Corporate Governance

1 Definition

2 History

o 2.1 Impact of Corporate Governance

o 2.2 Role of Institutional Investors

3 Parties to corporate governance

4 Principles

5 Mechanisms and controls

o 5.1 Internal corporate governance controls

o 5.2 External corporate governance controls

6 Systemic problems of corporate governance

7 Role of the accountant

8 Regulation

o 8.1 Rules versus principles

o 8.2 Enforcement

o 8.3 Action Beyond Obligation

9 Corporate governance models around the world

o 9.1 Anglo-American Model

o 9.2 Non Anglo-American Model

10 Codes and guidelines

11 Corporate governance and firm performance

o 11.1 Board composition

o 11.2 Remuneration/Compensation

12 Ethical issues in Corporate governance

13 Efforts to improve Corporate governance

14 Introduction

15 Bajaj capital

16 Smart financial workplace award—bajaj capital

17 A Financial Powerhouse

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Corporate Governance

o Mission

o Vision

18 Eligibility

19 Regional Offices

20 Bajaj Capital-Easy way To Success

21 Valued Reports

22 Growth Through Governance-At a glance

23 Conclusion

24 Bibliography

The impact of a corporate governance system in economic

efficiency, with a strong emphasis on shareholders welfare. The

positive effect of good corporate governance on different stakeholders

ultimately is a strengthened economy, and hence good corporate

governance is a tool for socio-economic development

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Corporate Governance

Parties involved in corporate governance include the regulatory

body (e.g. the Chief Executive Officer, the board of directors,

management and shareholders All parties to corporate governance

have an interest, whether direct or indirect, in the effective

performance of the organisation.

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Corporate Governance

Corporate governance is the set of processes, customs,

policies, laws and institutions affecting the way a corporation is

directed, administered or controlled. Corporate governance also

includes the relationships among the many stakeholders involved and

the goals for which the corporation is governed. The principal

stakeholders are the shareholders, management and the board of

directors. Other stakeholders include employees, suppliers, customers,

banks and other lenders, regulators, the environment and the

community at large.

Corporate governance is a multi-faceted subject An

important theme of corporate governance is to ensure the

accountability of certain individuals in an organization through

mechanisms that try to reduce or eliminate the principal-agent

problem. A related but separate thread of discussions focus on the

impact of a corporate governance system in economic efficiency, with

a strong emphasis on shareholders welfare. There are yet other

aspects to the corporate governance subject, such as the stakeholder

view and the corporate governance models around the world.

There has been renewed interest in the corporate

governance practices of modern corporations since 2001, particularly

due to the high-profile collapses of a number of large U.S. firms such

as Enron Corporation and Worldcom. In 2002, the US federal

government passed the Sarbanes OxleyAct, intending to restore public

confidence in corporate governance.

In A Board Culture of Corporate Governance business

author Gabrielle O'Donovan defines corporate governance as 'an

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Corporate Governance

internal system encompassing policies, processes and people, which

serves the needs of shareholders and other stakeholders, by directing

and controlling management activities with good business savvy,

objectivity and integrity. Sound corporate governance is reliant on

external marketplace commitment and legislation, plus a healthy

board culture which safeguards policies and processes'.

O'Donovan goes on to say that 'the perceived quality of

a company's corporate governance can influence its share price as well

as the cost of raising capital. Quality is determined by the financial

markets, legislation and other external market forces plus the

international organisational environment; how policies and processes

are implemented and how people are led. External forces are, to a

large extent, outside the circle of control of any board. The internal

environment is quite a different matter, and offers companies the

opportunity to differentiate from competitors through their board

culture. To date, too much of corporate governance debate has

centred on legislative policy, to deter fraudulent activities and

transparency policy which misleads executives to treat the symptoms

and not the cause.

It is a system of structuring, operating and controlling a

company with a view to achieve long term strategic goals to satisfy

shareholders, creditors, employees, customers and suppliers, and

complying with the legal and regulatory requirements, apart from

meeting environmental and local community needs.

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Corporate Governance

Report of SEBI committee (India) on Corporate

Governance defines corporate governance as the acceptance by

management of the inalienable rights of shareholders as the true

owners of the corporation and of their own role as trustees on behalf of

the shareholders. It is about commitment to values, about ethical

business conduct and about making a distinction between personal &

corporate funds in the management of a company.” The definition is

drawn from the Gandhian principle of trusteeship and the Directive

Principles of the Indian Constitution. Corporate Governance is viewed

as ethics and a moral duty.

In the 19th century, state corporation laws enhanced

the rights of corporate boards to govern without unanimous consent of

shareholders in exchange for statutory benefits like appraisal rights, to

make corporate governance more efficient. Since that time, and

because most large publicly traded corporations in the US are

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Corporate Governance

incorporated under corporate administration friendly Delaware law,

and because the US's wealth has been increasingly securitized into

various corporate entities and institutions, the rights of individual

owners and shareholders have become increasingly derivative and

dissipated. The concerns of shareholders over administration pay and

stock losses periodically has led to more frequent calls for corporate

governance reforms.

In the 20th century in the immediate aftermath of the

Wall Street Crash of 1929 legal scholars such as Adolf Augustus Berle,

Edwin Dodd, and Gardiner C. Means pondered on the changing role of

the modern corporation in society. Berle and Means' monograph "The

Modern Corporation and Private Property" (1932, Macmillan) continues

to have a profound influence on the conception of corporate

governance in scholarly debates today.

From the Chicago school of economics, Ronald Coase's

"The Nature of the Firm" (1937) introduced the notion of transaction

costs into the understanding of why firms are founded and how they

continue to

behave. Fifty years later, Eugene Fama and Michael Jensen's "The

Separation of Ownership and Control" (1983, Journal of Law and

Economics) firmly established agency theory as a way of

understanding corporate governance: the firm is seen as a series of

contracts. Agency theory's dominance was highlighted in a 1989 article

by Kathleen Eisenhardt (Academy of Management Review).

US expansion after World War II through the emergence

of multinational corporations saw the establishment of the managerial

class. Accordingly, the following Harvard Business School management

professors published influential monographs studying their

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prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr.

(business history), Jay Lorsch (organizational behavior) and Elizabeth

MacIver (organizational behavior).

According to Lorsch and MacIver "many large

corporations have dominant control over business affairs without

sufficient accountability or monitoring by their board of directors."

Since the late 1970’s, corporate governance has been

the subject of significant debate in the U.S. and around the globe. Bold,

broad efforts to reform corporate governance have been driven, in

part, by the needs and desires of shareowners to exercise their rights

of corporate ownership and to increase the value of their shares and,

therefore, wealth. Over the past three decades, corporate directors’

duties have expanded greatly beyond their traditional legal

responsibility of duty of loyalty to the corporation and its shareowners.

In the first half of the 1990s, the issue of corporate

governance in the U.S. received considerable press attention due to

the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their

boards. CALPERS led a wave of institutional shareholder activism

(something only very rarely seen before), as a way of ensuring that

corporate value would not be destroyed by the now traditionally cozy

relationships between the CEO and the board of directors (e.g., by the

unrestrained issuance of stock options, not infrequently back dated).

In 1997, the East Asian Financial Crisis saw the

economies of Thailand, Indonesia, South Korea, Malaysia and The

Philippines severely affected by the exit of foreign capital after

property assets collapsed. The lack of corporate governance

mechanisms in these countries highlighted the weaknesses of the

institutions in their economies.

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Corporate Governance

In the early 2000s, the massive bankruptcies (and

criminal malfeasance) of Enron and Worldcom, as well as lesser

corporate debacles, such as Adelphia Communications, AOL, Arthur

Andersen, Global Crossing, Tyco, and, more recently, Fannie Mae and

Freddie Mac, led to increased shareholder and governmental interest

in corporate governance. This culminated in the passage of the

Sarbanes-Oxley Act of 2002. But, since then, the stock market has

greatly recovered, and shareholder zeal has waned accordingly.

The positive effect of good corporate governance on

different stakeholders ultimately is a strengthened economy, and

hence good corporate governance is a tool for socio-economic

development.After East Asian economies collapsed in the late 20th

century, the World Bank's president warned those countries, that for

sustainable development, corporate governance has to be good.

Economic health of a nation depends substantially on how sound and

ethical businesses are.

