MBA 5 YEAR INTEGRATED Corporate governance notes of unit 1

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Unit-1
 History of Corporate Governance
History of Corporate Governance Kautilya’s governance,the concept ofgovernance cannot be completed without
acknowledging the contribution of the most celebrated scholar of ancient India, Kautilya. One of the world’s most
complete manuscripts on the science of governance was penned by Kautilya in the third century BC. Kautilya’s
discussions on administration and management are strikingly modern and scientific covering almost all facets of
governance.
In the 19th century, state corporation laws enhanced the rights of corporate boards to govern without unanimous
consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance
more efficient.
A comprehensive study by Chakrabarti, Megginson,and Yadav has traced the evolution of the Indian corporate
governance system and examined how this system has both supported and held back India’s ascent to the top
ranks of the world’s economies.
The authors of the study have found that while on paper, the framework of the country’s legal systemprovides
some of the best investorprotection in the world; enforcement is a major problem in view of the slow functioning
of the over-burdened courts and the widespread prevalence of corruption.
Gupta and Parua attempted to find out the degree of compliance of the Corporate Governance (CG) codes by
private sectorIndian companies listed in the Bombay Stock Exchange (BSE). Data regarding 1245 companies for
the year 2004-2005 was taken for the study from the CG reports (which are included in the Annual Reports) of
these companies and 21 codes (of which 19 are mandatory and 2 non-mandatory) were selected for study.
The enforcement of the corporate governance reforms in India has been analyzed by Khanna, who has attempted
to find an answer to the paradox of foreign institutional investors (FIIs) increasing their presence and interest in
the Indian stock markets when reforms were enacted but not immediately enforced. Khanna’s analysis suggests
that enforcement is important to the growth of stock markets, but the active civil enforcement of corporate laws
may not always be critical to their initial development.
Corporate governance in India gained prominence in the wake of liberalization during the 1990s and was
introduced, by the industry association Confederation of Indian Industry (CII), as a voluntary measure to be
adopted by Indian companies. It soon acquired a mandatory status in early 2000s through the introduction of
Clause 49 of the Listing Agreement, as all companies (of a certain size) listed on stock exchanges were required
to comply with these norms.
In late 2009, the Ministry ofCorporate Affairs has released a set ofvoluntary guidelines for corporate governance,
which address a myriad corporate governance issues. The Anglo-Saxon model of governance, on which the
corporate governance framework introduced in India is primarily based on, has certain limitations in terms of its
applicability in the Indian environment.
Currently, corporate governance reforms in India are at a crossroads; while corporate governance codes have been
drafted with a deep understanding of the governance standards around the world, there is still a need to focus on
developing more appropriate solutions that would evolve from within and therefore address the India-specific
challenges more efficiently.
 DEVELOPMENT OF CORPORATE GOVERNANCE IN INDIA
The Indian ethos of corporate governance as articulated by Mahatma Gandhi in his writings. He believed that
management is a trustee of shareholders capital and business is a trustee of all resources, including the
environment. As trustees the primary goal of management is to protect the interest of the owners and also, not to
exploit resources for short term profits.
In India, the initiative on corporate governance was not a result of any major corporate scandal, like Enron, World
Com, etc. It started as a self-regulatory move from the industry rather than the rule of law. (Prof. Uday Salunkhe,
Prof. P.S. Rao, and Prof. Amitha Sehgal,2011)
The need for Corporate Governance has become highlighted by the scams brought high almost as an annualfeature
ever since the liberalization of the economy in 1991, To cite a few Harshad Metha,ketan Parikh scam, UTI scam,
the vanishing company scam, the Bhansali scam and so on (Omkar Goswami, 2002).Lessons should be learning

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from the countries like USA and UK where companies exposed to lot of hardships and failures due to
misgovernance and unethical business practices.
The Errors issue was examined by number of committees at different levels in the U.S and at the end of all these
examinations, they came with a better model. In the Indian corporate scenario, it is imperative to induct good
global standards so that at least the scope for scams should be minimized.
