Corporate Governance

Business Ethics and Corporate Governance in Lic of India

OVERVIEW INSURANCE- AN INTRODUCTION Meaning: Insurance may be described as a social device to ensure protection of economic value of life and other assets. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus, collective bearing of risk is insurance. Insurance = Collective Bearing of Risks|
Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The term “risk” is used to describe the possibility of adverse results flowing from any occurrence or the accidental happenings, which produce a monetary loss. Insurance is a pool in which a large number of people exposed to a similar risk make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. The sharing of risk among large groups of people is the basis of insurance.
Related article: Disadvantages of Ethics in Business

The losses of an individual are distributed over a group of individuals. Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, Insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose. Definitions: Fundamental Definition In the words of D. S. Hansell, “Insurance accumulates contributions of all parties participating in the scheme. Contractual Definition In the words of Justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency”. Working of Insurance Insurance Industry in India : The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage.
The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business.
Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalized monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore. Before 1956, insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized as well.
But, unlike life insurance, a different structure was created for the industry. India had the nineteenth largest insurance market in the world in 2003. Strong economic growth in the last decade combined with a population of over a billion makes it one of the potentially largest markets in the future. Insurance in India has gone through two radical transformations. One holding company was formed with four subsidiaries. As a part of the general opening up of the economy after 1992, a Government appointed committee recommended that private companies should be allowed to operate.
It took six years to implement the recommendation. Private sector was allowed into insurance business in 2000. However, foreign ownership was restricted. No more than 26% of any company can be foreign-owned. A totally regulation free regime ended in 1912 with the introduction of regulation of life insurance. A comprehensive regulatory scheme came into place in 1938. This was disabled through nationalization in what follows; we examine the insurance industry in India through different regulatory regimes. But, the Insurance Act of 1938 became relevant again in 2000 with deregulation.
With a strong hint of sustained growth of the economy in the recent past, the Indian market is likely to grow substantially over the next few decades. The rest of the chapter is organized as follows. First, we study the evolution of insurance business before nationalization. This is important because the denationalized structure brought back to play important legal rules from 1938. Next we analyze the nationalized era separately for life and property casualty business as they were not nationalized simultaneously.
Much of post-independence history of insurance in India was the history of nationalized insurance. In the following section, we examine the new legal structure introduced after the industry was denationalized in 2000. In the penultimate section, we examine the current state of play and projected future of the industry. Important Milestones in the Life insurance business in India: * 1870: Bombay Mutual life assurance society is the first Indian owned life insurer. * 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. * 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. * 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crores from the Government of India. * 1997: Insurance regulator IRDA set up. 2000: IRDA starts giving licenses to private insurers like Kotak Life Insurance, ICICI Prudential and HDFC Standard Life insurance first private insurers to sell a policy. * 2001: Royal Sundaram Alliance first non life insurer to sell a policy. * 2002: Banks were allowed to sell insurance plans. As Third Party Administrations (TPAs) enter the scene, insurers start setting non-life claims in the cashless mode. * 2004-05: The Government proposed for increasing the foreign equity stake to 49%. * 2007: First Online Insurance portal, set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt.
Ltd. LIFE INSURANCE CORPORATION ACT, 1956 An act to provide for the nationalization of life insurance business in India by transferring all such business to a Corporation established for the purpose and to provide for the regulation and control of the business of the Corporation and for matters connected therewith or incidental thereto. BUSINESS ETHICS Ethics are moral guidelines which govern good behavior. So behaving ethically is doing what is morally right. Behaving ethically in business is widely regarded as good business practice. To provide you with a couple of quotes:
Ethical principles and standards in business: * Define acceptable conduct in business * Should underpin how management make decisions An important distinction to remember is that behaving ethically is not quite the same thing as behaving lawfully: * Ethics are about what is right and what is wrong * Law is about what is lawful and what is unlawful You will probably note the link between business ethics and corporate social responsibility (CSR). The two concepts are closely linked: * A socially responsible firm should be an ethical firm * An ethical firm should be socially responsible
However there is also a distinction between the two: * CSR is about responsibility to all stakeholders and not just shareholders * Ethics is about morally correct behavior How do businesses ensure that its directors, managers and employees act ethically? A common approach is to implement a code of practice. Ethical codes are increasingly popular – particularly with larger businesses and cover areas such as: * Corporate social responsibility * Dealings with customers and supply chain * Environmental policy & actions * Rules for personal and corporate integrity NEED OR IMPORTANCE OF BUSINESS ETHICS
These 12 points below discuss the need, importance of business ethics: 1. Stop business malpractices: Some unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding etc. These malpractices are harmful to the consumers. Business ethics help to stop these business malpractices. 2. Improve customers’ confidence: Business ethics are needed to improve the customers’ confidence about the quantity, quality, price, etc of the products.
The customers have more trust and confidence in the businessmen who follow ethical rules. 3. Survival of business: Business ethics are mandatory for the survival of the business. The businessmen who do not follow it will have short term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy products from that businessman. He will also tell others not to buy from that businessman. So this will defame his image and provoke a negative publicity. This will result in the failure of the business.
Therefore, if the businessmen do not follow ethical rules, he will fail in the market. 4. Safeguarding consumers’ rights: The consumer has many rights such as right to health and safety, right to be informed, right to choose, right to be heard, right to redress, etc. But many businessmen do not respect and protect these rights. Business ethics are must to safeguard these rights of the consumers. 5. Protecting employees and shareholders: Business ethics are required to protect the interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices. . Develops good relations: Business ethics are important to develop good and friendly relations between business and society. This will result in a regular supply of good quality goods and services at low prices to the society. It will also result in profits for the businessmen thereby resulting in growth of economy. 7. Creates good image: Business ethics create a good image for the business and businessmen. If the businessmen follow all ethical rules, then they will be fully accepted and not criticized by the society. The society will always support those businessmen who follow this necessary code of conduct. 8.
