, corporate failures, dubious accounting practices, abuses of corporate power,
criminal investigations indicate that the entire economic system upon which investment returns have depended is
showing signs of stress that have undermined investors confidence. Some corporations have grown dramatically
in a relatively short time through acquisitions funded by inflated share prices and promises of even brighter
futures (many of these corporations have now failed). In others, it seems as if the checks and balances that should
protect shareholder interests were pushed to one side, driven by a perception of the need to move fast in the pursuit
of the bottom line. While some failures were the result of fraudulent accounting and other illegal practices, many
of the same companies exhibited actual corporate governance risks such as conflicts of interest, inexperienced
directors, overly lucrative compensation, or unequal share voting rights

Corporate Governance
Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders desires. It is
actually conducted by the board of Directors and the concerned committees for the companys
stakeholders benefit. It is all about balancing individual and societal goals, as well as, economic and
social goals. Corporate Governance is the interaction between various participants (shareholders, board of
directors, and companys management) in shaping corporations performance and the way it is proceeding
towards. The relationship between the owners and the managers in an organization must be healthy and
there should be no conflict between the two. The owners must see that individuals actual performance is
according to the standard performance. These dimensions of corporate governance should not be
overlooked.
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Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a
fair return on their investment. Corporate Governance clearly distinguishes between the owners and the
managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners
and managers should be clearly defined, rather, harmonizing. Corporate Governance deals with
determining ways to take effective strategic decisions. It gives ultimate authority and complete
responsibility to the Board of Directors. In todays market- oriented economy, the need for corporate
governance arises. Also, efficiency as well as globalization are significant factors urging corporate
governance. Corporate Governance is essential to develop added value to the stakeholders. Corporate
Governance ensures transparency which ensures strong and balanced economic development. This also
ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It
ensures that all shareholders fully exercise their rights and that the organization fully recognizes their
rights. Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate
Governance encourages a trustworthy, moral, as well as ethical environment.


DEFINITION
Corporate governance covers a large number of distinct concepts and phenomenon as we can see from the
definition adopted by Organization for Economic Cooperation and Development (OECD)
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 in 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


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Principles of Corporate Governance
ROLE AND RESPONSIBILITIES OF THE BOARD:- The board should have a
sufficient relevant skills and understanding to review the companys performance and should
steer the company to meet its business purpose in both the short and long term.

RIGHTS AND EQUITABLE TREATEMENT OF SHAREHOLDERS:- The board
should communicate to the companys shareholders at regular intervals and help them to exercise
their rights by openly and effectively communicating information and by encouraging
shareholders to participate in general meetings.
INTEGRITY:- The board should lead the company to conduct its business in a fair
manner. Integrity should be a fundamental requirement in choosing a corporate officers and
board members.
TIMELY DISCLOSURE:- Disclosure of all the material matters concerning the
organization should be at a time so that investors have access to the clear and factual
information.
RECOGNISE AND MANAGE RISK:- Company should have a capability to recognize
the risk and manage that risk by effective internal control system of the company.
ROLE
Corperate governance is a term used to describe the structure of organizations regarding
the establishment of a formal pattern that guides the running of the organization by those in
charge. The role of business ethics in corporate governance refers to the manner in which ethics
is applied during the process of running or administering the organization. To this end, business
ethics in corporate governance can be applied in the way the management of the organization,
which may be a business concern or a government, deals with both internal and external issues.
An example of the role of business ethics in corporate governance is the way in which the
management of a company deals with the issue of the selection of employees. The ethical
manner of selecting employees should be based on criteria that include the possession of the
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necessary human capital, rather than on superficial attributes, such as nationality or physical
attractiveness. Business ethics in corporate governance can also be seen in the manner of
remuneration that the company uses to compensate the employees for their services to the
organization. The question would be whether the company applies the same schedule or rate of
remuneration for deserving employees. For example, some companies might adopt different
schedules for offering bonuses and other types of remuneration to certain categories of
employees, while ignoring other equally deserving employees.