The single most Important development in the field of Corporate Governance and Investorprotection in India has
been the establishment of the Securities and Exchange Board of India in 1992 and its gradual empowerment since
the time it was established primarily to regulate and monitor stock trading, it has played a crucial ro le in
establishing the basic minimum ground rules of corporate conduct in the country.
Concerns about corporate governance in India were, however, largely triggered off by a spate of crises in the early
1990‟s as already noted. This concerns about Corporate Governance stemming from the several corporate
scandals, coupled with a perceived need to open up to the forces of competition and globalization, gave rise to
several investigations into ways to fix the Corporate Governance situation in India.
One of the first such end eavours was the confederation of Indian Industry (CII) code for Desirable Corporate
Governance, developed by a committee chaired by Rahul Bajaj, this committee was formed in 1996 and submitted
its code in April 1998.
Later the Securities and Exchange Board of India (SEBI) constituted two committees to look into the issue of
Corporate Governance. The first was chaired by KumarMangalam Birla, which submitted it‟s report in early 2000,
and the second by Narayana Murthy, which submitted it‟s report three years later.
These two committees have been Instrumental in bringing about for reaching changes in Corporate Governance
in India through the formulation of clause 49 of listing Agreements. Concurrent with the Initiatives by the SEBI,
the Department of Company Affairs, the Ministry of Finance of the Government ofIndia also began contemplating
Improvements in Corporate Governance.
These efforts include the establishment of a study group to operationalize the Birla Committee recommendations
in 2000, the Naresh Chandra Committee on Corporate Audit and Governance in 2002, and the expert committee
on Corporate Law (The J.J.Irani Committee) in late 2004. All these efforts were aimed at reforming the existing
Companies Act of 1956 still forms the backbone of corporate law
 INTRODUCTION
Corporate governance is concerned with set of principles, ethics, values, morals, rules regulations, & procedures
etc. Corporate governance establishes a systemwhereby directors are entrusted with duties and responsibilities in
relation to the direction of the company’s affairs.
The term “governance” means control i.e. controlling a company, an organization etc or a company & corporate
governance is governing or controlling the corporate bodies i.e. ethics, values, principles, morals. For corporate
governance to be good the manager needs to meet its responsibilities towards its owners (shareholders), creditors,
employees, customers, government and the society at large. Corporate governance helps in establishing a system
where a director is showered with duties and responsibilities of the affairs of the company.
For effective corporate governance,its policies need to be such that the directors of the company should not abuse
their power and instead should understand their duties and responsibilities towards the company and should act
in the best interests of the company in the broadest sense. The concept of ‘corporate governance’ is not an end;
it’s just a beginning towards growth of company for long term prosperity.
 NEED OF CORPORATE GOVERNANCE
Corporate governance concept emerged in India after the second half of 1996 due to economic liberalization and
deregulation of industry and business.With the changing times, there was also need for greater accountability of
companies to their shareholders and customers. The report of Cadbury Committee on the financial aspects of
corporate Governance in the U.K. has given rise to the debate of Corporate Governance in India.
Need for corporate governance arises due to separation of management from the ownership. For a firm success,it
needs to concentrate on both economical and social aspect. It needs to be fair with producers, shareholders,

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customers etc. It has various responsibilities towards employees, customers, communities and at last towards
governance and it needs to serve its responsibilities at the best at all aspects.
The “corporate governance concept” dwells in India from the Arthshastra time instead of CEO at that time there
were kings and subjects. Today, corporate and shareholders replace them but the principles still remain same,
unchanged i.e. good governance.
20th century witnessed the glossy ofIndian Economy due to liberalization, globalization, and privatization. Indian
economy for the 1st time here was togetherwith world economy for product,capital and lab our market and which
resulted into world of capitalization, corporate culture, business ethics which was found important for the
existence of corporation in the world market place.
