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INTRODUCTION

1.1 BACKGROUND

Since 1970s, corporate governance (CG) has been the subject of significant debate in U.S

and around the globe. The East Asian financial crises during 1997 and high profile

collapse of a number of large U.S firms such as Enron Corporation and World Com

(Khiari, Karaa and Omri, 2007) gave impetus to the development of CG. Madhani (2007)

remarked that the implementation of CG plays important role in safeguarding assets of

firms. The author also remarked that sound CG practices enhance transparency and

accountability of overall system and reduce risk of fraud or scam by the management

firms. Since CG system primarily relies on the board of directors as its main organ it

improves the performance of board vis-à-vis firm‟s performance (Jamali, Safieddine and

Daouk, 2007). Bathala, Nippani and Vinjamury (2006) and Chen et al. (2006) also

emphasised that firm‟s performance depends on the effectiveness of CG mechanisms

which encompasses factors like board independence, board size, CEO roles, board

composition and control. Board of directors and specialised committees play key role in

the CG practices (Khiari, Karaa and Omri, 2007) through formulating, developing,

appointing, supervising and remunerating senior executives and to ensure accountability

of the organisation to its owners and authorities (Khanchel, 2007). Abor and Biekepe

(2007) remarked that implementation of CG practices helps in enhancing business

prosperity, corporate accountability, shareholder value and protects the interest of

stakeholders.

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CG is not just corporate management; it is something much broader to include

major parameters of accountability and reporting system in Governance Corporation

(Ghosh, 2007 and Kumar, 2004). It is a system of structuring, operating and controlling a

company with a view to achieve long-term objectives to satisfy shareholders, creditors,

employees, customers and suppliers with the legal and regulatory requirements, apart

from meeting environmental and social obligations (Gopalaswamy, 1998 and Galbreath,

2006 ). CG is a framework of legal, institutional and culture factors shaping the patterns

of influence that shareholders exert on managerial decision making (Li, Pike and Haniffa,

2008).

The concept started taking roots in India in early 1990s and received a boost in

the second half of that decade mainly because of economic liberalisation and deregulation

of industry, demand for new corporate ethos and stricter compliance with the law of the

land. More recently Satyam fraud has shaken the corporate sectors of India. As such the

need for effective CG has become more important. Initially international committees such

as Cadbury, OECD and Basel Committee were framed to look into corporate governance

practices. The Cadbury Committee (1991) reported corporate governance as the system

by which companies are directed and controlled. The Basel Committee (1991) remarked

that supervisions should encourage and pursue market discipline by encouraging good

CG and enhancing market transparency and surveillance. Further organisation for

economic corporation and development (OECD) defined CG structure in terms of

distribution of rights and responsibilities among different participants of the corporations

such as board, managers, shareholders and other stakeholders and spells out the rules and

procedures for making decisions on corporate affairs. Besides, it also provides the

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structure through which company objectives are set and the means of attaining (business)

objectives and monitoring performance (OECD, 1999). In addition to this, various

national committees such as CII (Rahul Bajaj), Kumar Managalam Birla, Naresh Chandra

and Narayana Murthy Committees were set-up to look into the various aspect of

corporate governance. Whereas Kumar Mangalam Birla Committee recommended that

board should have experience to discharge its duties, transparency in financial disclosure

and SEBI role to laid down the norm. The Rahul Bajaj Committee (1996) recommended

simple structure of board and appointment of audit committee for transparent and

effective control over the business performance. Further, SEBI constituted Narayana

Murthy Committee which included mandatory recommendations such as audit

committee, disclosures, risk management, training, code of conduct, internal policy and

Whistle Blower Policy to be prepared in the CG report.

1.2 CLAUSE 49 LISTING AGREEMENT

SEBI, initially constituted „Naresh Chander and Narayan Murthy Committee‟ (SEBI,

2000, 2004 and 2006) to develop CG guidelines to be followed by all the companies

listed in the stock exchange of India. As per committee‟s guidelines, Clause 49 was

formulated focusing on mandatory and non-mandatory requirements of the CG. The

guidelines were further revised in 2004 & 2006 with respect to maximum time gap

between two board meeting has been increased from 3 months to 4 months; amount paid

to non executive directors (as authorized by the company Act 1956) would not require the

previous approval of the shareholders, and certification of internal control system by

CEO/CFO would be for the purpose of financial reporting. The listed companies are

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required to disclose following mandatory and non-mandatory information:

Mandatory Guidelines: - The listed companies are required to mention information on

company‟s philosophy, code of corporate governance, board of director, audit committee,

shareholders committee and means of communication. A brief statement on company‟s

philosophy on code of governance must be mentioned. As per clause 49, companies must

disclose information on board of directors with respect to composition, category of

directors (promoter, executive, non executive, independent non-executive and nominee),

attendance of each director at board meeting and the last AGM, board committees and

number of board meeting held. The listed companies are required to provide brief

description of terms of reference, composition, name of members and chairman, meeting

and attendance in relation to audit committee. Similarly, the information on remuneration

committee such as brief description of term of reference, composition, name of members

and chairperson, attendance, remuneration policy, and details of remuneration to all the

directors must be disclosed in the report. Furthermore, shareholders committee is

required to disclose information related to name of non-executive directors and

compliance officer, number of shareholders complaints, and number of pending

complaints. Also companies must disclose information on general body meetings with

respect to location and time where last three AGM‟s held, any special resolution passed

in last three year through postal ballot details of voting pattern, and procedure for postal

ballot. The disclosures on materially signification related party transitions, details of non-

compliance, penalties, strictures, whistle blower policy, details of compliance with

mandatory requirements and adoption of the non-mandatory requirements of the clause

should also be mentioned- in the corporate governance report. The information on means

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of communication viz., quarterly result published in newspapers, website, official news,

and preparation made to institutional investor is also required be disclosed. In addition to

this, general shareholder information such as AGM (date, time and venue), financial year,

date of book closure, dividend payment date, listing of stock exchange and stock code

should also be given in the annual report.

Non-Mandatory Guidelines:- The non- mandatory requirements relate to information

such as providing space for the non executive directors at company‟s expenses, terms of

independent director, remuneration committee, information to shareholder, training of

board members. The Chairman of the board (non-executive director) should be entitled to

maintain a chairman‟s office at the company‟s expense and also allowed reimbursement

of expenses incurred in performance of his duties. Further, the independent director may

have a tenure not exceeding a period of nine years. The board should set up a

remuneration committee to determine on their and on behalf of the shareholders, the

agreed terms of reference, company policy on special remuneration packages for

executive director including pension rights and any compensation payment. To avoid

conflicts of interest, the remuneration committee should determine the remuneration

packages and should be presented at the annual general meeting to answer the

shareholders queries. The non-mandatory guidelines also suggest that the listing

companies may send half yearly declaration of financial performance to each shareholder.

The company may move towards a regime of unqualified financial statements and train

its board members in the business model of the company, risk management and their

responsibility as a director. Mechanism is made to evaluate non-executive director.

Lastly, mechanism for evaluating non-executive directors and implementation of Whistle

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Blower Policy can also be used by the companies to strength transparency in corporate

governance.

1.3 BANK AND CORPORATE GOVERNANACE

Banks are the dominant financial institutions that not only possess the potential of a great

means of growth but also the capability of causing catastrophe to an economy (Pati, 2007

and Mullineux, 2006). Governance of banks is important for several reasons: First, banks

activities are less transparent and thus more difficult for shareholders and creditors to

monitor (Pati, 2007). It becomes more all the opaque when the largest amount of share

capital is with government. Second, as financial markets are usually underdeveloped,

banks are typically the most important source of external finance for the majority of firms

(Levine, 1997). Third, the economy is dominated by many small scale firms and most of

them depend on banks. Fourth, by providing a generally accepted means of payment,

banks are the main depositories for the economy's savings. Fifth, banks also differ from

most other companies in terms of the complexity and range of their business risks.

To summarise, good governance facilitates effective management and control of

business, enables the bank to maintain high level of business ethics and optimise the

value for all its stakeholders (SBI, Annual Report, 2007-08). The ownership pattern,

regulatory environment societal pressure (on the development role of banks) and board

structure are key element in design of governance framework for banking sector

(Naryana and Mohan, 2007). Good corporate governance is considered much more than

complying with legal and regulatory requirements. HDFC bank (2008) believed in

adopting and adhering to best international banking practices that is the best board

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practices, transparent disclosures and shareholder empowerment necessary for creating

shareholder value. The bank implements the cardinal principles of CG such as

independence, accountability, responsibility, transparency, fair and timely disclosure,

credulity etc. ICICI bank‟s, CG philosophy encompasses not only regulatory and legal

requirements, such as the terms of listing agreements with stock exchange, but also

several voluntary practices aimed at a high level of business ethics, effective supervision

and enhancement of value for all stakeholders. Punjab National Bank (2008) has adopted

the CG as a work ethos to high standards of accountability, transparency, social

responsiveness and operational efficiencies, best ethical business practices for

maximizing the shareholders value and to protect the interest of all stakeholders.

1.4 DIMENSIONS OF CORPORATE GOVERNANCE

CG implies that the company should manage its affairs with diligence, transparency,

responsibility and accountability that can help it in taking rational decisions to augment

its financial performance and shareholders value in the long run. The dimensions

generally considered to be contributing to CG as reviewed from literature, include

responsibility, transparency, effectiveness, social responsibility and integrity (Mehta et

al., 2008; Jamali, Safeddine and Daouk, 2007; McNamee and Fleming, 2007; Ghosh,

2007 and West, 2006). These are briefly discussed as under:

1.4.1 Accountability

The debate of corporate accountability has found its way into CG structures. Siegel and

Shim (1995) defined it as individual or departmental responsibility to perform a certain

function. Accountability may be dictated or implied by law, regulation or agreement.

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This definition implies a set of formal, objective rules, procedures, and standards that are

specified and followed by the accountability holder. According to Toms and Filatotchev

(2004) accountability refers to the processes whereby the stewards of the business are

held accountable to its owners and other external stakeholders through the processes of

CG. Behn‟s (2001) notion of accountability comprises three dimensions: accountability

for finance, fairness and performance. Similar to Kearns (1996) notion of legal

accountability, financial accountability is straightforward and universally understood.

Corporate accountability is not only on the CEO‟s but increasingly on the other board

members as well. Spitzech (2009) suggested that to increase corporate accountability,

corporate boards should use Corporate Responsibility Committee. In this context, Hinson

(2010) remarked that good governance and corporate responsibility ensure transparent

functioning of the organisation and its response to the expectation of the society. Gaa

(2010) also argued that the board of directors is responsible for formulating (and

monitoring) the corporation‟s communication strategy and that management is

responsible for carrying it out. Lovell (2006) argued that effective CG and accountability

lie on the core values and morality whereas there are other mechanisms such as non-

executive directors, remuneration package quality, control process and formal regulatory

processes to operate effectively.

1.4.2 Transparency

According to Mohamad, Wan and Sulong (2010), financial transparency is an important

mechanism that provides depositors, creditors and shareholders with the credible

assurances that they will not do fraudulent activities. Transparency and disclosure is an

important ingredient of effective CG (Jhunjhunmala and Sharvani, 2011). Corporate

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transparency refers to the communication of financial and non-financial information to

the stakeholders of a firm (Mohamad, Wan and Sulong, 2010). It refers to the

communication of material and relevant facts concerning the financial position and the

result of the reporting concerns to various users. The characteristics of transparency

disclosure are relevance, faithful representation, comparability and understandably

(Kavitha and Nandagopal, 2011) which help in reducing asymmetric information issues

and thereby reduce agency costs as better information is available to the finance

providers. Holm and Scholer (2010) considered “transparency” and “board

independence” as prime corporate governance mechanisms for companies with exposure

to the international capital market, while differences in ownership dispersion do not

affect the use of the transparency mechanism. Roohani, Yuji and Makoto (2009)

remarked that effective CG involves transparency of information and adequate

monitoring of information disclosure to the public. Monitoring is enforced by regulators

and various boards in the financial community, making sure that participants in the

capital markets play fair and comply with regulations. Regulators employ tools and

specific guidelines to promote CG. Myring and Shortridge (2010) asserted that strong CG

enhances the transparency and also validity of financial statement. Transparency

governance implies company‟s activity disclosing not just sufficient but ample

information to all the stakeholders. Transparency enhances accountability by facilitating

monitoring, and accountability enhances transparency by providing an incentive for

agents to ensure that the reasons for their actions are properly disseminated and

understood together. Together transparency and accountability imposes a discipline that

improves the quality of decision making. This in turn increases the economic

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performance of the company/industries (Gilson, 2000). Transparency in corporate

financial reporting also enhances the quality of decision making in the capital market and

the quality of risk management by all market participants. It enhances the quality of

resource allocation and thereby increases economic performance at the macro level

(Bhattacharyya, 2003).

1.4.3 Effectiveness

Effectiveness in CG implies mechanisms to ensure executives that respect the right and

interest of company stakeholders, as well as making those stakeholders accountable for

accounting, responsibility with regard to the protection, generation, and distribution of

wealth invested in the firm. A board‟s effectiveness depends on the competency and

commitment of its individual members, their understanding of the role of a fiduciary and

their ability to work together as a group (Daly, 2008). The effective board brings together

a variety of skill sets, experience and decision making relevant to the business and

governance of the company. The board members must ensure proper time to attend board

and committees meeting and the annual meeting of shareholders to make effective

functioning of the company (Das, 2007 a, b). The effective functioning of board meeting

can be considered to be the function of sufficient number of directors, effective

communication and managers‟ performance.

1.4. 4 Corporate Social Responsibility

Corporate social responsibility (CSR) is an obligation of decision makers to take actions

which protect and improve the welfare of society as a whole along with their own

interest. CSR means that a corporation should be held liable for any of its actions that

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affect people, communities and the environment (Hinson, 2010). Gray, Kouhy and

Lavers (1995) defined CSR as the process of communicating organisations, economic

actions to particular interest groups within society and to society at large. Bowen (1953)

claimed that business has an obligation towards business policies, decisions making

which are desirable in terms of the objectives and values of the society. Business

decisions may affect environment, consumers and the community (Bhatia, 2005). CSR

can be viewed from narrow as well as from broader perspective focused on activities

initiated by the organisation for the welfare of the community, for example, maintenance

of parks, distribution of computers, blankets, donations etc. The broader perspective

focuses on stakeholders i.e. customers, employees, government, suppliers etc. Lantos

(2001) emphasised that CSR has become a necessity for service organisation to gain

competitive advantage and to enhance firm‟s image. Research studies such as Ghosh

(2007), Mehta et al. (2008) documented the impact of corporate governance elements on

firm‟s corporate social responsibility disclosure initiative. Corporate governance has a

significant impact on corporate social responsibility issues with in the organisation such

as employee‟s condition and ethical aspects related to remuneration managerial and

employee‟s behaviour. Peterson and Verdenburg (2009) revealed that good corporate

governance involves a strategic plan that interconnects social issues in management with

financial performance.

In recent years, practitioners and academics have become increasingly interested

in constructs of CSR and corporate reputation (Brammer and Pavelin, 2006 and Fombrun,

Gardberg and Sever, 2000). The literature has paid particular attention to the relationships

between CSR, reputation and corporate financial performance (Fombrun and Shanley,

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1990; Roberts and Dowling, 2002). Antecedents of a good reputation have been

suggested to include embracing CSR standards and the development of trusting

relationships with stakeholders (MacMillan et al. 2004). Branco and Rodrigues (2006)

remarked that firms with good social responsibility reputation may improve relations

with external actors such as attracting better employees or increase current employees‟

motivation, morale, commitment and loyalty to the firm.

1.4. 5 Integrity

Researchers such as Barney and Hansen (1994) and Eisenberger, Cottorre and Marvel

(1987) remarked that integrity is a personality trait derived from an individual‟s self-

regulation regarding loyalty, dedication, effort, and initiative to the organisation, and

facilitates implementation of the organisation goal. In this context Dugger (......) opined

that integrity at the individual level is more than ethics and is related to individuals‟

character (considerate, compassionate, transparent, honest and ethical). On other hand,

integrity from the corporate perspective refers to the culture, policies and leadership

philosophy. Further, the study also revealed that a culture of integrity creates a highly

valued work environment, impacts the quality of CG and provides a foundation for long

term financial performance. Maak (2008) identified seven analytically distinct aspects of

corporate integrity that he calls as „„7Cs‟‟, commitment, conduct, content, context,

consistency, coherence, and continuity. On the other hand, Tsou and Wang (2008)

asserted that capability and integrity have a positive relationship with the accountability

of the regulator and suggest that one of the most effective ways to get public satisfaction

is recruiting staff with capability and integrity. Hence, the organisations need to develop

code of conduct for their directors and executives that promotes ethical and responsible

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decision making. Seeing the significance of integrity, many organisations have

established compliance and ethical programme to maximise financial performance and

minimise risk (Fern and Sophie, 2007). Thus, the corporate structure today needs to

maintain highest ethical standards, act as a good corporate citizen, perform with integrity,

strive to provide the right environment, feel socially responsible, and contribute

ultimately to the nations overall wealth and welfare. Organisations where integrity plays

a central role will not only survive future competition but they will also instil a high

quality of life within the organisation (Verhezen, 2010).

1.5 ANTECEDENTS OF CORPORATE GOVERNANCE

1.5.1 Corporate Ethical Value

Ethical values and moral philosophy create a positive and demonstrable force for good

corporate governance and ethical behaviour at all levels of the corporation (Johns, 2006).

Halla (1999) remarked that good ethical climate, right values, competent people,

transparent governance process, value-adding and sufficient internal audit, external audit

and audit committee make CG work effectively. Leary and Stewart (2007) found that a

higher quality of external audit function is positively associated with internal auditors‟

ethical decision making. However, the strength of other governance mechanisms

(management integrity regarding accounting policies, management integrity regarding

pressure on internal audit, external auditor characteristics and organisational code of

conduct) do not appear to influence ethical decision making. In this context Leary and

Stewart, (2007) suggested that more experienced internal auditors adopted a more ethical

stance. Liu, Fellows and Ng (2004) found that ethical codes have a significantly stronger

emphasis on climate components that is caring for people in the organisation, laws and

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professional codes, friendly atmosphere, protection of interests and ethical management.

Further the study indicates that ethical codes are implemented more effectively in the

public sector whereas their existence is less clear in the private sector. The study suggests

that awareness of the code and its effective communication are essential for making

ethical codes more effective. Svensson and Wood (2004) contended that ethical

performance evaluation (EPE) of business practices is dependent upon the outcome of the

corporation‟s ethical values and principles that are proactive or reactive in relation to the

reigning ethical values and principles in the marketplace and society. Koh and Boo

(2004) indicated significant and positive links between ethical culture constructs (i.e. top

management support for ethical behaviour and the association between ethical behaviour

and career success within the organisation), job satisfaction and organisational

commitment. The results further suggested that organisational leaders can use

organisational ethics as a means to generate favourable organisational outcomes.

1.5.2 Corporate Culture

Corporate culture has received much attention in the last two decades due to its effects

and potential impact on organisational success (Sadri and Lees, 2001 and Rashid,

Sambasivan and Johari, 2003). Corporate culture has been defined in many ways by

various authors and researchers. In general, corporate culture can be referred to as a set of

shared values, beliefs, style of leadership and behaviour patterns that form the core

identity of organisations, and which acts as a bond for members and help in shaping the

employees‟ behaviour (Cameron and Freeman 1991 and Deal and Kennedy, 1982). Some

of the formal definitions of corporate culture include “a cognitive framework consisting

of attitude, values, behavioural norms and expectation” (Greenberg and Baron, 1997)

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“the collective thought, habits, attitude, feelings and patterns of business” (Clemente and

Greenspan, 1999) and the “pattern of arrangement, material or behaviour which has been

adopted by a society that is corporation, group or team as the accepted way of solving

problems (Ahmed, Lon and Zairi, 1999). In sum, Lund (2003) focussed on the types of

organisation culture that is clan (teamwork and cohesiveness), adhocracy

(entrepreneurship and innovators and risk), hierarchy (rules and regulation) and market

(competitive advantage and market superiority).

According to Sadri and Lees (2001), a positive corporate culture provides

immense benefits to the organisation, and provides platform for competitive edge over

other firms in the industry. However, a negative culture could have a negative impact on

the organisational performance as it could deter firms from adopting the required

strategic or tactical changes. In positive sense effective corporate culture increased levels

of team work, sharing of information, and openness to new ideas. Additionally such a

culture helps to attract and retain employees Further, Ojo (2009) found that corporate

culture has a positive impact on employees‟ job performance and also affects the level of

organisational productivity. According to Hopfl (1994) corporate culture has been viewed

as an organisational variable to be manipulated in order to increase commitment, achieve

standardized patterns of behaviours and style, pursue quality and service, improve

performance, change customer/competitor perceptions and increase identification with

the organisation. Hence, culture consider as antecedent of corporate governance.

Thomsen (2004) argued that corporate culture/values are determined by corporate

governance in broader perspectives. Three CG mechanisms that is ownership structure,

board composition and stakeholder, influence the corporate values of the organisation.

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According to Li and Harrison (2008), national culture has a dominant influence on CG

structure. Further, the study focuses on two basic dimensions of board structure as

dependent variables: board size and leadership position consolidation. The result of the

study shows that national cultures of the home countries of MNCs have powerful

influence on their governance structures. Research on corporate culture also showed that

corporate culture has a positive relationship with financial performance. Rashid,

Sambasivan and Johari (2003) asserted that there is a significant correlation between

corporate culture and organisational commitment. Both corporate culture and

organisational commitment have an influence on the financial performance.

