Corporate governance reforms have long been a central issue in developed economies, however developing economies are increasingly playing major role in the corporate governance arena since it is central to financial and economic development. With the legacy of the English legal system, India has one of the best corporate governance laws but poor implementation. Since liberalization serious efforts have been directed at overhauling the system with the SEBI instituting the Clause 49 of the Listing Agreements dealing with corporate governance.

2. CORPORATE GOVERNANCE:

Corporate governance is about maximizing shareholders value legally, ethically and on a sustainable basis, while ensuring fairness to every stakeholder. It is a reflection of a company’s culture, policies, and its relationship with stakeholders. Corporate Governance is essentially all about how organisations are directed, controlled and held accountable to the shareholders. It aims at promoting corporate fairness, transparency and accountability.

The principal characteristic of effective corporate governance is transparency which is reflected in the disclosures made by the firm. Disclosures play an important role in ensuring transparency. The company on its own should come out with adequate and timely disclosures of actual happening and honest anticipation of material events that affect the value of the company.

The ability of the Board, the commitment of the individual members of the Board, the integrity of the management team, alertness of the inspection and audit team, adequacy and quality of the process and reporting are the real factors which ensures good corporate governance in an organisation.

3. Corporate Governance in Indian in the Post Liberalization Period:

The term ‘corporate governance' remained little known in our country until 1993, and the issue came to the fore as a result of three scandals that occurred between 1990 and 1994. Thereafter, two major corporate governance initiatives were launched. The first was taken by the Confederation of Indian Industry (CII), and the second was established by the Securities and Exchange Board of India (SEBI). In December 1995, the CII set up a high-powered committee under the chairmanship of Mr. Rahul Bajaj to prepare a comprehensive voluntary code of corporate governance for listed companies. Until the end of 2000, the CII code “Desirable Corporate Governance: A Code” was the only guideline for corporate governance in India. In 1999, the SEBI established the "Kumar Mangalam Birla Committee" under the chairmanship of Kumar Mangalam Birla. As a result of the accepted key recommendations of this committee a new clause was incorporated in the listing agreements of the stock exchanges. The new clause (Clause 49) was entitled `Corporate Governance' and contained eleven sections dealing with various corporate governance issues. Within this framework, the SEBI provided a suggested list of mandatory items to be disclosed in this Corporate Governance Report. Further In 2003 The Securities and Exchange Board of India (SEBI), in its effort to improve the governance standards constituted a committee under chairmanship of Narayan Murthy.

SEBI incorporated the recommendations made by the Narayan Murthy committee on corporate governance report in clause 49 of the listing agreement and on 1st January 2006 onwards SEBI made it mandatory to all the listed companies to follow the revised clause 49 of listing agreement.

4. LITERATURE REVIEW:

Jairus Banaji et.al (2011) interviewed over 170 business representatives, and concluded the ineffectiveness of boards in Indian companies, the lack of transparency surrounding transactions within business groups. The study concludes that regulatory intervention needs a much stronger definition of 'independence' for directors, in line with best practice definitions how adopted in the US and UK, as well as the mandatory requirements.

Bala N balasubramanan et.al(2009) studied the corporate governance practices of firms in India prior to clause 49 of listing agreement made mandatory to all listed companies. The study found evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. The association was found stronger for more profitable firms and firms with stronger growth opportunities.

Bruno, Valentina and Claessens, Stijn et.al (2007) study showed that corporate governance plays a crucial role in efficient company monitoring and shareholder protection, and consequently positively impacts valuation. Corporate governance appears more valuable for companies that rely heavily on external financing; consistent with the hypothesis that corporate governance main role is to protect external financiers.

Diganta Mukherjee and Tejamoy Ghose et.al (2004) analysed, using only balance sheet information from 4 selected sectors of the Indian industry the efficacy of corporate governance. The study concludes that corporate governance is still in a very nascent stage in the Indian industry. The decision and policy making is still taken mostly as a routine matter.

Iraj Hashi et.al (2003) studied the differences between the systems of corporate governance existing in various transition countries. It aimed at comparing the legal framework for corporate governance in selected transition economies in order to highlight the progress made so far as well as the shortcomings of the existing framework.