 DIFFERENT DEFINITIONS OF CORPORATE GOVERNACE
1. Cadbury Committee[1] ( U.K.), 1992 has defined corporate governance as such : “Corporate governance is the
systemby which companies are directed and controlled. It encompasses the entire mechanics of the functioning
of a company and attempts to put in place a system of checks and balances between the shareholders,
directors, employees, auditor and the management.”
2. “Corporate governance is the systemby which business corporations are directed and controlled.The corporate
governance structure specifies the distribution of rights and responsibilities among different participants in the
corporation, such as, the board, managers, shareholders and spells out the rules and procedures for making
decisions on corporate affairs. By doing this,it also provides this; it also provides the structure through which the
company objectives are set, and the means of attaining those objectives and monitoring performance.” [2]
3. Definition of corporate governance by the Institute of Company Secretaries of India is as under : “Corporate
Governance is the application of best Management practices, Compliance of law in true letter and spirit and
adherence to ethical standards for Effective Management and distribution of wealth and discharge of social
Responsibility for sustainable development of all stakeholders”.
 THEORIES UNDERLYING CORPORATE GOVERNANCE
1. Agency Theory
Agency Theory
Agency theory having its roots in economic theory was exposited by Alchian and Demsetz (1972) and further
developed by Jensen and Meckling (1976). Agency theory is defined as “the relationship between the principals,
such as shareholders and agents such as the company executives and managers”.

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In this theory, shareholders who are the owners or principals of the company, hires the gents to perform work.
Principals delegate the running of business to the directors ormanagers, who are the shareholder’s agents (Clarke,
2004).
Indeed, Daily et al (2003) argued that two factors can influence the prominence of agency theory.First, the theory
is conceptually and simple theory that reduces the corporation to two participants of managers and shareholders.
Second, agency theory suggests that employees or managers in organizations can be self-interested.
The agency theory shareholders expect the agents to act and make decisions in the principal’s interest. On the
contrary, the agent may not necessarily make decisions in the best interests of the principals (Padilla, 2000).
Such a problem was first highlighted by Adam Smith in the 18th century and subsequently explored by Ross
(1973) and the first detailed description of agency theory was presented by Jensen and Meckling (1976). Indeed,
the notion of problems arising from the separation of ownership and control in agency theory has been confirmed
by Davis, Schoorman and Donaldson (1997).
Definition : A theory explaining the relationship between principals, such as a shareholders,and agents,such as
a company's executives. In this relationship the principal delegates or hires an agent to perform work. The theory
attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict
(agency problem), and second, that the principal and agent reconcile different tolerances for risk.
Key concepts of agency theory: A number of key terms and concepts are essential to understanding agency
theory.
 An agent is employed by a principal to carry out a task on their behalf.
 Agency refers to the relationship between a principal and their agent.
 Agency costs are incurred by principals in monitoring agency behaviour because of a lack of trust in the
good faith of agents.
 By accepting to undertake a task on their behalf, an agent becomes accountable to the principal by whom
they are employed. The agent is accountable to that principal.
ROLE OF CG IN AGENCY THEORY
Corporate governance can be used to change the rules under which the agent operates and restore the principal's
interests. The principal, by employing the agent to represent the principal's interests, must overcome a lack of
information about the agent's performance of the task. Agents must have incentives encouraging them to act in
unison with the principal's interests. Agency theory may be used to design these incentives appropriately by
considering what interests motivate the agent to act. Incentives encouraging the wrong behavior must be removed
and rules discouraging moral hazard must be in place. Understanding the mechanisms that create problems helps
Business develop better corporate policy.
SEPARATION of ownerdhip and control
 Companies that are quoted on a stock market such as the London Stock Exchange are often extremely
complex and require a substantialinvestment in equity to fund them, i.e. they often have large numbers
of shareholders.
 Shareholders delegate control to professional managers (the board of directors) to run the company on
their behalf.

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 The Directors (agents) have a fiduciary responsibility to the shareholders (principal) of their
organisation (usually described through company law as 'operating in the best interests of the
shareholders').
 Shareholders normally play a passive role in the day-to-day management of the company.
