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Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
Corporate governance
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Corporate governance
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Corporate governance

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  • vel of debt, which appears to be more effective from the perspective of the capital structure. The share buyback program and an increase in dividend payout was among the ways the company employs in returning the surplus funds to the shareholders. This is one way of creating a favorable image and perception among the investors who will be consequently be triggered to invest more in the company. Apparently, the company has been effective in this endeavor. However, the company has continued to retain a reasonable mix of equity and debt in the capital structure. What is more, the company has endeavored to present a constant dividend policy. Further, they envision a gradual increase in their payout dividend by steadily increasing dividend per share alongside the adjusted earnings per each share. The group’s shares are also sold in the open market over a given timeframe rather than being sold at once. Moreover, shares are could only be obtained in a close period if instructions were provided to the broker before the commencement. 4. The group endears to seek deals that create value, as well as those that meets their strict criteria in acquisition. The buyback program could be stopped and started at any given time to give chance acquisitions, which they find suitable for the business. In general perspective, the company pays special dividend when it wants to pay back the supply funds in a single installment. For example, the management may opt to dispose of some part of the business. Since the company generates surplus funds in a given timeframe, it does not make special dividend. In addition, the management has the flexibility of deciding on a regular basis if they need to acquire shares, as well as the price to be paid on the open market. When the management feels that the price is too high, then the company is not obligated to buy the shares. Business and Financial Risks Similar to other business entities, Imperial Tobacco group also faces a number of risks. A good example is the change in economic conditions. These include interest rates, currency, taxation changes, issues in cyber security and the failing in the IT infrastructure. Other issues the company has to grapple with is the cost of supplies and other raw materials, the high rate of competition and political instability in some markets where the company operates or derives their raw material. The impact of natural disasters can also not be left aside. Imperial Tobacco faces a number of business and financial risks. These include but not limited to social risks, environmental risk and financial risks. It should be considered that the tobacco industry has been negatively affected by trafficking and the illegal circulation of tobacco products including cigarettes. Anti smoking campaigns including those initiated by the health authorities and other police makers have negatively affected the tobacco industry by discouraging clients in engaging in this behavior. Moreover, tobacco advising has been highly restrictive. Furthermore, anti tobacco advertisements have made people to develop an attitude that smoking is not only unpleasant but unhealthy behavior. As if this is not enough, there has been an increased prohibition of smoking in public places and as such , many people have been discouraging from smoking since they find it hard to locate a “smoking zone”. The company management have also acknowledge the present level of uncertainty that is experienced in the financial markets. There is also this problem of counterfeit in some markets such as Nigeria. In particular, some people have become very good at replicating to the company’s products to the extent that customers are unable to differentiate between genuine and illegal products. This has a negative impact on the sale of the company products. Rogue importers such as Rizler papers, which are fake, had been increasingly targeting various markets as Senegal. There are also other counterfeit products and booklets, which has its origin in China and are usually priced lower than Imperial products. Such products have become widely available in major cities and towns, thus saturating Imperials market with fake products. This hampers the general performance and profitability of the company. The effects of illicit trade have hugely affected the tobacco sector. The sale of “illicit whites” and counterfeit products in the market provides direct competition in regard to domestic products that are duty paid, duty free products. Moreover,
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  • 1. Chapter 1<br />Research methodology<br />1) Introduction:<br />Corporate governance:<br />Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled.<br />Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.<br />The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.<br />An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. <br />It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.<br />Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.<br />Issues involving corporate governance principles include:<br />Internal controls and internal auditors <br />The independence of the entity's external auditors and the quality of their audits<br />Oversight of the preparation of the entity's financial statements <br />Review of the compensation arrangements for the chief executive officer and other senior executives<br />2) Objective of the Research:<br /><ul><li>To analyze corporate governance practice of BSE-30 companies for last five years with reference of mandatory disclosure described by SEBI for Indian companies.
  • 2. To find out importance of corporate governance in Indian companies from the view point of the Company Secretary.
  • 3. 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. </li></ul>The research comprise of three domains:<br />3) Research methodology:<br /><ul><li>Population:
  • 4. Primary research: Investors invest in stock market, Company secretary
  • 5. Secondary research: The population of our research is companies listed under the companies act, 1956.
  • 6. Sample size:
  • 7. Primary analysis: 20 investors who are the fundamental analysts
  • 8. 10 company secretary
  • 9. Secondary analysis: BSE-30 companies.
  • 10. Sampling Method: Convenience Sampling
  • 11. .</li></ul>4) Data Sources:<br />Primary Data:<br />Questionnaire for investors<br />Questionnaire for company secretary<br />Secondary Data:<br />Annual Report of Companies<br />Details of Companies from their respective websites<br />Business Articles<br />Business Magazines<br />Library Research<br />Internet Surfing<br />Chapter 2<br />Introduction of Corporate Governance<br /> 1. Introduction to corporate governance<br />The need for corporate governance is not something typical to our country or economy. Even in the countries where regulatory mechanisms are more demanding in their content and more vigilant in their implementation, flagrant violations under the veil of corporate impenetrability have generated a strident demand for better governance. The advent of the information age has created an awakened shareholder, vigilant public and an almost predatory journalistic fervour. Depending upon the model of corporate disclosure followed by different legal frameworks, the right to information has forced corporate to divulge more than they ever did.<br />The following definition should help us to understand the concept better: “Corporate Governance is not just corporate management; it is something much broader to include a fair efficient and transparent administration to meet certain well defined objectives. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors employees customers and suppliers, and comply with the legal and regulatory requirements, apart from meeting environmental and local community needs. When it is practiced under a well laid out system, it leads to building of a legal, commercial and institutional framework and democrats the boundaries within which these functions are performed.<br /><ul><li>Why Corporate Governance?</li></ul>In the beginning of the new millennium, several companies in the USA and elsewhere faced collapse because of corporate misgovernance and unethical practices they indulged in. the then existing regulatory framework seemed to be inadequate to deal with the gigantic business conglomerates that committed deliberate frauds.<br />In the year 2000, several American mega corporations collapsed like a pack of cards. The federal administration of President Bush was quick to slap punitive measures on erring corporations and initiated preventive steps to avoid corporate frauds in future. The Sarbanes-Oxley Act made it mandatory for senior executives to certify reports under oath with the pain of severe penalties if proved wrong.<br />In India, the governance of most of the country’s industrial and business organizations thrived on unethical practices at the market place and showed scant regard for the timeless human and organizational values while dealing with their shareholders, employees and other stakeholders.<br />An overwhelmingly large number of Indian corporations used several illegal tactics such as cornering of industrial licenses with a view to keeping away competitors, using import licenses to make a quick profit, illegally holding money aboard, and indulging into bribery, corruption and other unethical practices with impunity.<br />The reasons for the corporate misgovernance in India were many: A closed economy, a sheltered market, limited need and access to global business, lack of competitive spirit and an inefficient regulatory framework. These were responsible for poor governance of companies in India for well over 40 years, between 1951 and 1991.<br />What is “good” Corporate Governance?<br />Bad governance is being recognized now as one of the root causes of corrupt practices in our societies. Major donors, institutional investors and international financial institutions provide their aid and loans in condition that reforms that ensure “good governance” are put in place by the recipient nations. As with nations, corporations too are expected to provide good governance to benefit all their stakeholders. At the same time, good corporate are not born, but are made by the combined efforts of al stakeholders, which include shareholders, board of directors, employees, customers, dealers, government and the society at large. Law and regulation alone cannot bring about changes in corporate to behave better to benefit all concerned. Directors and management, as goaded by stakeholders and inspired by societal values, have a very important role to play. The company and its officers, who, inter alia, include the board of directors and the officials, especially the senior management, should strictly follow a code of conduct.<br />2. The theory and practice of corporate governance<br />Theoretical basis of Corporate Governance<br />There are four broad theories to explain and elucidate corporate governance. These are:<br />Agency theory<br />Stewardship theory<br />Stakeholder theory<br />Sociological theory<br />Agency theory:<br />Recent thinking about strategic management and business policy has been influenced by agency cost theory, though the roots of the theory can be traced back to Adam Smith who identified an agency problem in the joint stock company. The fundamental theoretical basis of corporate governance is agency costs. Shareholders are the owners of any joint stock, limited liability Company, and are the principals of the same. By virtue of their ownership, the principals define the objectives of the company. The management, directly or indirectly selected by the shareholders to pursue such objectives, are the agents. While the principals generally assume that the agents would invariably carry out their objectives, it is often not so. In many instances, the objectives of managers are at variance from those of the shareholders. Such mismatch of objectives is called the agency problem; the cost inflicted by such dissonance is the agency cost. The core of corporate governance is designing and putting in place disclosures, monitoring, oversight and corrective systems that can align the objectives of the two sets of players as closely as possible and hence minimize agency costs.