Corporate Governance: principles, policies and practices 9788131758458, 9788131797563, 8131758451

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CORPORATE GOVERNANCE PRINCIPLES, POLICIES AND PRACTICES

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CORPORATE GOVERNANCE PRINCIPLES, POLICIES AND PRACTICES Second Edition

A. C. Fernando Former Professor of Economics and Corporate Governance and Director, Loyola Centre for Business Ethics and Corporate Governance Loyola Institute of Business Administration Chennai, India

To Rex and Reshama for their constant support and encouragement

Copyright © 2011 Dorling Kindersley (India) Pvt. Ltd Licensees of Pearson Education in South Asia No part of this eBook may be used or reproduced in any manner whatsoever without the publisher’s prior written consent. This eBook may or may not include all assets that were part of the print version. The publisher reserves the right to remove any material present in this eBook at any time. ISBN 9788131758458 eISBN 9788131797563 Head Office: A-8(A), Sector 62, Knowledge Boulevard, 7th Floor, NOIDA 201 309, India Registered Office: 11 Local Shopping Centre, Panchsheel Park, New Delhi 110 017, India

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Contents Abbreviations Foreword Preface to the Second Edition Preface About the Author

1.

PART ONE UNDERSTANDING CORPORATE GOVERNANCE Corporate Governance: An Overview

4 7 8 9 15 18 23 30 31 31 31 32 33

The Theory and Practice of Corporate Governance

42

The Concept of Corporation Theoretical Basis of Corporate Governance Corporate Governance Mechanisms Corporate Governance Systems Indian Model of Governance What is “Good” Corporate Governance? Obligation to Society at Large Obligation to Investors Obligation to Employees Obligation to Customers Managerial Obligation Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study Tata Steel: A Company That Also Makes Steel

43 46 51 53 56 57 59 62 62 64 64 66 67 68 68 68 69

Landmarks in the Emergence of Corporate Governance

75

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3.

3

Capitalism at Crossroads Increasing Awareness Global Concerns What is Corporate Governance? Governance Is More Than Just Board Processes and Procedures A Historical Perspective of Corporate Governance Issues in Corporate Governance Conclusion Keywords Disscussion Questions Notes Suggested Readings Case Study Infosys Technologies: The Best Among Indian Corporates „ „ „ „ „ „ „

2.

xiii xix xx xxii xxiii

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Introduction Corporate Governance Committees World Bank on Corporate Governance OECD Principles McKinsey Survey on Corporate Governance Sarbanes–Oxley Act, 2002 Indian Committees and Guidelines Working Group on the Companies Act, 1996

76 77 81 82 84 84 87 87

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Contents

The Confederation of Indian Industry’s Initiative SEBI’s Initiatives Naresh Chandra Committee Report, 2002 Narayana Murthy Committee Report, 2003 Dr. J. J. Irani Committee Report on Company Law, 2005 Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study ITC Limited: Is Corporate Governance Only Skin Deep?

89 92 96 98 100 103 103 103 104 104 105

PART TWO AGENTS AND INSTITUTIONS IN CORPORATE GOVERNANCE Rights and Privileges of Shareholders

119

Introduction Rights of Shareholders Views of Various Committees on the Issue Poor Track Record of Shareholder Protection Grievance Redressal Process Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study The Tussle over Corporate Governance at Reliance

120 121 122 128 133 133 133 133 134 134 135

Investors’ Problems and Protection

144

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4.

„ „ „ „ „

5.

Introduction Relationship Between Investor Protection and Corporate Governance Corporate Governance Through Legal Protection of Investors Investor Protection in India SEBI’s Poor Performance— Suggestions for Improvement Conclusion Keywords Discussion Questions Notes Suggested Readings „ „ „ „ „

6.