 Directors own less than 1% of the shares of most of the UK's 100 largest quoted companies and only
four out of ten directors of listed companies own any shares in their business.
 Separation of ownership and control leads to a potential conflict of interests between directors and
shareholders.
 The agents'objectives (such as a desire for high salary, large bonus and status for a director) will differ
from the principal's objectives (wealth maximisation for shareholders).
Assumptions in agency theory
Homo Economicus is rational, individualistic and opportunistic
Always seeks to maximize own benefits and personal utility
Moral responsibilities to act in someone else's interest are second priority
 STEWARDSHIP THEORY
Stewardship theories argue that the managers or executives of a company are stewards of the owners, and
both groups share common goals (Davis, Schoorman, & Donaldson, 1997). Therefore, the board should not
be too controlling, as agency theories would suggest.
The board should play a supportive role by empowering executives and, in turn, increase the potential for
higher performance (Hendry, 2002; Shen, 2003). Stewardship theories argue for relationships between board
and executives that involve training, mentoring, and shared decision making (Shen, 2003; Sundaramurthy &
Lewis, 2003).
In this perspective, stewards are company executives and managers working for the shareholders, protects
and make profits for the shareholders. Unlike agency theory, stewardship theory stresses not on the
perspective of individualism (Donaldson & Davis, 1991), but rather on the role of top management being as
stewards, integrating their goals as part of the organization.
The stewardship perspective suggests that stewards are satisfied and motivated when organizational success
is attained. However, stewardship theory recognizes the importance of structures that empower the steward
and offers maximum autonomy built on trust (Donaldson and Davis, 1991). It stresses on the position of
employees or executives to act more autonomously so that the shareholders’returns are maximized. Indeed,
this can minimize the costs aimed at monitoring and controlling behaviours
The consequences of stewardship theory revolve around the sense that the individualistic agency theory is
overdrawn. Trust,all otherthings being equal,is justified between managers and board members. In situations
where the CEO is not the chairman of the board, the board can rest assured that a long-term CEO will seek
primarily to be a good manager, not a rich man.
Alternatively, having a CEO who is also chairman is not a problem, since there is no good reason that he will
use that position to enrich himself at the expense of the firm. Put differently, stewardship theory hold s that
managers do want to be richly rewarded for their efforts, but that no manager wants this to be at the expense
of the firm.
The Goal of Stewardship Governance
A steward is defined as someone who protects and takes care of the needs ofothers.Under the stewardship theory,
company executives protect the interests of the owners or shareholders and make decisions on their behalf. Their
sole objective is to create and maintain a successfulorganization so the shareholders prosper.Firms that embrace
stewardship place the CEO and Chairman responsibilities underone executive, with a board comprised mostly of

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in-house members.This allows for intimate knowledge of organizational operation and a deep commitment to
success.
 STAKE HOLDER’S THEORY
Definition and Conceptual Framework
Stakeholder theory looks at the relationships between an organization and others in its internal and external
environment. It also looks at how these connections influence how the business conducts its activities. Think of
a stakeholder as a person or group that can affect or be affected by an organization. Stakeholders can come from
inside or outside of the business. Examples include customers, employees, stockholders, suppliers, non -profit
groups, government, and the local community, among many others.
One of the most important contributors to stakeholder theory is R. Edward Freeman and his book Strategic
Management: A Stakeholder Approach (1984). The core idea of stakeholder theory is that organizations that
manage their stakeholder relationships effectively will survive longer and perform better than organizations that
don't. Freeman suggests that organizations should develop certain stakeholder competencies. These include:
 Making a commitment to monitor stakeholder interests
 Developing strategies to effectively deal with stakeholders and their concerns
 Dividing and categorizing interests into manageable segments
 Ensuring that organizational functions address the needs of stakeholders
Advantages of Stakeholder Analysis
• Get to know stakeholders better:
– Relative importance, power and interests
– Better managed relationships
– Risks identified
• Make betterstrategies and decisions
• Greater acceptance of organisation actions by stakeholders
There are several key benefits of including stakeholders in your decision-making process. Stakeholders have
unique insight into issues.