Smooth functioning: If the business follows all the business ethics, then the employees, shareholders, consumers, dealers and suppliers will all be happy. So they will give full cooperation to the business. This will result in the smooth functioning of the business. 9. Consumer movement: Business ethics are gaining importance because of the growth of the consumer movement. Today the consumers are aware of their rights. Now they are more organized and cannot be cheated easily. They take actions against those businessmen who indulge in bad business practices. They boycott poor quality, harmful, high priced and duplicate goods.
Therefore, the only way to survive in business is to be honest and fair. 10. Consumer satisfaction: Today, consumer is the king of the market. Any business simply cannot survive without the consumers. Therefore, the main aim or objective is consumer satisfaction. If the consumer is not satisfied, then there will be no sales and thus no profits too. Consumer will be satisfied only if the business follows all the business ethics, and hence are highly needed. 11. Importance of labour: Labour i. e. employees or workers play a very crucial role in the success of a business.
Therefore, business must use business ethics while dealing the employees. The business must give them proper wages and salaries and provide them with better working conditions. There must be good relations between employer and employees. The employees must also be given proper welfare facilities. 12. Healthy competition: The business must use business ethics while dealing with the competitors. They must have healthy competition with the competitors. They must not do cut throat competition. Similarly, they must give equal opportunities to small-scale business. They must avoid monopoly.
This is because monopoly is harmful for the consumers. CORPORATE GOVERNANCE Good corporate governance contributes to a company’s competitiveness and reputation, Corporate governance is “the system by which companies are directed and controlled”. It involves regulatory and market mechanisms, and the roles and relationships between a company’s management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, uppliers, customers and communities affected by the corporation’s activities. . Internal stakeholders are the board of directors, executives, and other employees. Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business.
IMPORTANCE OF CORPORATE GOVERNANCE The need, significance or importance of corporate governance is listed below: 1. Changing Ownership Structure: In recent years, the ownership structure of companies has changed a lot. Public financial institutions, mutual funds, etc are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the companies to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc.
They also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance. 2. Importance of Social Responsibility: Today, social responsibility is given a lot of importance. The Board of Directors has to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance. 3. Growing Number of Scams: In recent years, many scams, frauds and corrupt practices have taken place.
Misuse and misappropriation of public money are happening everyday in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate governance. 4. Indifference on the part of Shareholders: In general, shareholders are inactive in the management of their companies. They only attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings. Shareholders associations are not strong.
Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance to protect all the stakeholders of the company. 5. Globalization: Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate governance, it is impossible to enter, survive and succeed the global market. 6. Takeovers and Mergers: Today, there are many takeovers and mergers in the business world.
Corporate governance is required to protect the interest of all the parties during takeovers and mergers. 7. SEBI: SEBI has made corporate governance compulsory for certain companies. This is done to protect the interest of the investors and other stakeholders. PROFILE OF THE ORGANISATION LIFE INSURANCE CORPORATION OF INDIA Life Insurance Corporation of India (LIC) is the largest insurance group and investment company in India. It’s a state-owned where Government of India has 100% stake. LIC also funds close to 24. 6% of the Indian Government’s expenses. It has assets estimated of 13. 25 trillion (US$264. 4 billion). It was founded in 1956 with the merger of 243 insurance companies and provident societies. Headquartered in Mumbai, financial and commercial capital of India, the Life Insurance Corporation of India currently has 8 zonal Offices and 113 divisional offices located in different parts of India, around 3500 servicing offices including 2048 branches, 54 Customer Zones, 25 Metro Area Service Hubs and a number of Satellite Offices located in different cities and towns of India and has a network of 13,37,064 individual agents, 242 Corporate Agents, 79 Referral Agents, 98 Brokers and 42 Banks (as on 31. 3. 011) for soliciting life insurance business from the public. The slogan of LIC is “Yogakshemam Vahamyaham” which translates from Sanskrit to “Your welfare is our responsibility”. The slogan is derived from the Ancient Hindu text, the Bhagavad Gita’s 9th Chapter, 22nd verse. The literal translation from Sanskrit to English is “I carry what you require”. The slogan can be seen in the logo and is written in Devanagiri script below the hands holding the lamp. | Type | State-owned| Industry| Financial services| Founded| 1 September 1956|
Headquarters| Mumbai, India| Key people| D. K. Mehrotra, (Chairman)| Products| Life and insurance, investment, mutual fund| Total assets| 13. 25 trillion (US$264. 34 billion)(2010)| Owner(s)| Government of India| Employees| 115,966 (2010)| Subsidiaries| LIC Housing Finance LIC Cards Services LIC Nomura Mutual Fund| Website| www. licindia. in| OBJECTIVES OF LIC OF INDIA * Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. Maximize mobilization of people’s savings by making insurance-linked savings adequately attractive. * Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. * Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders. Act as trustees of the insured public in their individual and collective capacities. * Meet the various life insurance needs of the community that would arise in the changing social and economic environment. * Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy. * Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective. BOARD OF DIRECTORS Shri D. K.
Mehrotra, (CHAIRMAN, LIC ) Shri T. S. Vijayan, (Managing Director, LIC ) Shri Thomas Mathew T. (Managing Director, LIC ) Shri Sushobhan Sarker (Managing Director, LIC ) Shri R. Gopalan, (Secretary, Department of Economic Affairs,  Ministry of Finance, Govt. of India. ) Shri D. K. Mittal, (Secretary, Department of Financial Services, Ministry of Finance, Govt. of India. ) Shri A. K. Roy, (Chairman cum Managing Director, GIC. ) Shri M. V. Tanksale, (Chairman & Managing Director, Central Bank of India ) Lt. General Arvind Mahajan (Retd. ) Shri Anup Prakash Garg Shri Sanjay Jain Shri Ashok Singh Shri K. S. Sampath
Shri Amardeep Singh Cheema ORGANISATION STRUCTURE OPERATIONS AWARDS WON BY LIC OF INDIA IN 2011-12 | Readers Digest “Trusted Brand” in the platinum category. | | Superbrands| | Asian Leadership Award| | LIC has been ranked :” Number One Trusted Service Brand” in the EconomicTimes Brand Equity Survey| | Rated as the “Most Preferred Life Insurance Company of the year” at the CNBC| | Dainik Bhaskar Group| | Bombay Chamber Of Commerce| | ABCI| | Star News- Customer Centric Brand Award| PROBLEMS OF LIC OF INDIA – The existing insurer, LIC and GIC, have created a large group of dissatisfied customers due to the poor quality of service.
