Financial Resource

CORPORATE GOVERNANCE-A COMPARATIVE  STUDY OF  SELECT PUBLIC SECTOR AND PRIVATE SECTOR COMPANIES IN INDIA

                                                      BY

                                Dr.V.V.S.K.PRASAD.,Professor

                                                       &

                          T. VENKATESWARA RAO., Asst.Professor

 

BACKGROUND

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include labor(employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.

Corporate governance is a multi-faceted subject. 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. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis shareholders’ welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below).

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.

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.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.

 

OBJECTIVES OF THE STUDY

Counterbalancing the very strong recent public interest in the corporate governance of private sector companies has been a vigorous interest in the governance of public sector organisations. While there are similarities between the two sectors in governance terms, there are also significant differences that shape the way government departments, authorities, corporations and even government business enterprises are organised and governed. If the public sector is looked at even more closely, there is a wide variety of forms, structures, processes and practices that can be discerned from agency to agency.

 The present study has multifold objectives :

1.      To compare and contrast corporate governance practices of Public sector and private sector companies in India.

2.      To examine whether there is any correlation between corporate governance practices and  the performance of the company.

3.      To Study the investors perception on the company having good governance practices.

4.      To understand common governance practices if any , in both public sector and private sector companies.

 

I. CORPORATE GOVERNANCE IN INDIAN PRIVATE SECTOR COMPANIES

 

1. GRASIM

Code of Conduct (hereinafter referred to as “the Code”) has been framed and adopted by Grasim Industries Limited (hereinafter referred to as “the Company”) in compliance with the provisions of Clause 49 of the Listing Agreements entered into by the Company with the Stock Exchanges.

Applicability
The Code applies to the Members of Board of Directors (hereinafter referred to as “Board Members) and Members of the Senior Management Team of the Company one level below the Executive Directors, viz. Business Heads, Unit Heads, Presidents, Joint Presidents and all other executives having similar or equivalent rank in the Company and the Company Secretary of the Company (hereinafter referred to as “Senior Managers”).

The Company Secretary shall be the Compliance Officer for the purpose of this Code.

The Code shall come into force with effect from 1 January 2006 and future amendments / modifications shall take effect from the date stated therein.

The Code shall be posted on the website of the Company.

Code of conduct
The Board Members and Senior Managers shall observe the highest standards of ethical conduct and integrity and shall work to the best of their ability and judgement.

The Board Members and the Senior Managers of the Company:

1

Shall maintain and help the Company in maintaining highest degree of Corporate Governance practices.

2

Shall act in utmost good faith and exercise due care, diligence and integrity in performing their office duties.

3

Shall ensure that they use the Company’s assets, properties, information and intellectual rights for official purpose only or as per the terms of their appointment.

4

Shall not seek, accept or receive, directly or indirectly, any gift, payments or favour in whatsoever form from Company’s business associates, which can be perceived as being given to gain favour or dealing with the Company and shall ensure that the Company’s interests are never compromised.

5

Shall maintain confidentiality of information entrusted by the Company or acquired during performance of their duties and shall not use it for personal gain or advantage.

6

Shall not commit any offences involving morale turpitude or any act contrary to law or opposed to the public policy.

7

Shall not communicate with any member of press or publicity media or any other outside agency on matters concerning the Company, except through the designated spokespersons or authorised otherwise.

8

Shall not, without the prior approval of the Board or Senior Management, as the case may be, accept employment or a position of responsibility with any other organization for remuneration or otherwise that are prejudicial to the interests of the Company and shall not allow personal interest to conflict with the interest of the Company.

9

Shall in conformity with applicable legal provisions disclose personal and/ or financial interest in any business dealings concerning the Company and shall declare information about their relatives (spouse, dependent children and dependent parents) including transactions, if any, entered into with them.

10

Shall ensure compliance of the prescribed safety & environment related norms and other applicable codes, laws, rules, regulations and statutes, which if not complied with may, otherwise, disqualify him/ her from his/ her association with the Company.

11

Shall ensure compliance with SEBI (Prohibition of Insider Trading) Regulations, 1992 as also other regulations as may become applicable to them from time to time.

Annual compliance reporting:
Board Member and Senior Managers shall affirm compliance with this Code on an annual basis as at the end of the each financial year of the Company (as per Appendix I within 7 days of the close of every financial year).

Acknowledgement of receipt of the code
Each Board Members and Senior Managers both present and future shall acknowledge receipt of the Code or any modification(s) thereto, in the acknowledgement form annexed to this Code as Appendix – II and forward the same to the Compliance Officer.

Any breach of the aforesaid Code brought to the notice of the Compliance Officer or any member of the Board or Senior Management shall be reported to the Board of Directors of the Company for necessary action.

2. ITC

 ITC’s Corporate Governance initiative is based on two core principles. These are :

         i.            Management must have the executive freedom to drive the enterprise forward without undue restraints; and

This freedom of management should be exercised within a framework of effective accountability.

ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations.

Cornerstones

From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC’s governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfíls the purpose of Corporate Governance.

Trusteeship :

ITC believes that large corporations

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