IMPORTANCE OF CORPORATE GOVERNANCE


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1. Changing Ownership Structure : In recent years, the ownership structure of companies
has changed a lot. Public financial institutions, mutual funds, etc. are the single largest
shareholder in most of the large companies. So, they have effective control on the
management of the companies. They force the management to use corporate governance.
That is, they put pressure on the management to become more efficient, transparent,
accountable, etc. The also ask the management to make consumer-friendly policies, to
protect all social groups and to protect the environment. So, the changing ownership
structure has resulted in corporate governance.
2. Importance of Social Responsibility : Today, social responsibility is given a lot of
importance. The Board of Directors have to protect the rights of the customers,
employees, shareholders, suppliers, local communities, etc. This is possible only if they
use corporate governance.
3. Growing Number of Scams : In recent years, many scams, frauds and corrupt practices
have taken place. Misuse and misappropriation of public money are happening everyday
in India and worldwide. It is happening in the stock market, banks, financial institutions,
companies and government offices. In order to avoid these scams and financial
irregularities, many companies have started corporate governance.
4. Indifference on the part of Shareholders : In general, shareholders are inactive in the
management of their companies. They only attend the Annual general meeting. Postal
ballot is still absent in India. Proxies are not allowed to speak in the meetings.
Shareholders associations are not strong. Therefore, directors misuse their power for their
own benefits. So, there is a need for corporate governance to protect all the stakeholders
of the company.
5. Globalisation : Today most big companies are selling their goods in the global market.
So, they have to attract foreign investor and foreign customers. They also have to follow
foreign rules and regulations. All this requires corporate governance. Without Corporate
governance, it is impossible to enter, survive and succeed the global market.
6. Takeovers and Mergers : Today, there are many takeovers and mergers in the business
world. Corporate governance is required to protect the interest of all the parties during
takeovers and mergers.
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7. SEBI : SEBI has made corporate governance compulsory for certain companies. This is
done to protect the interest of the investors and other stakeholders.
BENEFITS OF CORPORATE GOVERNANCE
Corporate Governance plays an important role in enhancing the investment environment
and creates a multitude of benefits to organizations and their shareholders as follows:

Benefits to Organizations:
Compliance with corporate governance principles recommended in this Code can benefit the
owners, managers of organizations, and stakeholders and increase transparency and disclosure
by:
Improving access to capital and financial markets.
Helping to survive in an increasingly competitive environment through mergers,
acquisitions, partnerships, and risk reduction through asset diversification.
Providing an exit policy and ensure a smooth inter-generational transfer of wealth and
divestment of family assets, as well as reducing the chance for conflicts of interest to arise.
Adopting good corporate governance practices leading to better internal control systems,
greater accountability, and better profit margins.
Paving the way for possible future growth, diversification, or a sale, including the ability to
attract equity investors from Jordan and abroad as well as reduce the cost of credit.
Reducing the costs of elevating investors confidence. Organizations seeking new funds
often find themselves obliged to undertake serious corporate governance reforms at a high
cost and upon the demand of outsiders, often in a time of crisis. When the foundations are
already in place investors and potential partners will have more confidence in investing in
or expanding the companys operations.
Managing risks as in the event of the appearance of risk and/or crises, they will be managed
in a timely manner and/or avoided, therefore minimizing damage and costs.

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Benefits to Shareholders:
Good corporate governance can provide proper incentives for the Board and management to
pursue objectives that are in the interest of the company and shareholders, as well as
facilitate effective monitoring.
Better corporate governance can also provide Shareholders with greater security on their
investment.
Better corporate governance also ensures that shareholders are sufficiently informed on
decisions concerning fundamental issues like amendments of statutes or articles of
incorporation, sale of assets, etc.

