The Corporate Governance (CG) problems are getting complicated in the modern era as managers are increasingly becoming the most important assets of the firms. This in turn increases the dependency of the firms on the managers for wealth creation, while simultaneously providing more room for the managers to act on selfish motives, ignoring the interests of the shareholders. The experts, regulators and researchers are coming out with new approaches and models to solve the problem. The first paper, “Corporate Governance, Intellectual Capital and Value Creation”, by Maurizio La Rocca, Tiziana La Rocca and Alfio Cariola, focuses on one such new model to approach the CG problems. This paper adopts a heterodox approach and defines the CG relationships through the interaction between authority and responsibility given to the managers. The responsibility of the manager of the firm is to work with the objective of creating wealth for the investors and avoid opportunistic behavior. He has the intellectual capability to do the same. According to the authors, the most valuable source of incentive that can be offered to the manager for firm-specific investment is the authority given to him/her. The authors conclude that it is through the ‘interaction’ between the authority and responsibility that managers resolve hold-up problems before and after moral hazard problems. They emphasize that these two factors balance the incentive problems and explain the way to encourage innovation and managerial creativity to achieve success for the firm.

While the first paper focuses on a new approach to the CG problems, the second paper, “Corporate Governance in India: A Survey of the Literature”, by S Subramanian and

S Swaminathan, reviews the existing literature in CG in the Indian context. The survey suggests that the Indian CG system is moving towards the Anglo-American system. But it can be observed that the research approaches are also derived from the works done in the Anglo-American context. But the findings of the research works in the Indian context do not fall in line with the findings in the Anglo-American context. For example, consider the case of the role played by the institutional investors in ensuring the CG practices in the firms where they have invested. In the Anglo-American countries, as per the literature, the institutional investors are very effective in enforcing good governance practices. But in India, the institutional investors, particularly the domestic institutional investors, are not effective. Such interesting findings provide more research ideas for the future research works in this field.

While the literature survey provides a picture of the overall CG practices of the firms, we need case studies to understand how CG is actually practised in individual firms. The third and fourth papers of this issue focus on three such firms.

The third paper, “Corporate Governance Standards and Practices in Reliance Industries Limited”, by S C Das, analyzes the CG practices of Reliance Industries. The analysis suggests that though Reliance Industries is doing well on the CG front, it still has plenty of room to improve. It is worth mentioning here that although most of the CG issues identified with Reliance Industries are indeed common to most of the Indian firms, Reliance is getting the attention as it is India’s largest private sector firm.

The fourth paper, “Corporate Governance in Indian Banking Industry: An Experience with SBI and HDFC Bank”, a case study by D P Samantaray and Swagatika Panda, analyzes CG practices, especially with regard to the transparency and disclosure norms of two banks in India. It compares one leading private sector bank namely HDFC bank and another public sector bank which is also India’s largest bank i.e., the State Bank of India. The study finds that the CG practices of both the banks are quite satisfactory in fulfilling regulatory requirements. They also opine that there is ample room and scope for improvement for both the players in different areas of disclosure.

- S Subramanian
Consulting Editor