5. OBJECTIVES OF THE STUDY:

The study attempts to examine the corporate governance practices that exist in the BSE SENSEX companies and their disclosure in annual reports. The broad objectives of the study are the following;

1. To identify and analyse the various Main Dimensions under which the necessary disclosures are required to be made as per of the clause 49 of the Listing Agreement,

2. To analyse the corporate governance disclosure practices followed by the sample companies with regard to adherence of the clause 49 of the Listing Agreement,

3. To draw conclusions on the extent of adherence to the clause 49 of the Listing Agreement by the sample companies.

6. RESEARCH DESIGN:

The present study is exploratory in nature and is based on secondary data. Annual Reports of 10 companies selected at random out of the 30 companies listed in the BSE SENSEX, as on 31^st January 2013 has been considered for the study to analyse the corporate governance disclosure practices followed by the sample companies with regard to adherence of the clause 49 of the Listing agreement in respect of “Mandatory requirements”.

A list of 130 parameters based on the list of items suggested by SEBI in Clause 49 of the listing agreement and other non-mandatory items needed to be disclosed in the corporate governance section in the annual report] was prepared. Content analysis technique has been used to analyse the annual reports of the sample companies.

Apart from the nine broad dimensions as suggested by SEBI, Management Discussion and Analysis (MDA) and Miscellaneous Category were drawn as a framework in order to understand the disclosures of these dimensions in the annual report.

A ‘Corporate Governance Disclosure Index’ listing 130 items of information has been used to find out the actual disclosure practices in these companies. After developing the index, various worksheets have been prepared for every company for the financial years 2011-12 detailing the corporate governance disclosure made by it.

6.1. Sample companies:

The following table gives sector wise composition of the BSE SENSEX Companies taken as samples.

Table 1: Sector wise composition of the sample companies

Sector of the company	Number of companies	Percent
Power	03	30
Diversified	02	20
Information Technology	02	20
FMCG	01	10
Housing Related	01	10
Metal	01	10
Total	10	100

7. EMPIRICAL RESULTS:

7.1. Results of the study have been discussed below:

1. The various dimensions under which the necessary disclosures are required to be made as per of the clause 49 of the listing agreement;

As per the provisions of the clause 49 of the listing agreement there shall be a separate section on Corporate Governance in the annual reports of company, with a detailed compliance report on Corporate Governance. The suggested list of main items to be included in the report on Corporate Governance in the annual report of listed companies as prescribed by the SEBI is given below. The list contains both mandatory and non-mandatory requirements. As per the provisions, non-compliance of any mandatory requirement with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted by the respective companies. The non-mandatory requirements may be implemented as per the discretion of the company. The disclosures of the compliance with mandatory requirements and adoption (and compliance) / non-adoption of the non-mandatory requirements shall be made in the section on corporate governance of the Annual Report.

Mandatory Requirements:

1. A brief statement on company’s philosophy on code of governance.

2. Board of Directors.

3. Audit Committee.

4. Remuneration Committee.

5. Shareholders Committee.

6. General Body meetings.

7. Disclosures.

8. Means of communication.

9. General Shareholder information.

Non-Mandatory requirements:

1. The Board.

2. Remuneration Committee.

3. Shareholder Rights.

4. Audit qualifications.

5. Training of Board Members.

6. Mechanism for evaluating non-executive Board Members.

7. Whistle Blower Policy.

2. The corporate governance disclosure practices followed by the sample companies with regard to adherence of the clause 49 of the Listing agreement.

All the sample companies have disclosed the information as mandated under the clause 49 of the Listing agreement in their respective annual reports under a separate section named “Corporate Governance Report” under nine mandatory broad dimensions. Each of these broad dimensions includes sub dimensions which are clearly mentioned in the clause 49 of the listing agreement. However there are companies which have disclosed some additional information in the sub dimensions which are not sought for by the clause 49 of the listing agreement.

