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AMITY SCHOOL OF BUSINESS

AMITY UNIVERSITY UTTAR PRADESH NOIDA

CORPORATE GOVERNANCE

Name of the Student: YASH MITTAL (A3923016021 ; 15)

KARTIK GARG (A3923016028 ; 14)

Program:

Bachelors of Business Administration + Masters Of Business Administration

(B.B.A+M.B.A Dual Degree)

Batch: 2016-2020

Course: STRATEGIC FINANCIAL MANAGEMENT

Faculty Supervisor: Dr. PRIYA SOLOMON

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CHAPTER I: INTRODUCTION

Corporate governance is a system of structuring, operating, and

controlling a company with a view to achieving long-term strategic
goals to satisfy its shareholders, creditors, employees, customers and
suppliers. It aims to comply with the legal and regulatory
requirements, besides meeting the environmental and local
community needs. It includes the policies and procedures adopted by
a company to achieve its objectives in relation to its shareholders,
employees, customers suppliers, regulatory authorities and the
community at large. It prescribes a Code of Corporate Conduct in
relation to all the stakeholders. Therefore, a framework of
effective accountability to the stakeholders is the essence of corporate
governance.

In India, the question of corporate governance has come up mainly

in the wake of economic liberalization and deregulation of industry and
business as well as the demand for a new corporate ethos and stricter
compliance with the legislation. In this context, where the financial
institutions hold substantial stakes in companies, the accountability of
all the directors, including nominees, has come into sharp focus.
Therefore, a good governance demands that a company must have a
responsibility to set exemplary standards of ethical behaviour, both
within internal and external.

BAD CORPORATE GOVERNANCE

Bad corporate governance can cast doubt on a company's reliability, integrity or

obligation to shareholders—all of which can have implications on the firm's
financial health. Tolerance or support of illegal activities can create scandals like
the one that rocked Volkswagen AG starting in September 2015. The development
of the details of "Diesel gate" (as the affair came to be known) revealed that for
years, the automaker had deliberately and systematically rigged engine emission
equipment in its cars in order to manipulate pollution test results, in America and
Europe. Volkswagen saw its stock shed nearly half its value in the days following

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the start of the scandal, and its global sales in the first full month following the
news fell 4.5%.
Public and government concern about corporate governance tends to wax and
wane. Often, however, highly publicized revelations of corporate malfeasance
revive interest in the subject. For example, corporate governance became a
pressing issue in the United States at the turn of the 21st century, after fraudulent
practices bankrupted high-profile companies such as Enron and WorldCom. It
resulted in the 2002 passage of the Sarbanes-Oxley Act, which imposed more
stringent recordkeeping requirements on companies, along with stiff criminal
penalties for violating them and other securities laws. The aim was to restore
public confidence in public companies and how they operate.
Other types of bad governance practices include:

 Companies do not cooperate sufficiently with auditors or do not select

auditors with the appropriate scale, resulting in the publication of spurious or
noncompliant financial documents.
 Bad executive compensation packages fail to create an optimal incentive for
corporate officers.
 Poorly structured boards make it too difficult for shareholders to oust
ineffective incumbents.

PRINCIPLES OF CORPORATE GOVERNANCE

Corporate governance is carried out in accordance with the Company’s Corporate

Governance Code and is based on the following principles:

 Accountability: The Code provides for accountability of the Company's

Board of Directors to all shareholders in accordance with applicable law and
provides guidance to the Board of Directors in making decisions and
monitoring the activities of the executive bodies.
 Fairness: The Company undertakes to protect shareholders' rights and
ensure equal treatment of shareholders. The Board of Directors shall give all
shareholders the opportunity to obtain effective redress for violations of their
rights.

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 Transparency: The Company shall provide timely, accurate disclosure of

information about all material facts relating to its activities, including its
financial situation, social and environmental indicators, performance,
ownership structure and governance of the Company, as well as free access
to such information for all stakeholders.
 Responsibility: The Company recognizes the rights of all interested parties
permitted by applicable law, and seeks to cooperate with such persons or
companies for their own development and financial stability.

BENEFITS OF CORPORATE GOVERNANCE

 Good corporate governance ensures corporate success and economic growth.