<br />Problems with agency theory: <br />Total control of management is neither feasible nor required under this theory. The underlying assumption in the trade-off that shareholders make on employing agents is that they must accept a certain level of self-interested behaviours in delegating responsibility to others. The objective of agency theory is to check the abuse in this trade-off, but its limited success raises the question of its utility as a theoretical model to promote corporate governance. Besides in agency theory the assumption is with the complexities of investor-board relationship in large organizations, shareholders should have correct and adequate information to wield effective control. Equity investors rarely get these and besides they rarely make clear their exact target returns, and yet delegate authority to meet the target. It is also to be understood that in terms of controls, equity investors hardly have sanctions over boards. Instead they have to rely on self-regulation to ensure that an orderly house is maintained.<br />There are two broad mechanisms that help reduce agency costs and hence improve corporate performance through better governance: (1) fair and accurate financial disclosures, and (2) efficient and independent board of directors.<br />Stewardship theory:<br />The stewardship theory of corporate governance discounts the possible conflicts between corporate management and owners and shows a preference for board of directors made u primarily of corporate insiders. This theory assumes that managers are basically trustworthy and attach significant value to their own personal reputations. The market for managers with strong personal reputations serves as the primary mechanism to control behaviour, with more reputable managers being offered higher compensation packages. <br />Stewardship theory can be reduced to the following basics:<br />The theory defines situation in which managers are not motivated by individual goals, but rather they are stewards whose motives are aligned with the objectives of their principles.<br />Given a choice between self-serving behaviour and pro-organizational behaviour, a steward’s behaviour will not depart from the interests of his organization.<br />Control can be potentially counterproductive, because it undermines the pro-organizational behaviour of the steward, by lowering his motivation.<br />The greatest barrier to the adoption of stewardship mechanism of governance lies in the risk propensity of principals. Risk taking owners will assume that executives are pro-organizations and favour stewardship governance mechanisms. Where executives, investors cannot afford to extend board power, agency costs are effective insurance against the self-interest behaviours of agents. <br />Stakeholder theory:<br />The stakeholder theory is grounded in many normative, theoretical perspectives including ethics of care, the ethics of fiduciary relationships, social contract theory, theory of property rights, and so on. While it is possible to develop stakeholder analysis from a variety of theoretical perspectives, in practice much of stakeholder analysis does not firmly or explicitly root itself in a given theoretical tradition, but rather operates at the level of individual principles and norms for which it provides little formal justification. Stakeholder theory is often criticized, mainly because it is not applicable in practice by corporations<br />Sociological theory:<br />The sociological approach has focused mostly on board composition and implications for power and wealth distribution in the society. Under this theory, board composition, financial reporting, and disclosure and auditing are of utmost importance to realize the socio-economic objectives of corporations.<br />Corporate Governance system:<br />The role of the management is to run the enterprise while the role of the board is to see that it is being run well and in the right direction. Corporate governance systems vary around the world. Scholars tend to suggest three broad versions:<br />The Anglo-American model<br />The German model<br />The Japanese model<br />The Anglo-American model<br />This is also known as unitary board model, in which all directors participate in a single board comprising both executive and non-executive directors in varying proportions. This approach to governance tends to be shareholder oriented. It is also called the ‘Anglo-Saxon’ approach to corporate governance being the basis of corporate governance in America, Britain, Canada, Australia and other Commonwealth law countries including India.<br />The major features of this model are as follows:<br />The ownership of companies is more or less equally divided between individual shareholders and institutional shareholders.<br />Directors are rarely independent of management.<br />Companies are typically run by professional managers who have negligible ownership stake. There is a fairly clear separation of ownership and management. <br />Most institutional investors are reluctant activists. They view themselves as portfolio investors interested in investing in a broadly diversified portfolio of liquid securities. If they are not satisfied with a company’s performance, they simply sell the securities in the market and quit.<br />The disclosure norms are comprehensive, the rules against insider trading tight, and the penalties for price manipulations stiff, all of which provide adequate protection to the small investors and promote general market liquidity. They also discourage large investors from taking an active role in corporate governance.<br />German model<br />Corporate governance in the German model is exercised through two boards, in which the upper board supervises the executive board on behalf of stakeholders and is typically societal oriented. In this model, although shareholders own the company, they do not entirely dictate the governance mechanism. They elect 50 percent of members of supervisory board and the other half is appointed by labour unions, ensuring that employees and labourers also enjoy a share in governance. The supervisory board appoints and monitors the management board.<br />The Japanese model<br />This is the business network model, which reflects the cultural relationships seen in the Japanese keiretsu network, in which boards tend to be large, predominantly executive and often ritualistic. The reality of power in the enterprise lies in the relationships between top management in the companies in the keiretsu network. In this model the financial institution has accrual role in governance. The shareholders and the main bank together appoint board of directors and the president.<br />The distinctive features of the Japanese corporate governance mechanisms are as follows:<br />The president who consults both the supervisory board and the executive management is included.<br />Importance of the lending bank is highlighted.<br />Indian model of governance<br />Indian corporate is governed by the Company’s Act 1956 which follows more or less the UK model. The pattern of private companies is mostly that of closely held or dominated by a founder, his family and associates. India has adopted the key tenets of Anglo-American external and internal control mechanisms after economic liberalization.<br />Obligation to society at large<br />A corporation is a creation of law as an association of persons forming part of a society in which it operates. Its activities are bound to impact the society as the society’s value would have an impact on the corporation. Therefore, they have mutual rights and obligations to discharge for the benefit of each other.<br />National interest: A company (and its management) should ne committed in all its actions to benefit the economic development of the countries in which it operates and should not engage in any activity that would militate against such an objective.<br />Political non-alignment: A company should be committed to and support a functioning democratic constitution and system with a transparent and fair electoral system and should not support directly or indirectly any specific political party or candidate for political office.<br />Legal compliances: The management of a company should comply with all applicable government laws, rules and regulations. Legal compliance will also mean that corporations should abide by the tax laws of the nations in which they operate and these should be paid on time and as per the required amount.<br />Rule of law: Good governance requires fair, legal frameworks that are enforced impartially. It also requires full protection of rights, particularly those of minority shareholders. Impartial enforcement of laws requires an independent judiciary and regulatory authorities.<br />Honest and ethical conduct: Every officer of the company including its directors, executives and non executive directors, managing director, CEO, CFO and CCO should deal on behalf of the company with professionalism, honesty, commitment and sincerity as well as high moral and ethical standards.<br />Corporate citizenship: A corporate should be committed to be a good corporate citizen not only in compliance with all relevant laws and regulations but also by actively assisting in the improvement of the quality of life of the people in the communities in which it operates with the objective of making them self reliant and enjoy a better quality of life.<br />Ethical behaviour: Corporations have a responsibility to set exemplary standards of ethical behaviour, both internally within the organizations, as well as in their external relationships.<br />Social concern: The Company should have concerns towards the society. It can help the needy people & show its concern by not polluting the water, air & land. The waste disposal should not affect any human or other living creatures.<br />Healthy and safe working environment: A company should be able to provide a safe and healthy working environment and comply with the conduct of its business affairs with all regulations regarding the preservations of environment of the territory it operates in.<br />Competition: A company should market its products & services on its own merits & should not resort to unethical advertisements or include unfair & misleading pronouncements on competitors’ products & services.<br />Timely responsiveness: Good governance requires that institutions & processes try to serve all stakeholders within a reasonable time frame.<br />Corporations should uphold the fair name of the country.<br />Obligation to investors<br />The investors as shareholders and providers of capital are of paramount importance to a corporation. A company has following obligations to investors:<br />Towards shareholders: A company should be committed to enhance shareholder value and comply with all regulations and laws that govern shareholders rights. The boa5rd of directors of the company shall and fairly inform its shareholders about all relevant aspects of the company’s business and disclose such information in accordance with the respective regulations and agreements. Every employee shall strive for the implementation of and compliance with this in his professional environment. Failure to adhere to the code could attract the most severe consequences including termination of employment or directorship as the case may be.<br />Measures promoting transparency and informed shareholder participation: A related issue of equal importance is the need to bring about greater levels of informed attendance and meaningful participation by shareholders in matters relating to their companies without such freedom being abused to interfere with management decision. An ideal corporate should address this issue and relate it to more meaningful and transparent accounting and reporting.<br />Transparency means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media.