Many years ago, worldwide, buyers and sellers of

corporation stocks were individual investors, such as wealthy

businessmen or families, who often had a vested, personal and

emotional interest in the corporations whose shares they owned. Over

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Corporate Governance

time, markets have become largely institutionalized: buyers and sellers

are largely institutions (e.g., pension funds, insurance companies,

mutual funds, hedge funds, investor groups, and banks).

The rise of the institutional investor has brought with it

some increase of professional diligence which has tended to improve

regulation of the stock market (but not necessarily in the interest of

the small investor or even of the naïve institutions, of which there are

many). Note that this process occurred simultaneously with the direct

growth of individuals investing indirectly in the market (for example

individuals have twice as much money in mutual funds as they do in

bank accounts). However this growth occurred primarily by way of

individuals turning over their funds to 'professionals' to manage, such

as in mutual funds. In this way, the majority of investment now is

described as "institutional investment" even though the vast majority

of the funds are for the benefit of individual investors.Program trading,

the hallmark of institutional trading, is averaging over 60% a day in

2007.

Unfortunately, there has been a concurrent lapse in the

oversight of large corporations, which are now almost all owned by

large institutions. The Board of Directors of large corporations used to

be chosen by the principal shareholders, who usually had an emotional

as well as monetary investment in the company (think Ford), and the

Board diligently kept an eye on the company and its principal

executives (they usually hired and fired the President, or Chief

executive officer— CEO).

Nowadays, if the owning institutions don't like what the

President/CEO is doing and they feel that firing them will likely be

costly (think "golden handshake") and/or time consuming, they will

simply sell out their interest. The Board is now mostly chosen by the

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Corporate Governance

President/CEO, and may be made up primarily of their friends and

associates, such as officers of the corporation or business colleagues.

Since the (institutional) shareholders rarely object, the President/CEO

generally takes the Chair of the Board position for his/herself (which

makes it much more difficult for the institutional owners to "fire"

him/her). Occasionally, but rarely, institutional investors support

shareholder resolutions on such matters as executive pay and anti-

takeover measures.

Finally, the largest pools of invested money (such as the

mutual fund 'Vanguard 500', or the largest investment management

firm for corporations, State Street Corp.) are designed simply to invest

in a very large number of different companies with sufficient liquidity,

based on the idea that this strategy will largely eliminate individual

company financial or other risk and, therefore, these investors have

even less interest in a particular company's governance.

Since the marked rise in the use of Internet transactions

from the 1990s, both individual and professional stock investors

around the world have emerged as a potential new kind of major (short

term) force in the direct or indirect ownership of corporations and in

the markets: the casual participant. Even as the purchase of individual

shares in any one corporation by individual investors diminishes, the

sale of derivatives (e.g., exchange-traded funds (ETFs), Stock market

index options, etc.) has soared. So, the interests of most investors are

now increasingly rarely tied to the fortunes of individual corporations.

But, the ownership of stocks in markets around the

world varies; for example, the majority of the shares in the Japanese

market are held by financial companies and industrial corporations

(there is a large and deliberate amount of cross-holding among

Japanese keiretsu corporations and within S. Korean chaebol 'groups')

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Corporate Governance

whereas stock in the USA or the UK and Europe are much more broadly

owned, often still by large individual investors.

Parties involved in corporate governance include the

regulatory body (e.g. the Chief Executive Officer, the board of

directors, management and shareholders).Other stakeholders who take

part include suppliers, employees, creditors, customers and the

community at large.

In corporations, the shareholder delegates decision

rights to the manager to act in the principal's best interests. This

separation of ownership from control implies a loss of effective control

by shareholders over managerial decisions. Partly as a result of this

separation between the two parties, a system of corporate governance

controls is implemented to assist in aligning the incentives of

managers with those of shareholders. With the significant increase in

equity holdings of investors, there has been an opportunity for a

reversal of the separation of ownership and control problems because

ownership is not so diffuse.

A board of directors often plays a key role in corporate

governance. It is their responsibility to endorse the organisation's

strategy, develop directional policy, appoint, supervise and remunerate

senior executives and to ensure accountability of the organisation to

its owners and authorities.

The Company Secretary, known as a Corporate

Secretary in the US and often referred to as a Chartered Secretary if

qualified by the Institute of Chartered Secretaries and Administrators

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Corporate Governance

(ICSA), is a high ranking professional who is trained to uphold the

highest standards of corporate governance, effective operations,

compliance and administration.

All parties to corporate governance have an interest,

whether direct or indirect, in the effective performance of the

organisation. Directors, workers and management receive salaries,

benefits and reputation, while shareholders receive capital return.

Customers receive goods and services; suppliers receive compensation

for their goods or services. In return these individuals provide value in

the form of natural, human, social and other forms of capital.

A key factor in an individual's decision to participate in an

organisation e.g. through providing financial capital and trust that they

will receive a fair share of the organisational returns. If some parties

are receiving more than their fair return then participants may choose

to not continue participating leading to organizational collapse.

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Corporate Governance

Key elements of good corporate governance principles

include honesty, trust and integrity, openness, performance

orientation, responsibility and accountability, mutual respect, and

commitment to the organization.

Of importance is how directors and management

develop a model of governance that aligns the values of the corporate

participants and then evaluate this model periodically for its

effectiveness. In particular, senior executives should conduct

themselves honestly and ethically, especially concerning actual or

apparent conflicts of interest, and disclosure in financial reports.

Commonly accepted principles of corporate governance include:

Rights and equitable treatment of shareholders :

Organizations should respect the rights of shareholders and help

shareholders to exercise those rights. They can help

shareholders exercise their rights by effectively communicating

information that is understandable and accessible and

encouraging shareholders to participate in general meetings.

Interests of other stakeholders :

Organizations should recognize that they have legal and other

obligations to all legitimate stakeholders.

Role and responsibilities of the board:

The board needs a range of skills and understanding to be able

to deal with various business issues and have the ability to

review and challenge management performance. It needs to be

of sufficient size and have an appropriate level of commitment to

fulfill its responsibilities and duties. There are issues about the

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Corporate Governance

appropriate mix of executive and non-executive directors. The

key roles of chairperson and CEO should not be held by the same

person.

Integrity and ethical behaviour:

Ethical and responsible decision making is not only important for

public relations, but it is also a necessary element in risk

management and avoiding lawsuits. Organizations should

develop a code of conduct for their directors and executives that

promotes ethical and responsible decision making. It is important

to understand, though, that reliance by a company on the

integrity and ethics of individuals is bound to eventual failure.

Because of this, many organizations establish Compliance and

Ethics Programs to minimize the risk that the firm steps outside

of ethical and legal boundaries.

Disclosure and transparency:

Organizations should clarify and make publicly known the roles

and responsibilities of board and management to provide

shareholders with a level of accountability. They should also

implement procedures to independently verify and safeguard the

integrity of the company's financial reporting. Disclosure of

material matters concerning the organization should be timely

and balanced to ensure that all investors have access to clear,

factual information.

Issues involving corporate governance principles include:

oversight of the preparation of the entity's financial statements

internal controls and the independence of the entity's auditors

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Corporate Governance

review of the compensation arrangements for the chief executive

officer and other senior executives

the way in which individuals are nominated for positions on the

board

the resources made available to directors in carrying out their

duties

oversight and management of risk & dividend policy

" Corporate Governance " despite some feeble attempts

from various quarters has remained ambiguous and often

misunderstood pharse. For Quite some time it was confined to only

corporate management. It is not so. it is something much broader for it

must include a fair, efficient and transparent administration to meet

certain well defined objectives. Corporate governance also must go

beyong law. The quantity, quality and frequency of financial and

managerial disclosure, the degree and extent to which the board of

Director (BOD) exercise their trustee responsibilities and the

commitment to run transparent organization- these should evolve due

to interplay of many factors and the role played by more progressive

elements within the corporate sector. In India, a strident demand for

evolving a code of good practices by the corporate themselves is

emerging.

Corporate governance mechanisms and controls are

designed to reduce the inefficiencies that arise from moral hazard and

adverse selection. For example, to monitor managers' behaviour, an

independent third party (the auditor) attests the accuracy of

information provided by management to investors. An ideal control

system should regulate both motivation and ability.

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Corporate Governance

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take

corrective action to accomplish organisational goals. Examples include:

Monitoring by the board of directors :

The board of directors, with its legal authority to hire, fire and

compensate top management, safeguards invested capital.