 Strong corporate governance maintains investors’ confidence, as a result of
which, company can raise capital efficiently and effectively.
 It lowers the capital cost.
 There is a positive impact on the share price.
 It provides proper inducement to the owners as well as managers to achieve
objectives that are in interests of the shareholders and the organization.
 Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
 It helps in brand formation and development.
 It ensures organization in managed in a manner that fits the best interests of
all.

SYSTEMS OF CORPORATE GOVERNANCE IN INDIA

Looking at the history, it can be said that a good corporate
governance has always been an issue since the companies started
using stock market to meet their financing needs. The history of East
India Company (EIC) suggests how the first publicly listed
company’s indulgence in trade and accounting malpractices led to the
widespread public protests and demand for reform. A unique
similarity of such corruptive practices has been observed even after
400 years and repeated in modern corporates like Enron and
WorldCom.
Executive greed, rampant corruption, insider trading and appalling
corporate governance practices were all there. It is sheer irony that
East India Company, where the seeds of the modern-day board were

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first sown, faired miserably on corporate governance front. Even

then, the importance of practicing corporate governance principles
was not played down.

In India, every segment attached to the corporates has unanimously

accepted the proposition that there is a need for practicing the
corporate governance principles. Let us now look through various
systems of corporate governance in India.

OBJECTIVES OF CORPORATE GOVERNANCE

 Create Social Responsibility

 Create Transparent working system
 Create accountable management
 Protect and provide interest of stakeholders
 Development of efficient organization culture
 Aid in achieving social and economic goals
 Improve social cohesion
 Minimize wastage, red-tapism

PRE-REQUISITES OF CORPORATE GOVERNANCE

 Presence of good organizational culture with defined authority and

responsibilities
 Presence of visionary goals and a mission to grow the organization

TOOLS OF CORPORATE GOVERNANCE

 Efficient use of resources

 Value addition to product
 Maximizing customer satisfaction
 Creation of wealth for the business
 Management of risk
 Develop ethical standards for work

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 Develop a value oriented organization

IMPORTANCE OF ORPORATE GOVERNANCE

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CHAPTER II: LITERATURE REVIEW

 CORPORATE GOVERNANCE IN INDIA

Corporate fraud and governance failure is occurring frequently which is why we

require good corporate governance in the country. India provides proper norms and
laws aligned with international requirements to govern a corporate.
Some of the important reasons why we require corporate governance are as
follows:-
 Corporate Governance protects shareholders democracy by implementing it
through its code of conduct.
 Corporate governance is necessary to build public confidence in the
corporation which was shaken due to numerous corporate fraud in recent
years. It is important for reviving the confidence of investors.
 Large corporate investors are becoming a challenge to the management of
the company because they are influencing the decision of the company.
Corporate governance set the code to deal with such situations.
 The huge flow of international capital in Indian companies are also
affecting the management of Indian Corporates which require a code of
corporate conduct.

PRINCIPLES OF CORPORATE GOVERNANCE

 Transparency
 Accountability
 Independence

CORPORATE GOVERNANCE FRAMEWORK IN INDIA

 The Companies Act 2013

 SEBI(Securities and Exchange Board of India)
 Accounting Standards Issued by ICAI
 Standard Listing Agreement of Stock
 Secretarial Standards Issued by ICSI

ISSUES IN CORPORATE GOVERNANCE IN INDIA

Major issues in the field of Corporate Governance are :-

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 Board Performance:- At least one woman director is necessary, and also the
balance of executive and non-executive directors are not
maintained. Evaluation is not performed from time to time and transparency
is lost somewhere. The performance is not result oriented. These
requirements are not always met with.
 Independent Directors:- Even after SEBI guidelines being issued to the
corporates, for the appointment of an audit committee or giving of a
comprehensive definition of the independent directors, the actual situation
appears to be worse.
 Accountability to Stakeholders:- The accountability is not restricted to that
of the shareholders or the company, it is for the society at large and also the
environment. The directors are not to keep in mind their own interests but
also the interests of the community.
 Risk Management:- The risk management techniques are to be mandatorily
be undertaken by the directors as per the Company Laws and they have to
mention in their report to shareholders as well. This is not being done in the
most sincere manners required for the job.