Hence there will be shift of large number of customers from LIC and GIC to the private insurers. – LIC may face problem of surrender of a large number of policies, as new insurers will woo them by offer of innovative products at lower prices. – The corporate clients under group schemes and salary savings schemes may shift their loyalty from LIC to the private insurers. – There is a likelihood of exit of young dynamic managers from LIC to the private insurer, as they will get higher package of remuneration. – LIC has overstaffing and with the introduction of full computerization, a large number of the employees will be surplus.
However they cannot be retrenched. Hence the operating costs of LIC will not be reduced. This will be a disadvantage in the competitive market, as the new insurers will operate with lean office and high technology to reduce the operating costs. – GIC and its four subsidiary companies are going to face more challenges, because their management expenses are very high due to surplus staff. They can’t reduce their number due to service rules. – Management of claims will put strain on the financial resources, GIC and its subsidiaries since it is not up the mark. LIC has more than to 60 products and GIC has more than 180 products in their kitty, which are outdated in the present context as they are not suitable to the changing needs of the customers. Not only that they are not competent enough to complete with the new products offered by foreign companies in the market. – Reaching the consumer expectations on par with foreign companies such as better yield and much improved quality of service particularly in the area of settlement of claims, issue of new policies, transfer of the policies and revival of policies in the liberalized market is very difficult to LIC and GIC. Intense competition from new insurers in winning the consumers by multi-distribution channels, which will include agents, brokers, corporate intermediaries, bank branches, affinity groups and direct marketing through telesales and interest. – The market very soon will be flooded by a large number of products by fairly large number of insurers operating in the Indian market. Even with limited range of products offered by LIC and GIC, the consumers are confused in the market. Their confusion will further increase in the face for large number of products in the market.
The existing level of awareness of the consumers for insurance products is very low. It is so because only 62% of the Indian population is literate and less than 10% educated. Even the educated consumers are ignorant about the various products of the insurance. – The insurers will have to face an acute problem of the redressal of the consumers, grievances for deficiency in products and services. – Increasing awareness will bring number of legal cases filled by the consumers against insurers is likely to increase substantially in future. Major challenges in canalizing the growth of insurance sector are product innovation, distribution network, investment management, customer service and education. SWOT ANALYSIS OF LIC OF INDIA STRENGTHS: * India’s top insurance company and best among Public sector company. * Provide better infrastructure than any other Public company. * Brand Image * Govt Guarantee * Claims settlement * Pan India presence * Large product portfolio WEAKNESSES: * Average waiting time for the customer is 15 to 20 minutes. * No separate customer care unit * Lethargic Staff * Mediocre Top Bosses Large scale Corruption in Main Office * Ultra-Slow decision making process * Internal problems between Top Management and lower cadre Employees OPPORTUNITIES: * Setup a marketing cell at the local branch. * Ensure that policies are diversified across several customer segments * Pension Market * Health Insurance * Large Real Estate portfolio THREATS: * Growth of private players has led to shifting emphasis from public sector companies. * Internal discord * New players * Red-tapism COMPETITION INFORMATION Main Competitors of LIC * SBI Life Insurance Company * ICICI Prudential Life Insurance Company Birla Sun Life Insurance Company * HDFC Standard Life Insurance Company * Reliance Life Insurance Company COMPARISON 1. Policies and Premium 2. Claims Paid 3. Profit of the year 2011-2012 4. Life Fund Policies and Premium Claims Paid Profit of the Year 2010-11 Research Methodology Research is the process of systematic and in depth study to search for a particular subject topic or area of investigation backed by the Collection, Compilation, Analysis or Interpretation of data. It is more systematic study or activity directed towards discovery and the development of organized body of knowledge.
Success of Research depends upon the scientific methods used. There are various methods for Collecting the data. But it is not advisable and even possible to used all the methods. Every researcher must know the purpose of his study. For doing research one must set questions accordingly one has to find out and the answers through his own investigation. This Study is conducted to analyze the business ethics and corporate governance in Life Insurance Corporation of India. The data are basically segregated into two parts: a) Primary Data b) Secondary Data. a) Primary Data :-
Primary Data is collected during the course of doing experiments in an experimental research. There are several methods for collecting primary data. b) Secondary Data:- Secondary data, is data collected by someone other than the user. Secondary data are data which are collected by someone in past that includes previous year annual report, magazines, project report etc. For my project report, I had used secondary data under which I used annual reports which includes balance sheets, P;L a/c, and other general information. Limitation of the Project Report
Followings are the limitations of the project work taken by me: ? One of the limitations of this project study is of the time limitation. It is somehow difficult to fully know any big organization like LIC of India in this limited time period. ? Senior managers and others officers in LIC of India are also very busy. They do not have enough time for solving our queries in details. Objective of the study The objectives have been classified by me in this project form personal to professional but here I am not disclosing my personal objectives which have been achieved by me while doing the project.