Regular board meetings allow potential problems to be

identified, discussed and avoided. Whilst non-executive directors

are thought to be more independent, they may not always result

in more effective corporate governance and may not increase

performance. Different board structures are optimal for different

firms. Moreover, the ability of the board to monitor the firm's

executives is a function of its access to information. Executive

directors possess superior knowledge of the decision-making

process and therefore evaluate top management on the basis of

the quality of its decisions that lead to financial performance

outcomes, ex ante. It could be argued, therefore, that executive

directors look beyond the financial criteria.

Remuneration :

Performance-based remuneration is designed to relate some

proportion of salary to individual performance. It may be in the

form of cash or non-cash payments such as shares and share

options, superannuation or other benefits. Such incentive

schemes, however, are reactive in the sense that they provide no

mechanism for preventing mistakes or opportunistic behaviour,

and can elicit myopic behaviour.

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External corporate governance controls

External corporate governance controls encompass the controls

external stakeholders exercise over the organisation. Examples

include:

demand for and assessment of performance information

(especially financial statements)

debt covenants

government regulations

media pressure

takeovers

competition

managerial labour market

telephone tapping

Supply of accounting information :

Financial accounts form a crucial link in enabling providers of

finance to monitor directors. Imperfections in the financial

reporting process will causof corporate governance. This should,

ideally, be corrected by the working of the external auditing

process.

Demand for information :

A barrier to shareholders using good information is the cost of

processing it, especially to a small shareholder. The traditional

answer to this problem is the efficient market hypothesis (in

finance, the efficient market hypothesis (EMH) asserts that

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Corporate Governance

financial markets are efficient), which suggests that the

shareholder will free ride on the judgements of larger

professional investors.

Monitoring costs:

In order to influence the directors, the shareholders must

combine with others to form a significant voting group which can

pose a real threat of carrying resolutions or appointing directors

at a general meeting.

Financial reporting is a crucial element necessary for

the corporate governance system to function effectively. Accountants

and auditors are the primary providers of information to capital market

participants. The directors of the company should be entitled to expect

that management prepare the financial information in compliance with

statutory and ethical obligations, and rely on auditors' competence.

Current accounting practice allows a degree of choice of

method in determining the method of measurement, criteria for

recognition, and even the definition of the accounting entity. The

exercise of this choice to improve apparent performance (popularly

known as creative accounting) imposes extra information costs on

users. In the extreme, it can involve non-disclosure of information.

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Corporate Governance

One area of concern is whether the accounting firm acts

as both the independent auditor and management consultant to the

firm they are auditing. This may result in a conflict of interest which

places the integrity of financial reports in doubt due to client pressure

to appease management. The power of the corporate client to initiate

and terminate management consulting services and, more

fundamentally, to select and dismiss accounting firms contradicts the

concept of an independent auditor. Changes enacted in the United

States in the form of the Sarbanes-Oxley Act (in response to the Enron

situation as noted below) prohibit accounting firms from providing both

auditing and management consulting services. Similar provisions are in

place under clause 49 of SEBI Act in India.

The Enron collapse is an example of misleading financial

reporting. Enron concealed huge losses by creating illusions that a

third party was contractually obliged to pay the amount of any losses.

However, the third party was an entity in which Enron had a

substantial economic stake. In discussions of accounting practices with

Arthur Andersen, the partner in charge of auditing, views inevitably led

to the client prevailing.

However, good financial reporting is not a sufficient

condition for the effectiveness of corporate governance if users don't

process it, or if the informed user is unable to exercise a monitoring

role due to high costs.

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Corporate Governance

Rules versus principles

Rules are typically thought to be simpler to follow than

principles, demarcating a clear line between acceptable and

unacceptable behaviour. Rules also reduce discretion on the part of

individual managers or auditors.

In practice rules can be more complex than principles. They

may be ill-equipped to deal with new types of transactions not covered

by the code. Moreover, even if clear rules are followed, one can still

find a way to circumvent their underlying purpose - this is harder to

achieve if one is bound by a broader principle.

Principles on the other hand is a form of self regulation. It

allows the sector to determine what standards are acceptable or

unacceptable. It also pre-empts over zealous legislations that might

not be practical.

Enforcement

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Corporate Governance

Enforcement can affect the overall credibility of a

regulatory system. They both deter bad actors and level the

competitive playing field. Nevertheless, greater enforcement is not

always better, for taken too far it can dampen valuable risk-taking. In

practice, however, this is largely a theoretical, as opposed to a real,

risk.

Action Beyond Obligation

Enlightened boards regard their mission as helping

management lead the company. They are more likely to be supportive

of the senior management team. Because enlightened directors

strongly believe that it is their duty to involve themselves in an

intellectual analysis of how the company should move forward into the

future, most of the time, the enlightened board is aligned on the

critically important issues facing the company.

Unlike traditional boards, enlightened boards do not feel

hampered by the rules and regulations of the Sarbanes-Oxley Act.

Unlike standard boards that aim to comply with regulations,

enlightened boards regard compliance with regulations as merely a

baseline for board performance. Enlightened directors go far beyond

merely meeting the requirements on a checklist. They do not need

Sarbanes-Oxley to mandate that they protect values and ethics or

monitor CEO performance.

At the same time, enlightened directors recognize that it

is not their role to be involved in the day-to-day operations of the

corporation. They lead by example. Overall, what most distinguishes

enlightened directors from traditional and standard directors is the

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Corporate Governance

passionate obligation they feel to engage in the day-to-day challenges

and strategizing of the company. Enlightened boards can be found in

very large, complex companies, as well as smaller companies.

Although the US model of corporate governance

is the most notorious, there is a considerable variation in corporate

governance models around the world. The intricated shareholding

structures of keiretsus in Japan, the heavy presence of banks in the

equity of German firms, the chaebols in South Korea and many others

are examples of arrangements which try to respond to the same

corporate governance challenges as in the US.

Anglo-American Model

There are many different models of corporate governance

around the world. These differ according to the variety of capitalism in

which they are embedded. The liberal model that is common in Anglo-

American countries tends to give priority to the interests of

shareholders. The coordinated model that one finds in Continental

Europe and Japan also recognizes the interests of workers, managers,

suppliers, customers, and the community. Both models have distinct

competitive advantages, but in different ways. The liberal model of

corporate governance encourages radical innovation and cost

competition, whereas the coordinated model of corporate governance

facilitates incremental innovation and quality competition. However,

there are important differences between the U.S. recent approach to

governance issues and what has happened in the U.K..

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Corporate Governance

In the United States, a corporation is governed by a

board of directors, which has the power to choose an executive officer,

usually known as the chief executive officer. The CEO has broad power

to manage the corporation on a daily basis, but needs to get board

approval for certain major actions, such as hiring his/her immediate

subordinates, raising money, acquiring another company, major capital

expansions, or other expensive projects. Other duties of the board may

include policy setting, decision making, monitoring management's

performance, or corporate control.

The board of directors is nominally selected by and

responsible to the shareholders, but the bylaws of many companies

make it difficult for all but the largest shareholders to have any

influence over the makeup of the board; normally, individual

shareholders are not offered a choice of board nominees among which

to choose, but are merely asked to rubberstamp the nominees of the

sitting board. Perverse incentives have pervaded many corporate

boards in the developed world, with board members beholden to the

chief executive whose actions they are intended to oversee.

Frequently, members of the boards of directors are CEOs of other

corporations, which some see as a conflict of interest.

The U.K. has pioneered a flexible model of regulation of

corporate governance, known as the "comply or explain" code of

governance. This is a principle based code that lists a dozen of

recommended practices, such as the separation of CEO and Chairman

of the Board, the introduction of a time limit for CEOs' contracts, the

introduction of power, and provide a system of managerial

accountability These goals are equally important for both private

corporations and government bodies.

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Corporate Governance

Because of the implicit relationship between private

interests and the larger government, good corporate governance

practices are essential to establishing good governance at the national

level in developing countries.A number of ties the keep the public and

private sectors closely linked. On one hand, judiciary and regulatory

bodies as well as legislatures play a role in corporate management and

oversight. At the same time cartels and large corporate interests use

their size to exert not only economic, but also political power. These

two sectors are so intertwined that a country cannot significantly

change one without simultaneously instituting changes in the other.

