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Corporate governance is defined as the system by which business entities are monitored, managed and controlled. Corporate governance practices have become an essential prerequisite for the ability to acquire and retain financial resources necessary for restructuring long term investment and sustainable growth. At one end of the spectrum the shareholders are the owners of business entity as they are risk takers. At the other end the managers or the executive director of the company who are in control of its day-to-day affairs. It is the responsibility of entire board of directors for smooth running of the company; corporate disclosure and governance requirements though relatively low in some countries, are also changing. Awareness of the developments of accounting standards, securities regulation, globalization of financial markets, world wide effect of corporate strategic alliance has led to some alternative view of governance process. A good structure of corporate governance is that encourages balanced relationship among shareholders, executive directors and the board of directors. The governance mechanism is shaped by its political, economic and social history and its legal frame work. In the beginning most of the countries found company to be the convenient form of organizations that enabled entrepreneurs to raise money from large number of investors.


There is a explosion of interest in corporate values like share holder value (Rapport, 1986; Copeland, 1994), stakeholder value (Freeman, 1984), customer value (Murphy et al., 1996), business ethics (Velasquez, 1998; Fort, 2001), Corporate social responsibility (Carroll, 1999). But by and large, new value systems have been marketed as general solutions applicable to all kinds of business. These values are building blocks of corporate image. Corporate values are based on high ethical standards of managers and other employees. The firm values must ultimately be derived from the preferences or values of its stakeholders. In other words, corporate values are created when companies internalize the values of salient stakeholders. Stakeholders can influence a company directly through market transactions and contracts without imposing their values on the company, but transactional costs and information problems set a limit to use of contractual mechanisms. Internalization of stakeholder preference takes place in a hypothetical three-stage process as follows:

1. Allocation of ownership rights.

2. Board of composition.

3. The influence of important stakeholders


The purpose of corporate governance includes the followings:

(1) To enhance the reputation of a business/entity, which is in the public sector includes meeting expectations of model behaviors from public entities.

(2) To comply with the laws and Acts.

(3) To make the business entity more efficient and effective and to avoid disasters.


Corporate governance systems vary across countries and these differences directly affect both the process for developing global strategies that can be adopted. Global strategic decision poses a very tough test for the effectiveness of corporate governance system.

There are five critical stakeholder players that affect the company's decision. They are (1) Employees (2) management teams (3) Shareholders (4) Board of directors (5) Government

EMPLOYEES: The main variable differentiates employees as a collective group across countries. The country's labour market will influence the flexibility and mobility of employees. Country such as the India that has employment at will where by a contract can be terminated at any time are likely to have flexible labour market and short term labour commitment. In more rigid labour markets such as India and Japan companies invest a great deal in bespoke in house training that tends to result in more highly skilled labour forces and company specific skills. For example in France, the union rights are extended to all employees regardless of union affiliation. Here unionization will have greater influence on corporate decision making than in India or japan where only union members benefits from collective bargaining agreements. Japan companies tend to have enterprise unionism, which leads to collective bargaining at company level, and grant a strong voice to employees. In 2009 for example employee opposition to job losses prevented the restructuring via. Merger with a foreign partner of France who is financially troubled Alstom, a major producer of ships and trains. In the same year Volkswagen despite suffering from very high labour cost had to promise

TOP MANAGEMENT TEAMS: Managers in India and japan tend to have professional background and strong functional background in finance or marketing. This is not the case in japan where managers are more technical oriented. There is also variation in the international experience and background of managers. Managerial career mobility tends to be very fluid in India and japan due to open labour markets. In Japan and India managers tend to remain with a company for a long period of time. There is also wide acceptance of leaders from across boarders in the india.

SHAREHOLDERS: Countries vary in their mix types of shareholders. At one extreme the India and japan have mostly arms length, natural shareholders who are focused on shareholder value maximization? Employee shareholders typically use their ownership to block the global relocation of jobs. This applies even in the india where united Airlines provide a rare example of a large public company with majority ownership (55 percent owned by an employee stock ownership plan). This employee stake and hence control have greatly constrained the ability of the Airline to relocate job overseas.