1.6 BUSINESS PERFORMANCE

Business performance is primarily a two dimensional concept based on objective and

subjective performance. The objective performance is the outcome of business activities

of the organisation. The indicators of objective performance are quantitative in nature and

may include return on assets, return on equity, economic value added, market value,

Tobin‟s Q etc. On other hand, subjective performance relates to the perceptions of

individuals about the organisational performance. To comprehensively assess business

performance, balanced approach with focus on both employees and end users need to be

examined. The indicators used to reflect subjective performance may include customer

satisfaction, employees‟ satisfaction, service quality, reputation etc. among the various

business performance measures, the present study focuses on following measures:-

1.6.1 Objective Measures

Several research studies such as Chen, Chen and Wei (2009), Klapper and Love (2004),

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Khatab et al. (2011), Bhagat and Bolton (2008), Nelson (2005) and Anderson and

Campbell (2004) investigated the relationship between CG and financial performance

that is ROA, ROE and Tobin‟s Q. In this context, Khatab et al. (2011) indicate that firms

having good CG measures perform in terms of ROA and Tobin‟s well as compared to the

firms having no or less corporate governance practices. Further, Bhagat and Bolton

(2008) opined that good governance indices are positively related to future operating

performance (ROA). He further suggested that policy makers and corporate boards

should be cautious since this might exacerbate the problem of entrenched management,

especially in those situations where management should be disciplined, that is, in poorly

performing firms. Dybvig and Warachka (2010) remarked that stronger CG can decrease

Tobin‟s Q as well as return on assets. He further states that the relationship between CG

and Tobin‟s Q is ambiguous. Ibrahim, Rehman and Raoof (2010) on the other hand

demonstrate that there is a significant impact of corporate governance on ROE while

insignificant on ROA. However, Ponnu (2008) revealed that there exist no significant

relationship between corporate governance structures and company performance.

1.6.2 Subjective Measures

1.6.2.1 Corporate Reputation

A „good‟ reputation is identified as an intangible resource (Zhang, 2009; Safon, 2009 and

Wang et al., 2006) which provides the organisation with a basis for competitive

advantage (Inglis, Morley and Sammut; 2006 and Gosti and Wilson, 2001). Inglis,

Morley and Sammut (2006) identified that shareholder evaluation co-varies with

corporate reputation as corporate success depends upon corporate reputation and

shareholder evaluation. Several authors suggested that a company with a good reputation

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has a competitive advantage and attract more customers (Gosti and Wilson, 2001 and

Inglis, Morley and Sammut, 2006). Gosti and Wilson (2001) identified different school of

thoughts on corporate reputation concept. Among these, the analogous school of thought

certified relationship between corporate reputation and corporate image, while

differentiate school of thought consider corporate reputation is different from corporate

image and leads to corporate image. The latter perspective considered corporate image to

be the antecedent to corporate reputation. Among various concepts, only few

conceptualizations have represented corporate reputation as a phenomenon, that is,

associated with a firm‟s action and with its customer first hand experience within given

firm (Walsh and Beatty, 2007). In the literature corporate reputation is also examined

from consumer as well as firm perceptive. Walsh and Beatty (2007) defined customer

based reputation (CBR) as the customers overall evaluation of a firm based on his

reaction towards firm‟s goods and services, communication activities, interactions with

the firm and /or its representatives or constituencies or known corporate activities. In

other words, CBR results from offering a quality promise that push a firm to focus on

serving its customers with high quality goods and services with integrity and honesty.

Rose and Thomson (2004) remarked that strong CBR reduces transaction cost and

perceived risk of customers encourage greater loyalty and act as a formidable barrier to

entry.

Fan (2005) remarked that corporate reputation is affected by both financial

performance and social performance of the concern. Inglis, Morley and Sammut (2006)

commented that most common measures such as return on assets and return on sales or

net income lead to a potential bias when comparing companies‟ financial achievements.

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On the flip side, the corporate reputation has a number of beneficial consequences which

include higher customer retention rate, associated increased sales, product & selling

prices and reduce operating cost (Eidson and Master, 2000). Numerous studies have

shown a positive influence of corporate reputation on financial performance (Walsh,

Beatty and Shiu 2009; Wash and Betty, 2007; Robert and Dowling, 2002; Fombrun and

Shanley 1990). These studies document that reputation is an important intangible

resource that enhances firm‟s ability to gain competitive advantage and achieve higher

financial performance. It is considered as a financially important indicator which includes

various aspects such as treatment of employees, corporate governance, ethical values,

financial transparency, ethical approach and relationship with NGOs. Although studies

established positive impact of good corporate reputation on financial performance

(Fombrun and Shanley 1990) however same could not be generalized in different settings

(Inglis, Morley and Sammut, 2006). Eberl and Schwaiger (2005) revealed that positive

reputation leads to a rise in company revenue, higher customer retention, increased

repurchase, higher product prices (e.g. the price premium to be charged) as well as results

in decrease in capital costs and personnel fluctuation (e.g. lower monitoring cost). Thus,

reputation directly impacts organisational performance and profits.

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REVIEW OF LITERATURE

The extant literature on corporate governance is reviewed as under:

2.1 CORPORATE GOVERNANCE

Connelly, Limpaphayom and Nagarajan (2012) examined the relation between the

quality of CG practices and value for Thai firms. The sample comprised of all industrial

companies traded on the Stock Exchange of Thailand in 2005 excluding service

industries (banks, insurance companies, finance and securities companies, listed mutual

fund companies, and property investment funds). The financial data was obtained from

Datastream, that is, Stock Exchange of Thailand through the SETSMART data service.

The study results showed that CG measures such as shareholder rights, role of

shareholders, board responsibility and disclosure and transparency are positively

associated with Tobin‟s q. Furthermore, the study found that q values were lower for

firms that revealed deviations between cash flow rights and voting rights.

Aebi, Sabato and Schmid (2011) analysed the influence of bank-specific CG, and in

particular risk governance characteristics on the performance of banks during the

financial crisis. 372 banks available in the COMPUSTAT Bank North America database

in 2006 were selected to collect information on corporate and risk governance measures.

The CG variables such as CRO in executive board, risk committee, board size,

independent outside directors, directors with experience were analysed. The results

revealed that banks, in which the chief risk officer (CRO) reported directly to the board

of directors, performed significantly better in the financial crisis while banks in which the

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CRO reported to the CEO performed significantly worse than other banks. Further the

study found negative relation between bank‟s performance and standard CG variables

such as CEO ownership, board independence.

Demirbas and Yukhanaev (2011) examined the role of the board of directors in Russia

with specific attention to their independence, employee relations and ability of successful

adaptation of the international standards. From 200 questionnaires distributed, 55

questionnaires were returned from 30 companies, providing a response rate of 28%. The

survey questionnaire on CG included variables like attitude towards corporate

governance, role of board of directors, board structure and composition, role of outside

directors, factors affecting corporate performance and board remuneration. The study

findings revealed that board of directors is an important instrument of efficient and good

corporate governance practice. Further the study was also in favour of employee

representatives on the board of directors and suggested that board size and composition

should be enhanced by employee representatives on the board.

Bae and Goyal (2010) examined the extent to which CG affects the cross-firm variations

in the financial impacts of liberalisation. A final sample of 314 firms listed in company

database of the Korea was selected. The results showed that a better-governed firm

significantly increased stock price and equity in market liberalisation. Further, the study

found that foreign investors tend to invest more in firms that are better-governed after

liberalisation, and these firms realised higher growth rates of capital stocks relative to the

pre-liberalisation period. In future work, the study suggested extending results to the

cross-country context.

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Chen, Chen and Wei (2009) examined the association between CG variables namely

transparency, managerial discipline, independence, accountability, responsibility, fairness

and social responsibility, and the cost of equity influenced by the country‟s legal

protection of investors of 276 firms in 2001 and 283 firms in 2002 (out of total 559)

were surveyed during respective periods. The results revealed that the cost of equity was

negatively correlated with CG components namely transparency, managerial variables,

independence, accountability, responsibility, fairness and social responsibility. The

authors revealed that level of CG was less valuable in reducing the cost of equity in

countries with strong legal protection of investors. Further authors suggested that country

legal protection and firm level corporate governance are substitutes for one another.

Mehta et al. (2008) investigated the awareness level of CG among professionals and

non-professionals in Gwalior region using six factors of CG viz., social responsibility,

legal system, competitive advantage, long term, transparency system, and healthier

practice. The study sampled 240 respondents with 120 respondents taken from each

category (professionals and non-professionals) using purposive sampling technique. The

factor analysis was used to identify awareness of CG and Z-test is applied to identify

difference of awareness between professionals and non-professionals towards CG. The

authors revealed that there is no significant difference in the awareness of CG among

professionals and non-professionals whereas only one factor of competitive advantage

was found to be different.

Abor and Biekpe (2007) investigated the effect of CG, and ownership structure on the

performance of small and medium sized enterprises in Ghana. The data was collected

through interview from the management of the firms and also from the financial

23

statements of SME enterprises ranging from 1998 to 2003. The study sampled 120 firms

with less than hundred employees from the small scale industries of Ghana. The study

based on seven independent variables namely: board size, board skill level, board

composition and control, CEO duality, percentage of shares closely held, family

ownership and foreign ownership. The regression analysis was used to investigate

relationship between CG, ownership and performance. The result from the regression

analysis denoted that the performance explained to the extent of 39.17% to corporate

governance model. The authors revealed that corporate governance practice assist SME

sector in enhancing performance by infusing management practices, stronger internal

auditing and providing new strategic looks and grater opportunities for growth.

Ghosh (2007) emphasised on the relevance value and ethics in CG practices. The term

CG encompasses the combination of laws, regulations, listing rules and voluntary private

sector practices that enable the corporate to attract capital, perform efficiently, generate

profit, and meet both legal obligation and general societal expectations. The study

focused on CG attributes namely discipline, trusteeship, transparency, independence,

accountability and empowerment, responsibility, fairness, social responsibility and

ethical values namely trustworthiness, respect, responsibility, caring, justice & fairness

and civil virtue & citizenship. To implement code of ethics effectively and make it work,

the author suggested certain guidelines namely to assess the culture, value audit, values

gap, open culture, involving everyone from board to factory floor and, timely reporting to

be found in the functioning. The study concluded that the quality of CG can be improved

only if each and every individual cultivates and nurtures values in his inner self.

24

Jamali, Safiddine and Daouk (2007) examined the perception of Lebanese women

managers regarding CG practices relating to board effectiveness, roles and

responsibilities and benefits of female representation on boards. The study sampled 61

top and middle level women managers from 12 different banks operating in Lebanon.

The data was collected on items relating to CG, board of director, and general

demographic profile using personal contact approach. The study hypothesised that

current board performance is not satisfactory, as women who are important board

members are under represented at the board level. Because of gender related barriers and

better representation of women on boards and their impact on performance at the work

place is found to be unsatisfactory. The study revealed that role of women on CG in the

Lebanese banking sector is at entry level position and their participation in the board

room is beneficial to many stakeholders such as investors, customers, specific female

employees etc. The study suggested that women board representation can reflect

positively on the status of women and a government intervention is needed to increase the

level of women in management.

Khanchel (2007) investigated determinants of strong governance in US firms. The

characteristics of CG used in study include board size, board composition and board

meetings, CEO duality, independence of committee, competence of audit committee

members, reputation of auditors, audit committee meetings. Multiple regression analysis

was used to find determinants of a strong governance using sample of 624 US non-

financial firms during 1994-2003. The information on firms specific factors such as board

of director, audit committee, and board meeting were collected from Edgarcan data (a

program designed to read and analyse the securities and exchange commission EDGAR

25

filings). Four governance indices - board of director, board committee, audit committee

and overall (total index) were used to define governance quality construct. The author

hypothesised that the director and officer equity ownership provide incentive effects and

the board committee and the audit system yield strong monitoring benefits. The study

found that large firms with high investment opportunity, high external financing needs

and high intangible assets had stronger governance whereas high managerial and

institutional ownership enhanced governance quality. The CG dimensions such as

committee, the level of disclosure and transparency and the use of anti take over

procession and shareholder's rights need to be researched further with more advanced

techniques.

Khiari, Karaa and Omri (2007) identified efficient firms that had the best governance

practices in USA listed stock exchanges. The model Tobin Q (market to book value) as a

measure of performance used to construct a governance index from 320 large American

firms belonging to fortune 500 for a period of 8 years (1994 - 2001). The firms belonged

to eleven different sectors namely service sector (17.5%), production sector (17.18%),

sales sector (15.26%), consumption sector (12.5%), technology sector (10.625%), energy

sector (6.25%), paper and publication (4.06), and chemistry & transport (4.06%). To

measure the firm‟s efficiency, specific characteristics like size, leverage, dividend yield

and return on equity were used. The positive relation was noted between Tobin Q and

three frontiers viz, size, dividend yield, return on equity, whereas negative relation was

found between Tobin Q and leverage. The statistical tool ANOVA was used in order to

draw the profiles of firms having good governance characteristic. The study identified

two groups with two opposite governance system (non-performing and performing

26

system). The non performing system were characterized by a managerial discretion, an

ownership concentration, dominance of the board by the CEO and manager entrenchment

whereas highest performing system is characterized by an inside control efficiency and an

inside financial control efficiency.

McNamee and Fleming (2007) presented a conceptual framework through which the

CG of public sector sport organisation can be evaluated. The study focusesd on three

dimensions namely, respect at individual level (honesty, integrity, privacy, personal

commitment), equity at social level (diversity, tolerance, transparency) and responsibility

at political level (accountability, effectiveness, efficiency, trustworthiness). The data was

collected through interviews from different organisation stakeholders‟ namely senior

managers, middle managers, product deliverers, administrative and technical personnel.

The study indicated that ethical audit can be articulated through a consideration of ethics

as applied moral philosophy, equity as social justice and CG as the moral health of a

public sector sport organisation. Further, the study concluded that to develop good CG in

ethically sound organisation culture there must be leadership at executive level and

ownership at all level for ethics agenda.

Mittal and Kansal (2007) investigated relationship between the ownership concentration

and determinants of ownership namely types of shareholders (Indian promoters, foreign

promoters, institutional investors and other shares), size, investment and leverage. The

data on Indian companies were collected from CMIE'S "Prowess" database. The study

focused on two variables viz., dependent (i.e. level of ownership, the share of

concentration) and independent (namely type of owners, size, leverage and investment).

The regression analysis was used to investigate the difference ownership concentration

27

and determinant of ownership. The result was found to be statistically significant with

respect to institutional investors, other shareholders‟, type of owners and leverage

indicating flow of capital from institutional investors onto the Indian market and

insignificant with respect to size and investment on ownership concentration. The study

found that the growth of shareholdings of institutional share is influenced by CG.

Muranda (2006) investigated the extent to which financial distress and CG has

contributed to the current financial status of Zimbabwe's banking sector. The data was

collected through desk research on eight financial distress cases namely trust banking

corporation, metropolitan bank, international market, first national building society,

barbican bank century bank and eng capital investment using judgment sampling method.

The study on CG focused on six variables namely ownership structure, board

chairmanship, corporate ethics, board decision making processes, regulatory authority

responses and organisational system adequacy. The study identified that the chairman or

the chief executives of the board committees create disproportionate power in the board

and lack of proactive approach and weak internal system were also found in the

functioning of the banks. Further board inadequacies showed poor oversight and mis-

match between assets and liabilities. The study revealed that an active role by regularity

authorities can directly contributed to observance of good CG practice.

Parsa, Chong and Isimoya (2007) examined the extent of compliance with the

governance regulatory requirements by small and medium-sized companies listed on the

alternative investment market. The data was collected from AIM-listed companies over a

period of three years that is 2002, 2003 and 2004. CG characteristics such as board size,

board independence, CEO duality, audit committee composition, and presence of CEO

28

were measured. The study hypothesised that there exist positive association between CG

and characteristics such as board size, board independence, audit committee composition,

presence of CEO and negative with CEO duality. The study found positive association

between the presence of non-executive directors on boards of directors, audit committees,

and governance information disclosure. Further, the results showed no significant

association between corporate governance disclosure and profitability or firm size.

Webb (2007) analysed the governance structure of the US banks using Basel 11A-1RB

(advanced internal ratings based) approach and Federal Reserve System advice and

guidelines to maintain proper risk management structure. The analysis on CG in banks

was discussed under two categories. The first category focused on three areas of CG

namely board structure, executive compensation and equity ownership. The information

on board of director was collected from 12 Regional Federal Reserve Board while name

and occupational background of directors were collected from the Federal Reserve Board

website. The other second category was based on the three pillars viz minimum capital

required and the credit risk based focus in measurement, review of internal assessment

process and capital required and effective use of disclosure. The paper analysed banks

performance using the aforsaid two dimensions. The banks adopting A-1RB approach

needs further to be examined for the governance structure using all the three Basal II

pillars. In addition it is also suggested that like central bank, the governing bank should

also be investigated for the governance structure.

Ardalan (2007) discussed paradigmatic CG approaches with respect to the four models

namely functionalist, interpretive, radical humanist, and radical structuralism. The

functionalist paradigm provided rational explanations of social affairs; interpretive

29

paradigm focused on socially constructed and socially sustained scientific knowledge;

radical humanist considerd social formation as a whole and radical structuralism assumed

that reality is objective and concrete. The CG mechanisms used compriseed legal and

regulatory, internal control, external control and product market competition. The four

paradigms viewed that CG is a way to reduce agency cost, social construction,

democratic structure and social relation. Further, the study revealed that there are

opportunities for academic finance and CG avenues which need to be developed for

further study.

Bathala, Nippani and Vinjamury (2006) examined the differences in CG mechanisms

between banking and non-banking sectors of US firms. The corporate governance

quotient (CGQ) namely board of directors, audit, character and law provision, anti

takeover provision, executive & director compensation, progressive practices, ownership

and director education and four CG mechanism viz., board mechanism, executive

mechanism, audit mechanism and take over defense mechanism were analysed using a

sample of 5298 US firms. The t-test was used to reveal the differences in the CGQ scores.

The result showed that banks compared to non banks, are superior in corporate

governance with respect to the CGQ score, board mechanism and executive

compensation but inferior with respect to the audit mechanism. The study also found that

CG structure in banks was more shareholder friendly in non banking sectors. An

examination of the difference in CG relating to culture, legal and ownership difference

between firms in different countries need to be established for further research.

Bartholomeusz and Tanewski (2006) examined the nature of the relationship between

family control and CG structure that comprised of board composition, ownership and

30

managerial compensation. A sample of 100 listed companies were used to test the

hypothesis that corporate governance structure are different between family and non

family firms, and that family firms adopt the optimal corporate governance structure. The

data on accounting information were collected from corporate reports (data stream) in

2002-2003. The regression analysis was used to investigate relationship between

corporate governance mechanism and performance (measured in Tobin's Q ratio). The

results revealed that family firms were likely to have lower proportion of independent

director on their boards than non family firms. The study found that firms utilize

substantially different corporate governance structure from non family firms and these

differences lead to performance difference.

Bhat, Hop and Tang (2006) investigated the impact of governance transparency on

accuracy of earning forecasts over and above their financial information. The results

revealed that forecasting accuracy is positively correlated with both governance

transparency and financial transparency. The result further showed that governance

transparency is relatively more important when financial transparency is low and when

there is weak legal environment.

Black, Love and Rachinsky (2006) examined the connection between the firm level

governance of Russian firms and their market values over 1999-2005 periods using both

ordinary least squares (OLS) and firm fixed effect specification. The CG practices of two

investment banks (Brunswick and Troika Dialog), one rating agency (S&P Disclosure)

and two non-profit institutions (Institution of Corporate Law and Governance and

Russian Institute of Director) were assessed using difference scale and for different

periods. The result revealed that Troika, S&P Disclosure and ICLG indices were positive

31

and significant in both OLS and firm fixed effect. However large difference exist in

coefficient of correlation for S&P disclosure and ICLG organisations.

Chen et al. (2006) examined whether ownership structure and boardroom characteristics

had an effect on corporate financial fraud in China. The data were collected from 169

industries listed in Chinese securities regulatory commission (CSRC) from 1999to 2003.

Three main aspects of CG namely board room characteristics (proportion of outside

director, size of the board, number of board meetings and tenure of the chairman),

ownership and audit committee were examined. The result revealed that ownership and

board characteristics particularly, the proportion of outside directors, the number of board

meetings and the tenure of the chairman were important in explaining corporate fraud.

Further it was also revealed that the type of owners‟ i.e. legal entity, individual and

foreign had little impact on the propensity for a firm to commit fraud. The authors

suggested that an appropriate design should be framed for board of directors in

monitoring top management.

Jiraporn (2006) conducted longitudinal study to examine corporate governance measure

for the strength of shareholders right. The data was collected by Investment

Responsibility Research Centre (IRRC) in 1993, 1995, 1998 & 2000 years from

industrial, financial and utility firms. To measure the strength of the shareholder right,

Governance Index (GINDEX) comprising capital structure, CEO compensation, cost of

dust financing, cost of equity, corporate diversification, earning management and share

repurchase activity was constructed. The study hypothesised that auditor‟s choice is

influenced by the strength of shareholder rights. The logistic regression analysis was used

to investigate relationship between auditor choice and shareholder right. The governance

32

index was found to be positive and statistically significant in industrial firms indicating

that weak share holder‟s rights were found to be associated with low audit quality and

vice-versa. Further, the study indicated that governance index in financial and utility

firms was significant with regard to auditor choice and strength of share holder right. The

result revealed that regulation had an impact on the relationship between shareholder

right and auditor choice.

Jiraporn and Ning (2006) examined corporate governance measure between dividend

policy and strength of shareholders rights. The data was collected by Inventor

Responsibility Research Centre (IRRC) in 1993, 1995, 1998, 2000 and 2002 years from

3732 firms. To measure the strength of shareholder rights, Governor Index (GINDEX)

comprising cash dividend, cash earning, cash sales, dividend yield and percentage of

dividend paying firms was constructed. The study hypothesised that firm with weak

shareholders right need to establish regulation for not exploiting shareholders. The

logistic regression analysis revealed positive association between dividend and the

governance index indicating the firms with more restrictive governance are more likely to

pay dividends and vice-versa. Further, the result indicated that regulation influence the

association between dividends and shareholders rights.

West (2006) examined corporate governance structure and corporate environment in

South Africa. The corporate governance models namely the shareholder and stakeholder

models were analysed. The shareholder model viewed that corporation is an extinction

that has responsibility and accountability towards its owners, and the stakeholder model

viewed corporation as a social entity that has responsibility (and accountability) to a

variety of stakeholders comprising owners, suppliers, customers, employees,

33

management, governments and local communities. The corporate environment in South

Africa adopted a weak form of responsibilities with respect to social justice, economic

equity, and development. The result revealed that board of directors is not merely

accountable to shareholders of the company but also to other stakeholders. Further, the

study suggested certain measures to remove the incompatibility between values and

corporate environment and these included increased awareness of normative stakeholders

theory and its implication, corporate structure, corporate practices such as management

technique and corporate rating.