Only professional objectives which are being covered by me in this project are as following- * To know about the business ethics and corporate governance of the organization. * To know the contribution of the organization to the society. * To know about the reliability of the organization. Scope of the Study So I am working on the project Business Ethics and Corporate Governance in LIC of India with the scope that I will get to know: * What ethics has the organization adopted? * What is organization doing for the welfare of the society? How reliable is the organization? Vision and Mission of LIC of India Mission “Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development. ” Vision “A trans-nationally competitive financial conglomerate of significance to societies and Pride of India. ” Core Values of LIC of India * Caring and Courtesy * Initiative and Innovation * Integrity and Transparency * Quality and Returns * Participation and Relationship Trustworthiness and Reliability Ethics followed by LIC of India * Provide insurance cover and financial security to every insurable person. * Conduct all aspects of business keeping in view its interest and national priorities. * Provide them prompt, efficient and courteous service. * Act as trustees of their funds and invest the fund to their best advantage. * Conduct business with utmost economy and on sound business principles. Social advantages to LIC of India • Providing organizational guidelines for business integrity in turbulent times. Helping employees deal with ethical issues they face daily on the job. • Building solid company teamwork and productivity. • Creating an insurance policy – to help ensure that company policies and procedures are legal. • Avoiding criminal “acts of omission” which can lower potential fines. • Reinforcing the values associated with quality management, strategic planning, and diversity management. • Promoting a strong public image. Corporate Governance in LIC of India Adherence to good Corporate Governance is an integral part of the philosophy of LIC’s business conduct.
The driving forces behind institutionalizing the practices of good Corporate Governance are various proactive measures, initiatives and guidance by the Government, LIC Board and its Sub Committees along with LIC’s Human Resources and Agents. Our practice of operational transparency, information sharing, accountability and ensuring dialogue with all the stakeholders in addition to formulation of value-based policies and practices at all levels made us to imbibe good Corporate Governance. This has enabled us to enhance our Brand Equity, strengthen stake of shareholders and maintain a healthy environment within the organization.
This has led to a committed organizational focus on the customer service which in turn has contributed to a good growth in business. CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. Sponsorship of CSR by LIC of India 2009-12 I. Group Schemes and Social Security Claims under various Social Security Schemes: 1, 02,950 claims amounting to Rs. 287. 4 crore paid under Social Security Schemes. a) Scholarships of Rs. 102. 53 crore was disbursed to 13, 78,744 students as a free add on benefit to the children of the members of Janashree Bima Yojana under Shiksha Sahayog Yojana during the year 2010-11. b) Scholarship for total amount of Rs. 81. 85 crore was distributed to 8, 40,568 students as a free add on benefit to the children of members of AABY Shiksha Sahayog Yojana during the year 2010-11. Social Security Cover: Total 2. 57 crore lives have been given insurance cover under various Social Security Scheme during 2010-11. Aam Admi Bima Yojana
Aam Admi Bima Yojana was launched on 2nd Oct. 2007 and a total of 47, 01,814 lives under 17 states were insured during the year bringing the total lives covered under the scheme since inception to 1,77,47,480. II. Investment in Social Sector The total investments of the Corporation amounted to Rs. 12, 66, 539. 04 crore as at 31st March, 2011. The Corporation subscribed an amount of Rs. 65, 521. 83 crore (face value) and Rs. 40, 254. 38 crore (face value) to the Securities of the Government of India and the new loan issues of the various State Governments respectively during 2010-2011.
SOCIAL RESPONSIBILITIES: It has been the constant endeavour of the Corporation to provide security to as many people as possible and to channelise the savings mobilised for the welfare of the people at large. To meet this end, the Corporation has been promoting Social Welfare through investments in Infrastructure and Social Sector which includes: * Projects/Schemes for generation and transmission of Power, * Housing Sector, * Water Supply and Sewerage Projects/Schemes, * Development of Roads, Bridges ; Road Transport. The total Investment in these sectors during 2010-11 was Rs. 5,235. 94 crore. The investments by way of Central, State and Other Government Guaranteed Marketable securities, Loans, Debentures ; Equity investments in Infrastructure and Social Sector amounts to Rs. 7,49,150 crore. III. LIC Golden Jubilee Foundation Under ‘Corporate Social Responsibility’, and to commemorate the Golden Jubilee of LIC in the year 2006, ‘LIC Golden Jubilee Foundation’ Trust was formed with the objective of promoting education, health, relief of poverty or distress and advancement of other objects of general public utility. As on 31. 3. 011 LIC has provided a Corpus of Rs. 90 crore to this Foundation and the interest earned is utilized for funding various projects for charitable purposes. As on date, LIC Golden Jubilee Foundation has supported 165 projects to the extent of Rs. 15. 66 crore. Under this Trust a scholarship scheme is also formulated by name LIC Golden Jubilee Scholarship Scheme of the Trust to give scholarships at the rate of Rs. 10000/- per annum to meritorious students belonging to economically weaker sections of society to enable them to pursue higher education at graduation level.
Scholarships were given to 802, 881 and 967 students during the years 2008-2009, 2009-2010 and 2010-11 respectively. ANALYSIS 1. Market Share 2. Goodwill Value Over its existence of around 50 years, Life Insurance Corporation of India, which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses, and contributed around 7% of India’s GDP in 2006. The Corporation, which started its business with around 300 offices, 5. 7 million policies and a corpus of INR 459 million (US$ 92 million as per the 1959 exchange rate of roughly Rs. for a US $, has grown to 25000 servicing around 350 million policies and a corpus of over 8 trillion (US$145. 6 billion). The Economic Times Brand Equity Survey 2010 rated LIC as the No. 4 Service Brand of the Country [6]. Though in the year 2010 is ranked at 4, the organization is consistently among the top rated service company of the India [7]. RANK-COMPANY 1-VODAFONE, 2-airtel, 3-SBI (STATE BANK OF INDIA), 4-LIC (LIFE INSURANCE CORPORATION). From the year 2006, LIC is continuously winning the Readers’ Digest Trusted brand award [8]. According to The Brand Trust Report [9] 2011, LIC is the 8th most trusted brand of India. . Growth Visibility of LIC of India FINDINGS After doing this project I found out that- * LIC of India conduct all aspects of the business keeping in view the interests of the community and the national priorities. * Provide insurance cover and financial security to every insurable segment including the socially and economically weaker sections of the society. * LIC of India provides their customers with prompt, efficient and courteous service. * It acts as trustees to their customer’s funds and invests them to their best advantage. * It builds and maintains enduring relationship with the customers. It also keeps the customers informed about their products and services. * It also promote a sense of participation among the workforce and make them partners in progress. * It also works towards their job satisfaction and sense of pride. * It provide and environment and opportunities for growth to enable them to realize their full potential. * It also take steps to develop professional skills of the workforce to enable them to handle their assignments more effectively. * LIC is not only the largest but the most popular life insurance company in India.  LIC has gained the consumer trust and credibility over the time that is essential to sustain in the insurance business. RECOMMENDATIONS Though, LIC of India is a very reliable and ethical company. But still there are some points which should be taken care of in future to prevent any kind of risks to the organization: * More Corporate Social Responsibility initiatives should be taken in near future in order to increase its reliability among the society. * Integrity connotes strength and stability. It means taking the high road by practicing the highest ethical standards.