7.2. Analysis of the Results:

As regards adherence to the provisions of the clause 49 of the listing agreement it is found that in respect of adherence to the Main Dimensions 100% compliance has been recorded. In respect of the Main Dimension no.1. (Statement of Philosophy) no.6. (General Body Meetings) and no. 7. (Disclosure) 100% adherence been recorded in respect to their Sub Dimensions too. However in the following Sub Dimensions under respective Main Dimension 100% compliance have not been recorded.

2. Board of Directors: Compliance disclosure in relation to “Attendance of each director at the board meetings” is 50%, and “No of Boards meetings held, dates on which held” is 60%.

3. Audit Committee: Compliance disclosure in relation to “Brief description of Terms of Reference” is 70%, and “Composition of Committee, name of members and Chairman is” 90%.

4. Remuneration Committee: Compliance disclosure in relation to “Brief description of terms of reference” is 30%, and “Attendance in Meeting during the year” is 50%.

5. Shareholders Committee: Compliance disclosure in relation to” Name of NED heading the investor/shareholder grievance committee” is 70%.

6. Means of Communication: Compliance disclosure in relation to “Quarterly Results” is 80%, “Newspapers wherein results normally published” is70% and “Whether it also displays official news releases” is 80%.

7. General Shareholder Information: Compliance disclosure in relation to “Dividend payment date” is 80%, “Share Transfer System” is 80%, “Distribution of shareholding” is 80%, “Outstanding GDRs/ ADRs /warrants or any other convertible instrument” is 80%, and “Plant location” is 70%.

8. Management Discussion and Analysis (MDA): Compliance disclosure in relation to “Internal control systems and their adequacies” is 80%,”Risks and concerns” is 90%, “Opportunities and threats” is 50%, and “Outlook” is 90%.

However as per the provisions, non-compliance of any mandatory requirements with reasons thereof have been specifically highlighted by the non complying companies.

8. CONCLUSION:

The outcome of the study is quite encouraging. Though several companies have gone beyond the mandatory requirements in fulfilling the corporate governance objectives, some of the companies did not comply with disclosure of mandatory requirements. Some of the Companies have developed philosophies governing the governance practices that were introduced in their respective companies and the outcome that is being expected from these initiatives. New initiatives and modern governance practices such as separation of the Chair and the CEO, constitution of boards, representation of independent directors, meetings of the board and audit committees, discussion on the corporate governance practices in the annual reports, disclosure through a wide range of media and company sources, information about board induction and training, accountability of directors, share ownership pattern, formation of ethics and compliance committee, safety, health and environment committee, making provision for capital integrity audit, risk management, etc., have greatly enhanced the image of the quality of corporate governance in these companies.

Corporate governance both in respect of policy and practice has made quantum leap in India. On the policy side, India has one of the best frameworks for corporate governance. On the practice side, there is great improvement in the standards of reporting, disclosure and compliance of companies. This study which examined 10 companies on the governance aspects finds that companies have complied with most of the norms of the listing agreement and some have gone beyond in fulfilling a few more better standards.

While Clause 49 deals with what is mandatory, good companies can go extra mile in devising effective ways of corporate governance that could lead to efficient markets. Good governance is required for business growth, expansion and in pursuing global aspirations. It is also important to bring in qualitative improvement in the corporate environment in India that will induce others to adopt best practices. Good corporate governance in companies like BSE SENSEX will be a guiding force for mid and small companies to devise effective governance frameworks that will result in further strengthening of the corporate governance environment. The society at large as well as the stakeholders of the companies will be the biggest beneficiaries of this effort in the years to come.

9. REFERENCES:

Books:

Das, Subhash Chandra, Corporate Governance In India: An Evaluation, Prentice Hall India,2^nd Edition, New Delhi. S Bhayana, Corporate Governance Practices in India; Deep and Deep Publications, 1^st Edition, New Delhi.

Articles:

Chalakkal Joffy George, Role of Corporate Governance in Preventing Frauds in Banking Sector: Banker’s View, Chartered Secretary, June 2007.

Gaggar B L, SOX and Code of Business Conduct, Chartered Secretary, September 2007.

Jain Lalit, Changing Landscape of Corporate Governance in India, Chartered Secretary, January 2008.

