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CHAPTER 1

INTRODUCTION

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INTRODUCTION

WHAT IS ENTREPRENEURSHIP

Entrepreneurship is universal in any human activity be it economic, political or

social. Entrepreneurship has been defined as a creative human act involving the

mobilization of resources from one level of productive use to a higher level.

Or, as "combining together factors of production" and the supply of entrepreneurship

has been identified as critical in determining the wealth and growth of a nation's

economy. In fact, entrepreneurship is a vital source of structural change and

productivity improvement within economies.

First-generation entrepreneurs quite often start small firms with small investments and

then, once established, some of them grow to larger firms. With shorter technology

life cycles, the survival rate of these new small firms is expected to be low.

India's accelerated growth, post-liberalization, has not been accompanied by a

commensurate expansion in employment. This suggests a restructuring in many

sectors of the economy and also highlights the importance of entrepreneurship and

new units in creating employment.

With development in knowledge and technology, the capital intensity of most

production functions has increased. Simultaneously, this substitution of labour with

capital has improved labour productivity. Productivity improvements have been

significant in manufacturing. But , of late, the production of many services has also

become capital intensive.

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The infusion of technology and capital has enriched the content of many jobs; the

capital required to set up even small firms has gone up. Entrepreneurship involves a

willingness to take responsibility and the ability to put the mind to a task and see it

through. An ingredient of entrepreneurship is sensing opportunities and serving as a

change agent. An entrepreneur has to be a risk-taker; a calculated risk-taker and not a

gambler.

An entrepreneur has to have a clear vision, be innovative and have a commitment to

his goals with strong management and organizational skills.

Factors such as thrift, hard work, tenacity, honesty and tolerance are the key, though

the main aspect is that of being a risk taker

Entrepreneurship can be described as a process of action an entrepreneur undertakes

to establish his enterprise. Entrepreneurship is a creative activity. It is the ability to

create and build something from practically nothing. It is a knack of sensing

opportunity where others see chaos, contradiction and confusion. Entrepreneurship is

the attitude of mind to seek opportunities, take calculated risks and derive benefits by

setting up a venture. It comprises of numerous activities involved in conception,

creation and running an enterprise. According to Peter Drucker Entrepreneurship is

defined as a systematic innovation, which consists in the purposeful and organized

search for changes, and it is the systematic analysis of the opportunities such changes

might offer for economic and social innovation.

Entrepreneurship is a discipline with a knowledge base theory. It is an outcome of

complex socio-economic, psychological, technological, legal and other factors. It is a

dynamic and risky process. It involves a fusion of capital, technology and human

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talent. Entrepreneurship is equally applicable to big and small businesses, to

economic and non-economic activities. Different entrepreneurs might have some

common traits but all of them will have some different and unique features. If we just

concentrate on the entrepreneurs then there will be as many models as there are

ventures and we will not be able to predict or plan, how and where, and when these

entrepreneurs will start their ventures.

Entrepreneurship is a process. It is not a combination of some stray incidents. It is the

purposeful and organized search for change, conducted after systematic analysis of

opportunities in the environment. Entrepreneurship is a philosophy- it is the way one

thinks, one acts and therefore it can exist in any situation be it business or government

or in the field of education, science and technology or poverty alleviation or any

others.

Entrepreneurship is the process whereby an individual or a team of individuals create

a business idea; test it to see if it has the promise of a real opportunity in the market

and then, having evaluated the risk, proceed to combine people and resources like

money, investors, etc. and to implement the idea. Currently, even the professional

managers are learning from entrepreneurs, because, the key of success depends not on

how to be great at managing a business rather, it is always on how to be great at

making products and service that meet customers needs.

If entrepreneurship is primarily about identifying opportunities and facing the

challenges which can arise naturally in the growth of anything substantial, why the

term modern entrepreneur? Yes, the time of today, named the modern time, or

across the globe people say 21st century is something extremely different from the

past. lf entrepreneurship is about facing challenges, the kind and quality of challenges

of 21st century is very different. The environment is no more simple and local. Now it

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is global nvironment. People say global village. It is subject to influences from

across the world.

Creating and sustaining an enterprise is a matter of choice. But, about the mind-

setting of entrepreneurship, without which nobody can ever create an enterprise.

Many people, even the government, at that time, were believing that if we have

money we can start and run businesses. What they did not know is that it requires the

entrepreneurial competencies, which you know now. The issue opportunities Now,

we can be more or less aware of the challenges, but what about opportunities? We

cannot think that the so-called opportunities will be listed by somebody and available

through newspaper advertisements. But, of course, on job opportunities one may

come to know. ln the context of entrepreneurship, it is a 100 per cent responsibility of

the entrepreneur to discover the opportunity.

lt is needless to reiterate that it is the creative competencies which is important. lf one

has it, many other entrepreneurs would hunt for him. Even you dont have to start an

enterprise yourself.

Therefore, it is unnecessary bothering now much about the challenges, opportunities,

and threats of the modern times that you cannot foresee in advance. But prepare

yourself with regard to your own enterprise- You as an enterprise and you as a

products and you as an entrepreneur yourself. Thus, the challenge is primarily with

yourself. Look at yourself, beyond your surrounding limits, try to identify your

abilities, competencies, your mind setting and be in competition with your own self. lf

you compete with other, you will do so with the people around and when you go outer

limits, you may come across individuals who are far above the people whom you

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knew before, prepare yourself: mentally, intellectually and, of course behaviorally-

like we entrepreneurs say- Total Quality Management. Total Quality Management of

your own self. Only total quality products and services will have a future.

In India, you have examples of Tatas, Birlas, Ambanis, etc. who have made valuable

contribution to the industrial development of the country. Mr. D.H. Ambani, the son

of a school teacher came from a small village of Gujarat. At the age of sixteen, he

travelled by boat to Aden to work as a clerk in a French Company. Later on he rose to

the position of marketing manager of Burma Shell Products. In 1958, he returned to

India and started a modest import-export business. Today, his company Reliance is

one of the few Indian enterprises truly on the world stage employing thousands of

people and with a turnover of many crores of rupees. Mr. D.H. Ambani is a perfect

example of an ENTREPRENEUR. Let us now think why Mr. Ambani is an

entrepreneur. An entrepreneur is a creative thinker. He is an innovator, who

volunteers to take risk and invest money. In the process he generates jobs, solves

problems, adds values and seeks excellence. This is what Mr. Ambani did and

therefore

he is called an Entrepreneur. Thus we find, entrepreneurship consists of practices and

skills of a person constantly trying for growth and excellence. This is being done by

innovating an idea, object, product or service and put it to social use. To be an

entrepreneur you need to possess some qualities. However, entrepreneurship is also

referred as a career oriented purposeful task that can be learnt. It may be noted here

that, in the context of countrys economic development, entrepreneurship is not

always confined to big business. It is equally important to have small enterprises. As a

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matter of fact the economic growth and prosperity of many developed and developing

countries is because of emergence of small enterprises. In summary,

(i) Entrepreneurship is viewed as a function involving identification and use of

opportunities which exist in the market.

(ii) Entrepreneurs bear risks in converting the ideas into action and pursuing

opportunities.

(iii) Entrepreneurship involves creative and innovative action

(iv) Entrepreneurs undertake managerial activities as part of their work.

(v) An entrepreneur constantly strives for excellence in his/her field of work.

REDEFINING ENTREPRENEURSHIP

A theory of evolution of economic activities.

A continuous process of economic development.

An ingredient to economic development.