<br />Financial reporting and records: A company should prepare and maintain accounts of its business affairs fairly and accurately in accordance with the financial and accounting reporting standards, laws and regulations of the country in which it conducts the business affairs.<br />Wilful material misrepresentation of and/or misinformation on the financial accounts and reports shall be regarded as the violation of the firm’s ethical conduct and also will invite appropriate civil or criminal action under the relevant laws.<br />Obligation to employees<br />In the context of enhanced awareness of better governance practices, managements should realize that they have their obligations towards their workers too.<br />Fair employment practices: An ideal corporate should provide equal access and fair treatment to all employees on the basis of merit; the success of the company will be improved while enhancing the progress of individuals and companies. The applicable labour and employment laws should be followed wherever it operates.<br />Equal opportunities: A company should provide equal opportunity to all its employees and all qualified applicants for employment without regard to their race, caste, religion, colour, marital status, sex, age, nationality and disability.<br />Humane treatment: Companies should treat employees as their first customers and above all as human. They have to meet the basic needs of all employees in the organization. There should be a friendly, healthy and competitive environment for the workers to prove their ability.<br />Participation: Participation of both men and women is a key cornerstone of corporate governance. Participation could be either direct or through representatives. It needs to be informed and organized. This means freedom of association and expression on one hand and an organized civil society on the other.<br />Empowerment: Empowerment unleashes creativity and innovation throughout the organization by truly vesting decision making powers at the most appropriate levels in the organizational hierarchy.<br />Equity and inclusiveness: A corporation is a miniature of a society whose well being depends on ensuring that all its employees feel that they have a stake in it and do not feel excluded from the main stream. This requires all groups, particularly the most vulnerable, have opportunities to improve or maintain their well being.<br />Participative and collaborative environment: There should not be any form of human exploitation in the company. There should be equal opportunities for all levels of management in any decision-making. The management should cultivate the culture where employees should feel they are secure and are being well taken care of. Collaborative environment would bring peace and harmony between the working community and the management, which in turn, brings higher productivity, higher profits and higher market share.<br />Obligation to customers<br />A company’s existence cannot be justified without its catering to he needs of its customers. The companies have an obligation to its employees, without whose assistance they cannot realize their objectives.<br />Quality of products and services: The Company should be committed to supply goods and services of the highest quality standards, backed by efficient after sales service consistent with the requirements of the customers to ensure their total satisfaction. The quality standards of company’s goods and services should meet not only the required national standards but also should endeavour to achieve international standards.<br />Products at affordable prices: Companies should ensure that they make available to their customers quality goods at affordable prices while making normal profit is justifiable, profiteering and fattening on the miseries of the poor consumers is unacceptable. Companies must constantly endeavour to update their expertise, technology and skills of manpower to cut down costs and pass on such benefits to customers. They should not create a scare in the midst of scarcity or by themselves create an artificial scarcity to make undue profits.<br />Unwavering commitment to customer satisfaction: Companies should be fully committed to satisfy their customers and earn their goodwill to stay long in the business. They should encourage the warranties and guarantees given on their products and in case of harmful or sub-standard products should replace them with good ones.<br />Managerial obligations<br />Protecting company’s assets: The assets of the company should not be dissipated or misused but invested for the purpose of conducting the business for which they are duly authorized. These include tangible as well as intangible assets.<br />Behaviour toward government agencies: A company’s employees should not offer or give any of the firm’s funds or property as donation to any government agencies or their representatives directly or through intermediaries in order to obtain any favourable performance of official duties.<br />Control: control is a necessary principal of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. Control should prevent misuse of power, facilitate timely management response to change and ensure that business risks are pre-emptively and effectively managed.<br />Consensus oriented: Good governance requires mediation of the different interests in society to reach a broad consensus on what is in the best interest of the whole community and how this can be achieved.<br />Gifts and donations: The Company’s employees should neither receive nor make directly or indirectly any illegal payments, remuneration, gifts, donations or comparable benefits which are intended to or perceived to obtain business or uncompetitive favours for the conduct of its business.<br />3. Landmarks in emergence of corporate governance<br />OECD Principles<br />The Organization for Economic Co-operation and Development (OECD) was one of the earliest non-governmental organizations to work on and spell out principles and practices that should govern corporate in their goal to attain long-term shareholder value. The OECD Principles were oft-quoted and have won universal acclaim, especially of the authorities on the subject of corporate governance. Because of the ubiquitous approval, the OECD Principles are as much trendsetters as the Codes of Best Practices associated to the Cadbury Report. A useful first step in creating or reforming the corporate governance system is to look at the principles laid out by the OECD and adopted by its member governments. They include the following elements:<br /><ul><li>The rights of shareholders: The rights of shareholders include a set of rights to secure ownership of their shares, the right to full disclosure of information, voting rights, participation in decisions on sales or modification of corporate assets, merger and new share issues. The guidelines go on to specify a host of other issues connected to the basic concern of protecting the value of the corporation.
  • 12. Equitable treatment of shareholders: The OECD is concerned with protecting minority shareholders’ rights by setting up systems that keep insiders, including managers and directors, from taking advantage of their roles. Insider trading, for example, is explicitly prohibited and directors should disclose any material interest regarding transactions.
  • 13. The role of stakeholders in corporate governance: the OECD recognizes that there are other stakeholders in companies’ ion addition to shareholders. Banks, bondholders and workers, for example, are important stakeholders in the way in which companies perform and make decision. The OECD guidelines lay out several general provisions for protecting stake holder’s interests.
  • 14. Disclosure and transparency; The OECD lays down a number of provisions for the disclosure and communication of key facts about the company ranging from financial details to governance structures including the board of directors and their remuneration. The guidelines also specify that independent auditors in accordance with high quality standards should perform annual audits.
  • 15. The responsibilities of the board: The OECD guideline provides a great deal of details about the functions of the board in protecting the company and its shareholders. These include concerns about corporate strategy, risk, executive compensation and performance as well as accounting and reporting systems.</li></ul>The OECD guidelines are somewhat general, however, there is growing pressure to put more enforcement mechanisms into those guidelines. The challenge will be to do this in a way consistent with market oriented procedures by creating self enforcing procedures that do not impose large new costs on firms. The following are some ways to introduce more explicit standards:<br />Countries should be required to establish independent share registries. All too often, newly privatized or partially privatized firms dilute stock or simply fail to register shares purchased through foreign direct investment.<br />Standards for transparency and reporting of the sales of underlying assets need to be spelled out along with enforcement mechanisms and procedures by which investors can seek to recover damages.<br />The discussion of stakeholder participation in the OECD guidelines needs to be balanced by discussion of conflict of interest and insider trading issues. Standards or guidelines are needed in both areas.<br />Property rights and their protection.<br />Internationally accepted accounting standards should be explicitly required and national standards should be brought into alignment with international standards.<br />Internal company audit functions and the inclusion of outside directors on audit committees need to be made explicit. The best practice would be to require that only outside, independent directors be allowed to serve on audit committees.<br />SEBI Guidelines<br />All companies are required to submit a quarterly compliance report to the stock exchanges within 15 days from the end of a financial reporting quarter. The report has to be submitted either by the Compliance Officer or by the Chief Executive Officer of the company after obtaining due approvals. SEBI has prescribed a format in which the information shall be obtained by the Stock Exchanges from the companies. The companies have to submit compliance status on eight sub-clauses namely:<br />Board of Directors;<br />Audit Committee;<br />Shareholders / Investors Grievance Committee;<br />Remuneration of directors;<br />Board procedures;<br />Management;<br />Shareholders; and<br />Report on Corporate Governance.<br />Stock exchanges are required to set up a separate monitoring cell with identified personnel, to monitor compliance with the provisions of the recommendations. Stock exchanges are also required to submit a quarterly compliance report from the companies as per the Schedule of Implementation. The stock exchanges are required to submit a consolidated compliance report within 30 days of the end of the quarter to SEBI.<br />4. Rights and privileges of shareholders<br />Rights of shareholders<br />The members of the company enjoy various rights in relation to the company. These rights are conferred on the members of the company either by the Indian Companies Act 1956 or by the Memorandum and articles of Association of the company or by the general law, especially those relating to contracts under the Indian Contract Act, 1872.<br />Some of the more important rights of the shareholders as stressed by these acts are the following:<br />He has the right to obtain copies of the Memorandum of Association, Article of Association and certain resolutions and agreements on request, on payment of prescribed fees.<br />He has the right to have the certificate of shares held by him within 3 months of the allotment.<br />He has the right to transfer his share or other interests in the company subject to the manner provided by the articles of the company.<br />He has a right to appeal to the Company Law Board if the company refuses or fails to register the transfer of shares.<br />He has the right to apply to the Company Law Board for the rectification of the register of members.<br />He has the right to apply to the court to have any variation or abrogation to his rights set aside by the court.