Corporate Governance and Other Stakeholders

160

Introduction „ Corporate Governance and Employees „ Corporate Governance and Customers „ Corporate Governance and Institutional Investors „ Corporate Governance and Creditors „ Corporate Governance and the Community „ Corporate Governance and the Government Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study The Tylenol Crisis: How Ethical Practices Saved Johnson & Johnson from Collapse

161 161 163 168 173 176 178 179 179 180 180 180 181

Board of Directors: A Powerful Instrument in Corporate Governance

187

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7.

145 146 148 151 157 158 159 159 159 159

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Introduction Role of the Board in Ensuring Corporate Governance Governance Issues Relating to the Board

188 199 201

Contents

The Role of Directors Independent Directors Directors’ Remuneration Family-owned Businesses and Corporate Governance Some Pioneering Indian Boards Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study How Unethical Practices Almost Destroyed WorldCom

202 205 206 211 214 216 216 216 217 217 218

Role, Duties and Responsibilities of Auditors

225

Introduction Types of Auditors The American Law Governing Auditors’ Responsibilities Indian Situation Naresh Chandra Committee Companies (Amendment) Bill, 2003 Companies (Auditors Report) Order (CARO), 2003 Corporate Governance and Internal Auditors Cost Audit Methodology Quality Audit Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study The Rise and Fall of Arthur Andersen

226 227 232 233 234 236 237 238 238 239 240 240 241 241 241 242

Banks and Corporate Governance

250

Banks and Corporates Why Corporate Governance in Banks? Corporate Governance and the World Bank Basel Committee on Corporate Governance Sound Corporate Governance Practices of Bank Corporate Governance in Indian Banks Review of Indian Experience in Corporate Governance Ganguly Committees’s Recommendations Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study Global Trust Bank: The Bank That Went Bust

251 251 252 253 255 261 263 264 268 269 269 269 270 271

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8.

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9.

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PART THREE FACILITATORS, ROLE PLAYERS AND REGULATORS 10. Business Ethics and Corporate Governance Introduction Importance and Need for Business Ethics The Indian Context Roots of Unethical Behaviour Some Unethical Issues Corporate Governance Ethics How Ethics Can Make Corporate Governance More Meaningful? Conclusion Keywords

„ „ „ „ „ „ „

281 282 283 284 286 289 291 293 294 295

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Contents

Discussion Questions Notes Suggested Readings Case Study The Enron Fiasco: Does End Justify the Means?

11. Corporate Social Responsibility Introduction Definitions of Corporate Social Responsibility (CSR) Justification of CSR The Scope of Social Responsibility Social Responsibility and Indian Corporations Conclusion Keywords Discussion Questions Notes Case Study TVS Group of Companies: Commitment Far Beyond a Sense of Corporate Social Responsibility „ „ „ „ „

12. Environmental Concerns and Corporations Introduction Industrial Pollution Evidence of Pollutants Natural Environment and Business Pollution Prevention Improving Corporate Environmental Performance The Need for a New Approach Environmental Management in India Corporate India Gets Eco-friendly India’s Environment Policy Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study World’s Worst Man-made Disasters Case Study Bhopal Tragedy: Mother of all Industrial Disasters „ „ „ „ „ „ „ „ „ „

13. The Role of the Media in Ensuring Corporate Governance Introduction Importance of the Media Corporate Governance and the Press Ethics in Advertising Adverse Effects of Advertising Conclusion Keywords Discussion Questions Notes Suggested Readings

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14. Monopoly, Competition and Corporate Governance Introduction The Concept, Logic and Benefits of Competition Benefits of Competition to Stakeholders What Is a Good Competition Policy? Indian Competition Act The MRTP Act and the Competition Act Conclusion Keywords Discussion Questions „ „ „ „ „ „