Essentially a creative activity or an innovative function.

A risk taking factor which is responsible for an end result.

Usually understood with reference to individual business.

The name given to the factor of production, which performs the functions of

enterprise.

Creates awareness among people about economic activity.

Generates Self-employment and additional employment

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CHARACTERISTICS OF ENTREPRENEURSHIP

1. The entrepreneur has an enthusiastic vision, the driving force of an enterprise.

2. The entrepreneur's vision is usually supported by an interlocked collection of

specific ideas not available to the marketplace.

3. The overall blueprint to realize the vision is clear, however details may be

incomplete, flexible, and evolving.

4. The entrepreneur promotes the vision with enthusiastic passion.

5. With persistence and determination, the entrepreneur develops strategies to

change the vision into reality.

6. The entrepreneur takes the initial responsibility to cause a vision to become a

success.

7. Risks; Entrepreneurs take prudent risks. They assess costs, market/customer

needs and persuade others to join and help.

8. An entrepreneur is usually a positive thinker and a decision maker.

BASIC TYPES OF ENTREPRENEURSHIP

Apparently, it can be said that the starting point of entrepreneurship would define its

type. The two types of entrepreneurship may be classified as:

1. Opportunity-based entrepreneurship- an entrepreneur perceives a business

opportunity and chooses to pursue this as an active career choice.

2. Necessity-based entrepreneurship- an entrepreneur is left with no other viable

option to earn a living. It is not the choice but compulsion, which makes him/her,

choose entrepreneurship as a career.

Entrepreneurship is often difficult and tricky, as many new ventures fail.

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Entrepreneur is often synonymous with founder. Most commonly, the term

entrepreneur applies to someone who creates value by offering a product or service.

Entrepreneurs often have strong beliefs about a market opportunity and organize their

resources effectively to accomplish an outcome that changes existing interactions.

Business entrepreneurs are viewed as fundamentally important in the

capitalistic society. Some distinguish business entrepreneurs as either "political

entrepreneurs" or "market entrepreneurs," while social entrepreneurs' principal

objectives include the creation of a social and/or environmental benefit.

Entrepreneurship and the study of new ventures is an emerging research area.

The phenomenon of liability of newness, or the greater propensity to fail of new

ventures, combined with the fact that some new ventures are outstanding successes,

generates both academic as well as practitioners interest in the correlates of new

venture performance. While both anecdotal and intuitive knowledge suggests that the

entrepreneur would influence the performance of the new venture, a review of the

literature in the area reveals that associations between entrepreneurial characteristics

and new venture performance have not been found to be significant. Moreover,

entrepreneurs are not a homogeneous set who can be distinguished from no

entrepreneurs on the basis of personality characteristics. Researchers now consider it

more meaningful to study differences within entrepreneurs, based on certain

commonalities. This leads to a trend towards typology research. However, literature

also reveals inconsistencies in operational zing the entrepreneur as an empirical

construct.

The lack of theoretical grounding in the choice of variables used in

categorization, as well as definitional and sample selection issues have hampered the

process of theory building in the area. It was proposed in this study that the

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measurement of entrepreneurial skills would capture the effect of the knowledge and

abilities acquired by founders through their education, training and work experience.

Entrepreneurial skills, in combination with the motivations of the entrepreneur, i.e.,

their reasons for starting a business, would define different types of entrepreneurs.

This typology was expected to have significant association with the strategic direction

the business would take, as well as its performance. Moreover, this research design

would test an integrated model of New Venture Performance by considering

independent as well as international effects of the type of entrepreneur as well as the

new venture strategy.

In this context, it was decided to carry out an exploratory study that would

address the gaps and inconsistencies detailed above with the following research. Are

combinations of skills and motivations associated with certain entrepreneurial? Are

these skill-motivation sets associated with competitive strategy decisions taken by

entrepreneurs? Does the entrepreneur-strategy alignment lead to higher performance?

The research adopted a survey method to collect data on the background

characteristics, skills, motivations, competitive strategy, and performance of the new

venture to test an interaction model of New Venture Performance. The sample for the

research consisted of 107 new ventures located in Delhi and Bangalore. The sample

was defined as independent start-ups (not part of a business house) that were between

1 and 7 years old, in the software development sector. The skills and motivations of

the entrepreneur were factor analyzed into a smaller number of components. A cluster

analysis of the skill and motivation factors yielded a typology of entrepreneurs.

An entrepreneur is one who organizes a new business venture in the hopes of

making a profit. Entrepreneurship is the process of being an entrepreneur, of gathering

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and allocating the resourcesfinancial, creative, managerial, or technological

necessary for a new venture's success. One engages in entrepreneurship when one

begins to plan an organization that uses diverse resources in an effort to take

advantage of the newly found opportunity. It usually involves hard work, long hours,

and, usually, the hope of significant financial returns. More importantly,

entrepreneurship is characterized by creative solutions to old or overlooked problems;

ingenuity and innovation are the entrepreneur's stock in trade. By taking a new look at

difficult situations, the entrepreneur discerns an opportunity where others might have

seen a dead end.

Entrepreneurship is also a source of more entrepreneurship. Societies around

the world have always been fueled by the innovations and new products that

entrepreneurs bring to the market. All big businesses started out small, usually as one

man or woman with a good idea and the willingness to work hard and risk everything.

While it is true that many new businesses fail, the ones that succeed contribute a great

deal to the creation of other new ventures which leads, in turn, to a dynamic national

economy. Indeed, today's economists and business researchers cite entrepreneurship

as a key component of future economic growth in North America and around the

world. "Entrepreneurship is viewed as the catalyst to transfer a segment of our new

generation of [downsized] people into self-employed business owners who will, in

turn, provide jobs for the rest, It is viewed as the necessary component to the creation

of new wealth; and hopefully represents the fountainhead from which will spawn

innovative management techniques for the design, manufacture and marketing of

products that will compete globally."

Successful entrepreneurship depends on many factors. Of primary importance

is a dedicated, talented, creative entrepreneur. The person who has the ideas, the

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energy, and the vision to create a new business is the cornerstone to any start-up. But

the individual must have ready access to a variety of important resources in order to

make the new venture more than just a good idea. He or she needs to develop a plan

of action, a road map that will take the venture from the idea stage to a state of growth

and institutionalization. In most instances, the entrepreneur also needs to put together

a team of talented, experienced individuals to help manage the new venture's

operations. Entrepreneurship also depends on access to capital, whether it be human,

technological, or financial. In short, entrepreneurship is a process that involves

preparation and the involvement of others in order to exploit an opportunity for profit.

TYPES OF SKILLS REQUIRED IN ENTREPRENEURSHIP

Technical Skills Business Management

Skills

Personal

Entrepreneurial Skills

Writing Planning and goalsetting

Disciplined

Oral communication Decision making Risk taker

Monitoring environment Human relations InnovativeInterpersonal Marketing Change oriented

Ability to organize Finance Persistent

Management style Accounting Visionary leader

Network building Management Ability to managechange

Listening Control

Technical businessmanagement

Managing growth

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CORPORATE GOVERNANCE

Corporate governance is a term that refers broadly to the rules, processes, or laws

by which businesses are operated, regulated, and controlled. The term can refer to

internal factors defined by the officers, stockholders or constitution of a corporation,

as well as to external forces such as consumer groups, clients, and government

regulations.

A well-defined and enforced corporate governance provides a structure that, at least in

theory, works for the benefit of everyone concerned by ensuring that the enterprise

adheres to accepted ethical standards and best practices as well as to formal laws. To

that end, organizations have been formed at the regional, national, and global levels.