<br />He has a right to inspect the register and the index of members, annual returns, register of charges and register of investments not held by the company in its own name without any charge.<br />He is entitled to receive notices of general meetings and to attend such meetings and vote either in person or by proxy.<br />He is entitled to receive a copy of the statutory report.<br />He is entitled to receive copies of the annual report of directors, annual accounts and auditors’ report.<br />He has the right to participate in the appointment of auditors and the election of directors at the annual general meeting of the company.<br />He has the rights to make an application to Company Law board for calling annual general meeting, if the company fails to call such a meeting within the prescribed time limits.<br />He is entitled to obtain and inspect the copies of minutes of proceedings of general meetings.<br />He has the right to participate in the declaration of dividends and receive his dividends duly.<br />He has a right to demand poll.<br />He has a right to apply for investigation of the affairs of the company.<br />He has a right to remove the director before the expiry of the term of his office.<br />He has a right to make an application to company Law Board for relief in case of oppression and mismanagement.<br />He can make a petition to the High Court for the winding up of the company under certain circumstances.<br />Guidelines for investors/shareholders<br />The Securities and Exchange Board of India (SEBI), the Indian capital market regulator in its guidelines to investors/shareholders, titled “Quick reference Guide for Investors” published recently makes it known that a shareholder of a company enjoys the following rights:<br />Rights of shareholder, as an individual:<br />To receive the share certificates on allotment or transfer, as the case may be, in due time.<br />To receive copies of abridged annual report, the balance sheet and the Profit & Loss account and the auditors’ report.<br />To participate and vote in general meetings either personally or through proxies.<br />To receive dividends in due time once approved in general meeting.<br />To receive corporate benefits such as rights, bonus etc. once approved.<br />To apply to Company Law board (CLB) to call or direct the convening the annual general meeting.<br />To inspect the minute books of the general meetings and to receive copies thereof.<br />To proceed against the company by way of civil or criminal proceedings.<br />To apply for the winding up of the company.<br />To demand a poll on any resolution.<br />To requisition and extraordinary general meeting.<br />Rights of a Debenture holder:<br />To receive interest/redemption in due time.<br />To receive a copy of the trust deed on request.<br />To apply for winding up of the company if the company fails to pay its debts.<br />To approach the debenture trustee with the debenture holder’s grievance.<br /> Shareholder’s responsibilities:<br />While a shareholder may be happy to note that one has so many rights as a stakeholder in the company, it should not lead one to complacency because one also has certain responsibilities to discharge, such as<br />To remain informed<br />To be vigilant<br />To participate and vote in general meetings<br />To exercise one’s rights on one’s own or as a group<br />5. Corporate governance and other stakeholders<br />Corporate governance and employees<br />An organization needs capital and labour to create wealth. Earlier, the most important need for an organization to be a success was capital. But today the growing recognition that human capital is a source of competitive advantage has led to the understanding that labour is more important than capital. The interest of the employees can be protected through the following:<br />Trade unions: Trade unions alone can represent the collective interests of employees and fight for what is rightly due to them from the organization. They could use this as a platform to negotiate agreements between the organization and labour.<br />Co-determination: It a situation where there is employee representation on the board of directors of the organization. <br />Profit sharing: Profit sharing motivates the individual worker to put in his best as his efforts are directly related to the profits of the organization, in which he gets a share. Profit sharing could be done in many ways, such as <br />cash based sharing of annual profits where the annual cash profits of the organization are shared among the employees,<br />Deferred profit sharing where the deferred profits of the organization are shared among the employees. <br />The objective of such profit sharing is to encourage employee involvement in the organization and improve their motivation and distribution of wealth among all the factors of production.<br />Equity sharing: Under equity sharing, employees are given an option to buy the companies shares, identify themselves with, and thus become the owners of the organization. There are various way sin which equity sharing could be done: employees share <br />Ownership plans, 2) stock bonus plans, 3) stock option plans, 4) employee buyout, and 5) worker cooperatives. <br />Team production solution: Team production solution is a situation where the boards of directors must balance competing interests of various stakeholders and then arrive at decisions that are in the best interest of the organization.<br />Corporate Governance and Customers<br />On 15th March 1962, President John F. Kennedy declared four rights of consumers- the right to satisfaction of basic needs, the right to safety, the right to be informed, and the right to choose. In 1983, the United Nations recommended that world governments develop, strengthen and implement a coherent consumer protection policy. In India, the Consumer Protection Act 1986 was passed and the country embarked on strengthening the consumer protection regime.<br />The explosion of interest in consumer matters is a very recent phenomenon. The reason is twofold- a combination of new business methods and changing attitudes. The all pervasive exaggerated and often false claims, made for services and goods, emphasize the imperative need for Consumer Protection Legislation and creation of awareness about it among the general public.<br />The rights of the consumer are as follows:<br />The right to safety: The rights to be protected against the marketing of goods and services which are hazardous to life and property.<br />The right to be informed: The consumer has the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services so as to protect them against unfair trade practices.<br />The right to choose: The right to be assured, wherever possible, access to variety of goods and services at competitive prices.<br />The right to be heard: The right to be assured that consumer’s interests will receive due consideration at appropriate forums.<br />The right to seek redressed: the right against unfair trade practices or restrictive trade practices or unscrupulous exploitation of consumers.<br />Corporate Governance and Institutional Investors<br />Most of the reports on corporate governance have emphasized the role which institutional investors play in corporate governance. In India, there are broadly four types of institutional investors:<br />The financial institutions, such as IFCI, ICICI, IDBI, the State Financial Corporation, etc.<br />Insurance companies such as LIC, GIC, and their subsidiaries.<br />All banks<br />All Mutual funds (MF) including UTI.<br />While an investor decision is under consideration, the key factors to be taken into consideration are<br />Financial results and solvency: This is the most important factor among the factors such as an upward trend in earnings per share and profits, a healthy cash flow and a reasonable level of dividend payment. All these are considered major indicators of a company’s financial health and are indicated in the financial results. However, a consistent dividend policy is less significant.<br />Financial statements and annual reports: There are two important aspects under this head.<br />Extent of disclosure: The quality of the financial statements is the next most influential factor when it comes to investment decisions. Institutional investors consider the level of disclosure of the company’s strategies, initiatives and quality of management’s discussion and analysis of the year’s results. Financial position in the annual report is equally important. This is a strong indication of the investing public’s emphasis and preference for clear disclosures in a company’s annual report, in excess of regulatory requirements.<br />Comparability with international GAAP: a significant5 proportion of institutional investors do not invest in a company if the financial statements are non-comparable to International Generally Accepted Accounting Principles. Implicitly, this could mean that comparability of financial statements of companies with International GAAP is important in the eyes of the investor.<br />Investor communications: Institutional investors value the willingness of companies to provide additional information to investors, analysts and other commentators, their prompt release of information about transactions affecting minority shareholders and the existence of other transparency mechanisms that help ensure fair treatment to all shareholders.<br />Composition and quality of the board: The most important aspect within this factor is the quality and experience of the executive directors on the board. In contrast, investors would consider investing even though they are dissatisfied with the quality, qualification and experience of independent non-executive directors and their role in board meetings. In addition, many investors are not too concerned if there are insufficient independent non-executive directors on the board.<br />Corporate governance practices: Investors consider corporate governance practices when they make investment decisions. The company should follow the principles for corporate governance being- auditing and compliance, disclosure and transparency and board processes.<br />Corporate image: The image of the company in the community is also considered when an institutional investor is called on to take an investment decision. The image of the organization should not be bad.<br />Share price: This is the last factor that is considered by an institutional investor when an investment decision is made. If the shares of the company enjoy continuously rising prices in the bourses, investors could be encouraged to invest in them. <br />Corporate governance and Creditors<br />Banks and other creditors have an extremely important role to play in fostering efficiency in medium and large private firms. Creditors, in turn, rely for their survival on debt repayment by their borrowers. Without dependable debt collection, no amount of supervision or competition can make banks run efficiently. Strong creditors are as critical to the efficient functioning of enterprises as are strong owners.<br />Creditor monitoring and control <br />There are three crucial elements in creditor monitoring and control in market economies:<br />Adequate information: Lenders need information on the creditworthiness or otherwise of potential borrowers, and depositors and bank supervisors need information on bank portfolios.<br />Creditor incentives: The second requirement for debt to serve a control function is the existence of appropriate market based incentives for creditors, be they banks, trade creditors or government. These incentives may be in the form of higher margin of profit, high interest charges from customers and sometimes even reduction in the quantum of Non-Performing Assets.<br />Debt collection: without an effective system of debt collection, debtors lose repayment discipline, the flow of credit is constrained, and creditors may be forced to come to the state to cover their losses if they are to survive. Well designed and implemented rules facilitate rapid and low cost debt recovery in cases of default, thereby lowering the risk of lending and increasing the availability of credit to potential borrowers. Poorly designed and implemented rules make lending more costly and stifle the flow of credit.<br />Corporate governance and the Government<br />The government plays the key role in corporate governance by defining the legal environment and sometimes by directly influencing managerial decisions. Beyond defining the rules of the game, the government may directly influence corporate governance. At one extreme, the government owns the firm, so that the government is charged with monitoring managerial decisions and limiting the ability of managers to maximize private benefits at the cost of society.<br /> 6. Corporate governance: The Indian scenario<br />In India the real history of corporate governance dates back to the year 1992, following efforts made in many countries of the world to put in place a system suggested by the Cadbury Committee. The Confederation of Indian Industry framed a voluntary code of corporate governance for listed companies in 1998. This was followed by the recommendations of the Kumar Mangalam Birla Committee set up in 1999 by SEBI culminating in the introduction of Clause 49 of the standard Listing Agreement to be complied with all the listed companies in stipulated phases. The Kumar Mangalam Birla committee divided its recommendations into mandatory and non-mandatory. Mandatory recommendations included such issues as the composition of board, appointment and structure of audit committees, remuneration of directors, board procedures, and additional information regarding management, discussion and analysis as a part of annual report. Its non-mandatory recommendations included issues concerning the chairman of the board, setting up of remuneration committee, half yearly information to shareholders and appointment of nominee directors.<br /><ul><li>Efforts to initiate corporate governance in country