Sen, Dilip Kr. Clause 49 of Listing Agreement on Corporate Governance,The Chartered Accountant,Dec 2004 .

Papers/Reports:

Bruno, Valentina and Claessens, Stijn et. al (2007)Corporate Governance and Regulation: Can There Be Too Much of a Good Thing? http://ideas.repec.org/p/cpr/ceprdp/6108.html

Banaji Jairus and Mody Gautam, WPN 73 Corporate Governance and the Indian Private Sector. www.eprints. soas.ac.uk/10919/1/ qehwps73.pdf‎

Chakrabarti R, Megginson W., Yadav P. CFRWorking Paper NO. 08-02 Corporate Governance in India; Centre for Financial Research. http://www.cfr-cologne.de/download/workingpaper/cfr-08-02pdf.

Chakrabarti R, Megginson W., Yadav P. Corporate Governance in India. Journal of Applied Corporate Finance http://www.econstor .eu/dspace/bitstream/10419/41393/1/582127289.pdf

Chakrabarti Rajesh,Corporate Governance in India Evolution and Challenges. papers.ssrn.com/sol3/papers.cfm? abstract_ id=649857

Diganta Mukherjee and Tejamoy Ghose et. al (2004) An analysis of corporate performance and governance in India: Study of some selected industries.http://ideas.repec.org/p/ind/isipdp/04-19.html

Hussein Tarraf, Lawrence Technological University, Literature Review on Corporate Governance and the Recent Financial Crisis http://www.researchgate.net/publication/228240228_Literature_Review_on_Corporate. _Governance_and_the_Recent_Financial_Crisis

Iraj Hashi et. al (2003) The Legal Framework for Effective Corporate Governance: Comparative Analysis of Provisions in Selected Transition Economies. http://ideas.repec.org/p/sec/cnstan/ 0268.html

Banaji ,Jairus et.al(2011) Corporate Governance and the Indian Private sector. http://ideas.respec.org/p/qehwps /qehwps73.html

Ramsay I M and Hoad R (2009) Disclosure of corporate governance practices by Australian companies, papers. ssrn.com/ sol3/papers.cfm?abstract_id=922779

Ren´ee B.Adams, Benjamin E.H,and Michael S.Weisbach (2009),The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey. papers.ssrn.com/sol3/ papers.cfm?abstract_id =1299212

Subramananan Bala, Bernard S. Black(2009) Firm level corporate governance in emerging markets a case study of India, www.iimb.ernet.in/research/sites/default/files/WP.IIMB_.274.pdf

Corporate Governance Review of Practice: A study of corporate governance practices in leading Corporates in India. www.nfcgindia.org/pdf/corporate_governance_report.pdf‎

CII; Desirable Corporate Governance a Code. www.nfcgindia.org/desirable_ corporate_governance_cii.pdf‎

International Corporate Governance Network (2009) ICGN; Global Corporate Governance Principles: Revised. http://www.ecgi.org/codes/documents/icgn_global_corporate_governance_principles_revised_2009.pdf

International Finance Corporation; Corporate Governance the Foundation for Corporate Citizenship and Sustainable Businesses. http://www.ifc.org/wps/wcm/connect/a2b5ef8048a7e 2db96cfd76060ad5911/IFC_UNGC_brochure.pdf?MOD =AJPERES

SEBI (2003) Report of the committee on Corporate Governance, Securities Exchange Board of India, New Delhi. www.sebi.gov.in/commreport/corpgov.pdf‎

SEBI, Press Release SEBI/CFD/DIL/CG/1/2004/12/1October 29, 2004 Extension of date of ensuring compliance with revised Clause 49 of the Listing Agreement. www.sebi.gov.in/circulars/2004/ cfdcir0104.pdf‎

United Nations; Guidance on Good Practices in Corporate Governance Disclosure: United Nations Conference on Trade and Development. unctad.org/en/docs/iteteb20063_en.pdf‎

Received on 11.01.2014 Modified on 30.01.2014

Asian J. Management 5(2): April-June, 2014 page 129-132