In recent years, corporate governance has received increased attention because of

high-profile scandals involving abuse of corporate power and, in some cases, alleged

criminal activity by corporate officers. An integral part of an effective corporate

governance regime includes provisions for civil or criminal prosecution of individuals

who conduct unethical or illegal acts in the name of the enterprise.

THE NEED FOR CORPORATE GOVERNANCE

A corporation is a congregation of various stakeholders, namely, customers,

employees, investors, vendor partners, government and society. A corporation should

be fair and transparent to its stakeholders in all its transactions. This has become

imperative in todays globalized business world where corporations need to access

global pools of capital, need to attract and retain the best human capital from various

parts of the world, need to partner with vendors on mega collaborations and need to

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live in harmony with the community. Unless a corporation embraces and

demonstrates ethical conduct, it will not be able to succeed.

Corporate governance is about ethical conduct in business. Ethics is concerned with

the code of values and principles that enables a person to choose between right and

wrong, and therefore, select from alternative courses of action. Further, ethical

dilemmas arise from conflicting interests of the parties involved. In this regard,

managers make decisions based on a set of principles influenced by the values,

context and culture of the organization. Ethical leadership is good for business as the

organization is seen to conduct its business in line with the expectations of all

stakeholders.

Corporate governance is beyond the realm of law. It stems from the culture and

mindset of management, and cannot be regulated by legislation alone. Corporate

governance deals with conducting the affairs of a company such that there is fairness

to all stakeholders and that its actions benefit the greatest number of stakeholders. It is

about openness, integrity and accountability. What legislation can and should do, is to

lay down a common framework the form to ensure standards. The substance

will ultimately determine the credibility and integrity of the process. Substance is

inexorably linked to the mindset and ethical standards of management.

Corporations need to recognize that their growth requires the cooperation of all the

stakeholders; and such cooperation is enhanced by the corporation adhering to the

best corporate governance practices. In this regard, the management needs to act as

trustees of the shareholders at large and prevent asymmetry of benefits between

various sections of shareholders, especially between the owner-managers and the rest

of the shareholders.

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Corporate governance is a key element in improving the economic efficiency of a

firm. Good corporate governance also helps ensure that corporations take into account

the interests of a wide range of constituencies, as well as of the communities within

which they operate. Further, it ensures that their Boards are accountable to the

shareholders. This, in turn, helps assure that corporations operate for the benefit of

society as a whole. While large profits can be made taking advantage of the

asymmetry between stakeholders in the short run, balancing the interests of all

stakeholders alone will ensure survival and growth in the long run. This includes, for

instance, taking into account societal concerns about labor and the environment.

The failure to implement good governance can have a heavy cost beyond regulatory

problems. Evidence suggests that companies that do not employ meaningful

governance procedures can pay a significant risk premium when competing for scarce

capital in the public markets. In fact, recently, stock market analysts have acquired an

increased appreciation for the correlation between governance and returns. In this

regard, an increasing number of reports not only discuss governance in general terms,

but also have explicitly altered investment recommendations based on the strength or

weakness of a company's corporate governance infrastructure.

The credibility offered by good corporate governance procedures also helps maintain

the confidence of investors both foreign and domestic to attract more patient,

long-term capital, and will reduce the cost of capital. This will ultimately induce more

stable sources of financing.

Often, increased attention on corporate governance is a result of financial crisis. For

instance, the Asian financial crisis brought the subject of corporate governance to the

surface in Asia. Further, recent scandals disturbed the otherwise placid and

complacent corporate landscape in the US. These scandals, in a sense, proved to be

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serendipitous. They spawned a new set of initiatives in corporate governance in the

US and triggered fresh debate in the European Union as well as in Asia. The many

instances of corporate misdemeanours have also shifted the emphasis on compliance

with substance, rather than form, and brought to sharper focus the need for intellectual

honesty and integrity. This is because financial and non-financial disclosures made by

any firm are only as good and honest as the people behind them. By this very

principle, only those industrialists whose corporations are governed properly should

be allowed to be part of committees. This includes the Prime Minister and Finance

Ministers advisory councils, committees set up by the Confederation of Indian

Industry (CII), the Securities and Exchange Board of India (SEBI), the

Department of Company Affairs, ministries, and the boards of large banks and

financial institutions.

Corporate governance initiatives in India began in 1998 with the Desirable Code of

Corporate Governance a voluntary code published by the CII, and the first formal

regulatory framework for listed companies specifically for corporate governance,

established by the SEBI. The latter was made in February 2000, following the

recommendations of the Kumarmangalam Birla Committee Report.

The term corporate governance is susceptible to both broad and narrow definitions.

In fact, many of the codes do not even attempt to articulate what is encompassed by

the term. The motives for the several corporate governance postulates engaged in

these definitions vary, depending on the participant concerned. The focal subjects also

vary accordingly. The important point is that corporate governance is a concept, rather

than an individual instrument. It includes debate on the appropriate management and

control structures of a company. Further it includes the rules relating to the power

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relations between owners, the Board of Directors, management and, last but not least,

the stakeholders such as employees, suppliers, customers and the public at large.

The majority of the definitions articulated in the codes relate corporate governance to

control of the company, of corporate management, or of company conduct or

managerial conduct. Perhaps the simplest and most common definition of this sort is

that provided by the Cadbury Report (U.K.), which is frequently quoted or

paraphrased: Corporate governance is the system by which businesses are directed

and controlled.

The definition in the preamble of the OECD Principles is also all encompassing

Corporate governance . . . involves a set of relationships between a companys

management, its board, its shareholders and other stakeholders. Corporate governance

also provides the structure through which the objectives of the company are set, and

the means of attaining those objectives and monitoring performance are determined.

The most common school of thought would have us believe that if management is

about running businesses, governance is about ensuring that it is run properly. All

companies need governing as well as managing. The aim of Good Corporate

Governance is to enhance the long-term value of the company for its shareholders

and all other partners. The enormous significance of corporate governance is clearly

evident in this definition, which encompasses all stakeholders. Corporate governance

integrates all the participants involved in a process, which is economic, and at the

same time social. This definition is deliberately broader than the frequently heard

narrower interpretation that only takes account of the corporate governance postulates

aimed at shareholder interests.

Studies of corporate governance practices across several countries conducted by the

Asian Development Bank (2000), International Monetary Fund (1999), Organization

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for Economic Cooperation and Development (OECD) (1999) and the World Bank

(1999) reveal that there is no single model of good corporate governance. This is

recognized by the OECD Code. The OECD Code also recognizes that different legal

systems, institutional frameworks and traditions across countries have led to the

development of a range of different approaches to corporate governance. Common to

all good corporate governance regimes, however, is a high degree of priority placed

on the interests of shareholders, who place their trust in corporations to use their

investment funds wisely and effectively. In addition, best-managed corporations also

recognize that business ethics and corporate awareness of the environmental and

societal interest of the communities within which they operate, can have an impact on

the reputation and long-term performance of corporations.

THE KUMARMANGALAM BIRLA COMMITTEE ON


SEBI had constituted a Committee on May 7, 1999 under the chairmanship of Shri

Kumarmangalam Birla, then Member of the SEBI Board to promote and raise the

standards of corporate governance. Based on the recommendations of this

Committee, a new clause 49 was incorporated in the Stock Exchange Listing

Agreements (Listing Agreements).

The recommendations of the Kumarmangalam Birla Committee on Corporate

Governance (the Recommendations) are set out in Enclosure I to this report.