  • 16. The Companies Amendment Act, 2000</li></ul>Many provisions relating to corporate governance such as additional ground of disqualification of directors in certain cases, setting up of audit committees, directors’ responsibility statement in directors’ reports, etc. were introduced by the Companies (Amendment) Act, 2000. Corporate governance was also introspected in 2001 by the advisory group constituted by the standing committee of International Finance Standards and Codes of the Reserve Bank of India under chairmanship of Dr. Y.V. Reddy, the then deputy governor.<br /><ul><li>Naresh Chandra Committee, 2002</li></ul>In the year 2002, the committee was asked to examine various corporate governance issues and to recommend changes in diverse areas such as:<br />the statutory auditor company relationship so as to further strengthen the professional nature of the interface<br />the need for rotation of statutory audit firms or partners<br />the procedure for appointment of auditors and determination of audit fees<br />restrictions, if any, on non-audit functions<br />independence of auditing functions<br />the need to consider measures such as certification of accounts and financial statements by managements and directors<br />the necessity of having transparent system of random scrutiny of audited accounts<br />Narayan Murthy Committee, 2003<br />The Company Law Amendment Bill, 2003 envisaged many amendments on the basis of reports of the Naresh Chandra Committee and the subsequently appointed N R Narayan Murthy committee. Both the committees have done an excellent job to promote corporate governance practice in India.<br /><ul><li>Implementation of the recommendations of Birla Committee Report</li></ul>Clause 49<br />Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies.<br />In corporate hierarchy two types of managements are envisaged: i) companies managed by [board of directors]; and ii) those by a [managing director], whole-time director or manager subject to the control and guidance of the board of directors.<br />As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors. In the case of a company with a non-executive Chairman, at least one-third of the board should be independent directors.<br />It would be necessary for chief executives and chief financial officers to establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls, among others.<br />Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock exchange in the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual report with a detailed compliance report.<br />A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding compliance of conditions as stipulated, and annex the same to the director's report.<br />The clause mandates composition of an audit committee; one of the directors is required to be "financially literate". It is mandatory for all listed companies to comply with the clause by December 31, 2005.<br />Corporate Governance may be defined as “A set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders.” It ensures Commitment to values and ethical conduct of business; Transparency in business transactions; Statutory and legal compliance; adequate disclosures and Effective decision-making to achieve corporate objectives. In other words, Corporate Governance is about promoting corporate fairness, transparency and accountability. Good Corporate Governance is simply Good Business.<br />Clause 49 of the SEBI guidelines on Corporate Governance as amended on 29 October, 2004 has made major changes in the definition of independent directors, strengthening the responsibilities of audit committees, improving quality of financial disclosures, including those relating to related party transactions and proceeds from public/ rights/ preferential issues, requiring Boards to adopt formal code of conduct, requiring CEO/CFO certification of financial statements and for improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy and restriction of the term of independent directors have also been included.<br />The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement between a company and the stock exchanges on which it is listed (the Listing Agreement is identical for all Indian stock exchanges, including the NSE and BSE). This clause is a recent addition to the Listing Agreement and was inserted as late as 2000 consequent to the recommendations of the Kumarmangalam Birla Committee on Corporate Governance constituted by the Securities Exchange Board of India (SEBI) in 1999.<br />Clause 49, when it was first added, was intended to introduce some basic corporate governance practices in Indian companies and brought in a number of key changes in governance and disclosures (many of which we take for granted today). It specified the minimum number of independent directors required on the board of a company. The setting up of an Audit committee, and a Shareholders’ Grievance committee, among others, were made mandatory as were the Management’s Discussion and Analysis (MD&A) section and the Report on Corporate Governance in the Annual Report, and disclosures of fees paid to non-executive directors. A limit was placed on the number of committees that a director could serve on.<br />In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of current corporate governance practices and to suggest improvements. Based on the recommendations of this committee, SEBI issued a modified Clause 49 on October 29, 2004 (the ‘revised Clause 49’) which came into operation on January 1, 2006.<br />The revised Clause 49 has suitably pushed forward the original intent of protecting the interests of investors through enhanced governance practices and disclosures. Five broad themes predominate. The independence criteria for directors have been clarified. The roles and responsibilities of the board have been enhanced. The quality and quantity of disclosures have improved. The roles and responsibilities of the audit committee in all matters relating to internal controls and financial reporting have been consolidated, and the accountability of top management—specifically the CEO and CFO—has been enhanced. Within each of these areas, the revised Clause 49 moves further into the realm of global best practices (and sometimes, even beyond.<br />Chapter 3<br />Analysis of Fundamental Analysts<br /><ul><li>Investors prefer to invest in stock market due to:</li></ul>Result:<br />Analysis:<br />From analysis we can say that at 1st rank investors give highest importance to High return. 45% investor selects high return as most preferred criteria for investment.<br />While 35% investors give preference to capital appreciation at 1st rank. And 20% investor gives preference to safety at 1st rank.<br />At 2nd most preferred criteria investors select capital appreciation. 30% investors select capital appreciation at second most preferred criteria.<br />While 25% investors give preference to high return at 2nd rank.15% investors give preference to flexibility and liquidity. 20% investors give preference to safety at 2nd rank. And 5% investors give preference to tax benefit.<br />At 3rd most preferred criteria investors select tax benefit.30% investors select tax benefit at 3rd most preferred criteria.<br />While 25% investors give preference to high return at 3rd rank.15% investors give preference to flexibility and capital appreciation at 3rd rank.10% investors give preference to safety at this rank. Only 5% investor gives preference to diversification at 3rd rank.<br />At 4th most preferred criteria investors select safety.35% investors select safety as 4th most preferred criteria for investment. <br />While 25% investors prefer tax benefit at 4th rank.15% investors select liquidity as 4th most preferred criteria.10% investors select capital appreciation and flexibility at 4th rank. Only 5% investor gives preference to diversification at 4th rank.<br />At 5th most preferred criteria investors select liquidity.35% investors select liquidity at 5th most preferred criteria.<br />30% investors prefer flexibility at 5th rank.15% investors prefer safety at 5th rank.10% investors select diversification at this rank. While 5% investors select high return and tax benefit at 5th rank.<br />At 6th rank 30% investor select diversification.15% investors select flexibility, tax benefit and services at 6th rank.10% investors select safety and liquidity at this rank. And only 5% investors select capital appreciation at 6th rank.<br />At 7th most preferred criteria investors select diversification.40% investors select diversification at 7th rank.<br />20% investors select tax benefit at 7th rank.10% investors select safety, flexibility, liquidity and service at 7th most preferred criteria for investment.<br />At 8th most preferred criteria investors select services.75% investors select services at 8th rank.<br />10%investors select diversification and liquidity at 7th most preferred criteria for investment. And 5% investors select safety at 8th rank.<br /><ul><li>Investors Preference for investment:</li></ul>Analysis:<br />Investors give highest preference for deliveries of shares.75% of investor prefer delivery of shares while investing in stock market.<br />Investors prefer regular trading rather than invest in IPO and Intraday. Only 10% investors prefer IPO and Intraday while investing.<br />And in India market of Future & option is not growing up till today. So, only 5% Investors prefer future & option for trading.<br /><ul><li>Different criteria investors analyse for investment:</li></ul>Analysis:<br /><ul><li>From Analysis we can say that investor gives highest importance for company name before investing in any company.35% investor gives most importance to company name.
  • 17. Than 25% investor gives most importance to industry.15% investor gives most importance to share price fluctuation and market capitalisation.
  • 18. 10% investors give most importance to dividend payout by companies.
  • 19. Investors give 2nd most preference to Share price fluctuation.35% investors give preference for share price fluctuation at second rank.
  • 20. 15% investor gives preference to Industry, Dividend and market capitalization at second rank.
  • 21. 10% investors give preference to company name and Board of director at second rank for investment in any company.
  • 22. At 3rd rank 35% investor gives preference to company name.15% investor gives preference to share price fluctuation, dividend and market capitalisation at 3rd rank.