 Corporate Governance in USA

The United States struggles with its corporate governance framework. The US
corporate governance is made of multiple facets: legal, securities, and accounting
rules designed to protect the interests of shareholders in a transparent means. The
overall system lacks rigorous implementation or at least is perceived as such.

In the United States there are two primary sources of law and regulation relating to
corporate governance:

 State Corporate Laws

State corporate law - both statutory and judicial - governs the formation of
privately held and publicly traded corporations and the fiduciary duties of
directors. Delaware is the most common state of incorporation. Because
Delaware law and interpretation are influential in other states, the Delaware
General Corporation Law (DGCL) is used in this article as the reference
point for all state law discussion. Shareholder suits are the primary
enforcement mechanism of state corporate law.

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 Federal Securities Laws

On the federal level, the primary sources are the Securities Act of 1933
(Securities Act) and the Securities Exchange Act of 1934 (the Exchange
Act), each as amended. The Securities Act regulates all offerings and sales
of securities, whether by public or private companies. The Exchange Act
addresses many issues, including the organisation of the financial
marketplace generally, the activities of brokers, dealers and other financial
market participants and, as to corporate governance, specific requirements
relating to the periodic disclosure of information by publicly held, or
‘reporting’, companies. A company becomes a reporting company under the
Exchange Act when its securities are listed on a national securities exchange
or when it has total assets exceeding US$10 million and a class of securities
held of record by more than 2,000 persons or a maximum of 500 persons
who are not sophisticated. Both the Securities Act and the Exchange Act
have addressed questions of corporate governance primarily by mandating
disclosure, rather than through normative regulation.

In addition, a number of corporate governance guidelines and codes of

American Law Institute(ALI) includes:-

 National Association of Corporate Directors (NACD), Key Agreed

Principles
 NACD, Report of the NACD Blue Ribbon Commission on Director
Professionalism
 NACD, Report of the NACD Blue Ribbon Commission on Building the
Strategic-Asset Board
 Business Roundtable, Principles of Corporate Governance
 The Conference Board, Commission on Public Trust and Private Enterprise:
Findings and Recommendations
 Commonsense Principles of Corporate Governance issued by a coalition of
high-profile representatives of leading public companies and institutional
investors.

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CHAPTER III: CASE STUDY

INDIA:

Good corporate governance in the changing business environment has emerged as

powerful tool of competitiveness and sustainability. It is very important at this
point and it needs corporation for one and all i.e. from CEO of company to the
ordinary staff for the maximization of the stakeholders’ value and also for
maximization of pleasure and minimization of pain for the long term business.

Global competitions in the market need best planning, management, innovative

ideas, compliance with laws, good relation between directors, shareholders,
employees and customers of companies, value based corporate governance in order
to grow, prosper and compete in international markets by strengthen their strength
overcoming their weaknesses and running them effectively and efficiently in an
efficient and transparent manner by adopting the best practices.

Corporate India must commit itself as reliable, innovative and prompt service
provider to their customers and should also become reliable business partners in
order to prosper and to have all round growth.

Corporate Governance is nothing more than a set of ideas, innovation, creativity,

thinking having certain ethics, values, principles etc which gives direction and
shape to its people, employees and owners of companies and help them to flourish
in global market.

Indian Corporate Bodies having adopted good corporate governance will reach
themselves to a benchmark for rest of the world; it brings laurels as a way of
appreciation. Corporate governance lays down ethics, values, and principles,
management policies of a corporation which are inculcated and brought into
practice. The importance of corporate governance lies in promoting and maintains
integrity, transparency and accountability throughout the organization.

Corporate governance has existed since past but it was in different form. During
Vedic times kings used to have their ministers and used to have ethics, values,
principles and laws to run their state but today it is in the form corporate
governance having same rules, laws, ethics, values, and morals etc which helps in
running corporate bodies in the more effective ways so that they in the age of
globalization become global giants.

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Several Indian Companies like PepsiCo, Infuses, Tata, Wipro, TCS, and Reliance
are some of the global giants which have their flag of success flying high in the sky
due to good corporate governance.