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FINANCIAL REPORTING AND DISCLOSURES

Financial disclosure is a critical component of effective corporate governance. SEBI

set up an Accounting Standards Committee, as a Standing Committee, under the

chairmanship of Shri Y. H. Malegam with the following objectives:

To review the continuous disclosure requirements under the listing agreement for

listed companies;

To provide input to the Institute of Chartered Accountants of India (ICAI)

for introducing new accounting standards in India; and

To review existing Indian accounting standards, where required and to harmonize

these accounting standards and financial disclosures on par with international

practices.

SEBI has interacted with the ICAI on a continuous basis in the issuance of recent

Indian accounting standards on areas including segment reporting, related party

disclosures, consolidated financial statements, earnings per share, accounting for taxes

on income, accounting for investments in associates in consolidated financial

statements, discontinuing operations, interim financial reporting, intangible assets,

financial reporting of interests in joint ventures and impairment of assets.

With the introduction of these recent Indian accounting standards, financial reporting

practices in India are almost on par with International Accounting Standards.

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IMPLEMENTATION OF CORPORATE GOVERNANCE

REQUIREMENTS

The Recommendations were implemented through Clause 49 of the Listing

Agreements, in a phased manner by SEBI.

They were made applicable to all companies in the BSE 200 and S&P C&X Nifty

indices, and all newly listed companies, as of March 31, 2001.

The applicability of the Recommendations was extended to companies with a paid up

capital of Rs. 100 million or with a net worth of Rs. 250 million at any time in the

past five years, as of March 31, 2002.

In respect of other listed companies with a paid up capital of over Rs. 30 million, the

requirements were made applicable as of March 31, 2003.

The accounting standards issued by the ICAI, which are applicable to all companies

under sub-section 3A of Section 211 of the Companies Act, 1956, were specifically

made applicable to all listed companies for the financial year ended March 31, 2002,

under the Listing Agreements.

COMPLIANCE WITH THE CODE AND SEBIS EXPERIENCE

In terms of SEBIs Circular No. SMD/Policy/CIR-03/2001 dated January 22, 2001:

All companies are required to submit a quarterly compliance report to the stock

exchanges within 15 days from the end of a financial reporting quarter. The report has

to be submitted either by the Compliance Officer or by the Chief Executive Officer of

the company after obtaining due approvals. SEBI has prescribed a format in which the

information shall be obtained by the Stock Exchanges from the companies. The

companies have to submit compliance status on eight sub-clauses namely:

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Board of Directors;

Audit Committee;

Shareholders / Investors Grievance Committee;

Remuneration of directors;

Board procedures;

Management;

Shareholders; and

Report on Corporate Governance.

Stock exchanges are required to set up a separate monitoring cell with identified

personnel, to monitor compliance with the provisions of the Recommendations. Stock

exchanges are also required to submit a quarterly compliance report from the

companies as per the Schedule of Implementation. The stock exchanges are required

to submit a consolidated compliance report within 30 days of the end of the quarter to

SEBI.

Both the Mumbai and National Stock Exchanges have submitted a consolidated

quarterly compliance report for the quarter ended September 30, 2002. It was

observed that 1,848 and 741 companies were required to comply with the

requirements of the Code, for the Mumbai and National Stock Exchanges,

respectively. Of these, compliance reports were submitted in respect of 1,026 and 595

companies, for the Mumbai and National Stock Exchanges, respectively.

The status of compliance with respect to provisions of corporate governance analyzed

from data submitted by the Mumbai Stock Exchange for the quarter ended September

30, 2002 is set out below.

The key observations contained in the consolidated compliance report sent by the

Mumbai and National Stock Exchanges are set out below.

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The compliance level in respect of requirements relating to Board of Directors,

Audit Committee, Shareholders Grievance Committee and Shareholders is very high;

Many companies are yet to comply with the requirements relating to Remuneration

Committee (which is not mandatory), Board Procedures, Management and Report on

Corporate Governance; and

Few companies have submitted that the provisions relating to Management and

Board Procedures are not applicable.

SEBI observed that the compliance with the requirements in clause 49 of the Listing

Agreement is, by and large, satisfactory; however, an analysis of the financial

statements of companies and the report on corporate governance discloses that their

quality is not uniform. This is observed on parameters such as the nature of

qualifications in audit reports, the quality of the corporate governance report itself

(which is often perfunctory in nature), and the business transacted and the duration of

audit committee meetings. Variations in the quality of annual reports, including

disclosures, raises the question whether compliance is in form or in substance; and

emphasize the need to ensure that the laws, rules and regulations do not reduce

corporate governance to a mere ritual. This question has come under close scrutiny in

recent times.

SEBI has analyzed a few recently published annual reports of companies to assess the

quality of corporate governance. The directors reports could be classified into the

following categories:

Reports where there is no mention about the compliance with corporate governance

requirements;

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Reports that state that the company is fully compliant with clause 49 of the Listing

Agreement, but where independent auditors have made qualifications in their audit

reports;

Reports that mention areas of non-compliance with clause 49 of the Listing

Agreement and provide explanation for non-compliance; and

Reports that mention areas of non-compliance with clause 49 of the Listing

Agreement but provide no explanation for auditors qualification or for reasons for

non-compliance.

SEBI also observed that there is a considerable variance in the extent and quality of

disclosures made by companies in their annual reports.

RATIONALE FOR A REVIEW OF THE CODE

SEBI believes that efforts to improve corporate governance standards in India must

continue. This is because these standards are themselves evolving, in keeping with

market dynamics. Recent events worldwide, primarily in the United States, have

renewed the emphasis on corporate governance. These events have highlighted the

need for ethical governance and management, and for the need to look beyond mere

systems and procedures. This will ensure compliance with corporate governance

codes, in substance and not merely in form.

Again, one of the goals of good corporate governance is investor protection. The

individual investor is at the end of a chain of financial information, stretching from

corporate accountants and management, through Boards of Directors and audit

committees, to independent auditors and stock market analysts, to the investing

public. Many of the links in this chain need to be strengthened or replaced to preserve

its integrity.

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SEBI, therefore, believed that a need to review the existing code on corporate

governance arose from two perspectives, (a) to evaluate the adequacy of the existing

practices, and (b) to further improve the existing practices.

ENTREPRENEURSHIP IN CORPORATE GOVERNANCE THE

OBJECTIVE

Corporate governance has several claimants shareholders and other

stakeholders - which include suppliers, customers, creditors, the bankers, the

employees of the company, the government and the society at large. This

Report on Corporate Governance has been prepared by the Committee for

SEBI, keeping in view primarily the interests of a particular class of

stakeholders, namely, the shareholders, who together with the investors form

the principal constituency of SEBI while not ignoring the needs of other

stakeholders.

The Committee therefore agreed that the fundamental objective of corporate

governance is the "enhancement of shareholder value, keeping in view the

interests of other stakeholder". This definition harmonizes the need for a

company to strike a balance at all times between the need to enhance

shareholders wealth whilst not in any way being detrimental to the interests of

the other stakeholders in the company.

In the opinion of the Committee, the imperative for corporate governance lies

not merely in drafting a code of corporate governance, but in practicing it.

Even now, some companies are following exemplary practices, without the

existence of formal guidelines on this subject. Structures and rules are

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important because they provide a framework, which will encourage and

enforce good governance; but alone, these cannot raise the standards of

corporate governance. What counts is the way in which these are put to use.