According to Nicolas Meisel, there are four priorities which

developing countries should concentrate on while experimenting with

new forms of corporate and public governance. The first is to focus on

improving the quality of information and increasing the speed at which

it is created and distributed to the public. Good communication is

important to the functioning of any organization. The second is to allow

individual actors more autonomy while at the same time maintaining

or increasing accountability. Thirdly, if a hierarchical organization used

to orient private activities toward the general interest, new

countervailing powers should be encouraged to fill this role. Finally, the

part the state plays and how government officials are selected must be

considered if a developing economy is to achieve sustainable growth.

This may involve making it easier for newcomers with new ideas

incumbents who may hold to older, possibly outdated, models.

Publicly listed companies in the U.K. have to either apply

those principles or, if they choose not to, to explain in a designated

part of their annual reports why they decided not to do so. The

monitoring of those explanations is left to shareholders themselves.

The tenet of the Code is that one size does not fit all in matters of

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Corporate Governance

corporate governance and that instead of a statuary regime like the

Sarbanes-Oxley Act in the U.S., it is best to leave some flexibility to

companies so that they can make choices most adapted to their

circumstances. If they have good reasons to deviate from the sound

rule, they should be able to convincingly explain those to their

shareholders.

The code has been in place since 1993 and has had drastic

effects on the way firms are governed in the U.K. A study by Arcot,

Bruno and Faure-Grimaud from the Financial Markets Group at the

London School of Economics shows that in 1993, about 10% of the UK

companies member of the FTSE 350 were compliants on all dimensions

while they were more than 60% in 2003. The same success was not

achieved when looking at the explanation part for non compliant

companies. Many deviations are simply not explained and a large

majority of explanations fail to identify specific circumstances justifying

those deviations. Still, the overall view is that the U.K.'s system works

fairly well and in fact is often branded as a benchmark, followed by

several countries.

Non Anglo-American Model

In East Asian countries, family-owned companies

dominate. A study by Claessens, Djankov and Lang (2000) investigated

the top 15 families in East Asian countries and found that they

dominated listed corporate assets. In countries such as Pakistan,

Indonesia and the Philippines, the top 15 families controlled over 50%

of publicly owned corporations through a system of family cross-

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Corporate Governance

holdings, thus dominating the capital markets. Family-owned

companies also dominate the Latin model of corporate governance,

that is companies in Mexico, Italy, Spain, France (to a certain extent),

Brazil, Argentina, and other countries in South America.

Europe and Asia exemplify the insider system: Shareholder and

stakeholder •a small number of listed companies

• an illiquid capital market where ownership and control are not

frequently traded

• high concentration of shareholding in the hands of corporations,

institutions,families or government

• the insider model uses a system of interlocking networks and committees.

At the same time that developing countries are

undergoing a process of economic growth and transformation, they are

also experiencing a revolution in the business and political

relationships that characterize their private and public sectors.

Establishing good corporate governance practices is essential to

sustaining long-term development and growth as these countries move

from closed, market-unfriendly, undemocratic systems towards open,

market-friendly, democratic systems.

Corporate governance principles and codes have been

developed in different countries and issued from stock exchanges,

corporations, institutional investors, or associations (institutes) of

directors and managers with the support of governments and

international organizations. As a rule, compliance with these

27

Corporate Governance

governance recommendations is not mandated by law, although the

codes linked to stock exchange listing requirements may have a

coercive effect.

For example, companies quoted on the London and

Toronto Stock Exchanges formally need not follow the

recommendations of their respective national codes. However, they

must disclose whether they follow the recommendations in those

documents and, where not, they should provide explanations

concerning divergent practices. Such disclosure requirements exert a

significant pressure on listed companies for compliance.

In the United States, companies are primarily regulated

by the state in which they incorporate though they are also regulated

by the federal government and, if they are public, by their stock

exchange. The highest number of companies are incorporated in

Delaware, including more than half of the Fortune 500. This is due to

Delaware's generally business-friendly corporate legal environment

and the existence of a state court dedicated solely to business issues

(Delaware Court of Chancery).

Most states' corporate law generally follow the American

Bar Association's Model Business Corporation Act. While Delaware does

not follow the Act, it still considers its provisions and several prominent

Delaware justices, including former Delaware Supreme Court Chief

Justice E. Norman Veasey, participate on ABA committees.

One issue that has been raised since the Disney decision in

2005 is the degree to which companies manage their governance

responsibilities; in other words, do they merely try to supersede the

legal threshold, or should they create governance guidelines that

28

Corporate Governance

ascend to the level of best practice. For example, the guidelines issued

by associations of directors (see Section 3 above), corporate managers

and individual companies tend to be wholly voluntary. For example,

The GM Board Guidelines reflect the company’s efforts to improve its

own governance capacity. Such documents, however, may have a

wider multiplying effect prompting other companies to adopt similar

documents and standards of best practice.

One of the most influential guidelines has been the 1999

OECD Principles of Corporate Governance. This was revised in 2004.

The OECD remains a proponent of corporate governance principles

throughout the world. Building on the work of the OECD, other

international organisations, private sector associations and more than

20 national corporate governance codes, the United Nations

Intergovernmental Working Group of Experts on International

Standards of Accounting and Reporting (ISAR) has produced voluntary

Guidance on Good Practices in Corporate Governance Disclosure. This

internationally agreed benchmark consists of more than fifty distinct

disclosure items across five broad categories:

Board and management structure and process

Ownership structure and exercise of control rights

Financial transparency and information disclosure

Auditing

Corporate responsibility and compliance

The World Business Council for Sustainable

Development WBCSD has done work on corporate governance,

particularly on accountability and reporting, and in 2004 created an

Issue Management Tool: Strategic challenges for business in the use of

corporate responsibility codes, standards, and frameworks.This

document aims to provide general information, a "snap-shot" of the

29

Corporate Governance

landscape and a perspective from a think-tank/professional association

on a few key codes, standards and frameworks relevant to the

sustainability agenda.

In its 'Global Investor Opinion Survey' of over 200

institutional investors first undertaken in 2000 and updated in 2002,

McKinsey found that 80% of the respondents would pay a premium for

well-governed companies. They defined a well-governed company as

one that had mostly out-side directors, who had no management ties,

undertook formal evaluation of its directors, and was responsive to

investors' requests for information on governance issues. The size of

the premium varied by market, from 11% for Canadian companies to

around 40% for companies where the regulatory backdrop was least

certain (those in Morocco, Egypt and Russia).

30

Corporate Governance

Other studies have linked broad perceptions of the

quality of companies to superior share price performance. In a study of

five year cumulative returns of Fortune Magazine's survey of 'most

admired firms', Antunovich et al found that those "most admired" had

an average return of 125%, whilst the 'least admired' firms returned

80%. In a separate study Business Week enlisted institutional investors

and 'experts' to assist in differentiating between boards with good and

bad governance and found that companies with the highest rankings

had the highest financial returns.

On the other hand, research into the relationship

between specific corporate governance controls and firm performance

has been mixed and often weak. The following examples are

illustrative.

Board composition

Some researchers have found support for the

relationship between frequency of meetings and profitability. Others

have found a negative relationship between the proportion of external

directors and firm performance, while others found no relationship

between external board membership and performance. In a recent

paper Bagahat and Black found that companies with more independent

boards do not perform better than other companies. It is unlikely that

board composition has a direct impact on firm performance.

Remuneration/Compensation

The results of previous research on the relationship

between firm performance and executive compensation have failed to

find consistent and significant relationships between executives'

31

Corporate Governance

remuneration and firm performance. Low average levels of pay-

performance alignment do not necessarily imply that this form of

governance control is inefficient. Not all firms experience the same

levels of agency conflict, and external and internal monitoring devices

may be more effective for some than for others.

Some researchers have found that the largest CEO performance

incentives came from ownership of the firm's shares, while other

researchers found that the relationship between share ownership and

firm performance was dependent on the level of ownership. The results

suggest that increases in ownership above 20% cause management to

become more entrenched, and less interested in the welfare of their

shareholders.

Some argue that firm performance is positively associated

with share option plans and that these plans direct managers' energies

and extend their decision horizons toward the long-term, rather than

the short-term, performance of the company. However, that point of

view came under substantial criticism circa in the wake of various

security scandals including mutual fund timing episodes and, in

particular, the backdating of option grants as documented by

University of Iowa academic Erik Lie and reported by James Blander

and Charles Forelle of the Wall Street Journal.