295 295 296 297

308 309 310 312 314 318 319 319 320 320 321

330 331 339 339 339 343 346 347 353 355 357 360 360 361 361 361 362 365

371 372 372 373 377 378 384 384 384 384 384

385 386 386 389 393 394 397 400 400 400

Contents

Notes Suggested Readings

15. The Role of Public Policies in Governing Business Introduction Framing of Public Policy Involvement of Business in Public Policy Decision Making Public Policy and Business Economic Policy Monetary Policy Fiscal Policy Physical Controls Government Regulations in Business Public Policies and Government Regulations in India Workplace Safety and Health Functional Regulations MRTP Act, 1969 „ Public Policies for the Global Village Conclusion Keywords Discussion Questions Suggested Readings „ „ „ „ „ „ „ „ „ „ „ „ „

16. SEBI: The Indian Capital Market Regulator Introduction Phenomenal Growth of Indian Capital Market Role of Securities Market in Economic Growth The Securities and Exchange Board of India SEBI’s Role in Promoting Corporate Governance SEBI’s Record of Performance SEBI’s Role in the New Era SEBI’s Shortcomings Suggestions for SEBI’s Improvement Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study Ketan Played Around with Others’ Money „ „ „ „ „ „ „ „ „

17. The Role of the Government in Ensuring Corporate Governance Introduction „ Different Roles of Government in the Economy „ State Intervention in a Developing Economy „ Public Governance and Corporate Governance „ Political Governance Requires Restraints of Power „ Public Versus Corporate Governance—A Study of Comparison Conclusion Keywords Discussion Questions Notes „

ISSUES AND PROBLEMS OF CORPORATE GOVERNANCE IN EMERGING ECONOMIES 18. Corporate Governance in Developing and Transition Economies

xi 401 401

402 403 409 409 411 413 413 414 416 417 418 420 425 426 428 429 430 430 430

431 432 432 436 438 442 444 445 452 454 455 455 456 456 456 457

459 460 461 463 464 464 469 474 474 475 475

PART FOUR

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Introduction Problems Faced by Developing and Transitional Economies

479 480 481

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Defining Corporate Governance Corporate Governance Models The Institutional Framework for Effective Corporate Governance Corporate Governance Challenges in Developing, Emerging and Transition Economies Current Corporate Governance Settings in Transition Economies Conclusion Keywords Discussion Questions Notes Suggested Readings Case Study Problems and Issues of Corporate Governance in Emerging Economies: Russian Example „ „ „ „ „

19. Corporate Governance: The Indian Scenario Introduction The Emergence of Corporate Governance Issues in India Efforts to Initiate Corporate Governance in the Country Implementation of the Recommendations of Birla Committee Report Pioneers in Good Governance Practices Need For Accounting Standards Corporate Governance Rating Corporate Governance in India—A Performance Appraisal The Future of Corporate Governance in India Conclusion Keywords Discussion Questions Notes Suggested Readings Reports Case Study Insider Trading: HLL–BBLIL Merger „ „ „ „ „ „ „ „ „

20. The Corporation in a Global Society

483 484 486 491 492 494 494 495 495 495 496

507 508 510 511 514 518 524 525 527 532 534 534 535 535 535 536 537

541

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Introduction Factors Facilitating Globalisation Role of Multinational Corporations Caux Round Table Key Global Issues for Business Corporate Governance—A Prerequisitie for Globalisation Conclusion Keywords Discussion Questions Notes Suggested Readings

542 542 544 545 550 552 553 554 554 554 554

Glossary Bibliography Useful Web Sites on Corporate Governance and CSR Official Reports Prominent Guidelines on Corporate Governance Links on Corporate Governance Name Index Subject Index

555 564 570 571 572 573 575 577

Abbreviations

AAIFR ADB AFL-CI0 AGM AIST ALI AMCs AMFI AOP ARF AS ASB ASC ASSOCHAM BCCI BIFR BIS BOL BOOS BOOT BOP BPE BSE CAC CAD CAG CAGR CAO CARE CBDT CBEC CCFI CCI CDSL CEO CFE CFO CFS CG CII CIS CISCO CLA CLB