Filatotchev, Lien and Piesse (2005) examined inter relationship between corporate

governance factors and firms performance in family controlled and public listed firms of

Taiwan. The corporate governance mechanism namely board independence, monitoring

by large outside shareholders, incentive effect of director shareholdings were analysed

using a sample of 228 public trading companies viz., Textiles (54), contraction (40),

electrical (54), service (36) and 44 companies from remaining sectors. The data was

collected from the SFC (securities and futures commission) report. The study

hypothesised positive relationship of performance with family ownership and control;

institutional investors; share ownership of investment funds; extent of board

independence and board members. The regression analysis revealed that Taiwan's

electrical companies are significantly associated with better corporate performance

Textiles and Construction companies were found to be not performing well. Further, the

study indicated that firm‟s performance depends on the efficiency of corporate

governance mechanisms.

34

Morrison, Linda and Colin (2007) provided an overview of the goals of corporate

governance in the financial service sector from theoretical perspective in UK. UK haD

witnessed some high profile corporate scandals in both manufacturing and services sector

like BCCI, Equitable Life etc. The study revealed that the structure of the banks balance

sheets was not in order. The balance sheet showed high leverage and a mismatch in their

assets and liabilities to keep lenders confidence intact. The study recommended the

oversight functions of external regulators and auditors to encourage sound governance

practices. The study limited its scope only to the mismatch of financial statements of

banks in UK. The further study can be undertaken in the area of effectiveness of

compliance in the UK as per combined code provisions.

Nung and Mondejar (2005) identified the possible relationship between entrepreneurial

innovation and corporate governance structure. A model of entrepreneurial innovation,

which had three primary attributes, namely; risk taking, change and development of new

initiatives was developed. The issue of corporate governance was assessed in terms of

CEO / chairman duality, directors share ownership, and nature of directors (i.e.

executives or non executives). The questionnaire was mailed to directors of 150 small

and medium size enterprises in Hong Kong during (September- December 2001).

Effective response rate came out to be 68%. The linear co-relation was used to

investigate relationship between entrepreneurial innovation and corporate governance.

The result revealed positive and significant correlation between CEO / chairman duality

and three primary attributes of entire innovation i.e. namely; risk taking changes, and

development of new initiatives and corporate governance. The results showed that CEO /

35

chairman duality was related to risk taking and development of new initiatives of firms

but not to the change in firms.

Orlitzky, Schmidt and Rynes (2003) investigated relationship between corporate

governance, social/ environment performance (CSP) and corporate financial performance

(CFP). The meta analysis finding suggested that a corporate virtue in the form of social

responsibility has lesser impact whereas environmental responsibility has higher impact

on CSP. The study also showed positive relationship between corporate social

performance and corporate financial performance. The author suggested that managers

can pursue corporate performance as part of their strategy for attaining high corporate

financial performance.

Steger and Hartz (2005) examined critically corporate governance environment of

Germany. The corporate governance attributes namely institutional power, public

perception, strategy, assessment code, assessment media and assessment future were

analysed from data that was collected through interviews in 2003-2004 from expert group

based on private discussion. The result of study showed strong correlation between

assessment of code, future development and public perception strategy, indicating key

role of corporate governance code. Negative correlation was found between institutional

power and assessment of media. Further, the study identified two main approaches

namely increase in the legal protection of minority share holders and offensive take over

regulation for potential future development of corporate governance.

36

2.2 CORPORATE CULTURE

Machuga and Teitel (2009) investigated whether board characteristics other than

compliance with board independence (board composition disclosure, family concentrated

ownership and shared-directors) are associated with the improvement in earnings quality.

Earnings quality was measured using income smoothing, timely loss recognition and

conditional accruals. The data was collected from all Mexican firms registered on the

Mexican Stock Exchange (Bolsa) with financial statements available for the 5-year

period 1998–2002. The finding of the study indicated that changes in earnings quality are

negatively associated with concentrated family ownership and shared directors. The study

concluded that applying board-level corporate governance reforms without considering

cultural and legal environments, may limit the desired effects of the change. The study

recommends that policy makers should consider the characteristics of firms and

institutional environment before implementing additional corporate governance reforms

in Mexico.

Johns (2006) described a new methodology called E-thics, how it can be applied to an

investment company and how it helps in developing an ethical corporate culture. E-thics

as a moral methodology for business and it dependent upon the values of the society that

is cultural values. The author suggested that E-thics practice should be adopted by

everyone in the firm. The finding revealed that ethical values, act as a mechanism for

corporate culture that is based on shared ethical values, fairness, responsibility, and

stewardship. E-thics can help the investment community to move from a culture of

compliance to one of true ethics.

37

Hermes, Postma and Zivkov (2006) compared the contents of codes with the priorities

set by the European Commission with respect to modernizing company law and

enhancing corporate governance in the European Union. 22 countries were selected to

gather data on codes of corporate governance. The analysis showed that the majority of

the codes of the European Union countries are not in full accordance with the priorities of

the European Commission. This reflects that codes are driven by both external and

domestic forces. The findings also showed that code mechanism improve CG practices

and may depend on a number of country characteristics such as its cultural and

institutional environment.

Qu and Leung (2006) investigated the impact of changed cultural environment on the

voluntary disclosure behaviour of Chinese listed companies. The data was collected from

120 Chinese listed companies in 2003 financial report. The six areas of voluntary

disclosure of the sample companies were analysed and reported. These areas are board

structure and functioning, employees‟ related issues, director remuneration, audit

committee, related party transactions and stakeholder interest. The results revealed that as

China‟s cultural and social norms change, Chinese listed companies showed willingness

to provide voluntary information in addition to the disclosure requirements. Further

information relating to stakeholder interest and employees issues were more frequently

disclosed by listed companies. This study was based on one year‟s results and as such had

limitation in the interpretation of the results.

Calori and Sarnin (1991) assessed the relationship between companies‟ culture,

management practices and economic performance. 260 questionnaires were collected

from individuals of five companies (rental services, pharmaceutical, manufacturing

38

electrical product, manufacturing home appliance product, and manufacturing building

equipment). To eliminate redundancies factor analysis and cluster analysis were used.

The study revealed that relationship between profitability and the company cultural

attributes were less significant. On the other hand organisational cultures have more

influence on growth than on profitability.

2.3 CORPORATE ETHICAL VALUE

Sweeney, Arnold and Pierce (2010) notified the impact of perceived ethical culture of

the firm and selected demographic variables (gender, firm, size, age and length of

service) on the ethical evaluation and intention to act. A total of 463 questionnaire

responses were obtained from Ireland and 117 from US. MANOVA analysis revealed

that respondents‟ expressed highest intention with respect to underreporting of time and

lowest intention with premature sign off. The findings revealed significant difference

between ethical evaluation and intension to act. Counties were also found to have a

significant impact with US respondents‟ higher ethical evaluation and lower intention to

engage in unethical acts than Ireland respondents. The findings also revealed that

perceived unethical pressure has more impact on intention to engage in the behaviours.

Svwnsson, Wood and Callaghan (2009) developed a construct of the ethos of the code

of ethics (ECE) in Sweden. The data was collected from primarily large private (443) and

public companies [(government (40), country councils (20) and municipality (40)] as

these companies have developed well formal code of ethics. The result indicated that the

ethos of the code of conduct consist of five dimensions namely ethical bodies, ethical

tools, ethical support procedures, internal ethics usage and external ethics usage. The

39

authors suggested that managerial interest provided a grounded framework in the

implementation of the code of ethics in both private and public organisation. The study

suggested that ECE construct in other culture and dual settings can be examined in

further research.

Moore and Wen (2008) provided valuable insights into how companies are dealing with

ethics and sustainability issues. The empirical data from largest 50 companies each in the

USA, the EU and Asia-Pacific region (a total of 150 companies) were collected. The

companies were selected on the basis of their being reported as among the 50 largest

companies operating in three major geographical regions. The survey concentrated on

three main areas of research i.e. CSR report (focusing on social impacts), environment or

sustainable business (incorporating environment impact) and integrated reports. The

finding of the study revealed that US multinational need to improve their sustainability

practices and think in term of triple bottom line management, ethical standards and

governance. The authors suggested balance scorecard, as it integrates the triple bottom

line of the companies with sustainability scorecard.

Tran (2008) analysed values, trust and legality of corporate behaviours in business ethics

utilising paradigms namely moral awareness (derived from behavioural model of ethical

decision making), moral dilemmas (based on the principle that it is hard to discover what

one ought to do) and moral laxity (taking significant steps towards realising a broad

moral goal). The findings revealed behavioural gap between the paradigms in business

ethics and practitioners. Further the issue of miscommunication, misunderstanding,

misinterpretation or misuse of various paradigms in business ethics was found to be

insignificant. The study concluded that practitioners and ethicist of higher education and

40

corporate USA must take responsibilities in training, educating and producing further

ethical business practitioners.

Leary and Stewart (2007) evaluated internal auditors‟ ethical decision-making and

examined the impact of corporate governance mechanisms and the effect of experience

there on. The 66 experienced internal auditors gave the responses, representing a

response rate of 26 % with five ethical dilemmas. These included audit committee

support, management integrity regarding accounting policies, management integrity

regarding pressure on internal audit, external auditor characteristics and organisational

code of conduct. The study found that CG mechanisms appear to have little impact upon

internal auditors‟ ability to act ethically, when presented with a workplace dilemma. The

result revealed that internal auditors only have a positive effect on ethical decision

making. Effective audit committee, strong organisational code of conduct and high

management integrity are not effective in assisting internal auditors to act ethically.

Further the study also found that more experienced internal auditors expected the

adoption of a more ethical stance than less experienced auditors in some instances. The

study suggested that combine impact of CG system on internal auditor should be

explored in future.

Small (2006) investigated the extent of developing ethical corporate culture in three

organisations that is a naval shore, a policy academy and a family owned engineering

firm. The study analysed code of ethics criterion, current police training, internal

programs ethics review committees and attitude of senior management dimensions to

examine corporate ethical culture. The findings revealed that Navy has a set of values

which overlap with the more general values of the department. The ethical corporate

41

culture of police academy is linked with the establishment of a dedicated unit running

discussion and seminars. Whereas, the family owned and operated engineering business

rely more heavily on an indirect approach that is traditional family values. The study

suggested that to develop ethical corporate culture, CEO‟s need to be ethically

responsible for their organization. Further, formal training programs and formal

mechanisms are needed to be implemented for reporting the behaviour of organisation

members.

Koh and Boo (2004) examined the relationship between organisational ethics and

organisational outcomes. A simple random sample method was used to collect

information from 400 students who were enrolled in the MBA programme in Singapore

and a response rate of 59.25% was observed. The study hypothesied that ethical

environment has no effect on organisation, top management support ethical behaviour but

is associated with career success. Results obtained from decision trees indicated

significant and positive links between ethical culture constructs (i.e. top management

support for ethical behaviour and the association between ethical behaviour and career

success within the organisation) and job satisfaction. Further, there was a significant and

positive link between job satisfaction and organisational commitment. The results suggest

that organisational leaders can use organisational ethics as a means to generate favourable

organisational outcomes.

Liu, Fellows and Ng (2004) found that the objective of this paper is three fold. First to

develop an organisational ethics model, second to examine the dominant and significantly

different ethical climate in private and public-sector organisations and third, to determine

any effects of the existence of ethical codes. The public sector sample comprised of five

42

government departments that include land, rating and valuation, housing, buildings, and

architectural services. In the private sector, ten consultant surveying firms, ten

development companies and ten contracting companies were selected using simple

random sampling method. It is postulated that ethical behaviour has an impact on the

final project outcome. The result revealed that ethical codes were implemented more

effectively in the public sector whereas their existence is less clear in the private sector.

The authors suggested that organisations should expend more to promote ethical codes as

they have positively effect on ethical behaviour. The authors expressed that both

educational/professional institutions and organisations have important roles to play in

providing an environment conducive to ethical behaviour. They further suggested that

sound business ethics and CG are being emphasised as the ingredients for success of the

organisation and recommended for comprehensive study in further research.

Svensson and Wood (2004) described a managerial framework of ethical performance

evaluation (EPE). The managerial framework of EPE consisted of five interconnected

parameters namely time, context, gap, outcome, and consequences. Case illustrations

method was used to strengthen the managerial framework of EPE based on the study

parameters. The study revealed that EPE of business practices is not only dependent upon

the ethical values but other principles were such as principle of tomorrow, surrounding

ethical values and gap between the different perceptions of individual also equally

important. EPE was also seen to depend upon the potential and eventual consequences of

ethical values and principles. The authors suggested future research to assess the impact

of ethical performance evaluation on non-business organisation.

43

2.4 CORPORATE REPUTATION

Pratoom (2010) validated the RQ measure of corporate reputation in Thai context. The

data was collected from 339 branch managers associated with banking business in

Thailand. The bank managers were chosen as target population because they are seen as

valuable employees and financial performance of the branch bank directly depends on the

capability of branch managers. The corporate reputation was measured using Fombrun et

al. (2000) scale (RQ), along with two additional related to emotional appeal dimension.

The author applied first –order confirmatory factor analysis (CFA) in order to assess the

fit of the factor structure model identified from EFA. The result indicated that the

Fombrun et al. (2000) RQ is a valid instrument for measuring corporate reputation based

on internal stakeholder perception in Thai context. Further, the finding also indicated that

emotional appeal dimension has the strongest and most consistent correlation with the

outcomes variable.

Walsh et al. (2009) extended previous work on corporate reputation to examine the

antecedents and customer-related consequences of corporate reputation. The study found

two antecedents that included customer satisfaction and trust and two consequence

customer loyalty and word of mouth. The authors hypothesised that customer satisfaction

and trust positively affect customer - based corporate reputation. In addition to this, the

authors further hypothesised that customer based corporate reputation has a positive

effect on customers loyalty and word of mouth. A total of 2000 randomly chosen

customer of a German energy company were asked to fill the questionnaire. The study

established the validity of the corporate reputation scale and found out that three of the

44

five dimensions - customer orientation, reliable and financially strong company and

product and service quality are significantly related to customer loyalty, while four of the

five dimension social and environmental responsibility, product and service, good

employer, reliable and financial strong company are related to word of mouth. The

authors concluded that customer-based reputation affects customer satisfaction and trust.

Lastly, the authors‟ suggested that service managers should focus on the customer loyalty

programmers, forms of promotion such as sales promotion or advertising and dedicated

word of mouth campaigns to support other ongoing promotional activities or new product

launches.

Ljubojevic and Ljubojevic (2008) examined corporate governance design as a function

of better corporate reputation and also to test the perceived relation between corporate

governance and corporate reputation. The data was collected from 100 customers and

employees in different positions employed in five financial companies across

Yugoslavian countries. The response rate of respondents came to be 86%. The study

revealed that the factor that influence purchase decision included putting service quality

(57.14%) ranked at first place which is followed by attractive price (30.60%), brand

decision (12.20%) and least important factors are extensive adverting and promotion and

social responsibility of the service provide. The majority of respondents (87.50%) agreed

that company‟s should participate in activities that are useful for company benefits. The

results further indicated that financial strength of a company is the most important factor

for corporate reputation development. The authors quoted that resource and time are the

major limitation of the study which restricted the research sample. They also suggested

45

that further research is required to make a detailed study using more scientific and

effective means such as focus group discussion and more sophisticated questionnaire.

Walsh and Beatly (2007) examined customer perception of corporate reputation and its

relationship to customer related behaviours. More than 500 online questionnaires were

accessible through a link to marketing students representing approximately a 60%

response rate. The result revealed that the dimensions such as product and service quality,

good employees, financial performance, social and environment are significant for the

development of corporate reputation. Further they found that reliable and financially

strong company correlates strongly with trust, word of mouth and loyalty but not with

customer satisfaction.

Inglis Morley and Sammut (2006) conducted study to analyse the relationship between

corporate reputation and financial performance. The data was collected from reputation

rating index and two preexisting date source. The authors hypothesised that higher/ lower

corporate reputation vis-a-vis to higher/lower financial performance leads to higher/lower

reputation. The authors found no casual relationship between corporate reputation and

financial performance and as such concluded that reputation may not have a significant

impact on performance in Australia. The authors further remarked that there may be

weakness in the existing measure of reputation or this may be due to unobserved

variability in the intervening variable of reputation. The authors expressed that there is a

need to examine the role of intervening factor, the level and the use of management

reputation in the financial performance and corporate reputation relationship.

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Eberl and Schwaiger (2005) examined the impact of corporate reputation on future

financial performance with respect to past financial performance. The data was collected

from 1012 randomly selected German households using interview. The six corporate

reputation items, three each related with sympathy (affective) and competence (cognitive)

were studied. The financial performance was objectively measured by net income after

tax and for both past and future period. The relationship was further examined by using

control variables such as firm size with respect to sales and intangible assets. The authors

performed exploratory factor analysis and confirmatory factor analysis to examine and

support the factor structure. The study hypothesized that assessment of organisational

competence has positive effect on future financial performance while the assessment of

sympathy has a negative effect on future financial performance. The authors found that

both the cognitive and affective reputational dimensions influence future financial

performance after controlling past financial performance. The authors suggested that

further studies from different stakeholder groups, may provide different results and may

vary with the knowledge gained about the company as well as with the degree of

involvement.

Walsh and Wiedmann (2004) examined the relationship between corporate reputation

and customer satisfaction with customer intention. Out of 1850 questionnaires, 498 were

returned but effective size of sample for final analyses was arrived at 462. EFA and CFA

were applied for checking the stability of single factor solution. The study revealed

insignificant but weak relationship between corporate reputation and switching intention

while corporate reputation has positive impact on customer intention. Further the study

revealed that customer satisfaction is fully mediating the relationship between corporate

47

reputation and switching intention. The authors have suggested few future research areas

such as impact of risk aversion and market transparency on switching intention, corporate

reputation and customer satisfaction.

48

RESEARCH DESIGN AND METHODOLOGY

The present study is an in-depth analysis on CG practices and their impact on business

performance in banking sector. The chapter depicts various aspects such as research gap

and objectives of the study, research design and methodology undertaken to pursue the

study. These are discussed as under:

3.1 RESEARCH GAP

The topic on CG has attracted significant attention among the business practitioners and

researchers from the last decade. The reviewed literature highlights on the need to

explore new insights relevant for the development of CG for the following reasons. First,

majority of the previous studies such as Koufopoulos et al. (2010), Khanchel (2007),

Mittal and Kansal (2007), Webb (2007), Jiraporn (2006) , Jiraporn and Ning (2006),

Bartholomeusz and Tanewski (2006), Nelson (2005), Chen et al. (2006), Anderson and

Campbell (2004) and Filototchev, Chinlien and Jenifer (2005) have focused only on the

content analyses of the disclosed information about CG practices in varied sectors such

as manufacturing, sports, banks etc. of developed countries and scant attention is paid to

corroborate the results with primary information on CG. Further numbers of such

research studies are conducted primarily to examine the efficiency of board and board

committees and their impact on firms‟ performance for assessing CG. However the

literature is inadequate to explore CG more intensively. Second research studies have

focused on the limited CG items such as board of directors, audit committee,

management committee, nomination committee, remuneration committee etc and have

49

ignored various other significant aspects as mentioned in the mandatory and non-

mandatory guidelines of Clause 49 of SBI (SEBI, 2006). Third, very rare studies are

identified in the literature which have examined implementation of CG guidelines in

terms of CG score and that too from comparative organisational aspects i.e. public sector

and private sector (Das, 2007a, 2007b). Fourth, there is dearth of literature on

behavioural aspect of CG research as only a few studies have been conducted on this

aspect (Abor and Biekepe 2007, Khiari, Karaa and Omri 2007, West 2006 and Mehta et

al., 2008). The managerial behaviour to assess the CG practices within the organisation

that can provide sound pathway to implement CG guidelines is yet to be explored. To

add, the relationship of culture and value on CG behaviour and their ultimate impact on

business performance is still to be answered in the literature. Fifth, the relationship

among CG dimensions and corporate culture, corporate ethical value and business

performance, encompassing both employees and customers perspectives would is yet to

be examined. Further, the extant literature is inadequate to support the CG findings based

on behavioural and disclosure– based data. Hence a more comprehensive analysis on CG

practices which focus on disclosure practices and managerial orientation towards CG is

required to bridge up the extent gap. Thus the overachieving objective of the study is to

evaluate CG practices in banking sector. The specific objectives of the study include the

following:

i) To examine and evaluate CG practices of public (SBI, PNB and BOI) and private

(JKB, ICICI and HDFC) banks using four dimensions namely accountability,

transparency, effectiveness and social responsibility.

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ii) To study the impact of corporate culture and corporate ethical value on CG

practices and business performance.

iii) To analyse CG practices of pubic and private banks from mandatory, non-

mandatory and additional disclosures perspectives.

iv) To determine both bank-wise and year-wise CG scores with respect to

dimensions identified under Clause 49 of Listing Agreement.

v) To compare the CG practices of public and private banks based on archival and

behavioural based data approaches.

vi) To suggest strategic actions for more transparent and effective disclosure of CG

practices.

3.2 FORMULATION OF HYPOTHESES

Based on review of literature on CG studies, present study formulates following

hypotheses:

3.2.1 CG Dimensions

The CG environment can be considered as a function of five major components namely,

accountability, transparency, effectiveness, integrity and social responsibility.