Demonstrating integrity shows completeness and soundness in the organization. * Blaming others, claiming victimhood, or passing the buck may solve short-term crises, but refusal to take responsibility erodes respect and cohesion in an organization. Ethical people take responsibility for their actions. * Quality should be more than making the best product, but should extend to every aspect of your work. A person who recognizes quality and strives for it daily has a profound sense of self-respect, pride in accomplishment, and attentiveness that affects everything.
From organization’s memos to the presentations, everything it touch should communicate professionalism and quality. * Trust is hard to earn and even harder to get back after you’ve lost it. Everyone who comes in contact with the organization must have trust and confidence in how you do business. * Managers and executives should uphold the ethical standards for the entire organization. A leader is out front providing an example that others will follow. * Good ethics should be most noticeable at the top. Every employee must be accountable to the same rules. Corporate values or ethics initiative must be “sold” and “marketed” aggressively throughout the organization. Every forum and medium should be used to spread the good message. Of course, it will only be credible if the organization is practicing what it preaches. * The ethics fervor should extend to the next generation of employees. The longer it lasts, the more ingrained the principles will become. CONCLUSION Business ethics present pertinent solutions to the concerns and dilemmas faced by global organizations.
Ethical leadership is essential for the long-term survival and success of any organization. In the era of globalization, business ethics considerably influence shareholders, employees, customers, suppliers, competitors, government and civil society. Organizations should focus on the ethical issues faced by them in various functional areas like marketing, finance, human resources, production, ICT etc. The commendable work done by global corporations in inculcating and practicing business ethics underscores the importance of value based leadership in international business scenario.
Corporate governance is of paramount importance to a company and is almost as important as its primary business plan. When executed effectively, it can prevent corporate scandals, fraud and the civil and criminal liability of the company. It also enhances a company’s image in the public eye as a self-policing company that is responsible and worthy of shareholder and debt holder capital. It dictates the shared philosophy, practices and culture of an organization and its employees. A corporation without a system of corporate governance is often regarded as a body without a soul or conscience.
Corporate governance keeps a company honest and out of trouble. If this shared philosophy breaks down, then corners will be cut, products will be defective and management will grow complacent and corrupt. The end result is a fall that will occur when gravity – in the form of audited financial reports, criminal investigations and federal probes – finally catches up, bankrupting the company overnight. Dishonest and unethical dealings can cause shareholders to flee out of fear, distrust and disgust. BIBLIOGRAPHY * http://www. usinessdictionary. com/article/618/why-is-corporate-governance-important/ * http://www. licindia. in/ * http://www. businessreviewindia. in/top_ten/top-10-business/insurance-top-10 * http://www. licindia. in/GJF_aboutus. htm * http://www. licindia. in/Annual_Report_2011. pdf * http://www. irda. gov. in/ * https://www. google. co. in/ * http://en. wikipedia. org/wiki/Corporate_social_responsibility * http://www. mallenbaker. net/csr/definition. php * http://en. wikipedia. org/wiki/Life_Insurance_Corporation_of_India

Corporate Governance

Corporate Governance and its Impact on Firm Risk

This time period was selected based on the ease of availability of data for the variables. BRIEF SUMMARY: Corporate governance measures like board structure, compensation structure and ownership structure are determined by one another, and by variables such as risk, cash flows, firms’ size and regulations etc. Firm risk has a role to play in firm performance, because firms that take more risk generally have higher returns. Firms that engage in risky projects are expected to yield better returns that those which lack the appetite to take asks.
However, excessive risk taking may prove to be fatal for a firm Family Ownership and Firm Risk – studies the impact of corporate governance (through family control, bank control and ownership concentration) on risk taking of Japanese firms. Bank Ownership and Firm Risk – Banks are expected to have low risk-taking preferences and are most likely to avoid risky ventures. Ownership Structure and Firm Risk – Managerial ownership plays a significant role in firm’s risk-taking.
Lesser ownership in this regard may hold back the managers to indulge in risky projects. Board Independence and Firm Risk – Structuring of a firm’s board of directors also plays a crucial role in reducing the agency costs. Therefore, the role Of the executive board’s structure is also crucial for the firm’s value. Non-executive directors on the board of directors, acting on the part of external shareholders, are generally expected to monitor firm’ s strategy and decision-making in this regard.

CRITIQUE: The study on corporate governance has received considerable attention in the past decade or so due to the significant role of corporate governance in enhancing the firms’ performance. This research has investigated the impact f various corporate governance measures have been on firm performance and firm value. This study can also contribute to the corporate world by incorporate a vast range of corporate governance variables in the analysis, including bank ownership, family ownership, managerial ownership and board independence.

Corporate Governance

Corporate Governance – Conceptual Framework

The great Indian master of Political Science Kautilya mentioned four functions of a king in his well-known book Arthashastra -1.