Toady, even law has a great role to play in successful and growing economy.
Government and judiciary have enacted several laws and regulations like SEBI,
FEMA, Cyber laws, Competition laws etc and have brought several amendments
and repeal the laws in order that they don’t act as barrier for these corporate bodies
and developing India. Judiciary has also helped in great way by solving the
corporate disputes in speedy way.

Corporate bodies have their aim, values, motto, ethics and principles etc which
guide them to the ladder of success. Big and small organizations have their
magazines annual reports which reflect their achievements, failure, their profit and
loss, their current position in the market. A few companies have also shown
awareness of environment protection, social responsibilities and the cause of
upliftment and social development and they have deeply committed themselves to
it. The big example of such a company can be of Deepak Fertilizers and
Petrochemicals Corporation Limited which also bagged 2nd runner up award for
the corporate social responsibility by business world in 2005.

Under the present scenario, stakeholders are given more importance as to

shareholders, they even get chance to attend, vote at general meetings, make
observations and comments on the performance of the company.

Corporate governance from the futuristic point of view has great role to play. The
corporate bodies in their corporate have much futuristic approach. They have
vision for their company, on which they work for the future success. They take risk
and adopt innovative ideas, have futuristic goals, motto, and future objectives to
achieve.

With increase in interdepence and free trade among countries and citizens across
the globe, internationally accepted corporate governance standards are of
paramount importance for Indian Companies seeking to distinguish themselves in
global footprint. The companies should always keep improving, enhancing and
upgrading themselves by bringing more reliable integrated product and service
quality. They should be more transparent in their conduct.

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Corporate governance should also have approach of holistic view, value based
governance, should be committed towards corporate social upliftment and social
responsibility and environment protection. It also involves creative, generative and
positive things that add value to the various stakeholders that are served as
customers. Be it finance, taxation, banking or legal framework each and every
place requires good corporate governance.

 CORPORATE GOVERNANCE IN FORD MOTORS

ABOUT COMPANY:

The Ford Motor Company often referred to simply as Ford, is an automobile maker founded by
Henry Ford in Detroit, Michigan, and incorporated on June 16, 1903. Ford radically reformed the
methods for large-scale manufacturing of cars, and large-scale management of an industrial
workforce. Ford implemented the ideas of Eli Whitney, who developed the first assembly line using
interchangeable parts, which made it possible to put the cars together at a much lower cost and with
greater reliability and repeatability.

Ford was launched from a converted wagon factory, with $28,000 cash from 12 investors.
During its early years, the company produced just a few cars a day at the Ford factory on Mack
Avenue in Detroit. Groups of two or three men worked on each car from components made to order
by other companies. In 1908, the Ford company released the Ford Model T. By the end of 1913,
Ford was producing 50% of all cars in the United States, and by 1918 half of all cars in the country
were Model Ts. Referring to the Model T, Henry Ford is reported to have said that "Any customer
can have a car painted any color that he wants so long as it is black." This was because black paint
was quickest to dry; earlier models had been available in a variety of colors.

Today, Ford Motor Company manufactures automobiles under the highly-recognized Lincoln and
Mercury brand names. . Ford has major manufacturing operations in Canada, Mexico, the United
Kingdom, Germany, Brazil, Argentina, Australia and several other countries, including South
Africa.

Ford also has a cooperative agreement with GAZ. In recent years Ford has acquired Aston Martin,
Jaguar, Volvo Cars and Land Rover, as well as a controlling share of Mazda, with which it operates
an American joint venture plant called Auto Alliance. It has spun off its parts division under the
name Visteon. Its prestige brands, with the exception of Lincoln, are managed through its Premier
Automotive Group.

Ford Motor Company currently has 3.22 billion shares outstanding and 25.19 Billion dollars is
it’s the current market capitalization.

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CORPORATE GOVERNANCE PRINCIPLES IN FORD MOTORS:

I PURPOSE

These Corporate Governance Principles, adopted by the Board of Directors of the Company,
together with the charters of the Audit Committee, the Compensation Committee, the Sustainability
Committee, the Finance Committee and the Nominating and Governance Committee of the Board,
provide the framework for the governance of Ford Motor Company. The Board reviews these
principles and other aspects of Ford governance annually or more often, as the Board deems
necessary or appropriate.