  • 23. 10% investors give preference to industry and board of director at 3rd rank.
  • 24. At 4th preferred criteria 25% investors gives preference to board of director and industry.
  • 25. 15% investors give preference to dividend and market capitalisation at 4th rank.
  • 26. 10% investors give preference to company name and share price fluctuation at 4th rank.
  • 27. 30% Investors give 5th most preferred criteria to dividend and board of director.15% investors give preference to market capitalisation at 5th rank.
  • 28. 10% investors give preference to share price fluctuation and company name at 5th rank. 5% investors give preference to industry at this rank.
  • 29. 25% investors give 6th most preferred criteria to market capitalisation and board of director.20% investor prefer share price fluctuation at 6th rank.10% investor preferred dividend, company name and industry at 6th rank.
  • 30. Type of company investors prefer for investment.</li></ul>Analysis:<br /><ul><li>From analysis investor gives highest preference to any company for investment.65% investor gives preference to any company for investment.
  • 31. 22% investor gives preference to sector specific company.
  • 32. 13% investors give preference to BSE-30 and NIFTY-50 companies.</li></ul>Reasons for investing in any company:<br />-Return on investment and price changes are important for majority investor<br />-Brand name attracts investors and it can be any company.<br />Reasons for investing in BSE-30 companies<br />-Most important reason is security in these companies because of regulation by SEBI.<br /><ul><li>Analysis of annual report of the companies:</li></ul>Analysis:<br /><ul><li>From analysis 35% investors analyse annual report regularly and occasionally (quarterly).
  • 33. 25% investors analyse annual report sometimes.
  • 34. 5% investors not analyse annual report.
  • 35. We can say that ratio of the investors who analyse the report regularly is less.
  • 36. Efficiency of Indian regulatory system for security of shareholder:</li></ul>Analysis:<br /><ul><li>From analysis we can say that majority of investors believe that Indian regulatory system is moderate efficient.55% investor think Indian regulatory system is moderate efficient.
  • 37. 45% investors think that Indian regulatory system is efficient.
  • 38. But many investors believe that Indian regulatory system is not efficient enough in implementation of law which are in favour of investors.
  • 39. Analysis of different committees in corporate governance:</li></ul>lefttop<br /><ul><li>Efficiency of Different Committee:</li></ul>Analysis:<br /><ul><li>From analysis we can say that 50% investors do the analysis of grievance committee. Out of these 50% investor 50% replied that grievance committee is moderate efficient.
  • 40. While 40% replied that grievance committee is efficient. And 10% replied that this committee is below moderate efficient. So, from analysis we can say that grievance committee is efficient enough.
  • 41. From analysis we can say that 45% of investors do the analysis of remuneration committee. Out of these 45% investor 56% investor replied that remuneration committee is moderate efficient.
  • 42. While 22% investor replied that remuneration committee is below moderate efficient and efficient.
  • 43. From analysis we can say that 45% of investors do the analysis of audit committee. Out of these 45% investors, 45% investor replied that audit committee is moderate efficient.
  • 44. While 33% investors replied that audit committee is efficient, and 11% investors replied that audit committee is below moderate efficient and least efficient.
  • 45. Thus from analysis we can say that investors are less satisfied with the work of audit committee compare to grievance and remuneration committee.
  • 46. Rating of different parameter in context of Indian Companies:</li></ul>Analysis:<br />Grievance settlement:<br /><ul><li>From analysis of charts we can say that 42% investors replied that grievance settlements in companies are moderate efficient and below moderate efficient.
  • 47. Only 16% of investors replied that grievance settlements in companies are efficient.</li></ul>Transparency:<br /><ul><li>53% of investors replied that transparency in companies is moderate efficient. And 26% investors replied that it is efficient enough. While 16% investors replied that transparency is below moderate efficient.
  • 48. Only 5% of investors replied that transparency is least efficient in companies.</li></ul>Legal code of conduct:<br /><ul><li>40% investors replied that legal code of conduct in companies are moderate efficient and below moderate efficient. While 10% investors replied that legal code of conduct in companies are least efficient and most efficient.</li></ul>Ethics:<br /><ul><li>37% investors replied that ethical behaviour is moderate efficient in companies.26% investors replied that ethical behaviour is least efficient in Indian companies.21% of investors replied that it is below moderate efficient in Indian companies.
  • 49. While only 16% investors replied that it is efficient enough in Indian companies.
  • 50. How request from shareholders respond:
  • 51. From analysis of this question we found mix results. Some investors are satisfied with respond of the companies.
  • 52. Current procedure of the companies for resolved shareholders queries is much more efficient than past. Investors get prompt reply from the company side. And that is enough effective and positive reply as per investors view. All requests are time based.
  • 53. While some investors are not satisfied with the respond they get. Specifically they don’t get replied within short time. Its take long time
  • 54. Actually it is Change Company by company. Some companies are efficient enough to solve the investors’ queries. And some are not good in that.</li></ul>Awareness about selection process of Director in the companies<br /><ul><li>From analysis we found that very few investors are concern about selection of directors.
  • 55. So, majority of investors do not have knowledge about the procedure for selecting director.
  • 56. Even majority of the investors not attend the annual general meeting of the companies.
  • 57. Majority of the investor only concern with the monitory return they get from the investment.
  • 58. And those who replied for this question they said directors are selected in meetings of the companies, but they don’t know procedure of selection.</li></ul>Chapter 4<br />Analysis of company secretary<br /><ul><li>Current stage of corporate governance-Their view points:
  • 59. It is governed by clause 49 of listing agreement. It consist of disclosure of companies affairs.
  • 60. At present, corporate governance is made compulsory for all listed companies so it reflects value for investors
  • 61. As per the opinion of some CS, current stage of corporate governance is on primary level in India. More rules and policies should be implemented to make its implementation efficient.
  • 62. Current status of corporate governance is much more efficient than past. SEBI, corporate and Investors have become more active on this.
  • 63. Efficiency of SEBI for regulation of Corporate Governance:</li></ul>Analysis:<br /><ul><li>From analysis we can say that 50% respondent select efficient regulation by SEBI.
  • 64. While 30% respondent select most efficient regulation by SEBI for corporate governance.
  • 65. Only 20% respondent select moderate regulation by SEBI for corporate governance.
  • 66. Most of respondent says that SEBI works efficiently because of, Disclosure by SEBI are helpful to the investors and in also does not reveal any confidential data from company side.
  • 67. System in favour of shareholder:
  • 68. All respondent agrees that this regulatory system is in favour of investors.
  • 69. Most respondent agrees that majority of the investors do not analyse the annual report of the companies. We found from the survey that because of lack of knowledge and awareness, shareholders do not analyse the annual reports of the companies.
  • 70. How companies will handle corporate governance, if SEBI liberalize mandatory disclosure of corporate governance:
  • 71. If SEBI liberalize in mandatory disclosure of corporate governance, the companies can eager to comply with the altered corporate governance norms in one hand and it may be not disclosed material information as required for shareholder.
  • 72. Companies will follow the current norms because as such there are no negative sides for companies due to current disclosure by SEBI.
  • 73. Companies may follow Corporate Governance -Voluntary Guidelines 2009
  • 74. These guidelines provide for a set of good practices which may be voluntarily adopted by the Public companies. Private companies, particularly the bigger ones, may also like to adopt these guidelines. The guidelines are not intended to be a substitute for or addition to the Existing laws but is recommendatory in nature.
  • 75. Suggestions to improve overall structure of Corporate Governance:
  • 76. Companies should appoint more internal auditor for audit committee.
  • 77. Cross check step should be implemented for betterment of investors.
  • 78. Stakeholders value enhancement steps should be considered at large.