The Committee is thus of the firm view, that the best results would be

achieved when the companies begin to treat the code not as a mere structure,

but as a way of life.

It follows that the real onus of achieving the desired level of corporate

governance, lies in the proactive initiatives taken by the companies themselves

and not in the external measures like breadth and depth of a code or stringency

of enforcement of norms. The extent of discipline, transparency and fairness,

and the willingness shown by the companies themselves in implementing the

Code, will be the crucial factor in achieving the desired confidence of

shareholders and other stakeholders and fulfilling the goals of the company.

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CHAPTER 2

SCOPE AND IMPORTANCE

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SCOPE AND IMPORTANCE

ENTREPRENEURS MUST NOT RELY ON THE GOVERNMENT

In the pre-liberalization period, all these concepts of what was allowed and what

wasnt were rather vague and discouraged creativity. You needed 22 copies of a

document to import a single spare part. There were a lot of controls, some of which

were unnecessary and not well thought out. However, there was a positive side to it.

We became more self-reliant . The first bottle washer that we created for Gold Spot

was actually made under a tree!

The problem is that even post liberalization, a lot of these things havent changed. If

you want to import or export anything in India, you still need piles of paperwork ,

which tend to affect the entrepreneurs and small and medium scale enterprises the

most. According to me, liberalization means more than just allowing foreign direct

investment and foreign institutional investors in India. The idea is also to reduce the

cost of doing business and to simplify processes, which isnt happening in a lot of

sectors. But one good thing about having some controls in the financial sector has

been that we havent been as affected by the current financial crisis as the rest of the

world.

I remember once when I was in Chicago, somebody told me that we, in developing

countries were crazy for entering into alliances with the Fortune 500 companies.

These companies are hugely bureaucratic and very low on entrepreneurship and real

R&D . It is easier for them to buy out a smaller company than to develop a new

product from scratch, he said to me. On the other hand, the small and mid-sized

companies are bustling with ideas. I have seen some of the most efficient and

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aesthetic machinery being made in remote corners of Italy by five-member units.

And you have that happening in India as well. Only here, the owner is more caught up

in figuring out the MODVAT and excise duties rather than concentrating on creating

something new.

In the current economic situation, I think entrepreneurs and those who havent

overstretched themselves will not be too affected. Only people who have over-

leveraged themselves who will find it a little tough to bounce back. And my only

advice to them is to learn from this and not be greedy. What saddens me is that with

the increasing dependence on computers, people have lost the touch and feel for

numbers. Maybe I feel so strongly because I come from another generation where

knowing how to work with numbers held a lot of importance. Today, people will

blindly believe whatever figures that pop up on the screen in front of them without

questioning it. They have forgotten to ask whether something makes sense or not.

One piece of advice that I have for entrepreneurs is to not rely on the government. I

remember my father telling me, that if, instead of going to Delhi, Id spend that time

and money in my workshop instead it would be far more beneficial. Id like to think

that Ive managed to build my business and brand in spite of the government.

People management remains a critical issue, irrespective of whether the going is

tough or not. Similarly, you have to make sure that you dont lose sight of your values

and ethics at all times. You, and your competencies, are your only competition. Also,

dont try and overdo things. When things get bad, people start chickening out and get

frustrated. They dont know what to do. If people go back to he basics and start

focusing once again on the things that matter, they will do well.

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CHAPTER 3

LITERATURE REVIEW

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LITERATURE REVIEW

The definition of entrepreneurship has been debated among scholars, educators,

researchers, and policy makers since the concept was first established in the early

1700s. The term entrepreneurship comes from the French verb entreprendre and

the German word unternehmen, both means to undertake. By grave and Hofer

in1891 defined the entrepreneurial process as involving all the functions, activities,

and actions associated with perceiving of opportunities and creation of organizations

to pursue them. Joseph Schumpeter introduced the modern definition of

entrepreneurship in 1934. According to Schumpeter, the carrying out of new

combinations we call enterprise, and the individuals whose function it is to carry

them out we call entrepreneurs. Schumpeter tied entrepreneurship to the creation of

five basic new combinations namely: introduction of a new product, introduction of

a new method of production, opening of a new market, the conquest of a new source

of supply and carrying out of a new organization of industry. Peter Drucker proposed

that entrepreneurship is a practice. What this means is that entrepreneurship is not a

state of being nor is it characterized by making planes that are not acted upon.

Entrepreneurship begins with action, creation of new organization. This organization

may or may not become self-sustaining and in fact, may never earn significant

revenues. But, when individuals create a new organization, they have entered the

entrepreneurship paradigm.

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THE SUPPLY OF ENTREPRENEURSHIP

British economists such as Adam Smith, David Ricardo, and John Stuart Mill briefly

touched upon the concept of entrepreneurship, though they referred to it under the

broad English term business management. Whereas the writings of Smith and

Ricardo suggest that they undervalued the importance of entrepreneurship, Mill goes

out of his way to stress the significance of entrepreneurship for economic growth. In

his writings, Mill claims that entrepreneurship requires no ordinary skill, and he

laments the fact that there is no good English equivalent word to encompass the

specific meaning of the French term entrepreneur.

The necessity of entrepreneurship for production was first formally recognized by

Alfred Marshall in 1890. In his famous treatise Principles of Economics, Marshall

asserts that there re four factors of production: land, labour, capital and organization.

Organization is the coordinating factor, which brings the other factors together, and

Marshall believed that entrepreneurship is driving element behind organization. By

creatively organizing, entrepreneurs create new commodities or improve the plan of

producing an old commodity. In order to do this, Marshall believed that

entrepreneurs must have a thorough understanding about their industries, and they

must be natural leaders. Additionally, Marshalls entrepreneurs must have the ability

to foresee changes in supply and demand and be willing to act on such risky forecasts

in the absence of complete information.

Marshall also suggests that the skills associated with entrepreneurship are rare and

limited in supply. He claims that the abilities of entrepreneur are so great and so

numerous that very few people can exhibit them in all in a very high degree.

Marshall, however, implies that people can be taught to acquire the abilities that are

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necessary to be an entrepreneur. Unfortunately, the opportunities for entrepreneurs are

often limited by economic environment, which surrounds them. Additionally,

although entrepreneurs share some common abilities, all entrepreneurs are different,

and their success depend on the economic situations in which they attempt their

endeavors.

One school of thought on entrepreneurship suggests that role of the entrepreneur is

that of a risk-bearer in the face of uncertainty and imperfect information. Knight

claims that an entrepreneur will be able to bear the risk of a new venture if he believes

that there is a significant chance of profits. Although many current theories on

entrepreneurship agree that there is an inherent component of risk, the risk-bearer

theory alone cannot explain why some individuals become entrepreneurs while others

do not. Thus, in order to build a development model of entrepreneurship it is

necessary to look at some of the other characteristics that help explain why some

people are entrepreneurs; risk may be a factor, but it is not the only one.

Modern school of thought claims that the role of the entrepreneur is that of an

innovator; however, the definition of innovation is still widely debatable. Kirzner

suggests that the process of innovation is actually of spontaneous undeliberate

learning. Thus, the necessary characteristics of the entrepreneur is alertness, and no

intrinsic skills-other than that of recognizing opportunities-are necessary. Other

school of economists claims that entrepreneurs have special skills that enable them to

participate in the process of innovation. Leibenstein claims that the dominant,

necessary characteristics of entrepreneurs is that they are gap-fillers i.e. they have the

ability to perceive where market fails and to develop new goods or processes that he

market demands but which are not currently being supplied. Thus, entrepreneurs have

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the special ability to connect different markets and make up for market failures and

deficiencies.