They can secure resources to assist you with your decisions or project. Involving stakeholders can build trust,
which can ultimately lead to increased consensus for your project or final decision.
It can also increase transparency and lead to better decision making.
Disadvantages of Stakeholders
First, involvement of stakeholders often takes time.

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Depending on your project or timeline, you may not have sufficient time to engage stakeholders.
Involving stakeholders may be inappropriate when you are establishing accountability in supervisory settings.
Asking for input, when decisive action is needed to address supervisory issues, can give the appearance t he
supervisor does not have solid leadership abilities.
Lastly, if you involve stakeholders but don't take their advice, you have raised an expectation that hasn't been
met, which can lead to distrust and hamper morale.
Disadvantages of Stakeholder Analysis
• Best done on continuous basis
• Assessment of analysis may be subjective
• Maybe not all stakeholder interests can be met at the same time
– Focus on most important stakeholder
– Balance & reconcile all interests according to importance or urgency
MODELS OF CORPORATE GOVERNANCE
• Corporate governance systems vary around the world. This because in some cases,corporate governance
focuses on link between a shareholder and company, some on formal board structures and board practices and
yet others on social responsibilities of corporations.
• However, basically, corporate governance is seen as the process by which organizations are run.
• There is no one model of corporate governance which is universally acceptable as each model has its own
advantages and disadvantages.
The Anglo-US Model 1
The Anglo-US model is characterized by share ownership of individual, and increasingly institutional, investors
not affiliated with the corporation (known as outside shareholders or “outsiders”); a well-developed legal
framework defining the rights and responsibilities of three key players, namely management, directors and
shareholders; and a comparatively uncomplicated procedure for interaction between shareholder and corporation
as well as among shareholders during or outside the AGM.
Key Players in the Anglo-US Model Players
in the Anglo-US model include management, directors, shareholders (especially institutional investors),
government agencies, stock exchanges, self-regulatory organizations and consulting firms which advise
corporations and/orshareholders on corporate governance and proxy voting. Of these, the three major players are
management, directors and shareholders.
They form what is commonly referred to as the "corporate governance triangle." The interests and interaction of
these players may be diagrammed as follows:
The Anglo-US model, developed within the context of the free market economy, assumes the separation of
ownership and control in most publicly-held corporations.
This important legal distinction serves a valuable business and social purpose: investors contribute capital and
maintain ownership in the enterprise, while generally avoiding legal liability for the acts of the corporation.
Investors avoid legal liability by ceding to management control of the corporation, and paying management for
acting as their agent by undertaking the affairs of the corporation. The cost of this separation of ownership and
control is defined as “agency costs”.
The interests ofshareholders and management may not always coincide. Laws governing corporations in countries
using the Anglo-US model attempt to reconcile this conflict in several ways. Most importantly, they prescribe the
election of a board ofdirectors by shareholders and require that boards act as fiduciaries for shareholders’interests
by overseeing management on behalf of shareholders.
Composition of the Board of Directors in the Anglo-US Model
The board of directors of most corporations that follow the Anglo-US model includes both “insiders” and
“outsiders”. An “insider” is as a person who is either employed by the corporation (an executive, manager or
employee) or who has significant personal or business relationships with corporate management. An “outsider”
is a person or institution which has no direct relationship with the corporation or corporate management.

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Interaction Among Players in the Anglo-US Model As noted above, the Anglo-US model establishes a
complex, well-regulated system for communication and interaction between shareholders and corporations. A
wide range of regulatory and independent organizations play an important role in corporate governanc e.
Shareholders may exercise their voting rights without attending the annual general meeting in person. All
registered shareholders receive the following by mail
 The Japanese Model
The Japanese model is characterized by a high level of stock ownership by affiliated banks and companies; a
banking systemcharacterized by strong,long-term links between bank and corporation; a legal, public policy and
industrial policy framework designed to support and promote “keiretsu” (industrial groups linked by trading
relationships as well as cross-shareholdings of debt and equity); boards of directors composed almost solely of
insiders; and a comparatively low (in some corporations, non-existent) level of input of outside shareholders,
caused and exacerbated by complicated procedures for exercising shareholders’ votes.