Even before the negative influence on public opinion

caused by the 2006 backdating scandal, use of options faced various

criticisms. A particularly forceful and long running argument concerned

the interaction of executive options with corporate stock repurchase

programs. Numerous authorities (including U.S. Federal Reserve Board

economist Weisbenner) determined options may be employed in

concert with stock buybacks in a manner contrary to shareholder

interests. These authors argued that, in part, corporate stock buybacks

32

Corporate Governance

for U.S. Standard & Poors 500 companies surged to a $500 billion

annual rate in late 2006 because of the impact of options. A

compendium of academic works on the option/buyback issue is

included in the study Scandal by author M. Gumport issued in 2006.

A combination of accounting changes and

governance issues led options to become a less popular means of

remuneration as 2006 progressed, and various alternative

implementations of buybacks surfaced to challenge the dominance of

"open market" cash buybacks as the preferred means of implementing

a share repurchase plan.

(Inaugural Address delivered at NBCC Seminar on 22.03.2000, New

Delhi)

N. Vittal, Central Vigilance Commissioner

1. The term ‘corporate governance’ has recently become a

buzzword. Seminars are being held in corporate

governance and exercises are being conducted at different levels

to bring in better corporate governance. The SEBI recently has

also notified the corporate governance guidelines based on the

Kumaramangalam Committee Report.

2. What is corporate governance and how is it different from

corporate management? As I see it, corporate governance is

nothing but the moral or ethical or value framework under which

corporate decisions are taken. Corporate managements

generally have been concerned with using the physical, financial

33

Corporate Governance

and human resources available with the management to get the

best possible results in the interests of the stakeholders and,

particularly, shareholders. It is quite possible that in the effort at

arriving the best possible financial results or business results

there could be attempts at doing things which are verging on the

illegal or even illegal. There is also the possibility of grey areas

where an act is not illegal but considered unethical. These raise

moral issues.

3. The issue of corporate governance became particularly

significant in the context of globalisation because one special

feature of the late 20th century / 21st century globalisation is that

in addition to the traditional three elements of the economy,

namely physical capital in terms of plant and machinery,

technology and labour, the volatile element of financial capital.

Financial capital invested in the emerging markets and in third

countries is an important element of modern globalisation and

has become particularly powerful. Thanks to the ubiquitous

application of information technology, at the touch of a computer

mouse, it is possible now to transfer billions of dollars across

borders. The significance and the impact of the volatility of the

financial capital was realised when in June 1997 the currency of

South East Asian countries started melting down in countries like

Thailand, Indonesia, South Korea and Malaysia. It was realized by

the World Bank and all investors that it is not enough to have

good corporate management but one should have also good

corporate governance because the investors want to be sure that

the decisions taken are ultimately in the interest of all stake

holders. Honesty is the best policy is a fact that is now being re-

discovered.

4. In practical terms, corporate governance has meant that there

should be at the board level non-official directors who are

34

Corporate Governance

professionals and who have no conflicting interests and who can

particularly operate the two key committees, the Ethics

Committee and the Finance Committee to see that there is

greater transparency in the management of the enterprise.

Corporate governance ultimately has to come to mean better

transparency in the operations without sacrificing business

strategy or business secrets which are necessary for success in

the market place and absolutely ethical behaviour where the

conduct of the company will not only be legal but also ethical.

5. That brings us to the basic issue of what will be the ethical issues

in corporate governance. Honesty is the best policy. This means

that there has to be absolute integrity in all operations. Integrity

is of three types:

Financial integrity

Moral integrity

Intellectual integrity

6. So far as corporate governance is concerned, it is financial

integrity that assumes tremendous importance. This would mean

that the directors and all concerned should be open and straight

about issues where there is conflict of interest involved in

financial decision-making. When it comes to even the purchase

procedures, there is need for greater transparency.

7. One of the early orders I issued as the CVC was to see that there

should be no post-tender negotiations. Otherwise, I found that

this practice of post tender negotiations was one of the common

means of breeding corruption in the system. The ban on post-

tender negotiations, I think, has helped in bringing greater

transparency ensuring that vendor rating is done fairly and there

is a level playing field when purchases are made.

35

Corporate Governance

8. The need for greater transparency, especially in corporate

management arises because with transparency comes

accountability. Recently I had the serendipitous experience of

how displaying the names of officers who were facing major

penalty or prosecution of the web site of the CVC brought a

whole set of unexpected reactions. Firstly, people at large were

surprised that there could be transparency. Secondly, it exposed

the delay in our departmental systems when some of those,

whose names were in the web site claimed that they have not

even received the charge sheet. This means that the disciplinary

authorities were slow or worse, they were protecting the corrupt.

If an honest public servant was involved in a departmental

inquiry, delay meant causing harassment to him. The web site

strategy has helped me now to vigorously pursue every month

the pending cases with the various disciplinary authorities.

Thirdly, it shows that how the people of doubtful integrity who

were facing prosecution or penalty procedures can be in

sensitive positions. Fourthly, it also showed that such

transparency could have a deterrent effect on those likely to

cross over from being honest to dishonest. So, transparency has

a direct link with accountability and automatically acts as a self-

corrective mechanism.

9. When it comes to the ethical issues in corporate governance,

linked with transparency, the question is to what extent the

management or the manger would practice openness about

facts, which may even be embarrassing.

36

Corporate Governance

10. Many a time, the issues may arise about being transparent,

which may compromise the financial interests of the company.

Suppose a company has been behaving in a manner, which is

harmful to the environment, there may always be a tendency to

downplay the impact or even cook up the figures to say that

there is no damage caused to the environment. These are really

ethical issues where I think the corporate management will have

to show its commitment to good governance by accepting

responsibility. There have been examples of good companies

including Maruti recalling defective vehicles when safety of the

people was threatened. Many a time, such a course of action has

been forced on the companies because of whistle blowers or

consumer activist movements. To the extent the company is able

to take the initiative once the facts come to notice for correcting

itself, it is ethically on the right lines.

11. The same issue of ethics may arise where negotiations

have to take place especially, for instance, with financial

institutions for projecting the viability of a case. Here absolute

integrity is essential because many a time we find that the

industries have become sick because of fudging of figures and

not being transparent when the projects being evaluated. Even

more important is the day to day operations. There was a public

sector enterprise, which was allegedly involved in a case of

giving illegal gratification to a State Government enterprise in

order to secure a contract. When the issue came up before us

the point to be decided was whether the act of the public sector

enterprise in engaging a so-called consultant and paying heavily

to him for securing the contract was proper though the public

sector enterprise would have got the contract on merits alone.

12. But, as CVC I am also aware of the fact that corruption is a

two way street. If suppose one is running an enterprise and one’s

37

Corporate Governance

competitors are going to resort to bribes to get the contract,

what should one do? I think whistle blowing is needed in this

situation. I would, therefore, suggest that in stead of

compromising and paying the bribes, it is better, especially

where the CVC has a role to play, to inform the CVC. In such a

situation, the CVC will take up the matter both with the

organisation concerned and the higher authorities, like the

Secretary to the Government, so that such practices can be

curbed.

13. The concept of dharma sankata is well known in our Hindu

religion. Narova Kunjarova (human or elephant) was the situation

where Yudhistra in Mahabharata lied. For the sake of getting a

short-term benefit, resorting to lies or straying from the straight

and narrow path ultimately leads to a long-term failure. I would,

therefore, suggest that even at the cost of sacrificing short-term

benefits, it is better for an enterprise to adopt healthy practices.

14. There is an excellent example of Alacrity, an enterprise

concerned with building houses as NBCC. They have adopted the

policy, though in the private sector, that will deal only with

cheques and there will be no cash transactions. This has brought

such a reputation to alacrity that even the public servants who

normally take bribes in Chennai when they come across an

employee of alacrity, do not ask for bribes. Can we not create

through, at least our public sector enterprises, an environment in

which there will be no underhand dealings and no violations from

the path of integrity and corporate transparency.

15. Corporate governance and ethical behaviour have a

number of advantages. Firstly, they help to build good brand

image for the company. Once there is a brand image, there is

greater loyalty, once there is greater loyalty, there is greater

commitment to the employees, and when there is a commitment

38

Corporate Governance

to employees, the employees will become more creative. In the

current competitive environment, creativity is vital to get a

competitive edge.