Though the idea that entrepreneurs are innovators is largely acceptable, it can be

difficult to apply this theory of entrepreneurship to less developed countries (LDCs).

Often in LDCs, entrepreneurs are not truly innovators in the traditional sense of the

word. Entrepreneurs in LDCs rarely produce brand new products: rather they imitate

the products and production processes that have been invented elsewhere in the world

(typically in developed countries). This process, which occurs in developed countries

as well, is called creative imitation. Creative imitation takes place when when the

imitators better understand how an innovation can be applied, used, or sold in their

particular market niche (namely their own countries) than do the people who actually

created or discovered the original innovation. Thus, the innovation process in LDCs is

often that of imitating and adapting, instead of traditional notion of new product or

process discovery and development.

By combining the above thoughts it can be generalized that entrepreneurs are risk-

bearers, coordinators and organizers, gap fillers, leaders, and innovators or creative

imitators. Thus, by encouraging these qualities and abilities, governments can

theoretically alter their countrys supply of domestic entrepreneurship.

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CONCEPTUALIZING ENTREPRENEURSHIP

Entrepreneurship is an ill-defined, multidimensional, concept. The difficulties in

defining and measuring the extent of entrepreneurial activities complicate the

measurement of their impact on economic performance. Understanding their role in

the process of growth requires a framework because there are various intermediate

variables or linkages to explain how entrepreneurship influences economic growth.

Examples of these intermediate variables are innovation, variety of supply, entry and

exit of firms (competition), specific efforts and energy of entrepreneurs, etc.

HISTORY OF ENTREPRENEURSHIP

The understanding of entrepreneurship owes much to the work of economist Joseph

Schumpeterand the Austrianeconomists such as Ludwig von misses and von Hayek.

In Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a

new idea orinvention into a successful innovation. Entrepreneurship forces "creative

destruction" across markets and industries, simultaneously creating new products and

business models. In this way, creative destruction is largely responsible for the

dynamism of industries and long-run economic growth. Despite Schumpeter's early

20th-century contributions, the traditional microeconomic theory of economics has

had little room for entrepreneurs in its theoretical frameworks (instead assuming that

resources would find each other through a price system).

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THEORIES OF ENTREPRENEURSHIP

Entrepreneurship is an evolved thing. With the advancement of science and

technology, it has undergone metamorphosis and emerged as a critical input for socio-

economic various developments. Raters have developed various theories on

entrepreneurship and popularized the concept among the common people. The

theories propounded by them

Can be categorized as under:

1)Sociological Theories

2)Economic Theories

3)Cultural Theories

4)Psychological Theories

1) SOCIOLOGICAL THEORIES

The following theories explain how sociological factors accelerate the growth of

entrepreneurship:

1) Theories of religious belief - Weber

2) Theory of entrepreneurial supply- Cochran

3) Theory of social change- Hagen

4) Theory of group level pattern- Young

1) THEORY OF RELIGIOUS BELIEF Max Weber: Max Weber has

propounded the theory of religious belief. According to him, entrepreneurs are a

function of religious belief and the impact of religion shapes the entrepreneurial

culture. He emphasized that the entrepreneurial energies are exogenous supplied by

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means of religious belief. The central feature of this theory of social change,

therefore, consists in his treatment of the protestant ethic and the spirit of capitalism.

i) Spirit of Capitalism

ii) Adventurous spirit

iii) Protestant ethic

iv) Inducement of profit

2) THEORY OF ENTREPRENEURIAL SUPPLY Thomas Cochran: The

theory, propounded by Thomas Cochran, centers round the sociological aspect of

entrepreneurial supply. Beginning with the premise that fundamental problems of

economic development are non-economic, he emphasizes on the cultural values, role

expectation and social sanctions as the key elements that determine the supply of

entrepreneurs. The basic elements of Thomas Cochrans theory are:

i) Entrepreneur as a societys modal personality

ii) Modal personality as a derivative of social conditioning

iii) Role expectations and entrepreneurial role

iv) The type of childrearing and schooling and its influence on intrinsic character of

the executive.

v) Dynamics of entrepreneurs and thrust upon the social factors for the major changes

3) THEORY OF SOCIAL CHANGE E.E. Hagen: Everett E. Hagen, in his

theory of social change, propounded how a traditional society becomes one in which

continuing technical progress takes place. The theory exhorts the following features,

which presumes the entrepreneurs creativity as the key element of social

transformation and economic growth.

i) Presentation of the general of the society

ii) Economic growth: product of social change and political change

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iii) Rejection of followers syndrome

iv) Historic shift as a factor of initiating change

v) Withdrawal of status respects as the mechanism for rigorous entrepreneurial

activity

4) THEORY OF GROUP LEVEL PATTERN: F. Young: Frank Young, in his

theory, A Micro-sociological Interpretation of Entrepreneurship, points out that

entrepreneurial initiative is a function of group level pattern. Young has elaborately

analyzed the shortcomings of psychogenetic interpretation of entrepreneur ship and

suggested a causal sequence where transformation codes are developed by the

solidarity groups to improve their symbolic position in their larger structure and thus

become entrepreneurs. The theory has the following important features:

i) Deficiencies in psychogenic mediation model

ii) Solidarity groups

iii) Disregarding single-handed concept of entrepreneurship

iv) Reduction of complex economic problems

2) ECONOMIC THEORIES

Entrepreneurship and economic development are interdependent. Economic

development takes place when a countrys real rational income increases over a

period of time wherein the role of entrepreneurship is an integral part. The following

theories propounded by eminent economists explain how economic development and

entrepreneurship are complementary and supplementary to each other:

i) Schumpeters theory of innovation

ii) Leibenstems theory X-efficiency

iii) Mark Cassons theory

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iv) Papanek and Hans theory

v) Harvard School theory

vi) M. Kirzners theory

vii) David McClellands theory of theory

viii) Knights theory of profit

i) Schumpeters Definition of Entrepreneur: Joseph A. Schumpeter thus writes:

The entrepreneur in an advanced economy is an individual who introduces

something new in the economy a method of production not yet tested by

experience in the branch of manufacture concerned, a product with which consumers

are not yet familiar, new sources of raw material or of new markets and the like.

Schumpeter further states that entrepreneurs function is to reform or revolutionize

the pattern of production by exploiting an invention or more generally, an untried

technological possibility for producing a new commodity....

Briefly, an entrepreneur is one who innovates, raises money, assembles inputs,

chooses managers and sets the organization going with his ability to identify them.

Innovation occurs through

i) The introduction of a new quality in a product,

ii) A new product,

iii) A discovery of fresh demand and a fresh source of supply, and

iv) By changes in the organization and management

In the case of a developing economy like ours, the concept is being understood

differently. Entrepreneurship in developing economics is one form of labor that tells

the rest of labor what to do and sees to it that it gets things done. Unlike in the

developed industrial world, emphasis is not put (nor is there any need for it) only on

Schumpeterian

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Innovations in the case of developing countries. Schumpeters entrepreneur only

exists if the factors of production are combined for the first time. To him,

maintenance of a combination is not entrepreneurial activity. As such, he differs from

the theory of Rent enunciated by Ricardo. Ricardo included the term entrepreneurial

ability as an independent factor of production. To Ricardo, profit is the reward for

entrepreneurial ability.