Equity financing is important for Japanese corporations. However, insiders and their affiliates are the major
shareholders in most Japanese corporations. Consequently,they play a major role in individual corporations and
in the systemas a whole. Conversely, the interests of outside shareholders are marginal.
The percentage offoreign ownership of Japanese stocks is small, but it may become an important factor in making
the model more responsive to outside shareholders.
Key Players in the Japanese Model
The Japanese system of corporate governance is many-sided, centering around a main bank and a
financial/industrial network or keiretsu.
The main bank systemand the keiretsu are two different, yet overlapping and complementary, elements of the
Japanese model.4 Almost all Japanese corporations have a close relationship with a main bank.
The bank provides its corporate client with loans as well as services related to bond issues, equity issues,
settlement accounts, and related consulting services. The main bank is generally a major shareholder in the
corporation.
In the Japanese model, the four key players are: main bank (a major inside shareholder), affiliated company or
keiretsu (a major inside shareholder), management and the government. Note that the interaction among these
players serves to link relationships rather than balance powers, as in the case in the Anglo-US model. In contrast
with the Anglo-US model, non-affiliated shareholders have little or no voice in Japanese governance.As a result,
there are few truly independent directors, that is, directors representing outside shareholders.The Japanese model
may be diagrammed as an open-ended hexagon:(notebook)
Share Ownership Pattern in the Japanese Model
In Japan, financial institutions and corporations firmly hold ownership of the equity market. Similar to the trend
in the UK and US, the shift during the postwar period has been away from individual ownership to institutional
and corporate ownership. In 1990, financial institutions (insurance companies and banks) held approximately 43
percent of the Japanese equity market, and corporations (excluding financial institutions) held 25 percent.
Foreigners currently own approximately three percent.
Composition of the Board of Directors in the Japanese Model
The board of directors of Japanese corporations is composed almost completely of insiders, that is, executive
managers, usually the heads ofmajor divisions of the company and its central administrative body.If a company’s
profits fall over an extended period, the main bankand members of the keiretsu may remove directors and appoint
their own candidates to the company’s board.
Anotherpractice common in Japan is the appointment of retiring government bureaucrats to corporate boards; for
example, the Ministry of Finance may appoint a retiring official to a bank’s board. In the Japanese model the
composition of the board of directors is conditional upon the corporation’s financial performance. A diagram of
the Japanese model at the end of this article provides a pictorial explanation.
Interaction Among Players in the Japanese Model
Interaction among the key players in the Japanese model generally links and strengthens relationships.This is a
fundamental characteristic of the Japanese model. Japanese corporations prefer that a majority of its shareholders

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be long-term, preferably affiliated, parties. In contrast, outside shareholders represent a small constituency and
are largely excluded from the process. Annual reports and materials related to the AGM are available to all
shareholders.Shareholders may attend the annual general meeting, vote by proxy or vote by mail. In theory, the
systemis simple; however, the mechanical systemof voting is more complicated for non-Japanese shareholders.
The German Model
The German model governs German and Austrian corporations. Some elements of the model also apply in the
Netherlands and Scandinavia. Furthermore, some corporations in France and Belgium have recently introduced
some elements of the German model.
The German corporate governance model differs significantly from both the Anglo-US and the Japanese model,
although some of its elements resemble the Japanese model.
Banks hold long-term stakes in German corporations,and,as in Japan, bankrepresentatives are elected to German
boards. However, this representation is constant, unlike the situation in Japan where bank representatives were
elected to a corporate board only in times of financial distress.
Germany’s three largest universal banks (banks that provide a multiplicity of services) play a major role; in some
parts of the country, public-sector banks are also key shareholders.