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Appellate Authority for Industrial and Financial Reconstruction Asian Development Bank American Federation of Labor and Congress of Industrial Organisations Annual General Meeting Australian Institute of Superannuating Trustees American Law Institute Asset Management Companies Association of Mutual Funds of India Association of Persons Assets Reconstruction Fund Accounting Standards Accounting Standards Board Accounting Standards Committee Associated Chambers of Commerce and Industry Bank of Credit and Commerce International The Board for Industrial and Financial Reconstruction Bank of International Settlements Build–Own–Lease Build–Own–Operate System Build–Own–Operate Transfer Balance of Payments Bureau of Public Enterprises Bombay Stock Exchange Capital Account Convertibility Current Account Deficit Comptroller and Auditor-general Compound Average Growth Rate Chief Accounts Officer Credit Analysis and Research Ltd. Central Board of Direct Taxes Central Board of Excise and Customs Cabinet Committee on Foreign Investment Controller of Capital Issues Central Depository Security Ltd Chief Executive Officer Certified Fraud Examiner Chief Financial Officer Consolidated Financial Statement Corporate Governance Confederation of Indian Industry Commonwealth of Independent States The City Group for Small Companies Central Listing Authority Company Law Board

xiv

Abbreviations

CMD CMIE COFEPOSA COPU COR COSO CPA CPA CPI CPSC CRA CRF CRISIL CRR CSO CSR CUTS D&OLI Policy DCA DCC DEA DEMAT DGCI&S DICGC DP DRI DTL EC ECB ECM ED EDIFAR EEC EEOC EFTA EMR ESAF ESCAP ESI ESOP ESOS ESPS EXIM BANK FRB FAO FASB FBI FCCBs FD

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Chairman and Managing Director Centre for Monitoring Indian Economy Conservation of Foreign Exchange and Prevention of Smuggling Activities Committee on Public Undertakings Capital–output Ratio Committee of Sponsoring Organisations Certified Public Accountant Consumer Protection Act, 1986 Consumer Price Index Consumer Product Safety Commission Credit Rating Agencies Consumer Redressal Forum The Credit Rating Information Service of India Ltd. Cash Reserve Ratio Central Statistical Organisation Corporate Social Responsibility Consumer Unity and Trust Society Directors and Officers Liability Insurance Policy Department of Company Affairs, Government of India Depositories and Custodian Cell (of SEBI) Department of Economic Affairs Dematerialisation Directorate General of Commercial Intelligence and Statistics Deposit Insurance and Credit Guarantee Corporation Depository Participants Differential Rate of Interest Demand and Time Liabilities Executive Chairman External Commercial Borrowing European Common Market Executive Director Electronic Data Filing and Retrieval System (SEBI) European Economic Community Equal Employment Opportunity Commission European Free Trade Association Exclusive Marketing Rights Enhanced Structural Adjustment Facility Economic and Social Commission for Asia and the Pacific Employees State Insurance; Environmental Sustainability Index Employee Stock Option Plan Employee Stock Option Scheme Employee Stock Purchase Scheme Export and Import Bank Federal Reserve Board Food and Agriculture Organisation The Financial Accounting Standards Board Federal Bureau of Investigation Foreign Currency Convertible Bonds Fixed Deposits

Abbreviations

FDI FEMA FER FERA FERC FICCI FIIA FIIs FIPB FIPC FMCG FTC FTZ GAAP GATT GCA GCF GDCF GDP GDRs GEF GFCF GFD GRT GSTP HDI HPAEs IAS IASB IASC IBM IBPs IBRD ICAEW ICAI ICC ICICI ICL ICRA ICRR ICSI ICWAI IDA IDBI IDI IDRA IEBR IEPC IEPF