16. Another area where corporate governance and ethical

issues may arise is at the time of the annual report and

particularly preparing the annual balance sheet. There may

always be a tendency to do what is called, window dressing and

to show that the results were better than what were projected. I

think a stage has come when it is better to be transparent and

not do much of financial engineering but be straight because this

may prove to be better in the long run. Especially now in the

context of the liberalisation and the opening up of the Indian

companies for foreign competition, an issue will also be raising

about the accounting practices that are being followed in our

companies. Probably we will have to fall in line with the

international accounting standards so that both in terms of

transparency and in terms of actually measuring the

effectiveness of the enterprise there is a certain amount of

uniformity. This in turn will also strengthen our Indian companies

to take on the global competition more effectively.

17. Finally, we come to the basic issue of effective corporate

governance in the ethical side by ensuring corruption within the

organisation is also kept under control. Here the CVC has been

following a three-point strategy, which can perhaps be adopted

by the corporate also mutatis mutandis so far as their checking

up corruption is concerned. The three points are:

i. Simplification of the rules and procedures so that the scope for

corruption is reduced

39

Corporate Governance

ii. Bringing in greater transparency and empower the public. In this

case, the public enterprises are those which are interacting with

the enterprise or with which the enterprise has to have supplier

or customer transactions, and

iii. Effective punishment of the guilty

This three-point strategy should help to nurture a culture of honesty in

the organization. Once the culture of honesty is built up in the

organization, good corporate governance becomes an automatic

healthy by product.

July 27, 2007

Unless a comprehensive theory of corporate governance is first agreed

upon, efforts to improve it will not amount to much.

In varying degrees, everyone cheats. Businessmen are no exception.

So one of the biggest problems of modern economic organisation,

which is dominated by the joint stock company, is to minimise such

cheating. Corporate cheating has many dimensions but two of them

have attracted the most attention. One is the cheating of customers,

mainly on quality and price. The other is the cheating of shareholders

40

Corporate Governance

by taking their money but giving them less than what they deserve by

way of dividends.

By and large, competition takes care of the former. In competitive

markets the customer has a choice and simply goes to the alternative

supplier if he feels he is not getting value for money. But the second

type of cheating has proved harder to minimise. Indeed, the effort has

even been given a nice sounding name -- corporate governance.

In a recent paper*, Thomas H Noe, Michael J Rebello and Ramana Sonti

say that all this is very well, but unless a comprehensive theory of

corporate governance is first agreed upon, these efforts will not

amount to much. The reason: good corporate governance depends on

many things and focusing on just one or two of them is not of much

use. They say the "key determinants of governance are board

vigilance, the market for corporate assets, executive compensation,

and shareholder activism" and what matters is the relationship

between them. In a sense, they are talking of what economists call a

dynamic general equilibrium model where the standard assumption of

economics -- other things being equal or the same -- is given the go by.

"The effect of any one factor on governance may well depend on how

the other governance parameters are set." This is a very important

insight because, as the authors point out, institutional factors such as,

say, jurisdiction can lead to different components of the policy on

governance "being fixed at different levels for different firms".

Second, say the authors, "because a number of the components of the

governance mechanism are choice variables, a sample of firms

selected on the basis usage of a particular governance mechanism

may not be random. Further, the choice of one component of the

governance mechanism depends endogenously on other choices. For

41

Corporate Governance

this reason, predictions based on the examination of a single

component of the governance mechanism may be misleading."

From this the authors go on to develop a model for corporate

governance. There are two key givens for this model. One is a

competitive securities market; the other is a market for asset

liquidation. They go on show that "varying the liquidity and opacity of

corporate assets and the costs of enforcing shareholder rights to cash

flow" can result in a large number of designs.

Basically, what happens is this. If shareholders can easily sell off their

holdings their rights get automatically enforced, as the management is

forced to behave itself rather better than if "the opacity of corporate

assets is relatively high and asset liquidity is relatively low." The threat

of liquidation and the resulting threat to the managers that they may

have to accept lower salaries somewhere else may well are the most

efficient form of governance.

The other insights in the paper are reproduced verbatim below:

Management compensation is highest for high and low liquidity

firms;

Managerial compensation is higher under direct shareholder

control as opposed to board control;

Managerial compensation is increasing in asset opacity;

In the absence of mandatory restrictions, firm with high and low

asset liquidity will have more passive boards and less

sophisticated governance mechanisms;

Diffusion of shareholder ownership will be lowest for firms with

illiquid and opaque assets;

If the market for corporate control is impeded, large block-

holding and board activism increase;

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Corporate Governance

Shareholder intervention will be positively correlated with the

premium paid by activists for block acquisition;

Absent mandatory restrictions, the better the legal regime, the

larger the fraction of management affiliated directors on the

board;

Weakening the protection of minority shareholders can lead to

both less board vigilance and better firm performance.

Why do you need an Investment Advisor and Financial Planner?

Why do you go to a doctor when you fall ill? Or, visit an architect when

you want to build your house? It’s because they are specialists in their

respective fields

Similarly, an investment advisor is a qualified and experienced

specialist who is capable of advising you and managing your money.

The growing complexities of the money market and the panoramic

range of financial instruments make financial planning and money

management an intimidating task for the average person that’s why

you need a reliable investment advisor and financial planner.

43

Corporate Governance

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relationships.

44

Corporate Governance

The Economic Times instituted Bajaj Capital won Smart

Workplaces Awards 2008 in the financial services vertical, The

Smart Workplace Award in association with IT majors Acer and Intel,

to recognize smart offices.

Bajaj Capital is a Smart place to work because they are a complete

technology driven firm with human touch and higher emotional

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employees are on the move, they are connected to the work place all

the time with the help of technology.

They also have modern blend of in house built and outsourced systems

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"Just Trade" a world class online trading and financial planning

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Contact Management System for ensuring that we stay in touch

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World-class CRM systems for enhanced customer experience.

"Wealth-Maker" a unique technology platform for minute-to-minute

Business Tracking, Client Service, Performance Management.

Smart Online HR Systems including Elearning Portal, Performance

Appraisal & Rewarding System.

Automated Alerts & Escalations for internal and external world

through SMS and Emails.

Smart Telecommunication Systems and technology driven Contact

Center.

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Corporate Governance

Web and Teleconferencing Facility for everyone.

Every workstation is Technology enabled.

Business Intelligence Dashboards.

They are committed to give a great lifetime experience with the help of

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Bajaj Capital is proud to be amongst the Top 25 Great Place to

Work in India for 2008.

Over 142 branches. Over 3000 hard-core financial professionals. All

working hard in an honest, open and candid work culture to improve

life through 360 Financial Planning. Yes! This is Bajaj Capital. Where

management enthuses workforce open heartedly, colleagues grow in

cordial environment and over 8 lakh clients enjoy prosperity with

personal guidance. That is why; they have craved a niche among top

25 Great Place to work in India.

15 Reasons That Make Working With Bajaj Capital a

Rewarding Experience

At Bajaj Capital, they value the people. This is because they believe

that the services will be only as good as those who deliver it.

46

Corporate Governance

They are in the business of guiding the investors about where to put

their hard-earned money, and helping them achieve their financial

goals through wise investments. Trust and goodwill form the

fundamental basis of the relationships with clients.

This not only demands thorough professional knowledge and an

enchanting personality, but also calls for a missionary zeal to help

others selflessly.

Though the work is demanding, most team members feel that working

at Bajaj Capital is a satisfying experience due to the following reasons:

1. Professional Work Environment

They have a growing pool of talented professionals, including

CAs, MBAs, CFPs, CSs, and others. This provides a good

opportunity to interact and learn from each other.

2. Professional Growth

Performance is the key element that matters at Bajaj Capital,

when it comes to rising up the corporate ladder. Bajaj Capital

has a transparent policy of recognising and rewarding

deserving people. Many of those who occupy top positions in

the organisation today have worked their way up. The

performance management systems ensure that the credit goes

to those who deserve it.

3. Personal Growth

Qualities like leadership; communication skills, negotiating

skills and an impressive personality get developed

automatically, largely due to the contagiously professional

atmosphere and rigorous training programmes at Bajaj Capital.