Accountability and responsibility typically are central to effective CG practice. The

efficiency and effectiveness of board functioning depends on skill and capabilities of

board members, values and process through which quality of strategic decision making

are pursued (Pattigrew and McNulty, 1998). Demirbas and Yukhanaev (2011) suggested

that in order to improve accountability and transparency, the policy makers need to

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redesign and implement CG disclosure as per international standards to attract foreign

capital. Transparency which is the second components is reflected from market

discipline. Similarly Bhattacharyya (2003) also remarked that transparency enhances

accountability by facilitating monitoring and accountability and ultimately also enhance

transparency by providing an incentive for agents to ensure that the reasons for their

actions are properly disseminated and understood together. Hence, together transparency

and accountability impose disciplines that improve the quality of decision making. Bhat,

Hope and Kang (2006) found that transparency is positively associated with disclosure

levels and accounting rules. The third component i.e. effectiveness focuses on the

effective decision making vis-a-vis optimal utilisation of resources. Organisation needs

effective management for better CG. Dangwal and Sacher (2007) examined various

behavioural characteristics such as responsibility, leadership, grievance handling,

decision making, structure, delegation, human relation, communication risk and other

parameters like action orientation, self disclosure, receptivity to feedback and that affect

perception managerial effectiveness. Further the next components integrity is heart of

effective governance and includes management integrity and ethics, assessment of

internal control and proceeding and reviews financial reporting and accounting decisions

(Daly, 2008). The last dimension, social responsibility is also institutionalised within the

CG structure. CSR is concerned with the relationship between companies and

stakeholders. The disclosure of information about various organisational activities that

impact stakeholders, both internal as well as external, affect the quality of CG

environment. Godfrey and Paul (2005) also revealed that CSR boosts internal employee‟s

moral and commitment with in the firms. Recently Kumari (2009) indicated that all five

52

accountability, transparency, effectiveness and corporate social responsibility are the

major components of CG. However accountability and CSR are more significant in

comparison to other three dimensions namely transparent, effectiveness and integrity in

their contribution towards the CG practices. The study as such formulated the following

hypotheses:

Hypothesis 1a: All five CG dimensions contribute significantly to CG practices.

Hypothesis 1b: Accountability and social responsibility relatively contribute more

significantly to CG practices than the other two dimensions namely transparency and

effectiveness.

3.2.2 Corporate Ethical Values

Corporate ethical values are basically function of individual ethical values and the formal

and informal policies on business ethics of an organisation (Shakeel et al. 2011 and

Small, 2006). These values help individuals in establishing and maintaining the standards

that delineate the “right” things to do from the “worth doings” (Jansen, Mary and

Glinow, 1985). Ethical standards influence individuals‟ choice which leads to actions

that are desirable for organisations (Svensson and Wood, 2011). More specifically, when

the ethical standards /values of an organisation are widely shared among its members

organisational success definitely will be enhanced. Ghosh (2007) remarked that quality

of CG can be improved only when each and every individual cultivates and nurtures

values in his inner self. This is also supported by McNamee and Fleming (2007), Small

(2006) and Leary and Stewart (2007). On the basis of aforesaid discussion the study

hypothesized the following:

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Hypothesis 2: Corporate ethical values positively influence CG practices.

3.2.3 Corporate Culture

Corporate culture is the pattern of shared values and beliefs that help individuals to

understand organisational functioning and provide them norms for behaviour to be in the

organisation (Mc Namee and Fleming, 2007). It is considered as a tool which is used by

managers to implement strategy to make functioning of organisation more effective

(Calori and Sarnin, 1991). Although impact of organisational climate and culture on

performance has received substantial attention but the relationship is still unexplored in

CG literature. Parasuraman (1984) suggested that greater the attention paid to

organisational culture better will be managerial effectiveness as better shared values and

belief, proned inclinations of the employees towards their duties and responsibility.

Peters and Waterman (1982) also remarked that virtually all the superior firms have at

the core a well defined set of shared values, particularly ethical values. This all

subsequently will pave way to improve quality of CG. As such the quality of corporate

culture also affects the implementation of corporate governance practices. Hence, the

study hypothesizes the following:

Hypothesis 3a: Corporate culture positively influences CG practices.

Hypothesis 3b: Corporate culture and corporate ethical value together influence CG

practices more significantly.

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3.2.4 Business Performance

3.2.4.1 Corporate Performance

There is a growing interest in the relationship between CG and corporate performance.

Financial performance of business organisation is affected by its strategies and

operations in market and non market environment (Graaf and Herkstroter, 2007).

Freeman and Evan (1990) remarked that high CG performance results not only from

satisfaction of bilateral relationship but also from the coordination and prioritisation of

stakeholders. Behery and Eldomiaty (2010) found that banks‟ support to shareholders

interests is positively associated with banks profitability and liquidity, banks support to

suppliers‟ interest is positively associated with banks‟ profitability, capital adequacy and

asset quality and banks‟ support to the creditors‟ interest is positively associated with

bank‟s liquidity. Orlitzky, Schmidt and Rynes (2003) suggested that managers can

pursue corporate social performance as a part of their strategy for attaining high

corporate financial performance. The corporate financial performance includes

soundness of financial assets or financial goal achievement relative to competitions.

However Calori and Sarnin (1991) remarked that CG practices impact growth but not

profitability. The study thus postulates the following:

Hypothesis 4: CG is positively associated with corporate performance.

3.2.4.2 Corporate Reputation

Managing corporate reputation is becoming an important strategy for organisational

development. Mertin (2009) pointed out that the corporate social responsibility and CG

55

are driving current interest in building corporate reputation as both act an innovator for

strategic monitoring for improving the firms image in the mind of community,

customers, suppliers etc. In this regard Walsh et al. (2009) and Walsh and Beatty, (2007)

remarked that financial performance of the companies affect corporate reputation which

results from customer satisfaction, trust and loyalty. Further Lewelly, (2002) also pointed

that image and reputation although complex are highly correlated. In this context

Ljubojevic and Ljubojevic (2008) pointed out that relationship between reputation of

CEO and reputation of a company is linked to each other whereas Ting (2009) stressed

on positive relationship between reputational capital board (majority of outside director)

and corporate reputation. MacMillan et al. (2004), in this context, suggested that board

need to develop awareness about the application of CG practices to enhance corporate

reputation and responsibility. The study thus formulated following hypotheses:

Hypothesis 5a: Corporate reputation is the significant outcome of CG.

Hypothesis 5b: CG and corporate performance together have strong influence on

corporate reputation.

3.2.4.5 Disclosure Practices

Singh (2005) indicated that there exists significant difference in the CG disclosure

practices of public and private banks with respect to composition of management

committee, board meeting held during the year, departmental promotion committee and

capital market related matters with regard to data of listing top five shareholders of the

bank. Whereas rest CG characteristics such as membership on other board, meetings

attendance, remuneration of directors, audit, grievance, compensation related to clause 49

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guidelines of SEBI indicate insignificant difference between public and private sector.

The study as such hypothesized that:

Hypothesis 6a: There exists insignificant difference in the disclosure of CG items in

the public and private sector banks.

Hypothesis 6b: There exists insignificant difference in the variation of items of CG in

the public and private sector banks.

3.2.4.6 Corporate Governance Scores

As per Clause 49 of Listing Agreement of SEBI, all the listed companies are required to

disclose all the mandatory information in their CG report. The mandatory guidelines

focus on company‟s philosophy, composition of board of directors, audit committee,

remuneration committee, shareholder committee, general body meetings, disclosure on

significant matters, means of communication and general shareholders information.

Whereas non-mandatory guidelines relate to information such as board (non-executive

director), remuneration committee, shareholder rights, audit qualification, training of

board members, mechanism for evaluating non-executive director and whistle blower

policy. As per CG score criteria given by Das (2007a, 2007b) all listed companies (public

and private) with CG score more than 85 are considered as excellent companies. Whereas

companies with less than 55 score are considered as poor in the implementation of CG

practices. Based on high CG scores arrived from disclosure practices Chahal and Kumari

(2009) revealed that JKB enjoys very good CG reputation. The study as hypothesized

that:

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Hypothesis 7a: Both public and private banks enjoy good CG scores (across five

years).

Hypothesis 7b: High CG score is positively associated with high ROE and ROA.

3.3 DATA COLLECTION

3.3.1 Generation of Scale Items

On the basis of reviewed literature and threadbare discussion and interactions with

subject experts, managers of RBI and other banks and chartered accountants the study

identified various items to measure CG practices, corporate culture, corporate ethical

value and their impact on the performance of banks. The generation of items for CG, its

antecedents and consequences are discussed as under:

3.3.1.1 Corporate Governance Dimensions

To determine the CG practices in banking sector, initially six dimensions, such as

accountability, transparency, effectiveness, social responsibility, integrity and discipline

identified, on the basis of review of literature, were selected. Accountability consisted of

items extracted from the studies of Chen, Chen and Wei (2009), Klapper and Love

(2004), Kimber and Lipton (2005) and Koufopoulos et al. (2010). The items were

performance, code of conduct, annual assessment, participation in training on CG,

supervisory and executive role, efficient and effective structure of board and record of

board meetings. One item „decisions made by managers are recorded and communicated

was tapped from the study of Koufopoulos et al. (2010). Transparency comprised of

items which were taken from the studies of Chen, Chen and Wei (2009) and Klapper and

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Love (2004). The items of transparency focused on items such as corporate policies,

annual financial statements, conflict of interest, financial analysts are treated equally,

regular meetings, information regarding meeting on internet, relevant information

communicated within sufficient time, prompt disclosure of market sensitive information

and other relevant information. The items relating to effectiveness were drawn from the

studies of Ogbechie (2009). These items were focussed on themes relating to sufficient

number of independent directors, experience to discharge duties, written code, role

shareholder, performance evaluation system, effective communication, adequate save

measure and business risk etc. For measuring social responsibility items related to

environment, community development, help to needy persons, reliability, responsibility,

empathy and assurance were drawn from the works of Hinson (2010), Lantos (2001),

Chen, Chen and Wei (2009), Klapper and Love (2004) and Kimber and Lipton (2005).

For measuring integrity items such as support from top management team, meet regularly

with planned agendas, customer complaints are resolved in minimum time, composition

of committee members and adhere to code of integrity values were used from the studies

of Chen, Chen and Wei (2009), and Klapper and Love (2004). Whereas discipline items

included mission statement priority for CG, dividend distribution policy and information

on all significant aspects of CG. These items were adopted from the studies of Chen,

Chen and Wei (2009), and Klapper and Love (2004).

3.3.1.2 Corporate Ethical Value

The corporate ethical value was measured using items relating to trustworthiness,

respect, fairness, citizenship, honesty, human rights, justice, teamwork which were

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identified from the research studies of Schwartz (2002), Cacioppe, Forster and Fox

(2008), Payne, Paiborn and Askvik (1997) and Donker, Poff and Zahir (2008).

3.3.1.3 Corporate Culture

Corporate culture was measured with the help of items relating to leadership

effectiveness, process integrity, mission and value driven environment, stakeholder

balance and long term perceptive. All the items were extracted from the work of

Alexandre, Mitchell and Jondle (2009).

3.3.1.4 Business Performance

Business performance of the banks was measured using financial measures related to

return on assets, return on equity and profitability and non-financial measures such as

achieving financial goals, attracting new customers, maintaining current customers and

customer satisfaction.

3.3.1.5 Corporate Reputation

The corporate reputation was measured using thirty four items. The items selected were

spread over six dimensions. The items for customer orientation, good employer, reliable

and financially strong company, product and service quality, and social and

environmental responsibility, were selected from the works Walsh and Beatty (2007),

Walsh et al. (2009) and Schwaiger, (2004) while emotional appeal dimension comprising

three additional items were taken from the works of Fombrum, Gardberg and Sever

(2000) and Pratoom (2010).

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3.3.2 Scale Construction

The items generated from the review of literature and discussions with the experts were

based on five point likert scale to measure corporate governance, corporate culture and

corporate ethical value. The CG scale was spread over six dimensions that include

accountability (21 items), transparency (14 items), effectiveness (10 items), corporate

social responsibility (14 items), integrity (7 items) and discipline (6 items). Whereas

corporate culture scale included 24 items, corporate ethical included 13 items and

business performance 10 items besides these items, demographic information about the

respondent was also collected.

The corporate reputation scale was also based on five point likert scale. The

corporate reputation scale was spread over dimensions such as customer orientation (6

items), good employer (7 items), reliable and financially strong company (9 items),

product and service quality (5 items), social and environmental responsibility (4 items)

and emotional appeal (3 items). Further the personnel information of respondents was

also gathered.

3.3.3 Primary and Secondary Information

Both primary and secondary sources were used to accomplish study objectives. A self

designed pre-tested questionnaire was used to collect information from the branch

managers and next senior managers on corporate governance and other related

dimensions. A modified standardized scale developed by Walsh and Beatty (2009) was

used to measure customer based corporate reputation.

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Secondary information was mainly garnered to comprehend theoretical

framework of corporate governance, corporate culture, corporate ethical value and

corporate reputation. As such various journals (e.g. Journal of Corporate Governance,

Journal of Business Ethics, Journal of Corporate Finance, The Chartered Accountant,

Journal of Applied Finance Journal Corporate Finance, British Journal of Management

etc.), books (e.g. books on corporate governance etc.), magazines, newspapers and

websites were consulted for the development of the CG model. In addition, annual

reports of all the selected public and private banks from 2005-06 to 2010-11 financial

periods were also examined to analyse the CG disclosure practices of public and private

banks. Specifically, both mandatory and non-mandatory guidelines were examined to

calculate CG score. In addition relevant financial information from the annual reports

was also used to assess the performance of the banks.

3.3.4 Primary Data

3.3.4.1 Pre- testing

Pre-testing of research instruments to measure CG, corporate culture, corporate ethical

value, business performance and corporate reputation was done primarily to finalise the

scale items. Pre–testing was conducted of CG, corporate culture, corporate ethical value

and business performance on 30 bank managers of selected banks namely JKB, SBI,

PNB, ICICI, HDFC and BOI using personal contact approach during December-January

2009. The collected questionnaires were thoroughly scanned to examine the content

validity of the items used vis-a-vis to modify the items for better understanding to the

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users, to incorporate additional items as per managers‟ suggestions and to explore the

data using inter-correlation analysis for construct validity.

Pre-testing of customer based CR scale was conducted during February-March,

2009 to finalise the scale items. A total of 30 questionnaires were distributed

conveniently, with five respondents each from the selected six banks operating in Jammu

city.

3.3.4.2 Finalisation of Questionnaire

The exercise of pilot study led to the refinement of questionnaire with deletion of items.

The modified CG scale included 118 variables spread under different dimensions of CG,

corporate culture, corporate ethical value and business performance. 30 items were

deleted on the basis of low response rate and their nature of relevancy. Some items were

modified to make them more clear, legible and understandable to the respondents. Seven

items of accountability were deleted namely „senior managers undergo training on CG‟,

„clearly distinguish the role and responsibility of the board‟, „annual performance

assessment of the CEO/MD‟, „proper delegation of responsibility‟, „utmost use of every

individual‟ , „maintains of responsibility sheet‟ and „clear structure of responsibility.

Four items of transparency also got deleted viz. „annual financial statement published

within 3 month‟, „risk management process ensure that an annual report is presented to

CG group‟, „account presented according to accounting standards‟ and „accessibility of

senior management to investors‟. Two items from effectiveness i.e. „board has sufficient

number of independent directors‟ and „written code for directors‟ were deleted. Three

items from CSR namely „explicit policy on environmental policy‟, „explicit policy

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emphasizing strict ethical behaviour‟ and „ branches are located at convenient places‟

deleted from CSR. One each from integrity (board has actively functioning committee)

and discipline (explicit public statement placing priority on CG) were deleted from the

pretest instrument. Four items of business performance namely maintaining and

attracting current customers, timely return on investment and achievement of goal were

also deleted.

Similarly, six items were deleted from corporate culture scale which included

„clear business and operational objective‟, „management share business result with

employees on a regular basis‟, „promote professional ethics with in the bank

functioning‟, „organization place a clear set of values that underpin business

performance‟, „organization constantly looking for ways to improve product and service‟

and „succeed in market it is necessary to compromise ones ethics‟. Whereas, only one

item was deleted „organization uses recycle materials‟ from corporate ethical value.

Demographic of the respondent that is on sex, age, education, income, total experience

and experience in the present post were incorporated in the questionnaire.

In addition to this all the items of CR scale were retained on the basis of pre-

testing. Further the customer questionnaire also include demographic profile namely sex,

age, education and length of relationship.

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3.3.4.3 Sample Design

Managers

The sample for bank managers was selected in two stages. In the first stage three public

(State Bank of India, Punjab National Bank and Bank of India) and three private banks

(Jammu & Kashmir, Industrial Credit and Investment Corporation of India and Housing

Development Finance Corporation) were selected on the basis of maximum number of

branches operating in Jammu district. In the second stage, three managers/officers each

(one branch manager and two immediate senior managers/officers) from all the branches

of the selected public and private banks were identified for data collection. As such the

sample size of bank managers/officer selected comprised of 189 managers/officers from

public sector banks (SBI= 90, PNB=90 and BOI=9) and 180 managers from private

sector banks (JKB=162, HDFC=9 and ICICI=9). The details about number of bank

branches operating in Jammu district are given in Table 3. The sample size of 369 is

considered to be quite adequate for performing EFA and CFA. Hair et al. (2003)

remarked that five and ten respondent per items are adequate for running the EFA and

CFA respectively.

Customers

About 300 customers of six banks that are three public banks (SBI, PNB and BOI) and

three private banks (JKB, ICICI and HDFC) were contacted to measure the corporate

reputation measure of business performance. The customers were selected using

judgmental sampling method that is, only customers with five years of relationship with

bank were contacted on alternative days and that too alternatively during morning (11

65

A.M to 1.00 P.M) and afternoon (3 P.M to 5 P.M). To reduce the subjectivity, customers

of the selected banks were contacted at pre-specified time and on pre-specified days.

Further efforts were also made to collect data only from willing and interested customers.

Out of 300 filled questionnaires 60 questionnaires with missing responses relating to

demographic profile, relationship and corporate reputation items were excluded. Hence,

only 240 completely filled questionnaires were selected for final analysis. The sample

size of 240 is considered as quite adequate for confirmatory factor analysis on the basis

of one parameter per seven respondent criteria (Hair et al. 2003).

3.4 STATISTICAL AND RESEARCH TOOLS

To derive substantial results from the collected data, various tools were applied for data

purification, data reliability and validity, data analysis. The tools used under data

analysis, data reliability and validity and testing of hypotheses are discussed as under:

3.4.1 Data Purification

The present study used exploratory factor analysis (EFA) with varimax rotation,

reliability analysis and confirmatory factor analysis (CFA) for data purification purpose.

The Kaiser-Meyer-Olkin (KMO) value equal to and greater than 0.5 and degree of

correlation equal to or greater than 0.30 were used as criteria for running the factor

analysis and selection of items respectively under factor analysis. The maximum

numbers of factors were decided on the basis of eigen value equal and greater than 1

(Hair et al. 2003). The reliability analysis criteria included cronbach alpha (α) estimate

(more than 0.7) and item to total correlation more than 0.25. The critical ratio greater

66

than 1.96 and standardized regression weight greater than 0.5, were used as criteria for

the data purification and selection of items through confirmatory factor analysis

(Netemeyer, Bearden and Sharma, 2003).

3.4.2 Data Reliability and Validity

The internal consistency and split-half tools were used to assess the reliability of the data

(Hair et al. 2003). The reliability of the sample was checked by examining the coefficient

alpha values for the whole sample and sub-samples I and II. The construct and

convergent validity of the samples were also assessed. The variance explained (more

than 0.50) criteria and factor loading more than 0.5 were used to check convergent

validity of the scale (Hair et al. 2003). The establishment of the discriminant validity of

the latent constructs were examined by comparing average variance extracted values with

squared multiple squared correlation (average variance extracted values > squared

multiple squared correlation).

3.4.3 Data Analysis

To assess the CG practices of banks, the study applied univariate, bivariate and

multivariate statistical techniques using SPSS and AMOS software. Univariate analysis

tools such as mean, percentage and frequency were used to measure managerial

orientation towards CG, corporate culture, corporate ethical value and business

performance. Bivariate correlation between CG scores and business performance

measures such as ROE, ROA and profitability were used to identify the nature of

67

relationships. Multivariate analytical tools such as CFA, SEM and f-test were used for

measuring varied relationships in the banking sector.

3.4.4 Hypotheses Testing

SEM, ANOVA and one-sample t-test were used for testing various hypotheses relating to

CG, corporate ethical value, corporate culture, business performance and corporate

reputation.

3.5 LIMITATIONS AND FUTURE RESEARCH

The study on CG practices and their impact on business performance, based on primary

data methods and archival research is conducted amidst certain limitations. These

limitations are discussed as under:-

3.5.1 Primary Research

3.5.1.1 Due to time constraint and personal limitations, only managers were contacted

for data collection. The viewpoints of different respondents such as shareholders,

board of directors and creditors on CG disclosure mechanism and practices

could be included for further research. To add the perspective of employees

other than managers can also be added for comprehensive understanding of the

concept.

3.5.1.2 Since the data on CG practices were collected from managers, the subjectivity of

the data could not be avoided. Due to privacy involved in banking, managers

might have hesitated o share the correct information as employees do not go

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against the goodwill of the organisation generally. However the use of validity

and reliability of the data monitored the degree of subjectivity.

3.5.1.3 The study has used one factor structure model to analyse the relationship of

different constructs with CG. Hence there is need to further relook into factor

level structure for better understanding of the concept.

3.5.1.4 To study the impact of CG practices on business performance from customer

perspective corporate reputation measure was used. The major limitation

regarding customers is related to their selection procedure. The selection of

respondents was based on judgmental sampling as only those customers who

were associated with the banks with more than five years were contacted. But at

the same time to enhance the degree of objectivity in the selection procedure,

customers were contacted on pre-specified time and on pre-specified alternative

days and that too alternatively during morning (11 A.M to 1.00 P.M) and

afternoon (3 P.M to 5 P.M). Further only traditional customers that are

customers who are personally visiting the bank were contacted.

3.5.1.5 Lastly the results of the study, based on archival as well as primary data methods

need to be extended to longitudinal study to validate the findings. Besides,

validation of the CG scale in other financial and non financial institutions could

also be taken up in future studies.

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3.5.2 Archival Research

3.5.2.1 Despite making several attempts annual reports of three banks namely ICICI,

SBI and PNB banks for 2005-06 financial year could not be accessed from the

respective banks. Moreover even the online copies were not available on the

banks websites.

