The document outlines the objectives and background of proposed research on corporate governance. The research aims to understand corporate governance policies and practices, classify literature on the topic, suggest a framework for analyzing interactions between governance actors and institutions, develop an assessment instrument, and test relationships between governance and business sustainability in India's financial sector industries. It provides context on global governance initiatives, theoretical models of corporate control, ownership structures, the development of governance regulations and guidelines in India like the Birla Committee recommendations and Clause 49 requirements.

1. 1
TOWARDS AN INQUIRY INTO
CORPORATE GOVERNANCE
RESEARCH
PROFESSOR JAYASHREE SADRI
AND
DR SORAB SADRI

2. 2
BASIS
 This presentation is based on the research
conducted by Dr Sorab Sadri (2000-2005), Dr
Sunita Sharma (2003-2006) and Dr Sharukh
Tara (2005-2008), which has been later used
by several other doctoral scholars like Prof. J
Oke.
 It may be used as a guide to further
scholarship.

3. 3
Objective of the research:
 To understand the policies and practices of
Corporate Governance and classify the
literature to provide an overview of the principal
findings of prior research.
 To suggest a corporate governance “medley”
among the actors and institutions that affect
corporate governance interactions that
encompasses a broader view of governance
than has been considered in prior research.
 To design and develop an instrument to assess
Corporate Governance in selected industries in
the Indian Financial Sector.

4. 4
Objective of the research: (Contd.)
 To establish the relationship between
Corporate Governance and Business
Sustainability upon studying shareholder
ownership, transparency and disclosure, and
management performance.
 To test for reliability and validity of the House of
Corporate Governance model in selected
industries in the Indian Financial Sector.
 To identify important gaps in the research that
represent promising avenues for future study.

5. 5
GLOBAL INITIATIVES TO IMPOSE
CORPORATE GOVERNANCE
 SIR ADRIAN CADBURY COMMITTEE – to address the
issues related to corporate governance in the U.K.
 CORPORATE GOVERNANCE REPORT OF SINGAPORE
GOVERNMENT
 SARBANES-OXLEY ACT, 2002 BY THE AMERICAN
CONGRESS which came into effect in July 2002 – to
address all the issues associated with corporate failures
to achieve quality governance and to restore investors’
confidence…
Background of the proposed
research:

6. 6
Background of the research:
Williams (1996) identified four models of
corporate control:
 1. The Simple Finance Model;
 2. The Stewardship Model;
 3. The Stakeholder Model; and
 4. The Political Model.

7. 7
Alternative Patterns of Separation of Ownership &
Management
 Anglo-Saxon:
 Founder/entrepren
eur
 Professional
manager
 Exit: sell-out
 European:
 Founder/entrepreneur
 Heirs + professional
management
 Retain ownership
 Asian/EM:
 Heirs
 Maintain ownership
Background of the research:

8. 8
1. Shareholder rights
2. Equitable treatment of shareholders
3. Role of shareholders
4. Disclosure and transparency
5. Responsibilities of the board
Research Background

9. 9
1. CII Report
2. Kumarmangalam Birla Committee Report
3. Clause 49 Requirements
4. Naresh Chandra Committee
5. Narayan Murthy Report
Current state of Corporate Governance in
India:

10. 10
IMPLEMENTATION OF CORPORATE
GOVERNANCE IN INDIA
 KUMAR MANGALAM COMMITTEE – constituted in May
1999 to promote and raise the standard of corporate
governance in India
MANDATORY RECOMMENDATIONS OF BIRLA
COMMITTEE:
 Applies to listed companies with paid-up capital Rs.3
crores or more.
 Composition of Board of Directors – optimum
combination of executive & non-executive directors
 Audit Committee – with 3 independent directors with
one having financial and accounting knowledge.

11. 11
MANDATORY RECOMMENDATIONS
OF BIRLA COMMITTEE
 Remuneration Committee
 Board Procedures – At least 4 meetings of the board in a year
with maximum gap of 4 months between 2 meetings. to
review operational plans, capital budgets, quarterly results,
minutes of committee’s meeting.
 Director shall not be a member of more than 10 committee
and shall not act as chairman of more than 5 committees
across all companies.
 Management discussion and analysis report covering
industry structure, opportunities, threats, risks, outlook,
internal control system
 Information sharing with shareholders

12. 12
 ROLE OF CHAIRMAN
 REMUNERATION COMMITTEE OF BOARD
 SHAREHOLDERS’ RIGHT FOR RECEIVING HALF YEARLY
FINANCIAL PERFORMANCE
 POSTAL BALLOT COVERING CRITICAL MATTERS LIKE
ALTERATION IN MEMORANDUM ETC
 SALE OF WHOLE OR SUBSTANTIAL PART OF THE
UNDERTAKING
 CORPORATE RESTRUCTURING
 FURTHER ISSUE OF CAPITAL
 VENTURING INTO NEW BUSINESSES
NON-MANDATORY
RECOMMENDATIONS
OF BIRLA COMMITTEE

13. 13
IMPLEMENTATION OF
RECOMMENDATIONS OF THE
BIRLA COMMITTEE
 By introduction of Clause 49 in the listing agreement with
stock exchanges the following Provisions were introduced.
 Composition of Board - In case of full time chairman, 50%
non-executive directors and 50% executive directors
 Constitution of audit committee – With 3 independent
directors with chairman having sound financial
background. finance director and internal audit head to be
special invitees and minimum 3 meetings to be convened.
It should be responsible for review of financial performance
0n half yearly/annually basis; appointment/
removal/remuneration of auditors; review of internal
control systems and its adequacy.