4. Job Satisfaction

47

Corporate Governance

A true spirit of philanthropy is at the heart of every thing that

we do. Many oF efforts are aimed at genuinely helping people,

irrespective of whether they are our clients or not. It obviously

feels great to know that they’ve been of help to someone.

5. Opportunity to Improve Skills

They lay a lot of emphasis on continuing education. Every team

member is encouraged to undergo professional training. The

Company even offers incentives to those pursuing professional

programmes like those offered by the International College of

Financial Planning. Skill-building workshops and meets are also

organized from time to time.

6. Balance Between Work and Play

All work and no play is no fun. Bajaj Capital ensures that all

team members are adequately rewarded for the efforts put in.

They regularly organise trips to various exotic locations in India

and abroad for top performers.

7. Value-Driven Organisation

Bajaj Capital is today a respected name in India primarily due

to the strict adherence to values such as honesty and ethics.

Qualities of sincerity, fair play, leadership and initiative are

strongly encouraged.

8. Job Security

At Bajaj Capital, quality is the watchword in every sphere of

activity. That’s why we have a rigorous screening procedure.

Once selected, every team member is treated like a family

member. Everyone is given a chance to work in different

departments in order to get acclimatized. No wonder, many of

team members have been with for years. Honest and

performing team members will always find their jobs secure.

48

Corporate Governance

9. Family Life

One of the major reasons why a lot of team members prefer to

work with Bajaj Capital is because they have a culture of

striking a fine balance between work and home. They firmly

believe if they are productive, won’t have to miss out on

personal life.

10. Culture of Health

Bajaj Capital encourages healthy living. All offices are no-

smoking areas. Efforts are also made to inculcate healthy

habits among all by disseminating health-related information

through a dedicated e-newsletter. There are no night shifts.

They also organise yoga sessions to improve the health and

well being of the team members.

11. Open-door Policy

The entire top management and the leaders at Bajaj Capital are

always accessible. They are ever willing to help and hear out

whenever needed.

12. Positive Work Culture

There is a supportive, healthy work culture where everyone is

treated equally. Bajaj Capital has also made a successful effort

to cut down stress levels.

13. Humane Environment

Unlike many other companies, they are not guided by blind

statistics. Every team member is treated as a human being and

not a machine. The atmosphere is friendly, and the

management is always around to share the happiness and grief

of every team member.

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Corporate Governance

14. Recognition

Every team member is given a chance to excel, and the efforts

of every performer is recognised.

15. Good Compensation

Last but not the least, Bajaj Capital offers a compensation

package that’s one of the best in the industry. They believe and

ask the team members to write their own cheques. Apart from

fixed salaries, they offer aggressive entrepreneurial incentives.

Bajaj Capital is proud to be amongst the Top 25 Great

Place to Work in India for 2008

Over 142 branches. Over 3000 hard core financial professionals. All

working hard in an honest, open and candid work culture to improve

life through 360 Financial Planning. Yes! This is Bajaj Capital. Where

management enthuses workforce open heartedly, colleagues grow in

cordial environment and over 8 lakh clients enjoy prosperity with

personal guidance. That is why; they have craved a niche among top

25 Great Place to work in India.

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Corporate Governance

Why TO depend on BAJAJ CAPITAL?

Wide Range of Products and Services

Bajaj Capital arts are a financial supermarket that caters to all the

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Pan-India Reach

They have 109 offices in 50 cities across India. This, along with the

strong IT infrastructure allows us to swiftly execute operations

throughout the length and breadth of the country.

Specialists at Your Service

The team comprises Certified Financial Planners, Chartered

Accountants, Company Secretaries, Legal Experts, MBAs and

Economists.

Complete assistance

They offer complete investment assistance, right from documentation

to completion of transactions and follow-ups.

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Strong Research Base

In an industry, it is important to keep up to speed with the

developments. They have a strong in-house research team as well as

outsourced support to ensure just that.

Service Standards

Bajaj Capital adheres to stringent quality standards and professional

ethics. We also provide value-added services that match the global

standards.

Personalised Service

A dedicated Relationship Manager is assigned to every client, and is

responsible for delivering personalised and prompt service.

Periodic Portfolio Reviews

Client portfolios are periodically evaluated and a trigger mechanism

alerts us of impending deadlines. This information is presented to you

in a timely and easily understandable manner.

Immediate Alerts

They have an automated alert system to inform immediately, every

time a new product that matches your requirements is launched in the

market.

Information Sharing

High quality reports, presented in an easily understandable and

actionable manner are regularly sent to all the clients. They also keep

in regular touch with designated members of organisation on a regular

basis. Investment means putting the money to work to earn more

money. Done wisely, it can help to meet the financial goals like buying

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a new house, paying for a college education, enjoying a comfortable

retirement, or whatever is important.

Bajaj Capital's time tested Investment Philosophy:

Do not invest directly in the stock market. Take the Mutual Funds

route.

Safety of principal should be of prime importance. We believe in a

controlled (risk) approach to investments.

Do not let inflation eat up your money in a savings bank account.

Go for superior and stable returns.

Have a look at your financial objectives. Your investments should

depend upon them.

Diversify your investments. Do not put all your eggs in one basket.

Keep a reasonable amount of liquid cash to meet your emergency

needs.

Take a balanced approach to investing. Avoid risky investments as

well as an overly cautious approach to Investing.

Monitor your investments once a month and take corrective action,

if required, immediately.

Do not try to time the entry and exit of your investments.

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Every time is a good time to invest if you have a long- term outlook

and keep investing regularly.

Put no more than 10% of your total investments in one company.

Investment Mantras for the Uninitiated

All of us are not born with a silver spoon in our mouth. But each one of

us wishes to strike gold and has a desire to be rich. There is a constant

urge in us to make the money grow at a pace that not only provides for

the financial goals but also helps us to improve standard of living from

good to better.

This makes it really essential to plan the allocation of the available

financial resources in such a way that they can generate the maximum

possible return. The term 'allocation of resources' means putting the

money in the various asset classes such as debt, equity and cash

However, following an ad-hoc approach to investments cannot do this.

One is required to plan investments in a systematic manner so that he

gets maximum returns with minimum risk. Also, the allocation should

be regularly reviewed at periodic intervals.

For this, one can either plan investments oneself, or refer to an expert

(a Financial Planner) who not only helps to invest appropriately but

also monitors the performance of the portfolio so that do not miss on

the best opportunities available in terms of investing and also do not

take undue risk on the portfolio.

A financial planner will give meaning to investments by linking the

same to the financial goals. This way one would know where one is

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going and it will become easier to chart out an appropriate pathway

towards the relevant destination point.

An investment decision is a trade off between the risk & return.

However, the investment avenue will definitely depend upon certain

factors. Some of the questions needed to answer are:

What is age?

How many dependents do have?

What are financial goals?

How much money would need to fund each goal?

What is the time horizon of goals?

How much are concerned about liquidity?

What is risk profile?

All these questions will help to chalk out a plan, which can match the

suitable products with goals.

Need could be:

Cash flow Planning

Insurance Planning

Retirement Planning

Investment Planning

Tax Planning

Children’s Future Planning

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Cash flow Planning: Cash flow Planning takes care of the timing of cash

inflows and outflows. It basically helps in analyzing the income and

expenses and intends to maintain a regular flow of income in the

family. It is a holistic approach to meet the life goals.

Insurance Planning: Insurance is not the person who passes away but

for those who survive. It takes care of the financial loss, which may

arise on the happening or non-happening of an event. Insurance

Planning relates to two fields of insurance

1. Life Insurance: It takes care of the financial needs of the dependants

of the deceased bread earner of the family.

2. General Insurance: It takes care of the risk of financing of property.

Retirement Planning: It takes care of the cash flows during retirement

when the person is not working. Usually people are not concerned

about retirement at an early age. But planning for retirement at an

early stage is necessary in order to maintain the same standard of

living.

Investment Planning: Investment Planning takes care of investment

decisions i.e to say this decision relates to appropriateness of an

investment, inflation factor, etc.

Tax Planning: It implies arrangement of the person's financial affairs in

such a way that it reduces the tax liability.

Children's Future Planning: Children's Future Planning takes care of

regular expenses on child’s education and higher education. It also

helps to make arrangements for the children marriage.

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Bajaj Capital is a union of leading financial advisors to form a Financial

Powerhouse, which will cover length and breadth of the country and

help millions of Indian achieve their respective goals.