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TABLE 3.1

SELECTED PRIVATE AND PUBLIC BANKS OPERATING IN JAMMU

DISTRICT AND NUMBER OF MANAGERS TO BE CONTACTED

Source: RBI, Head Office, Jammu

Sector Name of

Banks

No. of

Branches

No. of

Managers

Sector Name of

Banks

No. of

Branches

No. of

Managers

Public

Sector

SBI 30 90 Private

Sector

JKB 54 162

PNB 30 90 HDFC 3 9

BOI 3 9 ICICI 3 9

Total 58 189 Total 61 183

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SCALE DEVELOPMENT

The chapter discusses scale development for corporate governance, corporate culture,

corporate ethical value, business performance and corporate reputation scales using EFA

and reliability analysis followed by confirmatory factor analysis.

4.1 DATA PURIFICATION

4.1.1 Procedure

The study initially in the first round used exploratory factor analysis and item-analysis to

validate the corporate governance, corporate culture, corporate ethical value and

corporate reputation items in the respective scales. The detailed procedure used for data

purification is discussed as:-

Exploratory Factor Analysis (EFA)

Adopting the guidelines of Hair et al. (2003), exploratory factor analysis (EFA) was

undertaken to reduce the number of items to refine the CG, corporate culture, corporate

ethical value, business performance and corporate reputation scales. EFA using rotated

component matrix and principal component method was applied for data purification.

Further it was also done to seek the least number of factors that can account for the

common variance in the data. The KMO, MSA and factor loading values equal to and

greater than 0.5 and degree of correlation co-efficient equal to or greater than 0.3 and less

than 0.9 were used as criteria for the selection of the items in various runs. The final

decision about items deleted was taken by examining the representativeness of each item

identified for deletion after meeting the aforesaid criteria. Lastly, items which did not

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have significant loadings on two or more factor, and those with low communality value

(0.5) were also considered for deletion. The EFA was run dimension-wise on CG scale

items while it was applied on overall scale items of corporate culture, corporate ethical

value, business performance and corporate reputation. The application of EFA helped in

identifying representative and parsimonious set of factors for the constructs.

Reliability Analysis

After EFA, all the retained items of CG, corporate culture, corporate ethical value,

business performance and corporate reputation were examined for reliability analysis. At

the outset, reliability analysis was performed individually on different dimensions of CG

and overall on the items of corporate culture, corporate ethical value, business

performance and corporate reputation. The results relating to item-to-total correlation

were (CITC) coefficients alpha value if item deleted (AIID) along with scale mean if

item deleted (SMID) and scale variance if item deleted (SVID) and average inter-item

correlation were used to examine the relationship of items with respective constructs.

Reliability analysis was run in two stages. In the first stage, items of respective

dimensions were examined for inter-item analysis. The items having low item-to-total-

correlation (CITC) coefficients (<0.30) alpha value if item deleted ( AIID) along with

scale mean if item deleted (SMID) and scale variance if item deleted ( SVID) and

average inter-item correlation was examined to know the impact of the items on the scale

reliability (Netmeyer, Bearder and Sharma, 2003). Finally, as a standard for final

assessment, a minimum alpha of 0.70, were checked for final selection of items in the

different constructs. In the second stage, the items retained under different dimensions

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were selected for the overall reliability analysis. The same deletion criterion as used in

the first stage was followed for the final selection of items in the overall scale items.

4.1.2 Data Purification Results

This section portrays the results of all the five constructs that is CG, corporate culture,

corporate ethical value, business performance and corporate reputation after deletion of

items at exploratory factor analysis (first Stage) and reliability analysis (second Stage).

4.1.2.1 CG

The dimension-wise EFA results of CG scales (Table 4.1.1) are discussed as under:

The „accountability‟ dimension of CG initially comprised of fifteen items which were

reduced to twelve items in the final run. One item with factor loading less than 0.5 was

deleted in the first stage while in the second stage two items were deleted as their

corrected item to total correlation were less than 0.3. The accountability is identified as

tri-dimensional construct spreading over three factors. The „transparency‟ and

„effectiveness‟ dimensions were found to be bi-dimensional constructs. All the items

were retained in both the two constructs as the value of anti-image and communality

were found to be significant (more than 0.5 criteria). In second stage, two items were

deleted from transparency and one item was deleted from effectiveness as their CITC

were less than 0.3. Further in „corporate social responsibility‟ dimension, all the items

were retained, as all items met the threshold criteria. However two items were deleted

under this dimension in reliability analysis stage. The „corporate social responsibility‟

was found to be bi-dimensional construct spreading over two factors. Since „integrity‟

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and „discipline‟ dimensions comprised of five and three items respectively, EFA was not

applied. However, application of reliability analysis resulted in deletion of one item from

each dimension reducing the respective number to four and two. The overall alpha value

was arrived at 0.874. The alpha value for the sub-constructs was found to be 0.672

(accountability), 0.791 (transparency), 0.736 (effectiveness) and 0.798 (corporate social

responsibility), which supported the reliability of the CG data. The inspection of

reliability analysis indicated slight variation in the values of SMID, CITC and AITD in

all the CG dimensions which further support the internal reliability of the CG.

4.1.2.2 Corporate Culture

Similar to CG, application of factor and reliability analysis was performed on overall

items of corporate culture. Eighteen items, selected initially, were reduced to ten items in

the final run. The respective KMO and alpha values were arrived at 0.705 in the first run

and 0.742 in the second run of EFA. Four items each in the first and second runs were

deleted as per the selected criteria. All the items were spread across two factors of

corporate culture which are christened as “mission and value driven” and “action against

unethical behaviour”. All the nine items of corporate culture scale selected after EFA

were retained after reliability analysis. The overall alpha value was arrived at 0.773 while

dimension-wise cronbach alpha was scored as 0.820 and 0.766 respectively. Further, the

range of variation fell between 30.60 to 31.72 under SMID, between 0.442 to 0.610 and

0.728 to 0.772 under AITD in the corporate culture which also reflected reliability of the

items.

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4.1.2.3 Corporate Ethical Value

Factor analysis was performed on items of corporate ethical values as well. All the items

were retained as anti-image and communalities values were found to be significant. At

the second stage (reliability analysis) four items were deleted as their CITC were less

than 0.3. The corporate culture was found to be unidimensional construct. The cronbach

alpha of the scale (.662) indicated high degree of consistency of data. Thus this is also

supported from the values of AIID and CITC which were above the threshold criteria.

4.1.2.4 Business Performance

EFA was also applied on business performance. In the initial stage of EFA three items

were deleted as the values of communality were less than the threshold criteria. Further

at the second stage one item was deleted as value of CITC was less than 0.3. The

business performance scale was established as bi-dimensional construct. The overall

alpha value for business performance was found to be 0.723 and split- half reliability

came out to be 0.712 and 0.704 which indicated consistency of data. Further SMID,

CITC and AIID values also supported the reliability of the data.

4.1.2.5 Corporate Reputation

The EFA was run in the first stage on 33 items of the corporate reputation scale, and later

different runs were performed until all of the set criteria were met for the items and

factors. The final run of the EFA resulted in seven factors comprising of 22 items. The

overall alpha value of CR was found to be 0.82 which established the reliability of the

corporate reputation scale The cronbach alpha values of CR factors „customer

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orientation‟ and „emotional appeal‟ were found to be 0.85 and 0.91 respectively. Further

the item analysis showed a slight variation in SMID, CITC and AIID presented in Table

4.11.

4.2 RETAINED SCALE ITEMS AFTER EFA AND RELIABILITY

ANALYSIS

The items retained in the various constructs used in the study after purification are

explained as under (Table 4.2):

4.2.1 CG

4.2.1.1 Accountability

The KMO Measure of Sampling Adequacy value is accorded at 0.757 and BTS measure

at 628.529 with 66 df (p = 0.000) which supported the suitability of data for pursuing

factor analysis. This dimension produced three sub-dimensions named as “Defined

Formal Guidelines”, “Role of Board” and “Board Effectiveness” after running factor

analysis. The explanation of final latent factors emerged is as follows:

Defined Formal Guidelines

This sub-dimension includes five items namely “decision made by managers are

recorded and communicated to the appropriate members” (MS=3.71, SD=.89, FL=0.69),

“code of conduct are in place & have been agreed by managers” (MS=4.08, SD=.67,

FL=0.68), “managers have clearly defined job description and set performance targets”

(MS=4.25, SD=.67, FL=0.59), “bank set up formal criteria to assess its performance”

(MS=3.86, SD=.96, FL=0.58) and “bank conducts an annual assessment” (MS=4.04,

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SD=.68, FL=0.58). The respective communality values are found to be 0.58, 0.49, 0.46,

0.71, and 0.68. The factor explains 22.75% variance out of 50.08% of variance.

Role of Board

Role of board factor explicated 16.79% of total variance and comprised of items namely

“board members participate in training on CG” (MS=3.41, SD=1.08, FL=0.71), “senior

management has made decision in recent years which seen to benefits them” (MS=3.51,

SD=1.18, FL=0.69), “company is seen as acting effectively against individual

responsibility” (MS=3.40, SD=1.15, FL=0.69) and “board plays a supervisory rather

than executive role” (MS=3.70, SD=.974, FL=0.53). The communality values were

found to be 0.52, 0.645, 0.644, and 0.409 respectively for the items.

Board Effectiveness

“Bank review record of board meeting” (MS=3.94, SD=.97, FL=0.77) and “board small

enough to be efficient and effective” (MS=3.39, SD=1.14, FL=0.67) are the vital

ingredients of board effectiveness (Variance=10.54%).

4.2.1.2 Transparency

The KMO (0.777) and BTS (chi- square = 558.684, df=21 and p=0.000) indicated

transparency dimension of CG to be quite adequate for grouping variables. The

application of varimax rotation method, at 4 iterations, helped in identifying two factors

(Table 3.3), which explained 60.930 percent variance. These are explained as under:

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Information Dissemination

The first factor comprised items such as “organisation provides all relevant information

within sufficient time” (MS=4.08, SD=.810, FL=0.86), “information regarding meetings

is put on the internet” (MS=3.71, SD=1.13, FL=0.73), “prompt disclosure of market

sensitive information” (MS=3.23, SD=.88, FL=0.67) and “conflicts of interest are fully

resolved through a clear and well established mechanism” (MS=3.97, SD=096,

FL=0.61,). The values of communalities and MSA were more than .50. This component

explained 44.77 % of variance.

Planned & Regular Meeting and Disclosure

Important items under this head include “regular analyst meetings are held (e.g.

quarterly or biannually)” (MS=4.02, SD=.788, FL=0.81), “board meetings are held

according to planned regular schedule” (MS=4.20, SD=.750, FL=0.80) and “prompt

disclosure of results with no leakage ahead of announcement” (MS=4.02, SD=.84,

FL=0.57). The values of communality for this factor ranged between 0.69 (regular

analyst meeting are held) and 0.46 (prompt disclosure of result with no leakage ahead of

announcement). The factor explained 16.65 percent variance.

4.2.1.3 Effectiveness

The reduced sub- scale after deleting one items, indicated significant KMO (0.712) and

BTS (chi-square =379.404, df= 21 and p= 0.000). The application of varimax rotation

method at five iterations, helped in identifying two factors, which explained 53.523

percent variance. These are discussed underneath:-

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Managerial Effectiveness

“Management communicates to the BOD about business risk faced by the company”

(FL=0.77, CV=0.61), “bank gives sufficient attention to the role of shareholder & the

functioning of the shareholder meetings” (MS= 3.96, SD=.848, FL=0.66) “board

members have enough experience to discharge their duties” (MS= 4.11, SD=.820,

FL=0.64), “employees generally communicate about any mislead & unethical behaviour

of employees to the management” (MS= 4.03, SD=.970, FL=0.58) and “managers

performance reflects consideration of corporate objectives and policies” (MS= 3.70,

SD=1.01, FL=0.51) are the important variables under the board effectiveness head

(39.076% variance).

Performance Evaluation and Communication

The performance evaluation and communication factor comprised items such as “board

has performance evaluation system to evaluate its own performance” (MS= 4.02,

SD=.671, FL=0.89) and “effective communication is in place to keep staff informed

about new & existing policies” (MS= 4.01, SD=.671, FL=0.67). The communalities were

found to be 0.796 and 0.596 respectively. The overall factor explained 14.447% of

variance out of 53.523% of variance.

4.2.1.4 Corporate Social Responsibility

KMO measure of Sampling Adequacy (0.642) and BTS (chi - square = 1252.153, df = 55

and p = 0.000), value showed relevance of social responsibility sub-scale in pursing

factor analysis. The applications of varimax rotation method helped in identifying three

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factors, which explained 71.167 percent variance. The specific factors so evolved are

discussed as under:

Social and Environmental Responsibility

The main items incorporated under environmental issue included “explicit equal

employment policy” (MS=3.70, SD=.956, FL=0.78), “policies are regularly upgraded to

safeguard the interest of employees/organisation” (MS= 4.14, SD=.865, FL=0.76),

“continuously discharges social responsibility to protect the environment” (MS= 3.83,

SD=1.00, FL=0.66) and “continuously discharges social responsibility to protect the

community” (MS= 3.66, SD=1.13, FL=0.63), “provides help to needy persons” (MS=

4.17, SD=.750, FL=0.52). The communalities were found to be 0.686, 0.720, 0.670,

0.816 and 0.415 respectively. The overall factor explained 36.204% of variance out of

71.793 % of variance.

Service Quality

“Bank has sufficient number of branches to cater to the needs of customers” (MS=3.90,

SD=1.10, FL=0.79), “operational functioning of ATM is good” (MS=4.20, SD=.854,

FL=0.76), “adequate complaint & suggestion system” (MS=4.19, SD=.908, FL=0.64),

“online banks service are of good quality” (MS=4.12, SD=1.0, FL=0.82) and “ATM

centers provide adequate security to the customers” (MS=4.16, SD=.854, FL=0.70) were

the important elements of the services factor. The overall factor explained 25.589% of

variance out of 71.793% of variance.

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4.2.2 Corporate Culture

KMO (0.742) and BTS (chi- square = 913.311, df = 45, and p = 0.000) value were found

to be quite adequate for grouping analysis. The factors emerged after data purification are

discussed as under:

4.2.2.1 Mission and Value Driven

The significant items under this consist of “bank maintains relationship of trust with all

employees” (FL=0.76), “management shares business strategies with all employees”

(FL=0.76), “management activity seeks feedback from clients & customers with a view to

improve service” (FL=0.75) “mission and value of the bank are well communicated to

the employees” (FL=0.75) “bank has developed its code of ethics to be followed by

employees” (FL=0.58) and “bank give equal treatment to employees, customer, owners

and community” (FL=0.58). The value of communalities for this factor ranged between

0.66 (management shares business strategies with all employees) and 0.42 (bank has

developed its code of ethics to be followed by employees). The variance explained by

this component was 36.68%.

4.2.2.2 Action -Against Unethical Practices

This sub-dimension included items such as “unethical behaviour is promptly

reprimanded when discovered if it results in personal gain” (MS=3.63, SD=1.25,

FL=0.88, CV=0.78), “unethical behaviour is promptly reprimanded when discovered if it

results in gain to firm” (MS=3.11, SD=1.32, FL=0.73, CV=0.59) and “promotes

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professional ethics within the profession” (MS=3.76, SD=1.11, FL=0.65, CV=0.59). The

variance explained by this component is 15.84% out of 62.670% variance.

4.2.3 Corporate Ethical Value

KMO value (0.743) and BTS value (chi-square=661.197, df =28 and p=0.000) came out

to be favorable, indicating the significance and suitability of the data for factor analysis.

The EFA result indicated two factor structures.

4.2.3.1 Ethical Approach

Ethical approach factor focuses on four items which included “organisation gives

rewards to the ethical behaviour” (MS=3.79, SD=.906, FL=0.86, CV=0.77),

“organisation working behaviour is consistent with the stated ethics & values of the

organisation” (MS=4.01, SD=.89, FL=0.72, CV=0.69), “organisation is particular in

protecting women shareholders”, (MS=3.50, SD=1.14, FL=0.69, CV=0.59) and

“organisation offer training on business ethics” (MS=3.68, SD=1.02, FL=0.50,

CV=0.70). Ethical approach factor explained 40.9% of variance.

4.3.1.2 Commitment

The second factor comprised items such as “committed towards accomplishing the

agreed tasks” (MS=4.21, SD=.839, FL=0.866, CV=0.75), “organisation makes it sure

that employees do not repeat any mis-conduct/mistakes” (MS=4.10, SD=.870, FL=0.855,

CV=0.67), “organisation takes action against employees who are involved /employed in

misconduct” (MS=4.36, SD=.629, FL=0.72, CV=0.60). This component explained 14.89

% of variance.

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4.2.4 Business Performance

The values of KMO came to be 0.736 and BTS value as 89.253 (df = 15, and p = 0.000)

that indicate the relevance of factor analysis for variable groupings. The varimax rotation

identified two factors i.e. “Customer Based Goals” and “Financial Goal” after three

iterations and contributed about 53.42% to the total variance.

4.2.4.1 Customers Based Goals

The first factor comprised three items viz., “value added information to customer”,

“customer satisfaction” and “achievement of desired goals” with factor loading (FL)

values of 0.876, 0.787 and 0.685 and mean satisfaction (MS) score of 4.47, 4.25 and 4.46

respectively. The factor demonstrated 31.23 percent of variance from a total percentage

of variance (53.41). The values of communalities for the items were scored as 0.758,

0.661 and 0.501 respectively.

4.2.4.2. Financial Goals

Three items categorised in the factor include “return on assets”, “accomplishment of

target profit” and “overall organisation goal” with positive factor loading values of

0.822, 0.641 and 0.538 and mean values of 4.35, 4.33 and 4.40 respectively. This factor

demonstrated 24.18 percent of variance out of total percent of variance (53.42%). The

values of communalities for the extracted items were found to be 0.309, 0.416 and 0.680

respectively.

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4.2.5 Corporate Reputation

The KMO value was accorded at 0.729 and BTS measure at 1608.178 with df =231 and p

= 0.000 supported the suitability of data for pursuing factor analysis. However unlike

five dimensions identified and validated by Walsh and Beatty (2007) and Walsh, Beatty

and Shiu (2009), seven factors emerged. These factors along with identified items are

discussed as under:

4.2.5.1 Customer Orientation

Factor comprises five items namely “concerned about customer needs”(MS = 3.716,

S.D = 0.925, FL = 0.795), “treat customer politely” (MS = 3.625, S.D = 1.075, F L=

0.761), “concerned about customers” (MS= 3.645, S.D = 1.08, FL = 0.757), “ treat in

just and fair manner” (MS = 3.645, S.D = 1.093, FL = 0.704) and “taking customer

seriously” (MS=3.45, S.D = 1.23, FL=0.53). The respective communalities values were

found to be 0.71, 0.65, 0.63, 0.67 and 0.71 respectively. The factor explained 36.83% of

variance out of 69.21 % of variance.

4.2.5.2 Emotional Appeal

The four items viz., “you have good feeling about the bank” (MS = 3.85, S.D = 1.01, FL

= 0.847), “ you trust the bank” (MS = 3.68, S.D = 1.08, FL = 0.830), “you admire and

respect the bank” (MS = 3.80, S.D = 1.180, FL = 0.69) and “stand behind the service it

offers” (MS = 3.35, S.D = 1.13, FL= 0.53) with average to high positive factor loading

values are recognised in factor 2 that is emotional appeal. The values of communalities

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and MSA were more than 0.50. The factor demonstrated 15.84 % of variance from a

cumulative 69.21 % per cent of variance.

4.2.5.3 Good employee

The third factor (good employees) explained 7.47 % of variance out of 69.21 % percent

of variance and consisted of three items namely “fair attitude towards competitors” (MS

= 3.65, S.D = 1.06, F.L. = 0.77), “innovative services” (MS = 3.50, S.D = 1.03, F.L. =

0.61), and “treats people equally” (MS = 0.591, S.D =1.17, F.L= 0.59)‟. The

communalities values were found to be 0.63, 0.59 and 0.67 respectively for the items.

4.2.5.4 Reliable and Strong Company

„Performing well financially‟ (MS = 3.84, S.D = 0.910, F.L = 0.63), “caring its

customers regardless of how much money they spend” (MS = 3.51, S.D = 1.28, FL =

0.63) and “maintaining record of profitability” (MS = 3.72, SD = 1.12, FL = 0.63)‟

constituted the fourth factor, that is reliable and strong company. This component

explained 6.15 % of variance.

4.2.5.5 Image

Important items under this head include “excellent leadership” (MS = 3.50, S.D= 1.13,

FL = 0.761) and “good company to work” (MS = 3.65, S.D = 0.92, FL = 0.65). The

communalities were found to be 0.50 and 0.501 respectively and the overall factor

explains 6.19 % of variance out of 69.21 % of variance.

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4.2.5.6 Products and Services

Products and service consisted of two items viz., “high quality of products and services”

(MS= 3.53, SD= 1.14, FL= 0.761) and “good investment” (MS=3.82, SD=0.955,

FL=0.653). The item-wise communalities values are arrived as 0.79 (products and

services) and 0.65 (investment).

4.2.5.7 Social and Environmental Responsibility

The last factor arrived was social and environmental responsibility which comprised of

“attracting high quality employees” (MS= 3.60, SD= 1.077, FL=0.655), “creating new

jobs” (MS=3.49, SD= 1.07, FL=0.635) and “offers good services” (MS= 3.60, SD=1.02,

FL=0.598). The values of communality for this factor ranged between 0.68 (attracting

high quality of employees) and 0.767 (offers good services).

Among the seven dimensions, four factors that is, „Customer Orientation‟ (alpha value =

0.853 and variance explained = 26.984 % ), „Emotional Appeal‟ (alpha value = 0.857

and variance explained = 9.841 %), „Good Employer‟ (alpha value = 0.727 and variance

explained = 8.465 %), „Reliable and Financially Strong Company‟ (alpha value = 0.717

and variance explained = 7.053 %), scored alpha value greater than .7 where as „Product

and Service Quality‟ dimension showed alpha value as 0.691 (variance explained =

5.644 %). The remaining two factors that included „Image‟ (alpha value = 0.618 and

variance explained = 6.192) and „Social and Environmentally Responsibility Company‟

(alpha value = 0.612 and variance explained = 5.034) showed less than 0.7 alpha value.