14. 14
 Remuneration of Directors – Remuneration of non-
executive directors to be decided by the board.
details of remuneration package, stock options,
performance incentives of directors to be
disclosed
 Board Procedures – At least 4 meetings in a year.
director not to be member of more than 10
committees and chairman of more than 5
committees across all companies
: CLAUSE 49 REQUIREMENTS

15. 15
In addition, under Clause 49
Management discussion & Analysis
report – should include: (a) industry
structure & developments (b)
opportunities & threats (c) segment
wise or product wise performance

16. 16
RECENT DEVELOPMENTS
 COMMITTEE HEADED BY SHRI NARESH CHANDRA
CONSTITUTED IN AUGUST 2002 TO EXAMINE CORPORATE
AUDIT, ROLE OF AUDITORS, RELATIONSHIP OF COMPANY &
AUDITOR
 RECOMMENDATION OF NARESH CHANDRA COMMITTEE:
 RECOMMENDED A LIST OF DISQUALIFICATIONS FOR AUDIT
ASSIGNMENTS LIKE DIRECT RELATIONSHIP WITH
COMPANY, ANY BUSINESS RELATIONSHIP WITH CLIENT,
PERSONAL RELATIONSHIP WITH DIRECTOR
 AUDIT FIRMS NOT TO PROVIDE SERVICES SUCH AS
ACCOUNTING, INTERNAL AUDIT ASSIGNMENTS ETC. TO
AUDIT CLIENTS
 AUDITOR TO DISCLOSE CONTINGENT LIABILITIES &
HIGHLIGHT SIGNIFICANT ACCOUNTING POLICIES

17. 17
RECENT DEVELOPMENTS
 RECOMMENDATION OF NARESH CHANDRA COMMITTEE:
 AUDIT COMMITTEE TO BE FIRST POINT OF REFERENCE FOR
APPOINTMENT OF AUDITORS
 CEO & CFO OF LISTED COMPANY TO CERTIFY ON FAIRNESS,
CORRECTNESS OF ANNUAL AUDITED ACCOUNTS
 REDEFINITION OF INDEPENDENT DIRECTORS – DOES NOT
HAVE ANY MATERIAL, PECUNIARY RELATIONSHIP OR
TRANSACTION WITH THE COMPANY
 COMPOSITION OF BOARD OF DIRECTORS
 STATUTORY LIMIT ON THE SITTING FEE TO NON-EXECUTIVE
DIRECTORS TO BE REVIEWED
 RECOMMENDATIONS HAVE FORMED PART OF COMPANIES
(AMENDMENT) BILL, 2003

18. 18
 SEBI CONSTITUTED A COMMITTEE HEADED BY SHRI N. R.
NARAYANA MURTHY TO REVIEW EXISTING CODE OF CORPORATE
GOVERNANCE
 RECOMMENDATIONS:
 STRENGHTENING THE RESPONSIBILITIES OF AUDIT COMMITTEE
 IMPROVING QUALITY OF FINANCIAL DISCLOSURES
 UTILISATION OF PROCEEDS FROM IPO
 TO ASSESS & DISCLOSE BUSINESS RISKS
 FORMAL CODE OF CONDUCT FOR BOARD
 WHISTLE BLOWER POLICY TO BE PALCE IN A COMPANY
PROVIDING FREEDOM TO APPROACH THE AUDIT COMMITTEE
 SUBSIDIARIES TO BE REVIEWED BY AUDIT COMMITTEE OF
HOLDING COMPANY
RECENT DEVELOPMENTS

19. 19
CORPORATE GOVERNANCE - ULTIMATE
OBJECTIVE
TO ATTAIN HIGHEST STANDARD OF
PROCEDURES AND PRACTICES FOLLOWED
BY THE CORPORATE WORLD SO AS TO
HAVE TRANSPARENCY IN ITS
FUNCTIONING WITH AN ULTIMATE AIM TO
MAXIMISE THE VALUE OF VARIOUS
STAKEHOLDERS.

20. 20
Redefining Corporate Governance
 Processes and Structure by which
business and affairs of corporate
sector is directed and managed…

21. 21
Criteria for Good Governance
 Ownership Rights of Shareholder (C1)
 Transparency & Disclosure (C2)
 Performance of the Management (C3)
 Effectiveness of Board of Directors (C4)
 Equitable Treatment of Stake Holders (C5)
 Leadership, Ethics and Culture (C6)

22. 22
HENCE
 Any meaningful research into corporate
governance must follow the above route.
 This involves: (administering questionnaires,
conducting, conducting focused interviews
and remembering all the time that data is
important)
 Never forget that correlation does not imply
causation