Distinction between Innovator and Inventor: Schumpeter makes a distinction

between an innovator and an inventor. An inventor discovers new methods and new

materials. On the contrary, an innovator is one who utilizes or applies inventions and

discoveries in order to make new combinations and thus produces newer and better

goods which yield both satisfaction and profits. An inventor produces ideas while the

innovator implements these ideas. An inventor is concerned with his technical work

of invention whereas an entrepreneur converts the technical work into economic

performance. An innovator is more than an inventor because he does not only

originate as the inventor does but goes much farther. In sum, the concept of the

entrepreneur is intimately associated with the three elements risk- bearing,

organizing and innovating. Thus, an entrepreneur can be defined as a person who tries

to create something new, organizes production and undertakes risks and handles

economic uncertainty involved in enterprise.

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CRITICISM

i) Schumpeters entrepreneur is a large-scale businessman who creates something

new. But an entrepreneur cannot have large-scale operations from the very beginning.

Moreover, in underdeveloped countries people who can adopt the existing technology

are needed.

ii) Schumpeter did not explain why some countries had more entrepreneurial talent

than others. He only pointed out that entrepreneurs are not a class in themselves like

capitalists and workers. An individual is an entrepreneur only when he actually carries

out new combinations and cases to be an entrepreneur the moment he settles down to

running the established business.

ii)Leibensteins Theory of X-Efficiency: Harvey Leibenstein propounded the theory

of Xefficiency which is popularly called Gap filling theory. According to Leibenstein,

entrepreneurial functions are determined by the X-efficiency which means the degree

of inefficiency on the use of resources within the firm. The theory has got the

following features.

i) Routine entrepreneurship

ii)New entrepreneurship

iii) Twin roles of entrepreneur: Harvey Leibenstein pointed out that there always exist

some deficiencies in the production function or input-output relationship. Theses

deficiencies or gaps exist because all the inputs in the production function cannot be

marketed. So Leibenstein highlighted the twin functions of entrepreneur, namely:

a) Gap filling

b) Input completing

c) X- efficiency factor

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iii) Mark Cassons Theory: Mark Casson was a renowned economist who

propagated a functional definition of entrepreneur in his epoch-making book, The

Entrepreneur An Economic Theory. He stated that now-a-days it is quite

fashionable to be an entrepreneur. Most of the studies of entrepreneur make no

attempt at proper definition. It may be said quite categorically that at the present

moment, there is no established economic theory of entrepreneur. The subject area has

been surrendered by economists to sociologists, psychologists and social scientists.

However, his theory of entrepreneurship deals with the functional behavior of

entrepreneur and his qualities which are crucial for his success.

His theory has got the following features.

a) Demand- supply relationship

b) Identification of qualities

iv) Papanek and Harris Theory: Economists like Papanek and Harris have

propounded that when certain economic conditions are favorable, entrepreneurship

and economic growth will take place. According to these two economists, economic

incentives are the integral factors that have induced entrepreneurial initiatives. The

main features of their theory are depicted as under:

i) Economic incentives: Entrepreneurial development is a function of economic

incentives. This is one of the basic traits which drive the entrepreneur to take up

entrepreneurial activities and to bring about success.

ii) Link between economic gains and the inner urge: According to the above

economists, the link between a persons inner urge and desired economic gains play a

pivotal role, for development of entrepreneurial competencies. The inner drives

coupled with the hope of getting pecuniary benefits can give rise to entrepreneurial

development.

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iii)Economic gain sufficient condition: Theory of entrepreneurship, advocated

by Papanek and Harris, reveals that entrepreneurs have got spontaneity in their

willingness for undertaking diverse types of entrepreneurial activities because of

economic gains. Thus, economic gain is considered as the sufficient condition for the

origin of entrepreneurial initiatives in the economy.

v) Harvard School Theory: Harvard School contemplated that entrepreneurship

involves any deliberate activity that initiates, maintains and grows a profit-oriented

enterprise for production or distribution of economic goods or services, which is

inconsistent with internal and external forces. The following points portray some

important features of Harvard School Theory

i) Internal forces: These forces refer to the internal qualities of the individual such as

intelligence, skill, knowledge experience, intuition, exposure etc. These forces

influence the entrepreneurial activities of an individual to a great extent,

ii) External forces: These forces refer to the economic, political, social, cultural and

legal factors which influence origin and growth of entrepreneurship in an economy.

As such, entrepreneurial activity needs an environment conducive to its growth and

development.

iii) Emphasis on two types of entrepreneurial activities: The Harvard School

theory gives emphasis on two types of entrepreneurial activities, namely:

a) Entrepreneurial functions like organization and combination of resources for

creating viable enterprises

b) The responsiveness to the environmental condition that influences decision-making

function

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vi) M. Kirzners Theory of Adjustment: Israel M. Kirzner, the noted economist, has

coined the theory of adjustment of price. According to him, the essential

entrepreneurial element is the alertness to information rather than its possession alone.

He contends that those entrepreneurs who have the superior telescopic faculty keep

themselves all the while alert to confront any disequilibrium in the market.

vii) Theory of David McClellands Theory of Achievement Motivation: In the late

1940s David McClelland and his associates developed the theory of achievement

motivation, which was regarded as one of the best economic theories of

entrepreneurial development. They concentrated mainly on following three aspects:

i) Need for achievement: A strong need for achievement n Ach is found within

certain individuals, groups and communities. McClelland emphasized that the need

for achievement or achievement orientation is the most important factor for

explaining economic behavior. People having this need are more likely to succeed as

entrepreneurs.

ii) Need for power: This pertains to the desire by a person to be influential in a

group. People with need for power n Paw believe in position of authority.

iii) Need for affiliation the persons with high. Need for affiliation is sensitive to social

relationship. They are keen on warm and interpersonal relationship. They are

associated more with popularity, social support and friendship than with decision

making.

viii) Knights theory of Profit: F.H. Kniight, in his book Risk, Uncertainty and

Profit propounded the theory of profit. He points out that entrepreneur are a

specialized group of persons who bear risk and deals with uncertainty.

i) Pure profit

ii) Situation of uncertainty

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iii) Risk-bearing capability

iv) Guarantee of specified sum

v) Identification of socio-economic and psychological factors

vi) Use of consolidation technique to reduce business uncertainty

vii) Self-confidence

3) CULTURAL THEORIES

Advocates of cultural theories point out that entrepreneurship is the product of

culture. Entrepreneurial talents come from cultural values and cultural systems

embedded into the cultural environment. The following theories portray that the

cultural factors are always responsible for the emergence of entrepreneurship:

i) Hoselitzs Theory: Hoselitz explains that the supply of entrepreneurship is

governed by cultural factors, and culturally minority groups are the spark-plugs of

entrepreneurial and economic development. In many countries, entrepreneurs have

emerged from a particular socioeconomic class. He emphasizes the role of culturally

marginally groups like the Jews and the Greeks in medieval Europe, the Lebanese in

West Africa, the Chinese in South Africa, and the Indians in East Africa in promoting

economic development. Hoselitzs theory of entrepreneurship supply can be viewed

from the following standpoints which are cultural in nature

a) Hypothesis of marginal men

b) Emphasis on the functions of managerial and leadership skill

c) Contributionof specific social classes

ii)Stokes Theory: Stokes theory portrays that entrepreneurship is likely to emerge

under specific social sanctions, social culture and economic action. According to

Stoke, socio-cultural values channel economic action. He suggests that personal -and

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societal opportunities and the presence of requisite psychological distributions may be

seen as conditions for an individual movement to get changed into industrial

entrepreneurship.