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4.3 FINAL SCALE ITEMS AFTER CONFIRMATORY FACTOR

ANALYSIS

4.3.1 Procedure

Confirmatory factor analysis (CFA) was applied to confirm the dimensions of CG,

corporate culture, corporate ethical value and corporate reputation scale. After EFA and

item- analysis, CFA was run on all the factors of CG, corporate culture, corporate ethical

value and corporate reputation. The structure fit indices, namely GFI (near to 0.9 to 1),

CFI (below 0.9 to 1), NRI (near 0.9 to 1) and RMSEA (less than 0.8) were examined for

overall fitness of the construct while squared regression weight (SRW) greater than 0.50

and critical ratios (CR) greater than 1.96 were considered for retaining items in the

construct. Besides different fit indices, modification indices were also used for

improving the model fitness as Byrne (2001) remarked that the correlation between the

residuals of the observed indicators provides realistic factorial representation and is quite

acceptable. He further remarked that for model robustness, covariance between the

residuals can be introduced only when there exist high modification indices and

moreover such relationships between the residual has also got strong support from the

literature. To confirm the factor structure of different constructs as per CFA, two step

procedures was followed. In the first step, all the individual factor constructs was

separately assessed for model assessment based on measurement and model indices using

the selection criteria discussed earlier. In the second stage, level-wise overall factor

structure (first-order or second order) for CG, corporate culture, corporate ethical values,

business performance and corporate reputation constructs was examined using model fit

indices to confirm about first or second order factor structure of respective constructs.

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4.3.2 Results

The CFA was applied step-wise to identify the best structure for measuring the

constructs. In the first step, CFA was run on factors of CG dimensions, corporate culture,

corporate ethical value, business performance and corporate reputation. In the second

step, two factor structures of accountability, corporate social responsibility, corporate

culture, corporate ethical value, business performance and corporate reputation was

examined. In third and last step, one factor structure for accountability, corporate social

responsibility, corporate culture, corporate ethical value, business performance and

corporate reputation was assessed (Figures 4.1.1 and 4.1.2). The CFA for different

constructs (Table 4.2.1) is discussed as under:

4.3.2.1 CG

Accountability

/In the individual models of CG, accountability is viewed as tripartite factor structure

model comprising “Defined Formal Criteria/Guidelines”, “Role Senior Management”

and “Board Effectiveness”. Only two factors were found to be good fit in the first run of

CFA while third factor “Board Effectiveness” was deleted in the first run itself. The

application of CFA on “Defined Formal Guidelines” factor indicated good fit χ2/ df

=1.787, GFI=0.988, AGFI=0.965, NFI=0.953, CFI=0.978 and RMSEA=0.052, all the

values were within the acceptable range. Similarly “Role of Senior Management”

model also produced good fit indices as χ2/df, GFI, AGFI, NFI, CFI and RMSEA values

were arrived at 1.559, 0.995, 0.977, 0.963, 0.991 and 0.031 respectively which were all

within threshold criteria. The fitness values of “Board Effectiveness” χ2/df = 0.00,

89

GFI=1.000, CFI 1.000 indicated extraordinary perfect fit whereas RMSEA was found to

be quite high (0.292). Hence, accountability of CG was assessed using bi-dimension

construct.

Later, the application of CFA on overall two factor model of accountability that is

“Defined Formal Guidelines” and “Role of Senior Management” was also checked.

The initial inspection of the fit statistics of two factors indicated weak model fitness for

the accountability model. Since the SRW of four items namely „participation in training

on CG‟, „decision made in present years seen to benefit‟, „acting effectively against

individual responsibility‟ and „board plays a supervisory rather than executive role‟

were less than 0.5 they were deleted from the two factor model structure. This attempt

resulted in the model fitness with values arrived at χ2/df =2.030, GFI=0.986,

AGFI=0.965, NFI=0.872, CFI=0.928, RMSEA=0.06.

Further the analysis for one factor structure model was also examined. The results

initially indicated in weak fit. Similar to two factor structure, four items were deleted

from one factor structure and which resulted in overall fit indices of one factor structure

(χ2/

df=1.757, GFI=0.988, AGFI=0.965, NFI=0.953, CFI=0.978, RMSEA=0.052).

Although both factor structures were acceptable, the final analysis was based on one

factor structure as it gave a more better fit. Hence, accountability dimension of CG

comprised of five items in the final stage.

Transparency

To assess the adequacy of transparency dimension, all the items of “Information

Dissemination” (4 items) and “Planned and Regular Meeting and Disclosure” (3

90

items) were considered initially as uni-dimensional indicator of CG. The χ2/df =1.467,

GFI=0.996, AGFI=0.979, NFI=0.992, CFI=0.998 and RMSEA=0.029 structured model

fit values were within the acceptable range for “Information Dissemination”. Although

all the three items in “Planned and Regular Meeting and Disclosure” were significant

and have more than 0.5 square regression weight values, the factor was excluded for final

analysis as the model results came to be quite weak for with value of RMSEA as 0.365.

However other values χ2/df = 0.00, GFI=1.000, NFI=1.000, CFI= 1.000 indicated perfect

fit. Hence for final assessment only one factor transparency model (4 items) was

considered for final analysis.

Effectiveness

Measurement indicators and structure model indices of effectiveness indicated good fit

for “Managerial Effectiveness” (χ2/df =1.561, GFI=0.999, AGFI=0.0990, NFI = 0.997,

CFI=0.993 and RMSEA=0.07). Whereas for “Performance Evaluation and

Communication” factor the values came out to be perfect fit with χ2/df =0.00,

GFI=1.000, NFI = 1.000, CFI = 0.993 except RMSEA = 0.337 which was quite higher

than the cut-off criteria. Hence, this factor was excluded for further analysis.

Effectiveness thus is considered as one factor structure with 6 items.

Corporate Social Responsibility

The initial application of CFA on individual factor structure that is “Social and

Environmental Responsibility” and “Services Quality” indicated poor fit. Accordingly

two modifications each were made and added between the residuals that is „equal

employment policy‟ and „help to heed persons MI=6.191 and „equal employment policy‟

91

and „social responsibility towards environment protection‟ MI= 6.101 under “Social and

Environmental Responsibility” and two modifications between „sufficient numbers of

branches‟ and „ATM centers provides adequate security‟ MI= 39.333 and „online banks

services‟ and „ATM centers provides adequate security‟ MI= 30.603 were added under

“Services Quality”. The additional paths covariance resulted in good fit of the respective

models χ2/df =1.417, GFI=0.994, AGFI=0.969, NFI=0.988, CFI=0.986 and

RMSEA=0.039 and χ2/df =2.417, GFI=0.989, AGFI=0.945, NFI=0.982, CFI=0.988 and

RMSEA = 0.08.

To validate the adequacy of two factor structure model, all the items of “Social

and Environmental Responsibility” (5 items) and “Services Quality” (5 items) were

examined with respect to CSR. Since squared regression weight (SRW) of the variables

that is „social responsibility towards environment protection‟, „help to the need persons‟,

„safeguarding the interest of employees‟, „adequate complaint and suggestion system‟

and „operational functioning of ATM‟ were found to be less than 0.50, the items were

dropped from CSR construct. After deleting the variables the global model fit indices

indicated perfect fit as χ2/df =.764, GFI=0.998, AGFI=0.984, NFI = 0.995, CFI = 1.000

and RMSEA = 0.000. Hence two factor structure was excluded for the final analysis.

Further to assess the adequacy of single factor model, all items of “Social and

Environmental Responsibility” and “Services Quality” were simultaneously considered

as indicators of CSR. Similar to the factor results application of CFA on single factor

structure showed weak model fit indices (RMSEA=0.224). Hence in the next stage

SRW for items „operational functioning of ATM‟, „ATM centers provides adequate

security‟, „complain and suggestion system‟ and „sufficient numbers of branches‟ found

92

to be less than the acceptable criteria were deleted. Further two paths, based on

modification indices were added that included „help to the need persons‟ and „equal

employment policy‟ (MI=6.630) and „help to the need persons‟ and „social responsibility

towards environment protection‟ (MI=6.143). The modified result of single factor

structure model produced good fit indices as χ2/df, GFI, AGFI, NFI, CFI and RMSEA

values were arrived at 2.401, 0.967, 0.908, 0.957, 0.974 and 0.07, all within threshold

criteria. Thus, CSR in the study is viewed as 6 items unidimensional construct.

4.3.2.2 Corporate Culture

Based on EFA results, corporate culture is viewed as bi-dimensional factor structure

model, comprising of sub-dimension namely “Mission and Value Driven” and “Action

Against Unethical Practices”. Individual application of CFA resulted in good fit of the

model for both the factors that is χ2/df =1.782, GFI=0.987, AGFI=0.975, NFI = 0.982,

CFI = 0.981 and RMSEA = 0.08 (Mission and Value Driven) and χ2/df =1.891,

GFI=0.986, AGFI=0.942, NFI = 0.980, CFI = .988 and RMSEA = 0.08 (Action Against

Unethical Practices).

The fit statistics for two factor structure of corporate culture indicated good fit of

the model as all the values were within the acceptable range that is χ2/df=1.649,

GFI=0.984, AGFI=0.963, NFI = 0.971, CFI = 0.908 and RMSEA = 0.048. \

The application of CFA on single factor structure initially resulted in somewhat

weak model fit indices. Based on the deletion criteria, one item that is „unethical

behaviour is promptly reprimanded when discovered if it results in gain to firm‟ was

deleted. Further three covariance paths were identified and added between the respective

93

residuals of corporate culture on the basis of modification indices. The paths added

included „effort to hiring employees who fit into the organisation‟ and „unethical

behaviour is promptly reprimanded when discovered if it results in personal gain‟

(MI=62.220, RMSEA=0.109), „shares business strategies with all employees‟ and

„mission and value of your bank are well communicated to the employees‟ (MI=19.919,

RMSEA=0.092), „shares business strategies with all employees‟ and „equal treatment to

employees, customer, owners and community‟ (MI=9.235, RMSEA =0.079). Result of

the modified model with three additional paths in the single factor model of corporate

culture was good fit to the data with RMSEA= 0.079 and all other indices near to 1

(GFI= 0.978 AGFI=0.89, CFI=0.956 and NFI=0.934) further supported the acceptance of

the model.

4.3.2.3 Corporate Ethical Value

The initial application of CFA on individual factor structure that is “Ethical Approach”

and “Commitment” resulted in good fit of the model (Table 4.3). The corporate ethical

value comprising eight items as two factors structure was examined in the first stage. The

initial inspection of the fit statistics of two structure models came out to be weak fit.

After deleting the item „reward to ethical behaviour‟ based on less than 0.5 SRW criteria

fit indices of two factor structure model (χ2/df =2.550, GFI=0.982, AGFI=0.938, NFI =

0.964, CFI = 0.977 and RMSEA = 0.074) met the suggested model fit criteria. Similarly

the analysis for one factor structure model after deleting item „training on business‟ and

adding three path covariance between residuals of „rewards to the ethical approach‟ and

„organisation is particular in protecting women shareholders‟ (MI=15.264),

„organisation working behaviour is consistent with the stated ethics & values of the

94

organisation‟ and „organisation is particular in protecting women shareholders‟

(MI=10.532) and „organisation working behaviour is consistent with the stated ethics &

values of the organisation‟ and „organisation gives rewards to the ethical behaviour‟

(MI=8.74) indicated overall fit of the model as χ2/df =2.549, GFI=0.986, AGFI=0.942,

NFI = 0.968, CFI = .980 and RMSEA = 0.074.

4.3.2.4 Business Performance

The application of CFA on individual factor structure that is “Customer Based Goals”

and “Financial Goal” indicated good fit in the first run.

To verify the relationship between two factor structure of business performance,

two covariances were required between the items „timely return on asset‟s and

„achievement of branch profits‟ (MI=9.23, RMSEA=0.135) and „value added service‟

and „customer are satisfied‟ (MI=8.658, RMSEA=0.109)‟. This addition resulted in the

model fitness with values arrived at χ2/df=1.990, GFI=0.958, AGFI=0.903, NFI=0.911,

CFI=0.913 and RMSEA=0.08.

Further the items of business performance were also analysed in one factor

structure model. The item-construct relationship model was confirmed, after adding two

covariances between „timely return on assets and achievement of branch profits

(MI=8.254, RMSEA=.102)‟ and „achievement of branch profits‟ and „overall

organisational goal (MI=5.841, RMSEA=.96)‟. This inclusion resulted in the model

fitness with values arrived at χ2/df = 1.860, GFI=0.973, AGFI=0.943, NFI=0.950,

CFI=0.914 and RMSEA=0.074.

95

4.3.2.5 Corporate Reputation

The application of CFA on independent seven constructs resulted in acceptance of two

factors that is “Customer Orientation” and “Emotional Appeal” and rejection of the rest

five factors that include “Good Employee”, “Reliable and Financially Strong

Company”, “Image”, “Product and Services Quality” and “Social and Environmental

Responsibility”.

All the items of “Customer Orientation” and “Emotional Appeal” were

significant (CR > 1.96) and scored more than 0.5 SR with acceptable fit indices. Hence

only two dimensions namely “Customer Orientation” and “Emotional Appeal”

confirmed and indicated significant relationship with customer-based corporate

reputation.

4.3.3 Reliability

4.3.3.1 Composite Reliability

The composite reliability of the overall CG scale (0.897) was found to be the above

threshold value of 0.7. The scores for accountability (0.913), transparency (0.956),

effectiveness (0.807) and CSR (0.914) also established robust reliability. The composite

reliability for corporate culture, corporate ethical value, business performance and

corporate reputation were arrived as 0.900, 0.904, 0.756 and 0.91 respectively also

indicating the high degree composite reliability.

96

4.3.4 Validity

4.3.4.1 Convergent Validity (AVE)

The AVE is a measure of the amount of variance captured by a construct from each

scale. The AVE has recommended value of 0.50 or higher to provide evidence for

convergent validity. The AVE values for CG dimensions were accountability (0.876),

transparency (0.888), effectiveness (0.775) and corporate social responsibility (0.843)

indicated favourable validity. The AVE for corporate culture, corporate ethical value,

business performance and corporate reputation were arrived as 0.964, 0.808, 0.756 and

0.73 respectively indicating convergent validity.

4.3.4.2 Discriminant Validity

Lastly, discriminant validity was also established for the CG scale, corporate governance,

corporate ethical value, business performance and corporate reputation, as AVE values

came out to be greater than SMC values (Table 4.3).

4.4 CONCLUSION

On the basis of aforesaid discussion it is concluded that all the scales possess

psychometric qualities. The CG scale is four dimensional scale encompassing

accountability (4 items), transparency (4 items), effectiveness (6 items) and corporate

social responsibility (6 items). Similarly corporate culture and corporate reputation are

established as unidimensional construct while corporate ethical value and business

performance is consider as one dimensional construct.

97

TABLE: 4.1.1

EFA RESULTS FOR CORPORATE GOVERNANCE DIMENSIONS AND ITS

ANTECEDENTS AND CONSEQUENCES

CG Dimensions FL MV SD CV KM

O

%of V

Accountability 0.657 50.084

Define Formal Criteria (F1)

22.750

Decision made by managers are recorded &

communicated to the appropriate members.

.697 3.71 .897 .583

Codes of conduct are place & have been agreed by

managers.

.689 4.08 .670 .495

Managers have clearly defined job description & set

performance targets

.597 4.25 .673 .464

The bank set up formal criteria to assess its

performance.

.587 3.86 .963 .715

The bank conducts an annual assessment. .579 4.04 1.07 .683

Role of Senior Management (F2)

16.793

Board members participate in training on CG. .711 3.41 1.08 .520

Senior management has made decision in recent years

seen to benefits them.

.694 3.51 1.18 .645

Act effectively against individual responsibility .691 3.40 1.15 .644

Board plays a supervisory rather than executive role. .532 3.70 .974 .409

Board Effectiveness (F3)

10.541 Record of board meeting attendance of individual

responsibility.

.776 3.94 .975 .637

Board small enough to be efficient and effective. .671 3.39 1.14 .620

Transparency .777 60.930

Information Dissemination(F1)

44.765

Bank provides all relevant information within sufficient

time.

.861 4.08 .810 .743

The information regarding meetings is put on the

internet.

.773 3.71 1.13 .639

Prompt disclosure of market sensitive information. .677 3.23 .885 .485

Conflicts of interest are fully resolved through a clear &

well established mechanism.

.614 3.97 .961 .603

Planned & Regular Meeting& Disclosure (F2)

16.165 Regular analysts meeting are held. .810 4.02 .788 .693

Board meeting are held according to planned regular

schedule

.802 4.20 .750 .644

Prompt disclosure of result with no leakage ahead of

announcement.

.575 4.02 .848 .459

Effectiveness .712 53.523

Managerial Effectiveness (F1)

Management communicates to the BOD about business

risk.

.769 3.96 .848 .596

98

BOD gives sufficient attention to the role of shareholder

& the functioning of the share holder meetings.

.666 4.11 .820 .516

39.076

Board members have enough experience to discharge

their duties.

.644 4.03 .970 .425

Control over unethical practices. .584 3.70 1.01 .445

Managers‟ performance reflects consideration of

corporate objectives & policies.

.515 3.99 .827 .373

Effective communication is in place to keep staff

informed about new & existing policies.

.677 4.01 .671 .596

Performance Evaluation & Communication (F2)

Board has performance evaluation system to evaluate its

own performance.

.892 4.02 .671 .796

14.447

Adequate save measures are taken by managers to

protect the employees.

.823 3.65 .524 .342

Corporate Social Responsibility .642 71.793

Social and Environmental Responsibility (F1)

36.204

Explicit equal employment policy. .785 3.70 .956 .686

Policies are regularly upgraded to safeguard the interest

of employees.

.763 4.14 .865 .720

Continuously discharges SR to protect the environment .660 3.83 1.00 .670

Continuously discharges SR to protect the community. .630 3.66 1.13 .816

Bank provides help to needy persons. .517 4.17 .750 .415

Services Quality (F2)

25.589

Sufficient number of branches to cater to the needs of

customers.

.797 3.90 1.10 .712

Operational functioning of ATM is good. .766 4.20 .854 .794

Adequate complaint & suggestion system to resolve

issues relating to products and services.

.641 4.19 .908 .742

Online banks services are of good. .826 4.12 .100 .710

ATM centers provide adequate security to the

customers.

.708 4.16 .854 .735

Integrity 41.867

Managers always get supported from top management

team.

.865 3.83 1.14 .765

41.867 Customers‟ complaints are resolved in minimum time

duration.

.772 4.05 .943 .628

Top management meets regularly, with planned

agendas.

.509 3.99 1.15 .509

Bank adherer‟s to code of integrity values. .500 4.18 .859 .368

Discipline .600 60.302

Explicit public statement placing priority on CG. .856 4.04 .826 .733

The mission statement clearly place priority on good

CG.

.767 4.10 .812 .588

Detailed information on all significant aspects of CG is

given.

.698 4.08 .848 .487

99

CG Antecedents

Corporate Culture FL MV SD CV KM

O

% of V

Mission and Values Driven (FI) .742 62.670

Bank maintains relationship of trust with all employees. .764 4.13 .735 .587

36.682

Management shares business strategies with all

employees.

.757 4.03 .978 .665

Management activity seeks feedback from clients &

customers with a view to improving service.

.751 3.45 1.03 .630

The mission and value of your bank are well

communicated to the employees.

.747 4.23 .721 .578

Developed its code of ethics to be followed by

employees.

.578 4.17 .699 .417

Equal treatment to employees , customer, owners and

community

.576 3.56 1.11 .575

Action Against Unethical Particles (F2)

15.837

In your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in personal

gain.

.887 3.63 1.25 .787

In your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in gain to firm

.727 3.11 1.32 .594

Effort to hiring employees who fit into the organisation .657 3.76 1.11 .596

Corporate Ethical Values Construct

Ethical Approach (F1) .743

40.912

Bank gives rewards to the ethical behaviour. .862 3.79 .906 .771

Bank working is behaviour consistent with the stated

ethics & values of the organisation

.727 4.01 .895 .692

Bank is particular in protecting women shareholders. .694 3.50 1.14 .592

Bank offer training on business ethics. .506 3.68 1.02 .702

Commitment (F2)

14.890

Bank is fully committed towards the agreed tasks. .866 4.21 .839 .756

Bank makes it‟s sure that employees do not repeat any

mis-conduct/mistakes.

.855 4.10 .870 .671

Takes action against employees who are involved in

misconduct.

.720 4.36 .629 .609

Disfavor any gifts to favour your organisational

interest.

.701 3.21 1.18 .788

CG Consequences

Business Performance

Customer Based Goals (FI) 0.73

Value added information to customers .870 4.47 .632 .758

31.22 Customer are satisfied .787 4.25 .843 .761

Achievement of desired goals .685 4.46 .874 .501

Financial Goal (F2)

100

Timely return on assets .822 4.35 .887 .509

24.18 Achievement of branch profits .641 4.33 .825 .616

Overall organisational goal .76 4.40 .837 .680

Corporate Reputation

Customer Orientation .79 3.72 0.92 0.71

0.746

26.98

Bank has employees who are concerned about customer

need.

.76 3.62 1.07 0.64 Bank employees treat customer courteously. .76 3.64 1.09 0.63

Bank is concerned about its customers. .70 3.60 1.09 0.66

Bank treats its customers fairly. .53 3.45 1.23 0.71

Bank takes customer rights seriously.

Emotional Appeal

0.745

9.84 You have a good feeling about the bank 0.85 3.85 1.01 0.78

You trust the bank 0.83 3.68 1.08 0.81

You admire and respect the bank 0.69 3.80 1.18 0.75

Bank stand behind the services that it offers. 0.53 3.35 1.13 0.55

Good Employer

0.610

8.47 Bank has fair attitude towards competitors. 0.76 3.65 1.06 0.63

Bank develops innovative services 0.61 3.50 1.02 0.59

Bank maintains high standards in the way that it treats

people equally.