Raksha or protection, 2. Vriddhi or enhancement, 3. Palana or maintenance, and 4. Yogakshema or wellbeing or safeguard. It is the sacred duty of the state to protect the person and property of its subject to enhance their wealth, to maintain them and to safeguard their interest in general. This noble concept can be applied with equal force to company management for corporate governance.The Board of Directors and the CEO or MD are the rulers and the shareholders and other stakeholders associated with the company are the subject.
The company should be managed in a way that would protect the interest of shareholders, would increase the value of their wealth and their prosperity, would lead to the welfare of the society and would increase their accountability to them. The corporate world has become so powerful in recent years that corporate governance has caught the imagination and attention of one and all.India has globalised its economy and has widened the doors for the entry of multinationals. With the onset of globalization, the competition that the corporate sector has been facing has been increased. Technology up-gradation, warranted because of intense competition, has necessitated the Indian corporate sector to seek funds not only from India but also from abroad by floating Global Depository Receipts (GDRs). Large number of foreign institutional investors is now actively participating in the Indian Capital Market.This has also necessitated the need for good governance since capital easily flows towards companies which are effectively governed and which have the motive of increasing the value of shareholders as well as the society.

CONCEPT: In broad sense, Corporate Governance examines how the company is being governed for the benefit of its various stakeholders like equity shareholders, preference shareholders, bond-holders, employees, customers, dealers, suppliers, society, government etc.Thus, corporate governance may be understood as the system by which corporates are directed and controlled by their managements in the best interest of their stakeholders and the general public. In its endeavour to ensure a higher standard of transparency and timely financial reporting, corporate governance system involves the full disclosure of all relevant information for the stakeholders to arrive at informed decisions. Corporate governance comprises the systems and processes which ensure the efficient functioning of the firm in a transparent manner for the benefit of all the stakeholders and those accountable to them.The focus is on the relationship between the owners and the Board in directing and controlling companies as legal entities perpetually. A company’s ability to create wealth for its owners, however, depends on the role and freedom given to it by the society. The corporate governance broadly identifies two sectors namely shareholders and stakeholders to whom the corporate sector has to be responsible.
Any corporation that satisfies only one sector at the cost of the other is not likely to be favoured by any and it has to have a balanced approach in meeting the needs of these two sectors.The focus on corporate governance arises out of the large dependence of companies on financial markets as the pre-eminent source of capital. The quality of corporate governance shapes the future and the growth of the Capital Market. Strong corporate governance is indispensable to resilient and vibrant capital market. But capital markets in general can function properly if individuals have access to accurate basic information about the companies they invest. The link between a company’s Management, Board and its Financial Reporting System is crucial.In the context of globalization, capital is likely to flow to markets which are well regulated and practice high standards of transparency, efficiency and integrity.
AIMS OF GOVERNANCE: Successful corporate governance lies in balancing the various conflicting interest and interest groups viz. , investors, creditors, labour, government and society at large. Corporate Governance in the context of changed socio- economic milieu does not merely confine to securing a fair return on the investment but also extends to discharging the various social responsibilities.The basic governance issues relates to the effectiveness and the accountability of Board of Directors. Effectiveness is measured by performance. How well can boards run their companies and how can they be encouraged to run them better? Effectiveness is, therefore, a measure of the equality of the leadership which Boards are giving to their companies and the taste of effectiveness is the result which those companies achieve. Accountability is largely a matter of disclosure, of transparency, of explaining a company’s activities to those to whom the company has responsibilities.
It raises the question to whom are companies answerable and to whom should they be responsible? Board of Directors is seen as having power and relative freedom to exercise that power within the law. The demand for Boards to become more accountable is, therefore, part of a wider movement for openness by institution. NEED FOR CORPORATE GOVERNANCE: With the sweeping changes in Indian economy, the growing aspiration of Indian industries to compete with the MNCs and to increase their market share, profitability, etc. have side by side enhanced their responsibility.Although the reforms initiated during the last ten years witnessed some radical changes in the rules and regulations to improve the stakeholders’ confidence. The levels of transparency and standards of disclosures observed by Indian Companies leave much to be desired. The practice of placing personal interest above those of stakeholders is quite widespread.
There had been several instances in India over the last few years when Industrial shareholders and independent directors on the Board of a Company have raised concern over the decisions of the management or promoters.The efficient Corporate Governance has become the need of the hour due to various reasons. These reasons can be pointed out as follows: 1. Significant changes taking place in global economic and business field. 2. Seizure of global opportunities and threats from competitors. 3.
Need for strategic management. 4. Making optimum use of scarce resources and developing skills. 5. Acceptance of international standards of management. 6. Increasing share of institutional investors like UTI, mutual funds, Foreign Institutional Investors (FII) etc.
7. Awareness among investors and lending institutions. . Protection of investors and promotion of public interest. 9. Increasing effectiveness of management. 10.
Real transparency of performance. 11. Enhancing shareholder’s net worth and wealth. 12. Representing accountability and responsibility towards shareholders and others having the direct or indirect interest in the company. BENEFITS OF GOOD GOVERNANCE: •Good governance leads to congruence of interest of board, management including owner managers and shareholders. •Good governance provides stability and growth to the company.
•Good governance system builds confidence among investors. Good governance reduces perceived risks, consequently reducing cost of capital. •Well governed companies enthuse employees to acquire and develop company specific skills. •In the knowledge driven excellence, the soft skills like management will be the ultimate tool for corporate to leverage a competitive advantage in the financial market. •Adoption of good corporate practices promotes stability and long-term sustenance of stakeholders’ relationship. •A good corporate citizen becomes an ethical icon and enjoys a position of pride in corporate culture. Potential stakeholders aspire to enter into relationships with enterprises whose governance credentials are exemplary.