4) PSYCHOLOGICAL THEORIES

Psychological theories centre round the psychological characteristics of the

individuals in a society. Psychological characteristics influence the supply of

entrepreneurs in a society. The following theories clearly portray the emergence and

supply of entrepreneurs

1) THEORY OF PERSONAL RESOURCEFULNESS: Personal resourcefulness is

a critical factor for the growth and development of entrepreneurship. The theory of

personal resourcefulness has got the following implications as far as the supply of

entrepreneurs is concerned in the society:

a)Cognitive function: The present theory presupposes the activities undertaken by

the individuals who require cognitively mediated behavior like emotions, sentiments,

inner feelings, thoughts and actions. In these situations, entrepreneur is fully apprised

of the situation and knowledge which is shaded by risk and, motivational

involvement.

b) Hitman aspects of psychology: Different authors have given their different

opinions on human aspects of psychology. For example, Bygrave and Hoffer

highlight the significance of human volition. Schumpeter pointed out entrepreneur as

innovator while Carland gives emphasis on organization building for entrepreneurship

development. In Schumpeters words,

i) will to power

ii) will to conquer

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Thus, studies examining non-economic factors have brought out the fact that mere

provisions of economic inputs may not itself guarantee success in entrepreneurial

ventures, organizational and psychological factors also still remain a subject of further

investigation.

2) THEORY OF ENTREPRENEURIAL SUPPLY: John H. Kunkel advocated the

theory of entrepreneurship supply. According to him, psychological and sociological

variables are the main determinants for the emergence of entrepreneurs. He

contemplated that entrepreneurial talent can be found in minorities, religious, ethnic,

migrated, displaced elites and these minorities have supplied most of the

entrepreneurism in the society, Entrepreneurs can be dependent upon the following

structures in the economy:

i) Demand structure: It implies economic demand with relation to changes in

economic development and government policies. Demand structure can he augmented

with the help of material reward which can influence entrepreneurial behavior.

ii)Limitation structure: It is originally socio-cultural in character. In this structure,

entrepreneur is regarded as the most deviant individual in the society and thats why

the society restricts specific activities that influence all members in the society.

iii)Labor structure: It refers to the supply of skilled and willing labor. The structure

is governed by a large numbers of factors such as racial stock, available job-

alternatives, traditionalizing mobility of labor etc.

iv)Opportunity structure: It is the most important structure governing the supply of

entrepreneurs. The structure refers to the technological and managerial skills,

information about techniques of production, market structure and supply of capital.

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THE MODELS OF ENTREPRENEURSHIP

Entrepreneurship is among the most talked about concepts world over. everybody

admires successful entrepreneurs, in particular those who have taken their

organizations to the summit in their field

The fact remains that we all admire successful entrepreneurs, especially those who

have taken their organizations to the summit in their field. Entrepreneurship is among

the most talked about concepts world over: According to one estimate, after self-help

and do-it-yourself, books on entrepreneurship are among the perennial bestsellers.

One of the components of the quintessential American Dream consists of coming

up with that one million dollar idea and taking it to market.

After my article on entrepreneurs was published, I exchanged notes with several

readers and gathered further ideas on entrepreneurship. I have come to realize that

entrepreneurs come in a variety of stripes. Following are the common models:

CONSULTANT MODEL: This model is common among academicians and those

with niche domain expertise gained in the industry. Management consultants, CPAs

and others who gain experience and a brand name working for large consulting

houses find it a convenient and lucrative area to branch off on their own and leverage

the industry contacts and networking skills developed in their regular jobs. Many

corporate executives, after retiring from their regular jobs also take the consulting

route, either directly or by taking on director roles at different companies. Many IT

professionals, especially those with niche skills and/or certifications also tend to move

on to consulting roles. Note: the consulting model here does not include the more

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common contracting/subcontracting model since in that model, the consulting

company or the founder takes on greater entrepreneurial risk than the subcontractor.

MOONLIGHTING MODEL: This model is common among those want to

experience entrepreneurship part-time without taking the risks associated with full-

time entrepreneurial activities. This model is not really new; for example, doctors

working for hospitals or clinics have long taken visiting consultant roles. Professors

and academicians also regularly take on consulting opportunities with industries that

use their expertise to implement the research ideas fine-tuned in academia. Some

professionals take the public speaking or column writing route where they try to

publish their ideas outside the confines of their organizations. For instance, although I

enjoy my day-job, I have been writing this weekly column for over two years because

of the interaction and opportunity to network with peers that this brings.

BRILLIANT IDEA MODEL: Professionals and others working in the corporate

world or for regular employers sometimes have an epiphany, a eureka moment when

they realize that they have a million dollar idea that they can capitalize on.

Although such events are rare and too far between to generalize, a number of brilliant

entrepreneurial ideas have sprung up from those with a different perspective than

others who work on the same idea every day. Many times, employees take their

new/innovative idea to the employer with a suggestion to implement it on the job.

Sometimes, when the ideas are not taken up by the management, they contemplate the

entrepreneurial route if they feel strongly about it.

EXITING BUSINESS/FRANCHISE MODEL: Sometimes, individuals who do not

want to continue in the corporate world decide to start their own venture in a domain

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they are comfortable. Such ventures may take the form of small businesses or

franchises. In the franchise model, the wannabe entrepreneur approaches a

corporation like McDonalds, a restaurant chain, an auto dealership or any other

enterprise with a franchising model and takes on the responsibility of running his

business using the brand and marketing support from the enterprise. There are

thousands of Indians in the US successfully running their own businesses including

Indian Bazaars, restaurants, motels, etc.

In India, as in other parts of the world, this concept of making it big through

entrepreneurship has gained popularity after endless articles in business journals and

papers have eulogized the success of our self-made entrepreneurs including the usual

suspects: N R Narayana Murthy, Azim Premji, Ramalinga Raju, et al. The liberalised

economy of the past decade, with lesser bureaucratic interferences and bottlenecks

has also led to a climate where individuals are more willing to experiment. In my

recent columns I havent touched upon the risks of entrepreneurship, but needless to

say, higher the rewards, bigger the risks.

Whichever model of entrepreneurship you choose, it will be worthwhile to remember

that it is definitely an interesting albeit risky proposition.

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Corporate governance is the set ofprocesses, 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/members, management, and the board of directors. Other stakeholders

include labor(employees), customers, creditors (e.g., banks, bond holders), suppliers,

regulators, and the community at large. For Not-For-Profit Corporations or other

membership Organizations the "shareholders" means "members" in the text below (if

applicable).

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 focuses on the impact of a corporate

governance system in economic efficiency, with a strong emphasis 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 (see section

9 below).

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 MCI Inc. (formerly WorldCom). In

2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to

restore public confidence in corporate governance.

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http://en.wikipedia.org/wiki/Processhttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Wage_labourhttp://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Principal-agent_problemhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Stakeholder_viewhttp://en.wikipedia.org/wiki/Enron_Corporationhttp://en.wikipedia.org/wiki/MCI_Inc.http://en.wikipedia.org/wiki/Sarbanes-Oxley_Acthttp://en.wikipedia.org/wiki/Processhttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Wage_labourhttp://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Principal-agent_problemhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Stakeholder_viewhttp://en.wikipedia.org/wiki/Enron_Corporationhttp://en.wikipedia.org/wiki/MCI_Inc.http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act


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DEFINITION

In A Board Culture of Corporate Governance business author Gabrielle

O'Donovan defines corporate governance as 'an 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, accountability 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 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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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. Cor

Documents

Manisha Report