0.59 3.30 1.17 0.67

Reliable and Financially Strong Company

0.573

7.05 Bank is doing well financially. 0.87 3.84 0.91 0.82

Bank care its customer regardless of how much money

they spend with them.

0.63 3.51 1.28 0.77

Bank has a strong record of profitability. 0.62 3.72 1.13 0.70

Image

0.500

6.19 Bank seems to have excellent leadership. 0.76 3.50 1.13 0.66

Bank looks like a good company to work for. 0.65 3.65 0.92 0.56

Product and Service Quality

0.501

5.64 Bank offers high quality of products and services. 0.76 3.53 1.14 0.78

Bank looks it would be a good investment. 0.65 3.82 0.95 0.65

Social and Environmental responsibility

0.553

5.03 Bank is successful in attracting high quality employees. 0.65 3.60 1.07 0.68

Bank seems to make an effort to create new jobs. 0.63 3.49 1.07 0.74

Bank offers services that are a good value for the

money.

0.59 3.60 1.02 0.77

Note: FL= Factor Loading, CV= Communalities, MV= Mean Value, % of V =

Percentage of Variance

101

TABLE 4.2.1

INTER-ITEM ANALYSIS OF CG DIMENSIONS AND ITS ANTECEDENTS

AND CONSEQUENCEAS

CG Dimensions SMID CITC AIID

Accountability

Decision made by managers are recorded & communicated to the

appropriate members.

37.6268 .359 .660

Code of conduct re in place & have been agreed by managers. 37.2606 .308 .655

Managers have clearly defined job description & set performance

targets

37.0845 .340 .663

The bank set up formal criteria to assess its performance. 37.4754 .439 .629

The bank conducts an annual assessment. 37.2993 .368 .660

Board members participate in training on CG. 37.9261 .345 .645

Senior management has made decision in recent years seen to benefits

them.

37.8310 .369 .662

company been seen as acting effectively against individual

responsibility

37.9366 .325 .650

Board plays a supervisory rather than executive role. 37.6338 .322 .650

The bank conducts record of board meeting attendance of individual

responsibility

37.3979 .378 .657

Board small enough to be efficient and effective 37.9437 .492 .615

Transparency

Organisation provides all relevant information within sufficient time. 23.9225 .561 .758

The information regarding meetings is put on the internet. 24.2923 .582 .754

Prompt disclosure of market sensitive information. 24.0282 .484 .771

Conflicts of interest are fully resolved through a clear & well

established mechanism.

24.0282 .632 .741

Regular analysts meeting are held. 23.9789 .510 .767

Board meeting are held according to planned regular schedule 23.8063 .386 .787

Prompt disclosure of result with no leakage ahead of announcement. 23.9859 .494 .769

Effectiveness

Management communicates to the BOD about business risk faced by

the company 23.8873 .425 .715

The BOD/bank gives sufficient attention to the role of share holder &

the functioning of the share holder meetings. 23.7394 .533 .686

Board members have enough experience to discharge their duties. 23.8204 .498 .714

Control over unethical practices. 24.1444 .497 .694

Managers‟ performance reflects consideration of corporate objectives &

policies. 23.8592 .439 .707

Board has performance evaluation system to evaluate its own

performance. 23.8239 .335 .728

Effective communication is in place to keep staff informed about new

& existing policies. 23.838 .505 .692

Corporate Social Responsibility

Explicit equal employment policy. 36.5246 .501 .793

Policies are regularly upgraded to safeguard the interest of

employees/organisation.

36.0810 .628 .781

Bank continuously discharges social responsibility to protect the environment

36.3979 .448 .799

Bank continuously discharges social responsibility to protect the 36.5599 .425 .804

102

community.

Bank provides help to needy persons. 36.0528 .512 .794

Bank has sufficient number of branches to cater to the needs of

customers.

36.2535 .540 .789

Operational functioning of ATM is good. 35.9824 .414 .802

Bank has adequate complaint & suggestion system to resolve issues

relating to products and services.

36.0387 .652 .777

Online banks services are of good. 36.1021 .341 .811

ATM centers provide adequate security to the customers. 36.0669 .513 .792

Integrity

Managers always get supported from top management team. 12.2430 .515 .527

All customers‟ complaints are resolved in minimum time duration. 12.0211 .523 .532

Top management meets regularly, with planned agendas. 12.0845 .394 .622

Bank adherer‟s to code of integrity values. 11.8944 .332 .649

Discipline

Explicit public statement placing priority on CG. 8.1901 .492 .411

The mission statement clearly place priority on good CG. 8.1268 .455 .599

Detailed information on all significant aspects of CG is given. 8.1479 .495 .679

CG Antecedents

Corporate Culture

Your bank maintains relationship of trust with all employees. 30.7077 .489 .751

Management shares business strategies with all employees. 30.8099 .610 .729

Management activity seeks feedback from clients & customers with a

view to improving service.

30.8838 .605 .728

The mission and value of your bank are well communicated to the

employees

30.6056 .442 .756

Your bank has developed its code of ethics to be followed by

employees.

30.6690 .482 .762

Your bank give equal treatment to employees , customer, owners and

community

31.0528 .554 .735

In your organisation, unethical behaviour is promptly reprimanded

when discovered if it results in personal gain.

31.2077 .450 .772

In your organisation, unethical behaviour is promptly reprimanded

when discovered if it results in gain to firm

31.7218 .426 .761

Effort to hiring employees who fit into the organisation. 31.0739 .476 .764

Corporate Ethical Values

Your organisation gives rewards to the ethical behaviour. 23.9542 .559 .742

Your organisation working is behaviour consistent with the stated

ethics & values of the organisation

23.7289 .647 .725

Your organisation is particular in protecting women shareholders. 24.1831 .407 .781

Your organisation offer training on business ethics. 24.0599 .491 .757

The bank is fully committed towards accomplishing the agreed tasks. 23.5352 .445 .764

The organisation makes it‟s sure that employees do not repeat any mis-

conduct/mistakes.

23.6408 .505 .753

Your organisation takes action against employees who are involved

/employed in misconduct.

23.3768 .581 .749

You disfavor any gifts to favour your organisational interest. 23.9542 .559 .742

CG Consequences

Business performance

Value added information to customers 25.254 .545 .771

Customer are satisfied 25.347 .537 .763

103

Achievement of desired goals 25.642 .542 .761

Timely return on assets 25.711 .527 .754

Achievement of branch profits 25.127 .543 .724

Overall organisational goal 25.253 .574 .737

Corporate Reputation SMID CITC AIID

Bank has employees who are concerned about customer need. 75.80 .396 .811

Bank employees treat customer courteously. 75.89 .405 .810

Bank is concerned about its customers. 75.87 .316 .818

Bank treats its customers fairly. 75.91 .480 .807

Bank takes customer rights seriously. 75.06 .376 .812

You trust the bank. 75.66 .545 .804

You have a good feeling about the bank. 75.83 .536 .804

You admire and respect the bank. 75.70 .576 .801

Bank stand behind the services that it offers. 75.63 .321 .803

Bank has fair attitude towards competitors. 75.86 .312 .815

Bank develops innovative services. 76.00 .404 .811

Bank maintains high standard in the way that it treats people equally. 76.21 .384 .812

Bank is doing well financially. 75.67 .388 .816

Bank seems to care about all of its customers regardless of how much

money they spend with them.

76.00 .302 .816

Bank has as strong record of profitability. 75.79 .337 .814

Bank seems to have excellent leadership. 76.00 .359 .813

Bank looks like a good company to work for. 75.85 .310 .818

Bank offers high quality of product and services. 75.98 .386 .815

Bank looks like a good company to work for. 75.85 .310 .818

Bank is successful in attracting high quality employees. 75.91 .366 .817

Bank seems to make an effort to create new jobs. 76.02 .375 .816

Bank offers services that are a good value for the money. 75.90 .398 .818

104

TABLE: 4.3

FACTOR-WISE MODEL STRUCTURE OF CG DIMENSIONS ANTECEDENTS

AND CONSEQUENCES

CG Dimensions Measurement Model Structural Model

CR SRW SMC

Accountability

FI Decision made by managers are recorded &

communicated to the appropriate members. ---- .480 .359

χ2 /df= 1.787 GFI=0.988

AGFI=0.965 NFI=0.953 CFI=0.978

RMSEA=0.052

F1 Code of conduct re in place & have been agreed by

managers. 5.779 .564 .270

F1 Managers have clearly defined job description & set

performance targets 5.408 .548 .300

F1 The bank set up formal criteria to assess its

performance. 5.305 .525 .318

F1 The bank conducts an annual assessment. 5.598 .599 .230

F2 Board members participate in training on CG. ----- χ2 /df= 1.559 GFI=0.995

AGFI=0.971 NFI=0.963 CFI=0.991

RMSEA=0.031

F2 Senior management has made decision in recent years

seen to benefits them. 3.78 .422 .297

F2 Company been seen as acting effectively against

individual responsibility 3.78 .536 .225

F2 Board plays a supervisory rather than executive role. 3.42 .523 .288

F2 The bank conducts record of board meeting attendance

of individual responsibility 3.21 .541 .212 χ2/df= 0.00

GFI=1.000 NFI=1.000 CFI=1.000

RMSEA=0.292

F2 Board small enough to be efficient and effective 3.64 .501 .209

Transparency

F1 Organisation provides all relevant information within

sufficient time. 9.496 .758 .523 χ

2/df = 1.467

GFI=0.996 AGFI=0.979 NFI=0.992 CFI=0.998

RMSEA=0.029

F1 The information regarding meetings is put on the

internet. 9.273 .743 .622

F1 Prompt disclosure of market sensitive information. 7.503 .543 .295 F1 Conflicts of interest are fully resolved through a clear &

well established mechanism. ---- .658 .433

F2 Regular analyst meeting are held 5.626 .699 .699 χ2/df = .000

GFI=1.000 NFI=1.000 CFI=1.000

RMSEA=0.365

F2 Board meeting are held according to planned regular

schedule 5.838 .637 .637

F2 Prompt disclosure of result with no leakage ahead of

announcement. ----- .529 .529

105

Effectiveness CR SRW SMC

F1 Management communicates to the BOD about business

risk faced by the company ---- .608 .373

χ

2/df = 1.561

GFI=0.999 AGFI=0.990 NFI=0.997 CFI=0.993

RMSEA=0.07

F1 The BOD/bank gives sufficient attention to the role of

share holder & the functioning of the share holder

meetings.

5.760 .611 .304

F1 Board members have enough experience to discharge

their duties. 6.019 .688 .446

F1 Control over unethical practices. 5.613 .551 .370 F1 Managers‟ performance reflects consideration of

corporate objectives & policies. 5.092 .568 .135

F1 Effective communication is in place to keep staff

informed about new & existing policies. 5.04 .767 .230

F2 Board has performance evaluation system to evaluate its

own performance. 5.781 .480 .589 χ

2/df= .000

GFI=1.000 NFI=1.000 CFI=1.000

RMSEA=0.337

F2 Adequate save measure are taken by managers to protect

the employees 5.10 .652 .423

Corporate Social Responsibility

F1 Explicit equal employment policy. 8.397 .854 .729 χ

2/df = 1.417

GFI=0.994 AGFI=0.969 NFI=0.988 CFI=0.996

RMSEA=0.039

F1 Policies are regularly upgraded to safeguard the interest of

employees/organisation. 6.938 .593 .351

F1 Bank continuously discharges social responsibility to

protect the environment 6.604 .565 .379

F1 Bank continuously discharges social responsibility to

protect the community. 7.238 .651 .424

F1 Bank provides help to needy persons. ------ .678 .460

F2 Bank has sufficient number of branches to cater to the

needs of customers. ----- .576 .332 χ

2/df = 2.417

GFI=0.989 AGFI=0.945 NFI=0.982 CFI=0.988

RMSEA=0.08

F2 Operational functioning of ATM is good. 10.03 .672 .452 F2 Bank has adequate complaint & suggestion system to

resolve issues relating to products and services. 8.077 .887 .780

F2 Online banks services are of good. 4.461 .301 .091 F2 ATM centers provide adequate security to the customers. 7.783 .828 .688

CG Antecedents

Corporate Culture CR SRW SMC

F1 Your bank maintains relationship of trust with all

employees. 8.186 .621 .305 χ

2/df = 1.782

GFI=0.987 AGFI=0.975 NFI=0.982 CFI=0.989

RMSEA=0.08

F1 Management shares business strategies with all

employees. 12.08 .786 .618

F1 Management activity seeks feedback from clients &

customers with a view to improving service. 9.221 .797 .635

F1 The mission and value of your bank are well

communicated to the employees 6.897 .530 .289

F1 Your bank has developed its code of ethics to be followed

by employees. 6.657 .477 .277

F1 Your bank give equal treatment to employees , customer,

owners and community ----- .653 .426

106

F2 In your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in personal

gain.

4.285 .571 .221 χ2/df = 1.891

GFI=0.987 AGFI=0.975 NFI=0.982 CFI=0.989

RMSEA=0.08

F2 In your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in gain to firm 6.593 .473 .224

F2 Effort to hiring employees who fit into the organisation. --- .536 .273

Corporate Ethical Value

F1 Your organisation gives rewards to the ethical behaviour. ---- .752 .565 χ2/df = 2.718

GFI=0.946 AGFI=0.935 NFI=0.983 CFI=0.937

RMSEA=0.07

F1 Your organisation working is behaviour consistent with

the stated ethics & values of the organisation 10.09 .729 .532

F1 Your organisation is particular in protecting women

shareholders. 7.891 .580 .337

F1 Your organisation offer training on business ethics. 8.089 .596 .355

F2 The bank is fully committed towards accomplishing the

agreed tasks. 7.741 .723 .523 χ

2/df = 3.127

GFI=0.946 AGFI=0.937 NFI=0.988 CFI=0.978

RMSEA=0.08

F2 The organisation makes it‟s sure that employees do not

repeat any mis-conduct/mistakes. 7.733 .633 .401

F2 Your organisation takes action against employees who are

involved /employed in misconduct. ---- .710 .504

CG Consequences Business Performance χ

2/df = 3.175

GFI=0.953 AGFI=0.946 NFI=0.987 CFI=0.989

RMSEA=0.08

F1 Value added information to customers 12.84 .782 .542 F1 Customer are satisfied 6.751 .741 .521 F1 Achievement of desired goals 6.154 .653 .451

F2 Timely return on assets 6.759 .657 .460 χ2/df = 3.201

GFI=0.987 AGFI=0.986 NFI=0.987 CFI=0.978

RMSEA=0.08

F2 Achievement of branch profits 7.452 .738 .511 F2 Overall organisational goal 7.417 .627 .423

Corporate Reputation

Customer Orientation

F1 Bank is concerned about its customers. - 0.51 0.42 χ2/df = 2.21

GFI=0.99 AGFI=0.97 NFI=0.96 CFI=0.99

RMSEA=0.05

F1 Bank treats its customers fairly. 5.02 0.49 0.24 FI Bank employees who treat customer courteously. 5.67 0.66 0.44 F1 Bank has employees who are concerned about customer

need. 4.19 0.57 0.31

F1 Bank takes customer rights seriously. 5.65 0.71 0.36

Emotional Appeal

F2 Bank stand behind the services that it offers. - 0.54 0.12 χ2/df = 1.48

GFI=0.99 AGFI= 0.97 NFI=0.99 CFI=0.99

RMSEA=0.03

F2 You admire and respect the bank 5.03 0.77 0.61 F2 You trust the bank 5.17 0.74 0.56 F2 You have a good feeling about the bank. 5.05 0.85 0.74

107

TABLE 4.4

TWO FACTOR STRUCTURE OF CORPORATE GOVERNACE DIMESIONS

AND ITS ANTECEDENTS AND CONSEQUENCES

CG Dimensions Measurement Model Structural

Model

Accountability CR SRW SMC

F1 Decision made by managers are recorded &

communicated to the appropriate members. ---- .572 .327

χ

2/df = 2.030

GFI=0.952 AGFI=0.905 NFI=0.872 CFI=0.923

RMSEA=0.06

F1 Code of conduct re in place & have been agreed by

managers. 6.835 .604 .365

F1 Managers have clearly defined job description & set

performance targets 4.418 .329 .108

F1 The bank set up formal criteria to assess its

performance. 5.317 .413 .171

F1 The bank conducts an annual assessment. 5.269 .409 .167 F2 Board members participate in training on CG. ---- .392 .154 F2 Senior management has made decision in recent years

seen to benefits them. 4.005 .334 .172

F2 Company been seen as acting effectively against

individual responsibility 2.289 .256 .066

F2 Board plays a supervisory rather than executive role. 4.162 .403 .163

Corporate Social Responsibility

F1 Social and environmental responsibility ---- .646 .410

χ

2/df = .764

GFI=0.998 AGFI=0.984 NFI=0.995 CFI=1.000

RMSEA=0.00

F2 Service quality ---- .640 .410 F1 Explicit equal employment policy. 5.557 .893 .797 F1 Bank continuously discharges social responsibility to

protect the environment 4.529 .531 .301

F2 Bank has sufficient number of branches to cater to the

needs of customers. 7.751 .851 .721

F2 Operational functioning of ATM is good. 6.113 .689 .475 F2 Online banks services are of good. 6.864 .644 .414

CG Antecedents

Corporate Culture CR SRW SMC

F1 Your bank maintains relationship of trust with all

employees. 9.353 .583 .340

χ2/df = 1.649

GFI=0.956 AGFI=0.906 NFI=0.971 CFI=0.988

RMSEA=0.048

F1 Management shares business strategies with all

employees. 13.07 .816 .666

F1 Management activity seeks feedback from clients &

customers with a view to improving service. 11.93 .736 .547

F1 The mission and value of your bank are well

communicated to the employees. 7.984 .539

.290

F1 Your bank has developed its code of ethics to be

followed by employees. 7.647 .525 .279

F1 Your bank gives equal treatment to employees,

customer, owners and community. ---- .774 .600

108

F2 In your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in personal

gain.

2.134 .557 .334

F2 In your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in gain to

firm.

4.445 .650 .315

F2 Effort to hiring employees who fit into the organisation. --- 4.16 .177

Corporate Ethical Value

Ethical Approach ---- .524 .321

χ

2/df=2.550

GFI=0.982 AGFI=0.938 NFI=0.964 CFI=0.977

RMSEA=0.074

Action Against Unethical Practices ---- .517 .309

F1 Your organisation offer training on business ethics. ---- .648 .420 F1 Your organisation working is behaviour consistent with

the stated ethics & values of the organisation 9.402 .843 .710

F1 Your organisation is particular in protecting women

shareholders. 6.601 .477 .210

F2 The bank is fully committed towards accomplishing the

agreed tasks. 2.112 .734 .539

F2 The organisation makes it‟s sure that employees do not

repeat any mis-conduct/mistakes. 2.101 .643 .413

F2 Your organisation takes action against employees who

are involved /employed in misconduct. 2.103 .720 .518

CG Consequence

Business Performance

F1 Value added information to customers 8.425 .725 .557 χ2/df=2.990

GFI=0.958 AGFI=0.903 NFI=0.911 CFI=0.913

RMSEA=0.08

F1 Customer are satisfied 5.742 .657 .511 F1 Achievement of desired goals 6.254 .574 .434 F2 Timely return on assets 5.543 .624 .412 F2 Achievement of branch profits 7.252 .727 .514

F2 Overall organisational goal 7.417 .627 .532

109

TABLE: 4.5

ONE FACTOR STRUCTURE OF CORPORATE GOVERNANCE DIMENSIONS

AND ITS ANTECEDENTS AND CONSEQUENCE

CG Dimensions Measurement Model Structural

Model

Accountability CR SRW SMC

FI The bank conducts an annual assessment. 5.598 .599 .230

χ

2/df = 1.757

GFI=0.988 AGFI=0.965 NFI=0.953 CFI=0.978

RMSEA=0.052

F1 The bank set up formal criteria to assess its performance. 5.305 .525 .328

F1 Managers have clearly defined job description & set

performance targets 5.408 .548 .300

F1 Code of conduct re in place & have been agreed by

managers 5.470 .564 .276

F1 Decision made by managers are recorded & communicated

to the appropriate members ----- .480 .359

Corporate Social Responsibility

F1 Bank provides help to needy persons. 8.436 .670 .449

χ

2/df = 2.401

GFI=0.967 AGFI=0.908 NFI=0.957 CFI=0.974

RMSEA=0.07

F1 Bank continuously discharges social responsibility to

protect the community. 9.715 .655 .430

F1 Bank continuously discharges social responsibility to

protect the environment 8.305 .560 .313

F1 Policies are regularly upgraded to safeguard the interest of

employees/organisation. 9.036 .607 .358

F1 Explicit equal employment policy. ---- .850 .723

F2 Online banking services are of good quality. 3.431 .515 .321

CG Antecedents

Corporate Culture CR SRW SMC

F1 Management actively seeks feedback from client and

customer with a view to improving service. 3.808 .599 .359

χ

2/df = 2.774

GFI=0.960 AGFI=0.916 NFI=0.934 CFI=0.956

RMSEA=0.079

F1 Your bank has developed its code of ethics to be followed

by employees. 3.966 .829 .687

F1 The mission and value of your bank are well

communicated to the employees. 3.930 .765 .585

F1 Management shares business strategies with all employees. 3.720 .541 .293

F1 Your bank maintains relationship of trust with all

employees. 3.636 .475 .224

F1 Your bank gives equal treatment to employees, customer,

owners and community. 3.915 .732 .536

F2 Your organisation, unethical behaviour is promptly

reprimanded when discovered if it results in personal gain 3.629 .542 .263

F2 Effort to hiring employees who fit into the organisation. ----- .515 .273

110

Corporate Ethical Value

F1 Your organisation takes action against employees who are

involved /employed in misconduct 8.603 .613 .383

χ

2/df= 2.549

GFI=0.961 AGFI=0.909 NFI=0.968 CFI=0.980

RMSEA=0.074

F1 The bank is fully committed towards accomplishing the

agreed tasks 7.766 .601 .361

F1 Your organisation is particular in protecting women

shareholders. 7.596 .527 .207

F1 Your organisation working is behaviour consistent with the

stated ethics & values of the organisation 9.717 .750 .562

F1 Your organisation gives rewards to the ethical behaviour ---- .727 .529

F2 You disfavour any gift to favour your organisation interest. 7.766 .601 .361

CG Consequence

Business Performance

F1 Value added information to customers 8.425 .725 .557 χ2/df= 1.860

GFI=0.973 AGFI=0.943 NFI=0.950 CFI=0.914

RMSEA=0.074

F1 Customer are satisfied 5.742 .657 .511

F1 Achievement of desired goals 6.254 .574 .434

F2 Timely return on assets 5.543 .624 .412

F2 Achievement of branch profits 7.252 .727 .514

F2 Overall organisational goal 7.417 .627 .532

111

TABLE 4.6

OVERALL ALPHA, COMPOSITE RELIABILITY AND AVERAGE VARIANCE

EXTRACTED

Respondents Alpha Value

after EFA and

RA

Alpha Value

after CFA C R AVE SMC

Min. Min.

