Although there is no single acceptable definition of corporate governance, it is a means to maximise the long-term shareholder value in a legal and ethical manner, ensuring fairness, courtesy and dignity in all transactions of the company.

The Securities and Exchange Board of India (SEBI) under the Chairmanship of Shri Kumaramangalam Birla set up a committee on corporate governance on 7th May 1999, to promote and raise the standards of corporate governance. The committee recently tabled its recommendations, and the highlights are given below:

• Have an appropriate mix in the Board

The Confederation of Indian Industry recommends that at least 30% of the board should consist of outsiders if the chairman is one of them. If the chairman is an insider then 50% of the board should consist of non-executive directors. However, the major emphasis is to have directors who have a thorough understanding of the business, the market and the needs of the company.

• Ensure that the Board is aware of its functions

As per law, the board is responsible for decisions related to borrowing, lending, investing and maintenance, dividends and accounts, though good governance goes beyond that. The boards’ contributions are needed to ensure customer satisfaction, employee satisfaction, succession, planning, financial prudence, a culture of performance and the protection of society and the environment.

• Make use of a Sub Committee

Conformance to both the letter and the spirit of the law, transparency, honesty and fair play in financial practices and disclosures are essential. This can be done by setting up an audit committee with at least 3 members.

• Provide Transparency

Transparency is the basis for corporate governance. A good corporate governance model ensures fairness, courtesy and dignity in all transactions within and outside the company. Indian disclosure norms presently being inadequate, directors should benchmark international standards such as US Generally Accepted Accounting Practices.

Corporate governance also addresses issues of insider trading. It is very important that directors who have inside information of the company should not use it to unfair disadvantage of the uninformed stockholders. This calls for companies to devise an internal procedure for adequate and timely disclosures, reporting requirements, confidentiality norms and code of conduct for their directors and employees with regard to their dealings in securities.