GOVERNMENT: Government intervention is usually in the form of market regulation. A representative measure for government intervention in the economy is regulation around takeovers. In countries such as India and Japan government intervention often provide strong takeover barrier such as golden shares, which bestow on the holder veto power over changes to the company's charter.


Top managers need to recognize that they are not in sole charge. Global strategy is an equilibrium game among corporate governance players. Managers need to work on building coalition and aligning interest behind a common approach.

In the continental system managers have to align trade off and meet other stakeholders' interest halfway. They have to craft their language and rhetoric to meet the other players' expectations. The main things here are consensus and social cohesion.

Japanese system companies have generally capitalized in their export oriented model and high innovation driven employee's loyalty. But because of rigid of their corporate governance system, they have not exploited as much as they could different dimension of global strategy. So the system must be open in term of the diversity of the top management team and more flexible in their governance by introducing leaner boards as well as allowing greater levels of shareholder activism. If governments care to sustain national competitiveness and to help their companies to globalize, then they should assess the degree to which the players in their corporate governance system are aligned with each other and with their intended global strategy. Government policies should become less inimical to foreign owners and use such capital to provide the much needed global knowledge.


The Economic Times Corporate Governance survey uses the six parameters to evaluate the rank of the organization. They are (1) accounting quality (2) Value creation focus (3) fair policy and actions (4) Communications (5) Effective governing board (6) Reliability.

40 companies are taken. They are ranked by 147 strong samples of top fund manager and brokers. The respondents were from Mumbai (46%), Delhi (20%), Kolkata (20%), and Chennai (14%).

In Corporate Governance ranking in India of economic times, Infosys Technology attains top position. Tata Steel in second position, HDFC in fourth, Tata Motors in sixth, Ranbaxy Lab, Hindustan Lever in tenth, State Bank of India in thirteenth, ONGC in sixteenth, Zee telefilm in thirty -eighth position respectively.

Overall Ranking of Economic Times corporate governance survey


Overall ranking

Sector wise ranking

 Value creation ranking

Infosys Technologies




Tata Steel
















Tata Motors




Reliance Industries








Ranbaxy Laboratories




Hindustan Lever




Hero Honda Motors




Larsen and Toubro




State Bank Of India




Bajaj Auto








Gujrat Ambuja Cement




Hindalco Industries




Grasim Industries












Corporate governance players in Two countries




(1) Flexible labour

(2) Low unionization

(3) Employment a will

(1) Enterprise union

(2) Life-time employment

(3) Medium skill


(1) Institutional investors

(2) Individuals

(3) Dispersed

(1) Other non-financial firm



(1 ) Liberal policies

(2) Arms-length

(3) Weak takeover barriers

(1) Protectionist policies

(2)Strong takeover barriers

Board of director

(1) High activism

(2) High % of outsiders

(1) Low activism

(2) Large % of insiders

(3) Large size

Top management Team

(1) Professional

(2) Some foreign born management

(3) Open labour markets

(1) Common educational background

(2) No foreign born management

(3) Closed labour market

Corporate Social Responsibility and Investment ,Japanese style.

A number of major global trends in Corporate Social Responsibility tand socially responsibility investment can be identified. There is a growing connection to corporate governance through reporting - for example in the Japan changes to company law suggest that information about a company's relationships with its employees, as well as its policies and performance on environmental, social and community issues can be subjected to an informed assessment by investors and others. sustainable growth." There is also increasing development of major global voluntary standards such as ISO and OECD Guidelines for Multinational Enterprises. Though interest in SRI is increasing, more importantly social issues now increasingly influence mainstream investors such as Nomura, Nikko Salomon Smith Barney or Standard Life Investments.

These developments in CSR and SRI have now reached Japan. Some characteristics of CSR in Japan can be seen in the table below which compares categories for SRI in each of the financial centres of the India and Japan. While India and Japan. approaches emphasise human rights and excluded items, the criteria in Japan specify consumer orientation and disclosure.