The Board of Directors of the Company is elected by and responsible to the shareholders. Ford's
business is conducted by its employees, managers and officers, under the direction of the chief
executive officer (the CEO) and the oversight of the Board, to enhance the long-term value of the
Company for its shareholders. The Board of Directors monitors the performance of the CEO and
senior management to assure that the long-term interests of the shareholders are being served.

II BOARD OF DIRECTORS STRUCTURE AND OPERATION

The directors are elected each year by the shareholders at the annual meeting of shareholders.
Shareholders may propose nominees for consideration by the Nominating and Governance
Committee of the Board by submitting the names, qualifications, and other supporting information
to: Secretary, Ford Motor Company, One American Road, Dearborn, MI 48126. Properly submitted
nominations must be received by the date set forth in the most recent proxy statement to be
considered by the Nominating and Governance Committee for inclusion in the following year's
nominations for election.

The Board proposes a slate of nominees to the shareholders for election to the Board. The Board also
determines the number of directors on the Board, provided that there are at least 10 and not more
than 20 directors, as provided in the By-Laws of the Company. Between annual shareholder
meetings, the Board may elect directors to vacant Board positions to serve until the next annual
meeting.

A majority of the directors must be independent directors under the New York Stock Exchange
(NYSE) Listed Company rules or any other applicable regulatory requirements; as such
requirements may change from time to time. The Board of Directors recognizes, however, that
directors who do not meet the NYSE's independence standards have historically made, and can be
expected to continue to make, valuable contributions to the Board and to the Company by reason of
their experience, judgment, intelligence and wisdom.

The Board has established the following Committees to assist the Board in discharging its
responsibilities:
i. Audit
ii. Compensation

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iii. Sustainability
iv. Finance
v. Nominating
and Governance. The Committee chairs report on the matters considered at each of their meetings
to the full Board of Directors following each Committee meeting. In addition to the requirement
that a majority of the Board satisfy the independence standards discussed above, members of the
Audit Committee must also satisfy additional independence requirements.

III MEETINGS

The Board of Directors ordinarily has 7 scheduled meetings a year. Directors ordinarily are expected
to attend all scheduled Board and Committee meetings, the annual meeting of shareholders, and are
expected to review the materials provided to them in advance of each meeting.

IV RESPONSIBILITIES AND DUTIES

In addition to the Board's general oversight of the CEO and senior management, the Board also is
responsible for:
 selecting, evaluating and compensating the CEO and overseeing CEO succession
planning;
 providing counsel and oversight on the selection, evaluation, development and
compensation of the officers of the Company; and
 approving and maintaining a succession plan for the CEO and other key senior
executives including an emergency succession plan for the CEO.

As part of its overall responsibility to serve the long-term interests of the shareholders, the
Board alsoshall:
 review, approve and monitor fundamental financial and business strategies and
major Company actions;
 review and discuss reports by management on the performance of the Company, its
plans, products and prospects;
 assess major risks facing the Company -- and review and approve strategies for
addressing such risks; and
 ensure processes are in place for maintaining the integrity and reputation of the
Company -the integrity of the financial statements, compliance with law and Company policy, the
integrity of relationships with customers and suppliers, and the integrity of relationships with other
Company stakeholders.

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V ANNUAL PERFORMANCE EVALUATION

The Board and each of the Committees will perform an annual self-evaluation. Each of the
directors will be requested to provide his or her assessment of the effectiveness of the Board and the
Committees on which he or she serves. If determined by the Board to be desirable, the Board may
retain independent corporate governance experts to assist the Board and the Committees with the
self-evaluations.

 CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility is being willing to help others, being environmentally conscious and
socially tolerant.

As a global business, Ford accepts the social responsibility and the commitment to people all over
the world. They have designed a special program to promote tolerance and equal opportunities, and
actively support social and environmental protection programs. They were also the first car
manufacturer to obtain ISO 14001 certification, a stringent environmental standard, for all of the
facilities worldwide.

Ford has received official allergy friendly accreditation for its range of cars including the Ka, Fiesta,
Focus, C-MAX, Mondeo, S-MAX and Galaxy. The accreditation has been provided by the German
standards authority TUV following a series of rigorous tests, assuring that all interiors of Ford cars
minimise the allergy risk to the lowest possible level. The Ford range of allergy-friendly cars has
also received the official approval from the British Allergy Foundation and the European Centre for
Allergy Research Foundation (ECARF). The Ford Kuga was launched at Ford's Allergy Free garden
at the Bloom Festival.