EMERGENCE OF CORPORATE GOVERNANCE IN INDIA: The need to formulate a code of principles embodying good governance was felt in India as early as 1995-96. In India, initiative on corporate governance began with the Confederation of Indian Industries [CII] setting up in 1996 a National Task Force under the Chairmanship of Mr. Rahul Bajaj. The task force presented its recommendations and Code for Corporate Governance in 1997 which were then debated publicly.SEBI, the corporate regulator, appointed a Committee on 7th May, 1999 under the Chairmanship of Mr. Kumar Mangalam Birla to frame the guidelines for corporate governance in India. The Committee had made 25 recommendations in all.
Of them, 19 are mandatory and the remaining is non mandatory. The mandatory recommendations broadly includes new listing norms to be followed by the company, conducting Board meetings at least four times a year, constitution of audit committee, optimal blend of executive and non executive directors as well as appointment of independent directors, issue of quarterly reports etc.On the other hand, non mandatory recommendations suggest that investment institutions are not to be permitted by the Board. The Department of Company Affairs has initiated a legislative action in the Lok Sabha on 6th December, 1999 for the amendment of the Companies Act. FACTORS INFLUENCING CORPORATE GOVERNANCE: SEBI has summarized the factors which influence quality of governance in Indian Companies. a. Integrity of the Management.
b. Ability of the Board. c. Adequacy of providing the Board with relevant and timely information. d. Commitment level of individual Board members. e.
Quality of Corporate Reporting. f.Participation of stakeholders in the management. ROLE OF MAJOR PLAYERS IN CORPORATE GOVERNANCE: Where the Government and other regulatory agencies provide a platform through legislations and rules, the Board of directors, auditors, shareholders, financial institutions, company secretaries and the employees play their individual role for proper governance. Role of the BOD: A Working Group has recommended a Statement of Director’s Responsibility [SDR] to be attached along with the annual accounts for better transparency. The Directors must specify whether applicable accounting standards have been followed or not.The Directors are also responsible for maintaining adequate accounts for safeguarding the assets of the company and for detecting fraud and irregularities.
Role of Accounting Professionals: The growing complexities of business have changed the traditional role of accounting professional. On the wake of demand for good corporate governance from every quarter, the need arises for redefining their role. The activity should not only look at the reliability of accounting and reporting, it must cover all relevant business processes from brand management to customer service.Role of Company Secretaries: The Chairman and the Board will look to the Secretary for guidance on what their responsibilities are under the rules which they are subject and how those responsibilities should be discharged. There is also need for secretarial audit before financial audit to ensure compliance of all requirements of law. Role of employees: A good team of employees is the backbone of the company. However, their individual ethical standard is of a greater concern.
A responsible employee should point out the mistake of even his superior.When the employees are shareholders, their responsibilities rise even further. CORPORATE GOVERNANCE IN INDIA: In India, while the predominant form of Corporate Governance is much closer to the East Asian models, there are a number of firms that resemble the European version where the control is maintained through pyramidal form of ownership and control. The concept of industrial house which controls several companies is quite commonly accepted although the founding family does not own the company. There are quite a few companies whose practice of corporate governance is a matter of concern.Dilution of accounting and reporting standards have allowed corporations from manipulating resources for their own vested interests sidelining the stakeholders of the company. Investors have suffered on account of unscrupulous management of the companies, which have raised capital from the market at high valuations and have performed much worse than the past reported figures.
There are also many companies which are not paying adequate attention to basic procedures for shareholders services as many do not pay adequate attention to address investor’s grievances.It has to be emphasized that there is considerable synergy between economic efficiency and corporate governance. The US and UK models of Corporate Governance are an integral part of the market oriented economy. Several developments such as international integration of financial markets, requirements of foreign institutional investors and listing securities in the international stock exchanges make it imperative for companies in India to be transparent in regard to norms of corporate governance adopted by them.While sound corporate governance is necessary, it is not sufficient to improve operational efficiency and profitability. CORPOARTE GOVERNANCE IN INDIAN COMPANIES: The first systematic study on Corporate Governance was conducted by Business Today- AIIMS of the Best Boards in 1997. A total of 659 respondents in Bangalore, Kolkata, Chennai, Delhi and Mumbai, comprising 11 FIs, 10 FIIs, 23 stock brokers, 200 finance companies, 11 banks and 584 individual investors were surveyed.
The parameters set for the evaluation were: a.Accountability to share holders. b. Transparency of disclosure. c. Quality of directors. d.
Independence of decision making. CompanyAccountabilityTransparencyQualityIndependenceTotal Hindustan Lever74. 265. 475. 565. 9281. 0 TELCO63.
453. 364. 057. 6283. 3 Bajaj Auto63. 753. 262.
757. 5237. 1 HDFC62. 655. 364. 951. 7234.
5 Larsen and Toubro61. 550. 562. 258. 1232. 3 TISCO59. 851.
161. 051. 5223. 4 ACC55. 649. 258. 545.
9215. 8Colgate Palmolive58. 952. 458. 545. 9215. 8Indian Hotels 58.
151. 356. 648. 0214. IDBI55. 145. 460.
246. 9207. 7 HLL has swept the first spot. Respondents awarded the company for the blue-chip quality of its directors. TELCO getting the second position has benefited from the involvement of Ratan Tata who leads a board of august personalities who control and monitor all activities. The data reveals that the Indian corporate sector suffers from transparency and independence in decision making. The reason can be traced in their non professional management and paternal style of leadership.
CORPORATE GOVERNANCE ABROAD: The need to well manage a company is felt all over the world. Corporate sectors around the world are tuning their activities in accordance with the good principles of corporate governance. A committee in UK observed that ‘transparency’ is the basis of corporate governance. The London Stock Exchange has made it mandatory for companies to reveal their balance sheets whether or not they have followed the financial aspects of corporate governance.The Toronto Stock Exchange had constituted a committee which was of the view that ‘increasing the shareholders’ value’ should be the prime objective of corporate governance. Attaching significance to the Board, the committee specified that the main responsibility of the Board if Directors is to supervise and control the Board’s activities. They should also seek to ensure orderly succession of senior executives by selecting, training, and supervising their activities at appropriate time.