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Foreign Direct Investment Foreign Exchange Management Act Foreign Exchange Reserves Foreign Exchange Regulation Act Federal Energy Regulatory Commission Federation of Indian Chambers of Commerce and Industry Foreign Investment Implementation Authority Foreign Institutional Investors Foreign Investment Promotion Board Foreign Investment Promotion Council Fast Moving Consumer Goods Federal Trade Commission Free Trade Zones Generally Accepted Accounting Principles General Agreement on Trade and Tariff General Currency Area Gross Capital Formation Gross Domestic Capital Formation Gross Domestic Product Global Depository Receipts Global Environment Fund Gross Fixed Capital Formation Gross Fiscal Deficit Gross Registered Tonnage Global System of Trade Preference Human Development Index High Performing Asian Economies International Accounting Standards; Indian Administrative Service International Accounting Standards Board International Accounting Standards Committee International Business Machines Inter-bank Participations International Bank for Reconstruction and Development (World Bank) The Institute of Chartered Accountants in England and Wales The Institute of Chartered Accountants of India Interstate Commerce Commission Industrial Credit and Investment Corporation of India Indian Confederation of Labour The Investment Information and Credit Rating Agency Independent Cash Reserve Ratio The Institute of Company Secretaries of India The Institute of Costs and Works Accountants of India International Development Association Industrial Development Bank of India Industrial Development Index Industrial Development and Regulation Act International Extra Budgetary Resources Investor Education and Protection Committee Investor Education and Protection Fund

xv

xvi

Abbreviations

IFAC IFC IFCI IIF IFSA IGG IIBI IIDC IIM IIP ILO IMF IPO IPPs IRDA IRS IUCN LA LATAM LERM LIBOR LLP LTFP MAOCARO MAPIN MD MF MFA MFN MIC MIS MMMFs MODVAT MOF MOU MRTP MRTP Act MRTPC MSBs MTN MTO NACD NAFTA NASSCOM NAV NBFCs NCAER NCDRC NCL

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

International Federation of Accountants Indian Fiscal Commission Industrial Finance Corporation of India Institute of International Finance Investment and Financial Services Association Investors Grievances and Guidance Division, SEBI Industrial Investment Bank of India Integrated Infrastructure Development Centre Indian Institute of Management Index of Industrial Production International Labour Organisation International Monetary Fund Initial Public Offer Independent Power Producers Insurance Regulation and Development Authority Internal Revenue Service International Union for the Conservation of Nature and Natural Resources Listing Agreement Latin America Liberalised Exchange Rate Mechanism London Inter-bank Borrowing Rate Limited Liability Partnership Long-term Fiscal Policy Manufacturing and Other Companies (Auditors Report) Order Market Participation and Investor Database (SEBI) Managing Director Mutual Funds Multi-fiber Agreement Most Favoured Nations Monopolies Inquiry Commission Management Information System Money Market Mutual Funds Modified Value Added Tax Ministry of Finance Memorandum of Understanding Monopolies and Restrictive Trade Practices Monopolies and Restrictive Trade Practices Act Monopolies and Restrictive Trade Practices Commission Market Stabilisation Bonds Multilateral Trade Negotiations Multilateral Trade Organisation National Association of Corporate Directors North American Free Trade Agreement National Association of Software and Services Companies (India) Net Asset Value Non-banking Finance Companies National Council of Applied Economic Research National Consumer Disputes Redressal Commission National Commission on Labour

Abbreviations

NCLT NDP NEAT NEF NEP NFCG NGOs NIEs NLRB NPAs NRIs NRNR NSDL NSDP NSE OECD OGL OPEC OTCEI PAC PBT PCAOB PCDs PCFC PDS PMS POB PPDs PPPs PSEs PSU QRB R&D RBI RCF ROC ROI SAARC SADF SAT SBI SCDRC SCMRD SEBI SEC SFC SLR SNA SOX