 COMPETETIORS IN FORD MOTORS

Ford Motor’s main competitors in the consumer discretionary sector are General Motors Company
(GM), Toyota Motor (TM), Daimler (DDAIF), Honda Motor Company (HMC), Tesla Motors
(TSLA), Navistar International (NAV), and Spartan Motors (SPAR).

Jumpstart Automotive Group, a leading automotive marketing and publishing network, announced
that Ford has officially separated from the rest of the automakers, trumping primary competitors like
Chevrolet, Toyota and Honda across Jumpstart's portfolio of 11 automotive shopping websites.
"Ford's 2010 surge reflects continuous improvement of the automaker's brand perception and
awareness," said Joe Kyriakoza, Vice President of Marketing Communications at Jumpstart. "Ford
vehicle redesigns and refreshes, as well as the development of industry-leading technologies like
Sync, have helped the company resonate exceptionally well among consumers."

It appears the shopping patterns observed by Jumpstart are translating into sales activity, with
Ford enjoying a 30 percent growth in sales. Vehicles like Ford Focus, Ford Taurus and Ford
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Fusion are challenging the historic segment leaders, while Ford's F-Series continues its domination
among competitive brands with a 35 percent sales growth from January to May of this year.

 CORPORATE GOVERNANCE PRINCIPLES IN AMERICA

In the United States, corporations are directly governed by state laws, while the exchange of
securities in corporations is governed by federal legislation. Many U.S. states have adopted
the Model Business Corporation Act, but the dominant state law for publicly-traded corporations
is Delaware, which continues to be the place of incorporation for the majority of publicly-traded
corporations. Individual rules for corporations are based upon the corporate charter and, less
authoritatively, the corporate bylaws. Shareholders cannot initiate changes in the corporate charter
although they can initiate changes to the corporate by laws.

 CORPORATE GOVERNANCE IN BANKS

Indias commitment to corporate governance is demonstrated by an understanding

that in a globalised world, capital flows to where it is best protected and bypasses
places where protection is limited or non-existent. Unlike some countries, efforts to
compile a corporate irregularities. Moreover ,it was Indian industry that provided
the impetus towards a corporate governance code. Thus, when the securities and
exchange board of India [sebi] first introduced a corporate governance code in
1999,it put India ahead of many others, the class Asia pacific markets and Asian
corporate governance association joint report in 2005 concludes that India ranks
among the top three in terms of corporate governance.

Recognizing that new international principles and best practices now exist, in
2005, sebi amended its corporate governance code, or clause 49 of the listing
agreement, ensuring that Indian companies match their business counterparts
anywhere in the world. Such meticulousness has brought numerous plaudits from
investors as well as the institute of international finance [iif],Washington d.c.,
whose India task force recently affirmed that Indian corporate governance norms
strengthen domestic capital market.

Banks in a broad sense, are institiutions whose business is handling other peoples
money, a joint stock bank, also known as commercial bank, is a company whose
business is banking. These are more particularly institiutions that deal directly with

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the general public, as opposed to the merchant banks and other institutions more
concerned with trade and industry. These banks specialize in business connected
with bills of exchange, especially the acceptance of foreign bills. A merchant
banker is thus a financial intermediary who helps in transferring capital from those
who posses it to from those who need it, merchant banking includes a wide range
of activities management of customer’s and appraisal, underwriting of shares and
debentures, acting as banker of refund orders, handling interest and dividend
warrants, etc.

Sometimes banks are setup to handled specialized functions for particular

industries such as the idbi (industrial development bank of india), nabard (national
bank for agriculture and rural development), and (exim bank) export –import bank
. There has been a great deal of attention given recently to the issue of corporate
governance in various national and international forums.

 CORPORATE GOVERNANCE IN INDIAN BANKS

Although the subject of corporate governance has received a lot of attention in

recent times in in.a, corporate governance issue and practices by indian banks have
received only a scanty notice. The question of corporate governance in banks is
important for several reasons.
 Banks have an overwhelmingly dominate position in developing the
company’s financial system, and are extremely important engines of growth.