  • 79. More and More programmes should be arranged to educate shareholder about corporate governance.</li></ul>Chapter 5<br />Analysis of BSE-30 companies for Corporate Governance<br />TRANSARENCY & DISCLOSURE COMPLIANCES:<br />Disclosures:DNDDate, time and venue of AGMFinancial YearDate of Book ClosureDividend payment dateListing on Stock ExchangesStock CodeMarket Price Data for each Month of last financial yearPerformance in comparison to broad based indicesRegistrar and Transfer Agent – Address, Phone, Fax, e-mailShare transfer system/ Dematerialisation and liquidityDistribution of ShareholdingCategories of Shareholding as per the format prescribed in Clause 35 of the listing agreement. Top ten shareholders of the CompanyChange in Equity Capital during the financial yearOutstanding GDRs/ADRs/WarrantsConvertibles, conversion date and likely impact on EquityPlant locationAddress for correspondenceGeneral Body MeetingsDetails of last three AGMs-Date, time and placeSpecial Resolutions put through postal Ballot in the last financial year and details of voting patternIndustry Structure and DevelopmentsOpportunities and ThreatsOutlook Risks and ConcernsInternal Control systems and their adequaciesDiscussion on Financial performance with respect to operational performance Product disclosure about segment-wise information-financial as well as operating detailsDetails on developments like R&D, restructuring etc.Reporting on conciliation of accounts with GAAP (if applicable) or other Indian accounting standardsName, address and contact number of compliance officerStatus of projects announced/approved/money raisedTranscript of conference/meeting with analysts.<br />1) ACC:<br /><ul><li>lefttop
  • 80. Not Disclosed:</li></ul> Top 10 share holders of the company and Transcript of the meetings were not disclosed by ACC every year. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>Bharti:
  • 81. Not Disclosed:</li></ul>Top 10 share holders of the company, Transcript of meetings and status of project were not disclosed by Bharti every year. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has not disclosed all disclosure for investor and performance improvement was also not found.<br /><ul><li>DLF
  • 82. Not Disclosed:</li></ul>Top 10 share holders of the company and transcript of meetings were not disclosed by DLF every year. <br /><ul><li>Comment:</li></ul>They have also not shown any Non-mandatory disclosures in their annual report. Their performance in disclosed of data is consistent in every year.<br /><ul><li>HDIL
  • 83. Not Disclosed:</li></ul>Top 10 share holders of the company, Transcript of meetings were not disclosed by HDIL every year.<br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>Hero Honda
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  • 85. Not Disclosed:</li></ul>Only Top 10 share holders of the company and transcript were not disclosed by Hero Honda every year. Otherwise 31 disclosures were there in annual reports. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>Hindalco:
  • 86. Not Disclosed:</li></ul>Top 10 shareholder of the company<br />Transcript of the meeting<br />Risk and concerns<br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has not disclosed all important disclosure for investor.<br />Hindalco- A Vedanta Group Company has shown Non-mandatory disclosures also. That is appreciable.<br /><ul><li>HUL:
  • 87. Not Disclosed:</li></ul>2004-08<br />Top 10 shareholders of the company<br />Plant Location<br />Industry structure<br />Opportunities and Threats<br />Transcript of the meeting<br />2008-09<br />Top 10 shareholders of the company<br />Opportunities and Threats<br />Transcript of the meeting<br /><ul><li>Comment:</li></ul>HUL- One of biggest FMCG player in India is surprisingly shocked. It is not following mandatory disclosures in huge manner. <br /><ul><li>ICICI:
  • 88. Not Disclosed:</li></ul>Top 10 shareholders of the company<br />Industry Structure and Developments<br />Opportunities and Threats<br />Outlook<br />Risks and Concerns<br />Internal Control systems and their adequacies<br />Transcript of the meetings<br />Status of project announced<br /><ul><li>Comment:</li></ul>ICICI has been proved poorest performer in all 30 companies. They are not showing 7-9 disclosures which are also important for shareholders. <br /> <br /><ul><li>INFOSYS
  • 89. Not Disclosed:</li></ul>Top 10 shareholders<br />Industry structure<br />Opportunities and threats<br />Transcript <br /><ul><li>Comment:</li></ul>When disclosures were made mandatory, in Initial year Infosys were not following many disclosures. But it improves its performance in coming years.<br />Only Top 10 share holders of the company were not disclosed by Infosys in last year. <br /><ul><li>ITC
  • 90. Not Disclosed:</li></ul>Industry Structure and Developments<br />Opportunities and Threats<br />Outlook<br />Risks and Concerns<br />Internal Control systems and their adequacies<br />Transcript of the meetings<br /><ul><li>Comment:</li></ul>Being one of leading player in FMCG, ITC is also not disclosing importance disclosures in its Annual report. Though its performance has been improved each year but steel not all the disclosures are included. <br /><ul><li>REL
  • 91. Not Disclosed:</li></ul>Only Top 10 share holders and transcript of the meetings were not disclosed by REL every year. Otherwise 31 disclosures were there in annual reports. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>Reliance Capital:
  • 92. Not Disclosed:</li></ul>Performance in comparison to broad based indices<br />Top 10 shareholders<br />Resolution through postal ballot<br /><ul><li>Comment:</li></ul>In initial years company was not showing important disclosures but in recent years it has improved its performance.<br /><ul><li>Sterlite:
  • 93. Not Disclosed:</li></ul>Only Top 10 share holders of the company, transcript of the meetings were not disclosed by sterlite every year. Otherwise 30-31 disclosures were there in annual reports. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>TATA Power:
  • 94. Not Disclosed:</li></ul>Only Top 10 share holders of the company and transcript were not disclosed by TATA power every year. Otherwise 30-31 disclosures were there in annual reports. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>TCS:
  • 95. Not Disclosed:</li></ul>Only Top 10 share holders of the company and transcript were not disclosed by TCS every year. Otherwise 30-31 disclosures were there in annual reports. <br /><ul><li>Comment:</li></ul>Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.<br /><ul><li>16) ONGC: Not Disclosed:Only Top 10 share holders of the company were not disclosed by ONGC every year. Otherwise 32 disclosures were there in annual reports. Comment:Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.17) SBINot Disclosed:Top 10 shareholder of the companyComment:Their performance is consistent in every year. Company has disclosed all important disclosure for investor.18) WiproNot Disclosed:Top 10 shareholders of the companyComment:Their performance is consistent in every year. Company has disclosed all important disclosure for investor.19) HDFCNot Disclosed:2005-08:Outstanding GDRs/ADRs/WarrantsIndustry Structure and DevelopmentsOpportunities and ThreatsDetails on developments like R&D, restructuring etc.2008-09:Industry Structure and DevelopmentsOpportunities and ThreatsDetails on developments like R&D, restructuring etc.Comment:Company has improved and disclosed required disclosure in year 09 which ha not disclosed in year previous year20) RIL:Not Disclosed:Only Top 10 share holders of the company were not disclosed by RIL every year. Otherwise 32 disclosures were there in annual reports. Comment:Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.
  • 96. 21) NTPCNot Disclosed:Only Top 10 share holders of the company were not disclosed by NTPC every year. Otherwise 32 disclosures were there in annual reports. Comment:Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.22) L & TNot Disclosed:Only Top 10 share holders of the company were not disclosed by ONGC every year. Otherwise 32 disclosures were there in annual reports. Comment:Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.
  • 97. 23) Sun PharmaNot Disclosed:Top ten shareholders of the CompanyOpportunities and ThreatsRisks and ConcernsComment:Companies over all performance are consistent in every year and company has not disclosed important disclosure for investor.
  • 98. 24) Tata MotorsNot Disclosed:Only Top 10 share holders of the company were not disclosed by TATA motors every year. Otherwise 32 disclosures were there in annual reports. Comment:Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.
  • 99. 25) Maruti Udhyog: Not Disclosed:Top 10 share holders of the companyTranscript of conference/meeting with analystsComment:Companies over all performance are consistent in every year and company has disclosed all important disclosure for investor.
  • 100. 26) M & M Not disclosed:05-07:Top ten shareholders of the CompanyDetails on developments like R&D, restructuring etc.Status of projects announced/approved/money raisedTranscript of conference/meeting with analysts.08- 09:Top ten shareholders of the CompanyStatus of projects announced/approved/money raisedComment:Companies overall performance improve in year 08 and 09.27) Tata Steel:Comment:Tata Steel is the only company in BSE-30 who disclosed every disclosure in every year.28) BHEL:Not Disclosed:Only Top 10 share holders of the company were not disclosed by BHEL every year. Otherwise 32 disclosures were there in annual reports. Comment:Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.29) J.P. Asso.Not Disclosed:Top ten shareholders of the CompanyProduct disclosure about segment-wise information-financial as well as operating detailsComment:Companies over all performance are consistent in every year and company has disclosed all important disclosure for investor.30) Grasim Ind.
  • 101. Not Disclosed:</li></ul>2005-08<br />Top ten shareholders of the Company<br />Industry Structure and Developments<br />Opportunities and Threats<br />Product disclosure about segment-wise information-financial as well as operating details<br />2008-09<br />Top ten shareholders of the Company<br />Industry Structure and Developments<br />Opportunities and Threats<br /><ul><li>Comment:</li></ul>Company has improved and disclosed required disclosure in year 09 which ha not disclosed in year previous years.<br />Chapter 6<br />Findings and Suggestions<br />Findings:<br /><ul><li>We conducted survey of investors with mainly focus on fundamental analyst as well as of Company Secretaries. In our research we find following findings.
  • 102. Main purpose of investment in stock market is High return and Safety.
  • 103. Though safety is one of the major objectives, awareness level of corporate governance in general public was not found even at considerable amount.
  • 104. 75% of respondents are investing on delivery basis.
  • 105. Out of all other options like, Industry, Price Fluctuations, BOD, Dividend and Market Capitalization, 70% people prefer to check Company Name before investing in stock market. Thus Brand Image of companies is of much important and all functions and policies by their Board of Directors affects company’s image.