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

National Company Law Tribunal Net Domestic Product National Exchange Automated Trading System National Equity Fund New Economic Policy National Foundation for Corporate Governance Non-government Organisations Newly Industrialised Economies National Labour Relations Board Non-performing Assets Non-resident Indians Non-resident Non-repatriable Rupee Account National Securities Depository Ltd Net State Domestic Product National Stock Exchange Organisation for Economic Cooperation and Development Organisations Open General License Organisation of Petroleum Exporting Countries Over the Counter Exchange of India Public Accounts Committee Profit Before Tax Public Company Accounting Oversight Board Partially Convertible Debentures Packing in Credit in Foreign Currency Public Distribution System Portfolio Management Scheme Public Oversight Board Process-cum-product Development Centres Purchasing Power Parities Public Sector Enterprises Public Sector Undertakings Quality Review Board Research and Development Reserve Bank of India Risk Capital Foundation Registrar of Companies Return on Investment South Asian Association for Regional Cooperation South Asian Development Fund Securities Appellate Tribunal State Bank of India State Consumer Disputes Redressal Commission Society for Capital Market Research and Development Securities and Exchange Board of India Securities and Exchange Commission (USA) State Financial Corporation Statutory Liquidity Ratio System of National Accounts Sarbanes Oxley Act (USA)

xvii

xviii

Abbreviations

SPC SRI SRO STCI STP TCOs TDC TDICI TNCs TRIMs TRIPs UNCTAD UNDP UNESCO UNRID UPS UR UTI VAM VAT VCF VOICE WDR WHO WPI WTO XGS ZBB

– – – – – – – – – – – – – – – – – – – – – – – – – – – –

Small Private Company Socially Responsible Investing Self-regulatory Organisation Securities Trading Corporation of India Ltd. Straight Through Processing Technical Consultancy Organisations Technology Development Cell Technology Development and Information Company of India Ltd. Transnational Corporations Trade Related Investment Measures Trade-related Intellectual Property Rights United Nations Conference on Trade and Development United Nations Development Programme United Nations Educational, Scientific and Cultural Organisation United Nations Research Institute for Development Usual Principal Status Uruguay Round Unit Trust of India Value Added by Manufacture Value Added Tax Venture Capital Fund Voluntary Organisation in Interest of Consumer Education World Development Report World Health Organisation Wholesale Price Index World Trade Organisation Exports of Goods and Services Zero-base Budgeting

Foreword

When we introduced ‘corporate governance’ as an elective during my tenure as Director of LIBA, we found the course to be an extremely popular one. The course became popular, partly because of the subject, but largely because of the popularity of Professor Fernando. His book Corporate Governance: Principles, Policies and Practices distills and collects the results of all those years of teaching by Professor Fernando at LIBA. I am greatly honoured by the privilege accorded to me by my former colleague in being asked to write the foreword to his book. Today, governance has become a hot subject in every field. We need good governance in government, especially in people-elected governments. In fact, governance is important for effective delivery of the vision of any organisation—NGOs, religious bodies, trade unions, even families. Corporate governance gains greater importance since it is the largest sector in any country involving most of the human and natural resources and making the largest contribution to the economic development of a country. Unless there is proper corporate governance, no country can progress. Though the importance of corporate governance was always implicit, its relevance came to the fore only after the crisis created by Enron, Andersen and others. Human tendency is to lock the stable after the horses are stolen but, thank God, people awoke to the situation before all the horses were stolen. Today, like the three sisters of a religion—faith, hope and charity—three sisters of corporations—business ethics, corporate governance and social responsibility—are necessary to satisfy all the stakeholders. Everyone speaks about them, most management schools teach them but, alas, very few practise them. At this juncture, it is very timely to have a book on corporate governance from a person who has many years of corporate experience and is an eminent professor of the subject. The book, starting with the meaning of corporate governance and why it rose to a preeminent position, tackles various issues. Any organisation in a social order has to comply with legal obligations. But this is the minimum one should do. If a corporation fails to comply with the law, the law enforcers will deal a severe blow as they have done to so many corporations. Unfortunately, they catch the culprits very late or after others have caught them, as we often see in movies. But if a corporation believes that it is sufficient to meet the legal requirements alone and aim at maximising profit, it will meet a tragic end sooner than it expects. Today, an organisation has to move beyond legal compliance; it has to have social welfare, quality of life and the country’s development at heart. Unless a corporation tries to practise these, it will be swept away by the mighty current of self-interest. If it wants to follow the path of the “invisible hand”, its “survival” will be at stake. Professor Fernando, while considering legal compliance, business ethics, corporate governance and social responsibility, also deals with the need for the corporations to have a deep concern for environment. Environmental concern should arise not merely from social responsibility and ethical compliance concerns, but also from the point of view of profitability, growth and ultimately to offer quality of life to its employees and customers. This implies that a corporation, for its very existence, has to be concerned about environment. Professor Fernando deals with all these areas with a large number of examples, in his usual lucid and powerful style. These days, a lot of books are trickling in on these subjects, but very few are comprehensive. I have seen only one, but it is in four volumes. This book will meet the need of management schools, corporations and enforcing authorities. St Ignatius of Loyola used to speak of his little book Spiritual Exercises as a collection of exercises to be practised if one wished to transform oneself. Similarly, this book is a collection of chapters on corporate governance, not just to be read but to be practised. One has to practise it with great sincerity and zeal. It will transform not only the corporate world, but also politics, NGO administration and religious bodies. N. Casimir Raj, S. J. Director XLRI Jamshedpur