Asahi Shimbun Foundation


Corporate ethical guidelines

Customer / supplier relationships

Workplace safety / cleanliness


Equal opportunity / diversity in employment

Employee compensation

Training and development of employees

Job creation and security

Community service activities

Supply chain

Human rights at overseas operations

Consideration towards employees

Emphasis on families

Ease of work for women

Employment of physically disabled

Globalization of employment

Consumer orientation

Harmony with community

Support for society

Environmental preservation


Corporate ethics

The weakest link in CSR and SRI in Japan is its international application. This is reflected in decisions by asset mangers to reduce their holdings in particular companies because of a shift to offshore manufacturing locations in more low-cost environments. Why should a company be any less responsible if it is closing down its operations in Malaysia and developing its activities - and employing local people - in Vietnam or India?

In fact, providing local producers with access to international markets is one way of reducing poverty. Support for small and medium-sized enterprise development can be an important part of the CSR commitment of large companies. And improvements in social and environmental impact can go hand in hand with improvements in quality and management. Supporting enterprise development through long-term trading relationships and community investment is one of the most important ways that internationally-listed companies can contribute to the fight against world poverty.

This is very relevant for Japan. Japan does not wholly accept the mainstream thinking of the Western aid community about development. And investment, Japan's aid programme focuses on growth strategies, including industrial promotion and infrastructure development. These are, interestingly, exactly the areas where there appears to be an emerging consensus in approaches by the India and Japan.

Corporate governance Compare with India and Japan

Indian companies aspiring to become world-spanning multinationals demonstrate better corporate governance than their Japan Rival.

1) Much as their societies and political systems are different, are Indian and Japan companies' complete opposites when it comes to corporate governance. Indian companies are so much better governed. India is sort of a noisier version of the Japan. system, which is that you have to be accountable to shareholders and all the other stakeholders. The principles are the same, but the information acquisition is a little bit more problematic in India compared to the Japan. It's not so easy to figure out everything you need to. But there's a very vibrant, credible business media. No opinion is forbidden to be expressed. Information is noisy and unbiased-no one is willfully distorting the truth.

2) India country has more independent boards of directors

Because In India, there is a spectrum of companies, such as Infosys which on some dimensions is better governed than companies in the West in terms of how quickly it discloses things and how quickly it complies with Nasdaq norms. At the other end of the spectrum you have companies that are still the fiefdoms of families, many of which are badly governed. But even those companies are accountable to the market. Market pressures will force them to clean up their act to some extent. The equity markets function so well that it's hard to believe you could be a continuous violator of norms of good governance and still have access to the equity markets.

3) None of that matters in Japan because the financial markets still don't work in the sense that we think of them working in the India. In Japan, all stock prices move together. They move up on a given day or they move down. There is no company-specific information embodied in the stock price. You can't possibly decide that a company is good or bad because the market isn't working in that sense. What you see is aggregate enthusiasm, or lack thereof, for Japan Inc. The market is not putting pressure on managers to behave in ways that approximate corporate governance.

4) Whether there's a rally or not is utterly irrelevant. The question is, what is the information content stock prices. If the stock price of a bad company can go up as much as the stock price of a good company, how can that reflect good corporate governance?

5) Japan has boards with independent directors.

Because There are many boards that are beginning to look like Western boards-some independent directors.


Corporate governance in India: past, present, and suggestions for the future.

While corporate governance may not dictate the economic prospects of developing countries, it certainly plays an integral role in shaping them. This Note contains a detailed analysis of the corporate-governance architecture of one such developing country, India, from its independence in 1947 to the present. The results are surprising: India's corporate-governance framework is sophisticated for a developing country. However, considerable room remains for improvement. This Note presents a series of suggestions designed to improve corporate governance in India. Most notably, India must reform how its boards of directors function, improve its enforcement mechanisms, redefine its corporate laws, and embrace corporate governance as a philosophy.


India, Japan explores possibility of a tie up for excellence in corporate goverenc.

The Japanese Ambassador to India HE Hiroshi Hirabayashi called on the Secretary, Department of Company Affairs, Dr. P.L. Sanjeev Reddy here today and discussed with him the proposal of the Department for setting up of an Asian Institute for Corporate Governance wherein India and Japan will cooperate to provide for excellence in corporate governance. The exploratory talks lasted about an hour. Both sides agreed to cooperate with each othe

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