 As the country’s financial markets are underdeveloped, bank in India are the
most significant source of finance for a majority of firms in Indian industry.

 Banks are also the channels through which the country’s savings are
collected and Sued for investments.

 India has recently liberalized its banking system through privatization,

disinvestments and has reduced the role of economic regulation and
consequently managers of banks have obtained greater autonomy and
freedom with regard to running of banks

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 IMPORTANCE OF CORPORATE GOVERNANCE IN BANKS

 Banks have an overwhelmingly dominant position in developing-economy

financial systems, and are extremely important engines of economic growth.

 As financial markets are usually underdeveloped, banks in developing

economies are typically the most important source of finance for the
majority of firms.

 As well as providing a generally accepted means of payment, banks in

developing countries are usually the main depository for the economy’s
savings.

 Many developing economies have recently liberalised their banking systems

through privatization/ disinvestments and reducing the role of economic
regulation. Consequently, managers of banks in these economies have
obtained greater freedom in how they run their banks.

 Due to the unique nature of the banking firm, whether in the developed or
developing world, requires that a broad view of corporate governance, which
encapsulated both shareholders and depositors, be adopted for banks. In
particular, the nature of the banking firm is such that regulation is necessary
to protect depositors as well as the overall financial system.

 The separation of ownership and control has given rise to an agency problem
whereby management operate the firm in their own interests, not those of
shareholders.

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 RBI GUIDELINES FOR CODES OF BEST PRACTICES IN BANK

The reserve bank of india has issued

guidelines for the formulation of best practices
code (bpc) by bank to prevent frauds. The
norms have been issued to bring about a certain
minimum level of uniformity with regard to the
content and coverage of the code.

The code should cover all the functional areas like cash, safe custody of others
valuable, deposits accounts, investment portfolio, credit portfolio, foreign
exchanges transaction and treasury operation. The bpc may also incorporated
practices that would help prevention of losses to its customers and include suitable
guidance to such customer.
The involvement of government is discernibly higher in banks due to importance
of stability of financial system and the larger interests of the public.

 MEASURES TAKEN BY REGULATOR TOWARDS CORPORATE

GOVERNANCE

Reserve bank of india has taken various steps further corporate governance in the
indian banking system. These can broadly be classified into the following three
categories:
1. Transparency: transparency and accounting standard in india have been
enhanced to align with international best practices. However there are many
gaps in the disclosure in india vis-à-vis the international standards,

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particularly in the area of risk management strategies and risk parameters, risk
concentrations, performance measures. Hence disclosure of standard needed.

2. Off-site surveillance: It is also active mechanism in monitoring the

movement of asset its impact on capital adequacy and overall efficiency and
adequacy of managerial practices in bank. Rbi also brings out the periodically
data on “peer group comparison” on critical ratio to maintain peer pressure for
better performance and governance.

3. Prompt corrective action transparency: Prompt corrective action has been

adopted by rbi as a part of core principle for effective banking supervision.

 RECOMMENDATIONS FOR EFFECTIVE CORPORATE

GOVERNANCE IN India

 Since banks are important players in the indian financial system, special
focus on the corporate governance in the banking sector becomes critical.

 The reserve bank of india, as a regulator, has the responsibility on the nature
of corporate governance in the banking sector.

 To the extent that banks have systemic implications, corporate governance in

the banks is of critical importance.

 Given the dominance of public ownership in the banking system in india,

corporate practices in the banking sector would also set the standards for
corporate governance in the private sector.

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 With a view to reducing the possible fiscal burden of recapitalising the

public sector banks attention towards corporate governance in the banking
sector assumes added importance prerequisites for good governance.

 A proper system consisting of clearly defined and adequate structure of

roles, authority and responsibility.

 Vision, principles and norms which indicate development path, normative

considerations and guidelines and norms for performance.

 A proper system for guiding, monitoring, reporting and control.

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CHAPTER IV: BIBLIOGRAPHY

 www.google.com
 www.scribd.com
 bbamantra.com
 www.upcounsel.com
 www.icaew.com
 www.investopedia.com
 Iclg.com
 www.lexology.com
 Corporate Governance: Principles, Policies:- By Robert Ian Tricker

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