Preface to the Second Edition

I am happy to acknowledge that the first edition of my book Corporate Governance: Principles, Policies and Practices has been well received both by academicians as well as students. The book fulfilled a void that existed at that point of time for a well-conceptualized and structured book on the subject of corporate governance, which was then emerging as a new discipline in management science. Though there were very few institutions that had adopted corporate governance as an elective course, still the demand for the book surged as years went by. More and more libraries and faculty in the department of management started patronising the book. I am thankful to the faculty, students and others who took time to go through the book and also for communicating with me the need to incorporate certain salient features they thought the new edition of the book should have. I am happy to include some of their suggestions.

The Organisation of the Book The book Corporate Governance: Principles, Policies and Practices is divided into four parts with a view to providing instructors and students a convenient and systematic build-up of knowledge on the subject that is being dealt with herein. Part One: “Understanding Corporate Governance” deals with the basics of corporate governance a student of the subject ought to know such as an overview of the subject, the theory and practice of corporate governance and landmarks in the emergence of corporate governance as a systematised body of knowledge. Part Two: “Agents and Institutions in Corporate Governance” deals with all those agents, institutions and mechanisms that are engaged in promoting corporate governance, and includes the study of shareholders—their rights and privileges; investors’ problems and their protection; corporate governance and other stakeholders; the role of board of directors and auditors in ensuring corporate governance and how it is important for commercial banks. Part Three: This part provides an in-depth study of “Facilitators, Role Players and Regulators”, which deals with all those institutions and role players that are engaged in promoting corporate governance. In this part, students are exposed to the study of business ethics in its relation to corporate governance, corporate social responsibility and environment, besides the role of the media in ensuring corporate governance and how monopoly and competition provide different situations in its implementation in corporations. Part three also deals with such topics as the role of public policies in governing business, the Indian capital market regulator, SEBI and the role of the government in ensuring corporate governance. Part Four: “Issues and Problems of Corporate Governance in Emerging Economies” deals with issues and problems of corporate governance in emerging economies such as Russia and India. The last chapter deals with the corporation in a global society.

Features The book presents a detailed study of corporate governance written in simple and lucid language. Starting with the explanation of the basic issues relating to the subject, it guides the readers from elementary to complex concepts. All theoretical concepts are illustrated with examples from the Indian corporate sector. The book incorporates several features that make it a student-friendly text. Designed to cater to the needs of students both as a text and as a reference volume on corporate governance, the book provides an in-depth