  • 106. Satyam Computers- before 1 year, it was one of the most desired companies for investment according to shareholders viewpoint. After the Scam occurred, brand image of the same is ruined in investors’ eyes.
  • 107. Investors do not have any specific choice regarding companies for investment like only specific sector or BSE 30/NSE 50 companies.
  • 108. 35% of Fundamental Analysts only regularly analyze the Annual Reports of the companies.
  • 109. Retail investors do not analyze annual report of the companies because of lack of knowledge, interest and time.
  • 110. 55% believe that Indian regulatory system for security of share holder is efficient.
  • 111. 50% of those who analyze the performance of Grievance Committee believe that it is moderate in terms of efficiency while 40% ranked it Efficient.
  • 112. 56% of those who analyze the performance of Remuneration Committee believe that it is moderate in terms of efficiency while only 22% ranked it Efficient.
  • 113. 45% of those who analyze the performance of Audit Committee believe that it is moderate in terms of efficiency while 33% ranked it Efficient.
  • 114. According to investors efficiency of Indian Companies in context of:
  • 115. Grievance settlement is 16%.
  • 116. Transparency is 26%.
  • 117. Legal code of Conduct is 10%.
  • 118. Ethics is 16%.
  • 119. All Company Secretaries are in opinion that current level of corporate governance in India is at Initial and it must be improved.
  • 120. SEBI has given list of 33 disclosures which are mandatory to be disclosed in annual report of the all listed companies. We have analyzed annual reports of BSE-30 companies for five years. Surprisingly, we found that only TATA Steel has disclosed all disclosures. Only few companies like TCS, RIL, REL, ONGC, SBI, Infosys, ACC, NTPC, BHEL and DLF were there which has not shown one disclosers.
  • 121. ICICI, HUL, ITC were companies which are not showing major disclosures.
  • 122. During this research we also came to know that Corporate Governance of the company is still not consider as one of the important parameter to be taken into consideration before investing in it.
  • 123. Recommendations:
  • 124. From our research and observations we give following recommendations.
  • 125. To improve in current system:
  • 126. Current norms of corporate governance are efficient but at Initial level. There must be improvement in terms of code of conduct of corporate governance.
  • 127. Lack of awareness is found among investors. More and more development programmes should be conduct to improve the awareness level of Investors.
  • 128. Implementation of current norms should be made efficient.
  • 129. To Investors:
  • 130. Main purpose of corporate governance is safety of investors. It must be taken into consideration as parameter to evaluate before investing.
  • 131. Investors should attend Annual General Meetings of the companies. Independent Directors- who mainly focus on shareholders and their grievances are being appointed in AGM only.
  • 132. Annual reports of the companies give companies’ details regarding their functions, governing body, ratio of independent directors in the Board etc. It must be evaluated.</li></ul>Chapter 7<br />Bibliography<br /><ul><li>Websites
  • 133. Details about corporate governance norms.
  • 134. http://www.sebi.org
  • 135. Data regarding BSE-30 Companies.
  • 136. http://www.bseindia.com
  • 137. All BSE-30 companies’ websites for their Annual reports.
  • 138. Books
  • 139. Corporate governance
  • 140. Arya P. P. Tandon B. B. Vashint A. K.
  • 141. Corporate Governance-New paradigm
  • 142. Gopalsamy N
  • 143. Corporate Governance Putting Investors first
  • 144. Scott C. Newquist, Max B. Russell</li></ul> <br /> <br />Annexure<br /><ul><li>A) Questionnaires for fundamental analysts:
  • 145. Name: ________________</li></ul>Gender: Male [ ] Female [ ]<br />Age: ___________<br />2. What is your occupation?<br />a) Professional b) Business c) Salaried d) Retired e) Student<br />3. What is your average Annual income before tax?<br />a) Below Rs. 150,000b) 150,001 – 300,000<br />c) 300.001 – 500,000d) Above 500,000<br />4. What percentage of your total investment do you invest in stock market? (Approx.)<br />a) 0-25%b) 26-50%<br />c) 51-75%d) >75%<br />5. You prefer to invest in stock market due to (Please give rank from 1 to 8)<br />a) Safety ( )( ) b) Flexibility<br />c) High returns ( ) ( ) d) Capital Appreciation<br />e) Tax benefits ( )( ) f) Diversification benefits<br />g) Liquidity ( )( ) h) Services<br />6. Where do you invest in stock market?<br />a) IPOb) Deliveryc) Intradayd) Future & Option<br /><ul><li>7. Rate different Criteria do you analyze before investing in shares from 1 to 6?
  • 146. 1=most important 6=least important
  • 147. a) Industry b) Company name
  • 148. c) Share price fluctuation d) Dividend
  • 149. e) Board of director f) Market capitalization</li></ul>8. In shares which type of companies do you prefer for investment? Why?<br />a) BSE-30, Nifty50b) Sector Specific<br />c) Local Companiesd) Any Company<br />Reason: _____________________________________________________________________________________________________________________________________________________<br />9. How frequently do you analyse the annual report of the companies?<br />a) Regularly b) Occasionally c) Sometimes d) Never<br />10. What do you think about efficiency of Indian regulatory system for security of share holder?<br />a) Efficientb) Moderatec) Inefficient<br />11. Have you heard about Satyam Scam?<br />a) Yesb) No<br />12. If Yes, What are the reasons of the Satyam scam according to you? <br />______________________________________________________________________________________________________________________________________________________<br />13. Do you know about the modification made in rule of share holding pattern by SEBI after Satyam scam?<br />a) Yesb) No<br />14 Do you analyze the performance of grievance committee of the company in which you have invested?<br /><ul><li> Yes
  • 150. No
  • 151. If yes, than rank it’s efficiency.
  • 152. 2. 3. 4. 5.
  • 153. 1= Most efficient 5=least efficient
  • 154. If No, Why?
  • 155. _______________________________________________________________________
  • 156. 15. Do you analyze the performance of remuneration committee of the company in which you have invested?
  • 157. Yesb) No
  • 158. If yes, than rank it’s efficiency.
  • 159. 2. 3. 4. 5.
  • 160. 1= Most efficient 5=least efficient
  • 161. If No, why?</li></ul>______________________________________________________________________________________________________________________________________________________<br /><ul><li>16. Do you analyze the performance of audit committee of the company in which you have invested?
  • 162. Yes
  • 163. No
  • 164. If yes, than rank it’s efficiency.
  • 165. 2. 3. 4. 5.
  • 166. 1= Most efficient 5=least efficient
  • 167. If No, Why?
  • 168. _______________________________________________________________________
  • 169. _______________________________________________________________________</li></ul>17. Rate the following in context of Indian companies? <br />1=Most efficient 5=Least efficient<br /> a) Grievance settlement 1 2 3 4 5<br /> b) Transparency 1 2 3 4 5<br /> c) Legal code of conduct 1 2 3 4 5 <br /> d) Ethics 1 2 3 4 5 <br /> <br />18. How are requests from shareholders responded to?<br /> ______________________________________________________________________________________________________________________________________________________<br />19. What do you know about selection process of directors? <br /> ______________________________________________________________________________________________________________________________________________________<br />20. Opinion on the quality of internal controls and Risk management of the companies? <br />______________________________________________________________________________________________________________________________________________________<br /> <br /><ul><li>Thank you.
  • 170. B) Questionnaire for Company Secretary:
  • 171. What is current stage of corporate governance in India?
  • 172. ______________________________________________________________________________________________________________________________________________________
  • 173. Rate the efficiency of SEBI for regulation of corporate governance according to you.
  • 174. 1= Most efficient 5= Least efficient
  • 175. 1 2 3 4 5</li></ul> Give reason for the rank.<br />___________________________________________________________________________<br />___________________________________________________________________________<br /><ul><li>Whether this system is in favour of shareholder or not?
  • 176. Yesb) Noc) Can’t say
  • 177. Do shareholders analyze the annual report of the companies in which they have invested?
  • 178. Yesb)Noc) Can’t say
  • 179. If No, than what are the reasons for it?
  • 180. ___________________________________________________________________________
  • 181. ___________________________________________________________________________
  • 182. According to you which disclosures amongst following are most important for shareholders?</li></ul>Dividend payment date<br />Market Price Data for each Month of last financial year<br />Change in Equity Capital during the financial year<br />Distribution of Shareholding<br />Risks and Concerns<br />Internal Control systems and their adequacies<br />Discussion on Financial performance with respect to operational performance <br /><ul><li>If SEBI liberalize in mandatory disclosure of corporate governance than, according to you how companies will handle the corporate governance?
  • 183. ________________________________________________________________________________________________________________________________________________
  • 184. Give your suggestions to improve the Framework, Efficiency and Effectiveness of Corporate Governance.
  • 185. ________________________________________________________________________________________________________________________________________________
  • 186. Thank you</li></ul>Thank You<br />

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