There are three unique elements of the German model that distinguish it from the other models outlined in this
article. Two of these elements pertain to board composition and one concerns shareholders’ rights:
First, the German model prescribes two boards with separate members. German corporations have a two-tiered
board structure consisting of a management board (composed entirely of insiders, that is, executives of the
corporation) and a supervisory board (composed of labor/employee representatives and shareholder
representatives).
The two boards are completely distinct; no one may serve simultaneously on a corporation’s management board
and supervisory board. Second, the size of the supervisory board is set by law and cannot be changed by
shareholders.
Third, in Germany and other countries following this model, voting right restrictions are legal; these limit a
shareholder to voting a certain percentage of the corporation’s total share capital, regardless of share ownership
position.
Key Players in the German Model
German banks, and to a lesser extent, corporate shareholders, are the key players in the German corporate
governance system. Similar to the Japanese systemdescribed above, banks usually play a multi-faceted role as
shareholder, lender, issuer of both equity and debt, depository bank) and voting agent at AGMs.
In 1990, the three largest German banks (Deutsche Bank AG, Dresdner Bank AG and Commerzbank AG) held
seats on the supervisory boards of 85 of the 100 largest German corporations.In Germany, corporations are also
shareholders, sometimes holding long-term stakes in other corporations, even where there is no industrial or
commercial affiliation between the two.
This is somewhat similar, but not parallel, to the Japanese model, yet very different from the Anglo-US model
where neither banks nor corporations are key institutional investors.The mandatory inclusion of labor/employee
representatives on larger German supervisory boards further distinguishes the German model from both the
Anglo-US and Japanese models.
Share Ownership Pattern in the German Model
German banks and corporations are the dominant shareholders in Germany. In 1990, corporations held 41 percent
of the German equity market, and institutional owners (primarily banks) held 27 percent. Neither institutional
agents, such as pension funds (three percent) or individual owners (four percent) are significant in Germany.
Foreign investors held 19 percent in 1990, and their impact on the German corporate governance system is
increasing.
Composition of the Management Board (“Vorstand”) and Supervisory Board (“Aufsichtsrat”)
in the German Model The two-tiered board structure is a unique construction of the German model. German
corporations are governed by a supervisory board and a management board. The supervisory board appoints and

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dismisses the management board, approves major management decisions; and advises the management board.
The supervisory board usually meets once a month. A corporation’s articles of association sets the financial
threshold of corporate acts requiring supervisory board approval. The management board is responsible for daily
management of the company.
Regulatory Framework in the German Model
Germany has a strong federal tradition; both federal and state (Laender) law influence corporate governance.
Federal laws include: the Stock Corporation Law, Stock Exchange Law and Commercial Law, as well as the
above-mentioned laws governing the composition of the supervisory board are all federal laws.
Regulation of Germany’s stockexchanges is, however, the mandate of the states.A federal regulatory agency for
the securities industry was established in 1995. It fills a former void in the German regulatory environment.
Interaction Among Players in the German Model
The German legal and public-policy framework is designed to include the interests of labor, corporations, banks
and shareholders in the corporate governance system. The multi-faceted role of banks has been described above.
On the whole, the systemis geared towards the interests of the key players. There is, nevertheless,some scope for
participation by minority shareholders,such as the above-mentioned provisions concerning shareholderproposals.
Indian model
The model of corporate governances found in India is a mix of the Anglo-American and German models. This is
because in India, there are three types of Corporation viz. private companies, public companies and public sectors
undertakings (which includes statutory companies, government companies, banks and other kinds of financial
institutions).Each of these corporation have a distinct pattern of shareholding. For e.g. In case of companies, the
promoter and his family have almost complete control over the company.
OECD: The Organisation for Economic Cooperation and Development started operations in 1961to convene
governments ofcountries focused on democracy and the market economy to support sustainable economic growth,
boost employment, raise living standards,maintain financial stability, assist in enhancing economic development,
boost growth in world trade, share expertise and exchange views.
THESE PRINCIPLES ARE:
1.Ensuring the Basis for an Effective Corporate Governance Framework
The corporate governance framework should promote transparent and efficient markets, be consistent with the
rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and
enforcement authorities.