A Stakeholder, Alliance in North America has come out with its own “Sunshine Standards” to provide direction to the corporate sector reporting to the stake holders. The Alliance demands that all information relevant to the stakeholders should be provided. ISSUES OF CORPORATE GOVERNANCE: Good company governance is the need of the day for which the consciousness is increasing. But, it has to face a number of problems which are as follows: Facing impact of globalization: Globalization has a radical impact on company governance.Now, the traditional management has given place to professional management, the international standards of corporate governance have to be adopted, the mobility of resources has to be increased and foreign law and regulations have t be abided by. Challenges of drastic changes in economy: The radical changes are taking place in Indian economy. Due to globalization, all sectors of the economy are being opened up to worldwide competition, controls are being removed day by day over industries and trade and to integration of Indian industries with the world industries, a number of problems have arisen before corporate governance.
Pressure of public opinion and investors for financial reporting and transparency: Due to awareness among investors and public at large, they are demanding more and more information about companies’ objectives, about its performance, more frequent financial reporting and more transparency in its management, which is challenge to the company governance. It requires increased awareness on the part of corporate management to satisfy these demands. Challenge of global competition: the corporate management is required to face worldwide competition.The competition has reached international level for Indian companies due to liberalization and globalization. The management has to make adjustment in policies and practices of corporate governance to meet this challenge. Criticism of sudden failures and accountability: A number of companies have failed and closed down all of a sudden for which the accountability of the Board has been selected to serious criticism. Such weak and unscrupulous companies do not report their true financial position and true profitability before the investors and the public.
The Directors are held liable for this situation. SUGGESTIONS FOR EFFECTIVE CORPORATE GOVERNANCE: Effective honest and transparent corporate governance is required for enhancing the wealth and worth of the company, for promoting welfare of the society, for the success of the company, for protecting the interest of investors and other stakeholders and for fulfilling the responsibility and accountability of directors. Hence the following suggestions may be useful in meeting challenges before them and for solving a number of problems which ahs been created during recent times.Downsizing: One theoretical step towards instilling ethical values in the modern corporation is to downsize or breakup the corporate entity. Autonomy would eliminate long bureaucratic chains and increase personal motivation, communication and accountability. Long-termism: The emphasis on short term profitability creates a significant degree of instability within corporations and lead to short termism. Markets require quick results and generally discourage long term investment.
This leads to an unnecessary dissipation of corporate resources towards meaningless ends.Dealing with risk and uncertainty: The economic and technological environment is fast changing than ever before which results in great difficulty in planning reliably for the long term. In such a scenario, ethical endeavor drawn from longer planning suffers significantly. Curbing Corporate Power: The modern corporation commands significant power which has a profound influence on government and legislative process. In a recent GAAT agreement, it had been alleged that governments merely act as pawns – it was the corporate lobbyist and agents who drafted the agreement and pushed governments into signing it.Limit on the number of Directors: The number of companies in which a person can work as director has been kept at 20. This should be reduced to 10 in order that the director has to attend a few companies and play an effective role in company management.
Bringing down the number of part time directors: For efficient corporate governance it is essential that directors devote as much of their time as possible. This will be possible only when the number of part-time directors is reduced and full time directors are appointed.Frequent reporting and transparency: Quarterly un-audited financial statements are required to be published. Accounts must be audited in time and social audit must also be undertaken. In all respects, transparency would infuse confidence in investors and would make the directors more conscious of their accountability. Appointment of audit committees should be made compulsory: It is advocated that audit committees should be compulsorily appointed consisting three independent directors who will go through the progress, policies and practices adopted by the Board.SEBI has recommended that appointment of audit committees should be made compulsory by law.
Adjustments to be made along with changing times: The corporate governance has to adjust itself to environmental factors, population constituents, political position, economic factors, social factors and technological changes and must solve the problems arising out of such a situation in rational and logical manner.High ethical standards to be maintained: Maintaining high ethical standards is one of the most powerful features of good corporate governance which would include working with honest policies and practices, not accepting any secret commission, not indulging in competitive collision and not to indulge in untrue and misleading advertisements. The non executive directors should be given due importance: Non Executive directors must be given due importance and their opinions and advice must also be needed.Regular board meetings: Regular board meetings would make corporate governance more effective as policies and strategies would be framed and discussed frequently and performance evaluations would be undertaken. CONCLUSION: In India, the existing corporate governance framework has failed to encourage corporate sector to voluntarily adopt higher corporate governance standards, necessary to compete both nationally and internationally.The availability of effective legal remedies of the stakeholders in case of mismanagement, the exercise of which requires reliable and adequate information, is essential. Disclosures by the management on a timely basis can provide stakeholders with the information required to arrive at informed decisions regarding the corporation.
The ability of the market to regulate is rather doubtful. Therefore, the essential nature of regulatory institutions and mechanisms, both inside and outside the corporation, cannot be overemphasized.Self regulation can significantly assist in achieving the right regulatory framework. In the corporate structure, the role of the different stakeholders should be more clearly defined. If “Good Corporate Governance” is to become a reality, it is necessary that the company and its promoters adopt a transparent policy regarding the proper use of funds and properties of the company. The promoters should realize that they are the custodian of the company as trustee for the people connected with it. The promoters’ stress should be for the best use of the company’s resources for its benefits.
The axiom of “least governed is the best governed” should become a reality by enforcing self discipline by the promoters leading gradually to a minimum control by outside agencies including the government.BIBLIOGRAPHY: 1. Corporate Governance — N. P. Agarwal Sugan C. Jain 2. Corporate Governance — H.
R. Machhiraju 3. Taxman’s Chartered Accountants Today — March 16-31,2005 December 16-31,2005