Mission:

The missions of Bajaj Capital Advisors Network is to synergies the

strengths of togetherness and create a common learning, operating

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and growth platform to help all partners organise, grow and achieve

their respective organisational goals.

Vision:

Build and retain a growing membership base of financial

professionals

Develop a bond within the community as the premier resource for

financial information

Increase awareness on Financial Planning, using the CFP mark as

the cornerstone

Nurture and develop the careers of our members through

outstanding educational programs

Make members aware of financial market-related issues and provide

a forum to respond and offer feedback.

Why be a part of the Bajaj Capital?

Today the financial advisory business has become very competitive.

More and more MNCs, banks and stock brokers are entering into the

business of distribution of financial product and services, and many

banks are planning to go retail. As such, the choice for investors will be

many. Competition will be driven by knowledge-based advice and

service, supported by up-to-date technology support. The cost of

operation will go up and margins might shrink. It is not viable for all

players to invest in technology and brand building, and hence there is

a need to form an alliance in form of advisors network. The basis of

this network is utilising the power of technology to reach our investors.

The Bajaj Capital will offer a common platform to like-minded advisors

to learn, organise and grow their business together.

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Eligibility

Who can join the Bajaj Capital?

Anyone who is involved in (or is interested in) advisory, distribution

and marketing of financial products is welcome to join.

For instance, it may be a sub-broker of stockbrokers, an Insurance

agent, an AMFI registered Mutual Fund advisor, a Chartered

Accountant or a Company Secretary. This can be a part-time business

opportunity for many educated housewives, retired bankers and other

professionals.

Even those already engaged in some other business but seeking an

alternative source of income can look at this golden business avenue.

Joining Bajaj Capital becomes an additional revenue stream.

Starting and establishing your own financial operation and handsome

income comparable to other professions like Medicine or Law, Bajaj

Capital can help to grow to viable level.

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Young professionals out from the colleges and business schools,

thinking of making a long-term career in this industry can find this

helping them in their career objective.

 

NORTH United India Life Building, F-Block, Connaught Place, New Delhi-110001. Ph: 51790444, 23736201, 23712925Contact- Mr. C.P. BhatiaM. No: 9811027502

WEST Agra Building, Gr. Floor,7/9 Oak Lane, Fort, Mumbai-400023.Ph: 56376995-99,Fax: 56376994Contact- Dr. Manasvi Singh/Mr.Jignesh ParekhM.No: 9820444628/9821028352

EAST 507, Lords, 5th Floor, 7/1,Lord Sinha Road, Kolkata-700071.Ph: 22820383, 40034030/4733Conact-Mr. Biman ChakrabortyM.No: 9830026830

SOUTH 19, Wellington Plaza, G. Floor,90, Anna Salai Chennai 600002.

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Ph: 044-23451234, 23451207/8.Contact- K.SureshM.No: 9840903190

Focusing whether they are an independent financial advisor

working full-time or part-time, would lead business to succeed. The

Bajaj Capital is here to ensure that you reach your goal easily and

quickly. Success is lot easier to achieve when have the time and

resources to focus on greatest asset -- the clients.

Information Sharing

Hassles of having multiple points of contacts often lead to time and

energy wasted. They intend to provide a single point-of-contact for all

the informational needs. Single, immediate access to information and

resources that provide solutions makes success easier.

The Bajaj Capital provides one-stop access to:

Consolidated billing for all investment schemes

Client-related portfolio reports

Market intelligence

Research

Through web-based technology platform, the Bajaj Capital saves staff

time and money by making available what needed, and eliminating the

need to keep track of multiple login IDs and passwords.

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Financial Planning

Look for broadening the client base with the one of the most successful

Financial Advisory services. It's all possible to succeed when they offer

a sophisticated financial planning tool that gives a wide choice. They

are one of the pioneers in bringing this concept and now actively

involved in making it a proven process in the Indian financial advisory

business. They can help to grow into a proficient financial planner.

Strong Brand Name

Many independent Advisors prefer to retain their independent identity.

They respect that. After all, they are a business owner. They know how

to best connect with the community.

But consider this:

1. Bajaj Capital’s aggressive advertising through print and electronic

media reaches across the length and breadth of the country. People

see us as long-term financial planners, easily approachable,

accessible, and an organisation that communicates in an easy-to-

understand manner.

2. Bajaj Capital is the preferred partner of most investment-related

companies, mutual funds etc.

3. Bajaj Capital is one of biggest Financial Advisory companies with

over 100 investment centres and over 7 lakh investors.

4. Bajaj Capital is able to organise seminar/meets for invaluable clients

to value their association.

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The affiliation with Bajaj Capital puts you at the forefront of the clients'

selection when it comes to choosing financial services. The association

with Bajaj Capital can help open many doors.

Bajaj Capital is present in 60 cities and serves seven lakhs customers

but they realised that they too together can serve all investors of the

country; hence they require support to cover length and breadth of the

country.

Confidentiality

Client has chosen to deal with Bajaj. As the principle for forty years

they have kept strict confidentiality of our associate its client and have

never approach them directly. This is why independent financial

Advisors prefer to deal with Bajaj Capital.

Unbiased Research

With every passing day there are newer investment products hitting

the market and it is a really cumbersome task to be up to date with all

investment products particularly the performances and changes. They

want to have readily available perfect recommended list of investment

option for the clients.

Bajaj Capital has put some of the most distinguished and experienced

professionals to work for. The Research team reviews all the

investment products. The list of recommendation is based on the merit

of the product. They provide high-value reporting and advice of

uncompromising objectivity at its best. Many of our seasoned experts

are MBA, CA, CFP etc.

Back Office Outsourcing

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While Bajaj Capital is supporting for back end activities in a way it is

like outsourcing which MNCs are now a days doing in India.

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They are pleased to take the honor of offering new value added service

to their associates empanelled in Bajaj Capital Group.

These reports will help to give value added information to the clients

and valued customers, on their investments. These reports will help to

know their portfolio value, gain/losses, return etc.

They can now have a track of performance online while sitting

anywhere, where net is at the disposal.

Some of the types of report under consideration to offer are as below.

Comprehensive Portfolio & Performance Valuation Report This

Report show the Details of Complete Investment status of the

Investor e.g Amount Invested, Purchase Units, Sold Units, Capital

Gain, Current Market Value etc.

Comprehensive Portfolio & Performance Valuation Summary Report

This Report will show the Summary of the above Report.

Comprehensive Portfolio & Performance Valuation Report (Family)

This Report will show the Details of the Investments of the Members

of Family under ANA Grouped by ANA Itself.

Transaction Statement Report for a certain period

This Report will show all the transaction details done in certain

period.

Transaction Statement Report based on Product/Issuer or

Company/Schemes

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This Report shows all the Transactions based on selection of

issuer/company and schemes.

Transaction Summary Report (Scheme Wise)

This Report will show scheme wise summary of the Business.

Bill Report

This Report will show all the transaction with Sub brokerage in it.

BAJAJ CAPITAL is in the forefront of

implementation of Corporate Governance best practices

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Corporate Governance

Corporate Governance at BAJAJ CAPITAL is based on the following main principles:

Constitution of a Board of Directors of appropriate composition,

size, varied expertise and commitment to discharge its

responsibilities and duties.

Ensuring timely flow of information to the Board and its

Committees to enable them to discharge their functions

effectively.

Independent verification and safeguarding integrity of the

Company’s financial reporting.

A sound system of risk management and internal control.

Timely and balanced disclosure of all material information

concerning the Company to all stakeholders.

Transparency and accountability.

Compliance with all the applicable rules and regulations.

Fair and equitable treatment of all its stakeholders including employees, customers, shareholders and investors.

Bajaj Capital was one of the first companies in the

organised sector to offer investment advisory and financial planning

services along with a wide spectrum of financial products and services,

all under one roof.

Over the past 42 years, they have won the trust of over 7

lakh individual investor clients, including hundreds of High Net worth

Individuals, Non-Resident Indians and members of business-owning

families.

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In fact, they are honored to be the personal financial

advisors to several families that have been investing through them for

three generations.

The trust and goodwill of the investors are greatest assets,

motivating and inspiring to excel and achieve the greatest heights of

professionalism and service

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This project wouldn’t have been possible without the

help of websites from where the information was collected.namely,

www.google.com

www.bajajcapital.com

www.wikipedia.com

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