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Project Report-Corporate Governance1

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    Project    Report    Submitted   to   the   The   Institute   of    Company   Secretaries   of    Company   New   Delhi   Prepared   By:   Garima Solanki   Registration   Number:   221364351/02/2012.    Table   of    Contents   Introduction   of    Corporate   Governance   ............................................................   1   History   of    Corporate   Governance .....................................................................   4  Recommendations   of    Kumar   Mangalam   Report.............................................   4 Meaning   of    Corporate   Governance   ..................................................................   7   Objectives   of    Corporate   Governance ..............................................................   10   Need   of    Corporate   Governance ......................................................................   11   Importance   of    Corporate   Governance ............................................................   13   Principles   Of    Corporate   Governance ........................................................ 1 4  Issues   ...........................................................................................................   14 Alignment   ....................................................................................................   14 True   Spirit   Of    Corporate   Governance   .............................................................   16   Code   Of    Corporate   Governance   ......................................................................   19  SEBI   Code   On   Corporate   Governance   ...........................................................   19 CM   Code   On   Corporate   Governance.............................................................   19 Conclusion   .......................................................................................................   21  Introduction    When   a   company    is   formed,   elected   representatives   of    the   shareholders   run   the   organisations   called   the   directors   of    the   company    and   are   usually    the   shareholders   holding   majority    of    company  ’ s   shares.   They    are   mostly    the   promoters   of    the   company.   These   elected   representatives   elect   a   chairperson   from   amongst   them    who   chairs   the   meetings   of    the   Board   of    Directors. Most   of    the   shareholders    belong   to   general   public    who   invest   to   earn   returns   in   the   form   of    dividends   and   capital   gains.   They    are   not   aware   of    the   management   problems   and   operations   and    believe   that   their   elected   representatives,   the   directors,    will   look    after   their   interests.   The   relationship    between   shareholders   and   directors   is   fiduciary    in   nature. The   interests   of    shareholders   might   not   always    be   protected    by    the   directors.   They    might   use   shareholders ’   money    for   their   personal    benefit   and   not   for   the    benefit   of    the   company.    While   shareholders   attend   meetings    where   annual   reports   are   presented    with   profit   and   loss   statements   and    balance   sheets,   they    do   not   technically    know    the    way    these   accounts   have    been   prepared. Some   expenses   may    not    be   shown   in   the   profit   and   loss   statements   and,   thus,   inflated   figure   of    profits   may     be   shown.   The   firm   is   shown   to   report   profits    while   actually    it   may    have   suffered   losses.   Such   financial   irregularities   can,   in   the   long   run,   lead   to   scams    which   the   country    has    witnessed   in   the   past.   The   companies   try    to   use   loopholes   in   law    for   their   personal    benefit   at   the   cost   of    shareholders ’   money.  With   increasing   competition   in   the   market,   companies    want   to   make   high   and   quick    profits.   They     want   sustainable   competitive   advantage   for   which   they    start   looking   to   short   cuts   to   the    basic    business   fundamentals    which   provide   them   competitive   advantage   like   differentiation   in   price,   product,   service   and   promotion,   cost   leadership,   market   focus   etc.  As   a   short   cut   to   price   differentiation,   CEOs   may    reduce   the   price   of    goods    but   at   the   same   time,   may    also   reduce   the   quality    of    goods    buying   raw    materials   from   their   known   suppliers.    While   supplier   gets   an   order,   the   CEO   gets   his   share   from   the   supplier.   Such   malpractices    become   long-term   habits   resulting   in   long-term   loss   of    profits   and   goodwill   of    the   companies.  As   these   problems    became   rampant,   there   arose   the   need   to   form   committees   to   look    into   financial   and   non-financial   irregularities   of    the   firms   and    bring   the    business    back    to   the   age-   old    value-based   management   system    based   on   cultural   and   ethical    beliefs.   The     formation   of     such   committees   to   look   into   the    problems   of     companies   came   to   be   known   as   corporate   governance.  The   concept   of    corporate   governance   gained    wide   popularity    in   1990s   to   improve   the   effectiveness   of    corporate   enterprises.    Attention   on   role   of    corporate   governance   in   economic   development   came   as   a   consequence   of    adopting   market-based   approaches   in   defining   economic   policies. It   attempts   to   remove   corporate   failures   and   dissatisfaction   of    the   stakeholders.   In   the   era   of    globalisation,   corporate   governance   plays   an   important   role.   Since   reliance   on   private   sector   increased,   it   led   to   greater   concern   on   how    corporations   operate   and   control   and   how    suppliers   of    funds   get   fair   return   on   their   investments. Corporate   governance   aims   to   achieve    balance    between   all   the   interests   present   in   corporations:   management,   shareholders   and   other
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