A. The corporate governance framework should be developed with a view to its impact on overall economic
performance, market integrity and the incentives it creates for market participants and the promotion of transparent
and efficient markets.
B. The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be
consistent with the rule of law, transparent and enforceable.
C. The division of responsibilities among different authorities in a jurisdiction should be clearly articulated and
ensure that the public interest is served.
D. Supervisory, regulatory and enforcement authorities should have the authority, integrity and resources to fulfil
their duties in a professionaland objective manner. Moreover, their rulings should be timely, transparent and fully
explained.
II. The Rights of Shareholders and Key Ownership Functions
The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.
A. Basic shareholderrights should include the right to: 1) secure methods of ownership registration; 2) convey or
transfer shares; 3) obtain relevant and material information on the corporation on a timely and regular basis; 4)
participate and vote in general shareholder meetings; 5) elect and remove members of the board; and 6) share in
the profits of the corporation.

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B. Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning
fundamental corporate changes such as: 1) amendments to the statutes, or articles of incorporation or similar
governing documents of the company; 2) the authorisation of additional shares; and 3) extraordinary transactions,
including the transfer of all or substantially all assets, that in effect result in the sale of the company.
C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings
and should be informed of the rules, including voting procedures, that govern general shareholder meetings:
1. Shareholders should be furnished with sufficient and timely information concerning the date, location and
agenda of general meetings, as well as full and timely information regarding the issues to be decided at the
meeting.
III. The Equitable Treatment of Shareholders
The corporate governance framework should ensure the equitable treatment of all shareholders,including minority
and foreign shareholders.All shareholders should have the opportunity to obtain effective redress for vio lation of
their rights.
A. All shareholders of the same series of a class should be treated equally.
B. Insider trading and abusive self-dealing should be prohibited.
C. Members of the board and key executives should be required to disclose to the board whether th ey,
directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter
directly affecting the corporation.
IV. The Role of Stakeholders in Corporate Governance
The corporate governance framework should recognise the rights of stakeholders established by law or through
mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth,
jobs, and the sustainability of financially sound enterprises.
A. The rights of stakeholders that are established by law or through mutual agreements are to be respected.
B. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective
redress for violation of their rights.
C. Performance-enhancing mechanisms for employee participation should be permitted to develop.
V. Disclosure and Transparency
The corporate governance framework should ensure that timely and accurate disclosure is made on all material
matters regarding the corporation, including the financial situation, performance, ownership, and governance of
the company.
VI. The Responsibilities of the Board
The corporate governance framework should ensure the strategic guidance of the company, the effective
monitoring of management by the board, and the board’s accountability to the company and the shareholders.
A. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the
best interest of the company and the shareholders.
B. Where board decisions may affect different shareholder groups differently, the board should treat all
shareholders fairly.
C. The board should apply high ethical standards. It should take into account the interests of stakeholders .
CORPORATE GOVERNANCE PROCESS
1.The board requires the Company to practice governance standards that are in line with prevailing best practice.
2.Board meetings are held quarterly where the financial performance and position of the company is reviewed.

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3.Exco meetings are held each month where the monthly management accounts are presented with detailed
comparisons (to budget, prior years) and variance analysis.
4.Weekly cash flow meetings are held, where the cash flow usage and requirements of the business are discussed
amongst the management team.
5.Monthly cost report meetings are held where the status and progress of each project is discussed.
6.Minutes are maintained of the Board meetings and Exco meetings.
7.The Board consists of 6 directors of which 4 are executive, 1 non executive and 1 independent non executive.
8.An Audit Committee is in existence for the Crowie Holdings group of companies and is chaired by a non
executive director. It meets at least 2 times per year.
9. A Remuneration committee considers the salary, bonuses and benefits of staff.
10. A Risk Committee monitors compliance with the Group Risk Management Policies and Framework.
11. All directors are members of the Institute of Directors and are required to attend the various governance
workshops presented by the Institute.