DISADVANTAGES

Ownership-Management Separation
The officers and directors who run the day-to-day affairs of a corporation and make
most of its policy decisions are not necessarily shareholders. This can become a problem in
large, publicly traded corporations. If no shareholder holds a controlling interest in the
corporation, and most shareholders vote by proxy, the corporation's assets are controlled by the
board of directors and the officers. The separation of ownership and management can lead to a
conflict of interest between management's duty to maximize shareholder value and its interest in
maximizing its own income. A CEO, for example, might be paid a large bonus even as the
corporation approaches bankruptcy.
Illegal Insider Trading
The term "corporate insiders" refers to corporate officers, directors and employees
because they may have access to confidential, non-public information about the corporation that
might affect the value of its shares. Corporate insiders are not strictly prohibited from trading
corporate shares but must report these trades to the Securities and Exchange Commission. Illegal
insider trading occurs when a shareholder, while in possession of confidential information
relevant to the future value of his shares, sells shares to a buyer without access to this
information. Illegal insider trading can also be committed by a shareholder not directly affiliated
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with the corporation, such as an outside auditor, a government regulator or a relative of a
corporate insider. Because access to confidential corporate information can be widely dispersed,
laws against insider trading can be difficult to enforce.
Misleading Financial Statements
There are many ways to present factually accurate information on a financial
statement in a manner that is misleading to investors -- by, for example, selling property from a
parent company to a subsidiary to maximize parent company revenues. It is also possible to
present factually incorrect information that is difficult to detect by establishing complex
networks of subsidiaries and cross-shareholdings.
Costs of Regulation
The abuse of corporate governance has triggered the enactment of a large body
of state and federal laws designed to prevent such abuses from recurring. Compliance with these
laws can be burdensome and expensive for corporations. For example, the Securities and
Exchange Act of 1933 requires companies seeking to list on a stock exchange to make such
extensive disclosures to potential investors that compliance can cost hundreds of thousands of
dollars. More recently, the Sarbanes-Oxley Act of 2002 requires corporations to establish
extensive systems of internal controls to ensure that their financial statements are both factually
accurate and non-misleading.








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CONCLUSION

Failure in corporate governance is a real threat to the future of every corporation. With
effective corporate governance based on core values of integrity and trust (reputational value)10
companies will have competitive advantage in attracting and retaining talent and generating
positive reactions in the marketplace if you have a reputation for ethical behavior in todays
marketplace it engenders not only customer loyalty but employee loyalty. Effective corporate
governance can be achieved by adopting a set of principles and best practices. A great deal
depends upon fairness, honesty, integrity and the manner in which companies conduct their
affairs. Companies must make a profit in order to survive and grow, however, the pursuit of
profits must stay within ethical bounds. Companies should adopt policies that include
environmental protection, whistle blowing, ethical training programs and so on. Such
compliance mechanisms help develop and build corporate image and reputation, gain loyalty
and trust from consumers and heightens commitment to employees. Ethical compliance
mechanisms contribute to 21 stability and growth since it instills confidence; management,
leadership, and administration are essentially ethical tasks. The focus of the virtues in
governance is to establish a series of practical responses which depend on the consistent
application of core values and principles as well as commitment to ethical business practice.
Virtues are powerful means to personal betterment and bring about social reform Because of its
strong appeal to reason, it diffuses passion, prejudice, pride and self-interest and is a civilizing
force in bringing about justice.





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CASE STUDY
Satyam scam has been the greatest scam in the history of corporate world of the India. Satyam is
the fourth largest IT Company in India. The CEO of the company Ramlinga Raju has made a
scam of around $2 billion. There has been a lot of controversy regarding the misuse of the post
by the CEO of the company. The fake number of jobs which was shown by the CEO was an
abuse of power and it was a clear violation of the prevailing laws in India. This gives the
impression that in India the power and position is what matters and the people in the top position
make a clear violation of the rights provided to them. This scam has seriously affected the
corporate bodies in India. The role of an incorporated company is to satisfy desires of investors,
and to channelize their investment. But most of the time entrepreneurs play with money of the
investors. There are laws to safeguards investors interest but the Satyam scam has raised the
question on the fundamental role of the government and corporate governance. On 16th
December, 2008 Satyam board got the approval for acquisition of Maytas Infrastructure and
Maytas Properties (companies owned by his relatives). However the company couldnot go on
with the investment plan due to resistance by the investors. Between 25th and 28th December,
2008, 3 independent directors of Satyam board resigned and later on Mr. Raju confessed to fraud
in the form of misappropriation in the balance sheet of the company. The main objective of the
paper is to analyze relevance of corporate law in contemporary world and whether it is a time to
revisit corporate governance. Further our research will throw light on liabilities of Mr. Raju as a
promoter and a director, whether Memorandum of Association and Article of Association
authorized the Satyam to purchase an infrastructure company. The liabilities of Auditor and
Bankers for facilitating Mr. Raju. Whether the role of independent directors of Satyam was
justified. An effort will also be made to analyse the Satyam case in the context of other
developed countries law. We will impress upon that to help independent directors and to improve
corporate governance, an independent body could be set up, which would be engaged in
continuous training and certification and upgrading and disseminating corporate governance best
practices. More powers should be vested in Securities Exchange Board of India and it may be
converted into commission like U.S.A.
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REFERENCE
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lead-ethics
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