Corporate Governance .874 .867 .897 .845

Managers Accountability .672 .675 .913 .876 .230 .359 Transparency .791 .764 .956 .888 .433 .622 Effectiveness .736 .689 .805 .775 .135 .446 Corporate social

responsibility .798 .765 .914 .843 .313 .723

Corporate Culture .773 .785 .900 .732 Mission and Value

Driven .820 .834 .914 .721 .290 .666

Action-Against Unethical

Practices

.766 .767 .845 .768 .334 .177

Corporate Ethical

Value .662 .757 .904 .808 .207 .562

Business performance .723 .754 .756 .756 .412 .557 Customers Corporate Reputation .82 .896 .901 .73

Customer Orientation .85 .895 .912 .78 .31 .420 Emotional Appeal .91 .887 .898 .69 .12 .074

112

Figure 4.1.1 One Factor Structure Model

Note: A represents latent structure, A1 to A5 observed indicator and e1 to e5-

mesurement errors

Figure: 4.1.2 Two Factor Structure Model

Note: A and B are latent constructs, A1 to A3 and B1 to B3 represent observed

indicators and e1 to e5 represent measurement errors

A

A3 e3

1 1

A2 e2 1

A1 e1 1

B

B3 e6

1

B2 e5 1

B1 e4 1

1

A

A5 e5

1

1

A4 e4 1

A3 e3 1

A2 e2 1

A1 e1 1

113

CORPORATE GOVERNANCE PRACTICES OF PRIVATE

SECTOR BANKS

The chapter discusses the managerial perception towards corporate governance practices

of private sector banks. The antecedents (corporate culture and corporate ethical value)

and consequences corporate reputation (customers) and business performance (managers)

of corporate governance are discussed to understand their relationship with corporate

governance. The demographic profile, validity and reliability and hypotheses testing

results are also discussed.

5.1 DEMOGRAPHIC PROFILE

5.1.1 Managers

A brief outline of the demographic information of the respondents is shown in Table 5.1.

The sample consisted of 124 male respondents (79.5%) and 32 female respondents

(20.5%). Majority of the respondents (39.7%) fell in 40 years – 50 years age group,

followed by 43 respondents (27.6%) who belonged to 20 years – 30 years age group, 35

respondents (22.4%) belonged to 30 years to 40 years of age group, and 16 (10.3 %) of

respondents fell in more than 50 years age group. According to yearly income criteria

38.5%, 35.9%, 13.5%, 12.2% respondents belonged to Rs. 6 Lakh-5 Lakh, Rs. 4 Lakh- 5

Lakh, Rs. 3 Lakh- 4 Lakh and Rs. 3 Lakh- 2 Lakh respectively. Further, majority of

respondents were post graduates (53.2%) and rest were (46.8%) graduates. The

respondents were also categorised according to their total work experience in the private

sector banks viz., 37.8% of respondents fell in 1 year to 10 years of experience, 23.1% of

respondents fall in 10 years to 20 years and 35% of respondents fell in the 20 years to 30

years experience groups. As per the experience in the present post the majority of

114

respondents 51.9% fell in 1 year to 5 years of experience, 21.8% in 5 years to 10 years of

experience, 17.3% of respondents in 10 years to 15 years of experience and 9.0 % of

respondents in the 15-20 years experience groups (Table 5.1.1).

5.1.2 Customers

The sample consisted of 92 male respondents (67.2%) and 45 female respondents

(32.85). Age group-wise, 46.7% respondents fell in the 20 – 30 years group, followed by

33.6% respondents belonged to the 30 to 40 years group, 14.6% respondents belonged to

the 40 to 50 years group and 5.1% belonged to more than 50 years age group. With

regard to educational qualification 49.7% of the respondents possessed graduate

qualification followed by post-graduate (42.3%) and 10+2 (8.0%) qualifications. Most of

the respondents belonged to service class (46.7%), business class (40.9%) and student

(12.4%). According to their length of relationship criteria 13.1%, 54 %, 25.5% and 7.3%

of respondents belonged to 5 -10 years, 10 -15 years, 15 -20 years, and 20 -30 years

groups respectively (Table 5.1.2).

5.2 RELIABILITY AND VALIDITY

5.2.1 Reliability

5.2.1.1 Managers

The cronbach alpha value for the corporate governance scale (0.854) was found to be

above the threshold value of 0.70 (Hair et al. 2003). Responsibility, transparency,

effectiveness and social responsibility dimensions of corporate governance scored

cronbach alpha co-efficient values of 0.756, 0.749, 0.720 and 0.815 respectively, indicating

high internal consistency of the scale. To further support the result, split- half method of

reliability was also carried out dimension-wise for Sample I (1-78) and Sample II (79-156).

115

The split- half cronbach alpha values for accountability (Sample I = 0.82 and Sample II=

0.91), transparency (Sample I = 0.86 and Sample II= 0.83), effectiveness (Sample I = 0.85

and Sample II= 0.90), corporate social responsibility (Sample I = 0.76 and Sample II=

0.89) supported internal consistency. The composite reliability of corporate governance,

corporate culture and corporate ethical value scale were assessed through structure

equation modelling (above 0.7). The composite reliability coefficient ranging between

0.812 (accountability) to 0.952 (social responsibility) for corporate governance

dimensions, confirmed the appropriateness of the scale for the measurement (Table 5.2).

The overall cronbach alpha values for the corporate culture and corporate ethical

value (antecedents of CG) came out to be 0.764 and 0.787 respectively which also

indicated good reliability of the constructs. The split-half values for corporate culture

dimension that included mission and value driven (Sample I = 0.86 and Sample II= 0.92)

and action against unethical practices (Sample I = 0.76 and Sample II= 0.79) further

indicated robustness of the scale. Similarly sample-wise alpha value for corporate ethical

value (Sample I = 0.87 and Sample II= 0.82) also supported the reliability of the samples.

The composite reliability for corporate culture (mission/value driven=0.89 & action against

unethical practices =0.85) and corporate ethical value 0.94 also indicated good reliability

of the scales. Lastly, the overall cronbach alpha value for business performance was found

to be 0.82 with split half values (Sample I= 0.87 and Sample II= 0.91) also supporting the

reliability of the sample. Furthermore, the composite reliability for business performance

found to be 0.92 indicating overall good reliability of the scale.

116

5.2.1.2 Customers

Similarly internal consistency and split- half reliability methods were used to assess the

reliability of the customer based-corporate reputation data. The overall alpha value was

found to be 0.82 which established the reliability of the corporate reputation scale. The

cronbach alpha values of customer orientation and emotional appeal were found to be

0.85 and 0.91 respectively. While split-half values for Sample I (1-67) respondents and

Sample II (68-137) respondents came out to be (Sample I= 0.82 and Sample II=0.85) for

customer orientation and (Sample I= 0.86 and Sample II=0.81) for emotional appeal.

Further composite reliability values of customer orientation and emotional appeal were

found to be 0.91 and 0.93 which also supported reliability of the corporate reputation

scale.

5.2.2 Validity

5.2.2.1 Managers

The factor loading (FL) and communality values (CV) of CG construct comprising

accountability, transparency, effectiveness, social responsibility were clinched at 0.945

and 0.901, 0.793 and 0.672, 0.814 and 0.769, 0.788 and 0.689 respectively, thereby

indicating good convergent validity (Table 5.2). The AVE values for the respective

corporate governance constructs were arrived at 0.524, 0.682, 0.659 and 0.708 for

accountability, transparency, effectiveness and corporate social responsibility while

minimum and maximum SMC for accountability, transparency, effectiveness and

corporate social responsibility were calculated as 0.230 and 0.359, 0.148 and 0.607,

0.117 and 0.544 and 0.170 and 0.788, indicated the validity of the respective constructs.

117

The respective values that is FL=0.903 and CV=0.816 and FL=0.923 and

CV=0.806 for corporate culture and corporate ethical value supported the convergent

validity. The AVE for corporate culture and corporate ethical values constructs was

found to be 0.699 and 0.707 respectively. The discriminant validity for corporate culture

and was also established.

The factor loading and communality values for business performance were found

to be 0.920 and 0.813 respectively which established convergent validity. In additional

for business performance, the AVE came out to be 0.72 indicating convergent validity of

the construct.

5.2.2.2 Customers

The convergent validity for customer orientation (FL=0. 935 and CV=0.901) and

emotional appeal (FL=0.920 and CV=.813) also support the validity of the corporate

reputation scale. The overall (0.63) and dimension-wise (customer orientation=0.680 and

emotional appeal=0.600) customer-based corporate reputation values for AVE are quite

as per the threshold criterion. These further supported convergent validity. Further,

corporate reputation dimensions include customer orientation (Min=.330, Max=.567) and

emotional appeal (Min=.210, Max=.728) also passed the test and suggest the discriminant

validity of the corporate reputation scale.

5.3 CORPORATE GOVERNANCE DIMENSIONS

5.3.1 Accountability

The overall accountability dimension of corporate governance has scored mean value of

3.94, indicating high but average perception of managers towards accountability (Table

118

5.3). Among the five items of accountability, three items that include „bank conducts an

annual assessment (MV= 4.089)‟, „clearly and defined job description & set performance

targets (MV= 4.26)‟ and „code of conduct (MV= 4.10)‟ reflect high contributions in

comparison to items such as „evaluation of performance (MV= 3.64)‟ and „recording and

communication to managerial decision to concerned members (MV= 3.60)‟ towards

accountability.

The relationship was further examined through CFA. The application of CFA on

five items (CG Model-1: Accountability) resulted in good fit of model χ2 /df = 1.757,

GFI=0.988, AGFI=0.965, CFI=0.978, NFI= 0.953 and RMSEA=0.052 as all the values

were as per the threshold criteria. Hence the results confirm that relationship of „bank

conducts an annual assessment (CR= 5.59, SRW=.599)‟, „evaluation of performance

(CR= 5.30, SRW=.525)‟, „clear and defined job description and performance (CR=5.40,

SRW=.548)‟ and „code of conduct (CR= 5.47, SRW=.564)‟ items with accountability is

moderate but significant. „Recording and communicating of managerial decision to

concerned members (SRW= .480)‟, one of the accountability characteristics of corporate

governance, has shown comparatively weak relationship with its latent construct. The

overall results reflect the importance of formal criteria for evaluation of performance,

annual assessment and code of conduct in judging accountability dimension of corporate

governance in the private banks.

119

CG Model 1: Accountability

Note: – A1, A2, A3, A4, A5 - Indicators of accountability

e1, e2,e3,e4, e5 – Errors variances for model items

5.3.2 Transparency

The overall mean score value is found to be 4.00 indicating positive perception of

mangers for transparency dimension of the corporate governance. Among the five items,

four items that include „planned and regular board meeting (MV= 4.15)‟ „organization

provides all relevant information within sufficient time (MV = 4.10)‟ „conflicts of interest

are fully resolved through a clear & well established mechanism (MV= 4.06)‟ and

„prompt disclosure of market sensitive information (MV= 4.04)‟, scored higher degree of

mean values while „information regarding meeting is put on the internet (MV= 3.69)‟

showed their average perception.

Accountability

A5e5

1

1

A4e4

1

A3e3

1

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To confirm the relevance of these items CFA was applied. All the values χ2 /df =

1.248, GFI = 0.980, AGFI = 0.940, NFI = 0.948, CFI = 0.978 and RMSEA = 0.065 (CG

Model 2: Transparency) resulted in good fit. The result show that „information regarding

meetings is put on the internet (CR=7.24, SRW=.779)‟, „organization provides all

relevant information within sufficient time (SRW=.708)‟ and „conflicts of interest are

fully resolved through a clear & well established mechanism (CR=7.03, SRW=.705)‟

have strong predicating power. Therefore, the results confirm that transparency of the

private banks influenced by the disclosure practices of sensitive and significant

information, clear and well established mechanism and communication of information

meeting declare on the website.

CG Model 2: Transparency

Note: – T1, T2, T3, T4 - Indicators of transparency

e1, e2,e3,e4 – Errors variances for model items

Transparency

T4e4

1

T3e3

1

T2e2

1

T1e10.5

1

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5.3.3 Effectiveness

Majority of items have scored high degree of mean values. Their relevance relate to

„sufficient attention to the role of shareholders (MV=4.10)‟, „effective communication

about new existing polices to staff (MV=4.06)‟, „performance as per corporate objective

and policies (MV=4.05)‟ and „communication to the BOD/managers about business risk

(MV=4.01)‟. However „communication about any mislead & unethical behaviour of

employees to the management (MV = 3.71)‟ and „board members have experience to

discharge duties (MV=3.97) have shown average response of the managers.

While confirming their relationship with effectiveness (CG Model 3:

Effectiveness) the model showed good fit as all the fitness measures were within the

acceptance criteria. The values of effectiveness construct found to be χ2 /df= 2.440,

GFI=0.991, AGFI=0.956, NFI=0.967, CFI=0.980 and RMSEA=0.07. The results indicate

that „communication about business risk‟ (SRW=.738) has strongest predicating power

followed by „sufficient attention to the role of share holder & the functioning of the share

holder meetings (CR=5.73, SRW=.571)‟, „managers performance as per corporate

objectives & policies (CR = 5.84, SRW =.520)‟, „communicate about any mislead and

unethical behaviour to the management (CR = 5.76, SRW =.505)‟ and lastly „keeping the

staff informed about new and existing policies (CR = 5.50, SRW =.500)‟ and „board

members have experience to discharge their duties (CR = 3.60, SRW =.342)‟. The CFA

results conclude that communication of private sector banks particularly with respect to

new existing polices, mislead and unethical practices, role of shareholder and business

risk is significant in explaining effectiveness dimension of corporate governance.

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CG Model 3: Effectiveness

Note: – E1, E2, E3, E4 - Indicators of effectiveness

e1, e2,e3,e4 – Errors variances for model items

5.3.4 Corporate Social Responsibility

The managers overall appreciate the social responsibility efforts of the private sector

banks (MV=3.88). The managers underscore that banks are particular in performing

social responsibility with respect to „online banking services (MV=4.24)‟ „safeguarding

the interest of employees (MV= 4.12)‟ and „help to the need persons (MV = 4.04)‟.

However they showed average perception for „social responsibility towards environment

protection (MV=3.89)‟, „social responsibility towards protect the community (MV=

3.52)‟ and „equal employment policy (MV= 3.50)‟.

To establish the relationship in the corporate social responsibility model of

corporate governance (CG Model 4: Corporate social responsibility), two covariance that

include „equal employment policy (MI= 6.735) and „help to the needy persons‟ & „social

responsibility towards environment (MI= 6.23)‟ were added for establishing model

fitness. This further indicates that all these items jointly impact corporate social

Effectiveness

E4e4

1

E3e3

1

E2e2

1

E1e1

1

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responsibility. This approach resulted in the model fitness with values arrived as χ2/df=

1.559, GFI=0.979, AGFI=0.836, NFI=0.951, CFI=0.981 and RMSEA=0.06. The robust

item-construct relationships were found for „equal employment policy (SRW=.888)‟,

„social responsibility towards protect the community (CR= 6.189, SRW=.667)‟, „help to

the needy persons (CR= 7.187, SRW=.632), „safeguard the interest of employees (CR=

7.015, SRW=.614)‟ and „social responsibility towards environment protection (CR=

5.959, SRW= .528)‟ items which comparatively contribute more towards corporate social

practices of the private banks. Further it is also seen that items protection of employees

interest, discharge of community related activities and better online banking service

independently impact corporate social responsibility.

CG Model 4: Corporate Social Responsibility

Note: – CSR1, CSR2, CSR3, CSR4, CSR5, CSR6, Indicators of corporate

social responsibility

e1, e2,e3,e4, e5,e6 – Errors variances for model items

Corporate

Social

Responsibility

CSR5e5

1

1

CSR4e4

1

CSR3e3

1

CSR2e2

1

CSR1e1

1

0.6

CSR6e6

1

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5.4 ANTECEDENTS AND CONSEQUENCES OF CORPORATE

GOVERNANCE

5.4.1 Antecedents of Corporate Governance

5.4.1.1 Corporate Culture

The overall corporate culture has scored mean value of 3.88 indicating positive

perception of managers towards corporate culture (Table 5.4.1). Items such as

„communicating of mission and value to the employees (MV= 4.25)‟, „employees

following code of ethics (MV=4.16)‟, „equal treatment for employees, customers, owners

and community (MV=4.15)‟, „maintaining relationship with employees (MV= 4.12)‟,

„sharing of business strategies with employees (MV=4.05)‟, showed high degree of

perception while one item „feedback from clients and customers to improve the services

(MV=3.96)‟ have scored average but high mean score. However three items „unethical

behaviour is promptly reprimanded when discovered if it results in personal gain (MV=

3.58)‟ „unethical behaviour is promptly reprimanded when discovered if it results in gain

to firm (MV= 3.54)‟ and „effort to hiring employees who fit into the organisation

(MV=3.15)‟ have scored average degree of mean value.

Similar to the transparency, effectiveness and corporate social responsibility

dimensions of corporate governance the relationship of corporate culture items with

corporate culture construct could not be established initially (GFI=.923, AGFI=.846,

NFI=.868, CFI=.908, RMSEA=.113). However by adding covariance between „equal

treatment to all employees, customers, owners and community and „maintaining

relationship with employees (MI= 23.99)‟, „equal treatment to all employees, customers,

owners and community‟ and „sharing of business strategies with employees (MI= 21.23)‟,

„maintaining relationship with employees‟ and „maintaining relationship with employees

125

(MI=15.88)‟, „communicating of mission and value to the employees „sharing of business

strategies with employees (MI=14.432)‟ and „employees following code of ethics‟ and

„communicating of mission and value to the employees (MI=5.56)‟ the model fit was

established with all values as per the acceptance model criteria (χ2/df=1.752, GFI=0.954,

AGFI=0.906, NFI=0.923, CFI=0.935 and RMSEA=0.07). The presence of additional

covariance paths indicates interdependence between the items (Model 5: Corporate

Culture). The study results highlighted that corporate culture of private banks is more

influenced by „feedback from clients and customers to improve service (CR= 9.56,

SRW=.815), „unethical behaviour is promptly reprimanded when discovered if it results

in gain to firm (CR=8.90, SRW=.791)‟, „sharing of business strategies with employees

(CR=12.38, SRW=.778)‟, „effort to hiring employees who fit into the organisation

(CR=8.47, SRW=.750)‟, „equal treatment to employees, customer, owners and

community (CR=3.78, SRW=.671)‟, „unethical behaviour is promptly reprimanded when

discovered if it result in personal gain (SR=9.78, SRW=.633)‟ , „maintaining

relationship with employees (CR=8.07, SRW=.588)‟ and „communicating mission and

value to the employees (CR=6.92, SRW=.526)‟. However two items „code of ethics

followed by employees (CR=6.28, SRW=.441)‟ and „promotes professional ethics within

the profession (CR=5.74, SRW=.401)‟ are found to affect corporate culture moderately.

The result highlighted that corporate culture of the private banks is appreciated by the

employees for the professional ethical approach, better customer service and action

against unethical behaviour.

126

Model 5: Corporate Culture

Note: – MVD1, MVD2, MVD3, MVD4, MVD5 - Indicators of mission and

value driven and AUEP1, AUEP2, AUEP3-Indicators of action against

unethical practices

e1, e2,e3,e4, e5,e6, e7,e8,e9,e10 – Errors variances for model items

5.4.1.2 Corporate Ethical Value

The mean values of corporate ethical value items ranged between minimum of 3.52

(reward to ethical behaviour) to maximum of 4.40 (action against employees involved in

misconduct). The overall mean of corporate ethical values was found to be 3.87

indicating average but somewhat high perception of managers towards the corporate

ethical value.

The item-construct relationship model was confirmed, after adding two

covariances between „rewards to the ethical approach‟ and „organisation interest always

preferred (MI=34.420)‟ and „bank committed towards agreed tasks‟ and „action against

employees for their misconduct (MI=7.971)‟. The inclusion of covariance paths shows

relationship between these items. The overall model fit indices χ2/df= 1.265, GFI=0.981,

Mission and

Value Driven

MVD5e5

1

1

MVD4e4

1

MVD3e3

1

MVD2e2

1

MVD1e1

1

Action Against

Unethical Practices

AUEP3e8

1

1

AUEP2e7

1

AUEP1e6

1

Corporate

Culture

0.5

0.5

e9

1

e10

1

127

AGFI=0.944, NFI=0.964, CFI=0.992 and RMSEA=0.041 (Model 6: Corporate ethical

value) indicated good convergence of data set with the corporate ethical value model. The

results concluded that corporate ethical value of private banks is more influenced by

„organization gives rewards to the ethical behaviour (CR=7.625, SRW=.794)‟,

„organization working behaviour is consistent with the stated ethics & values of the

organization (SRW=.745)‟, „organization takes action against employees who are

involved /employed in misconduct (CR=6.445, SRW=.570)‟ and „organization is

particular in protecting women shareholders (CR=6.425, SRW=.568)‟. However two

items namely „bank is fully committed towards accomplishing the agreed tasks

(CR=4.160, SRW=.380) and „disfavour any gift to favour your organisation interest

(CR=4.076, SRW=.402)‟ were found to affect corporate ethical value moderately. The

results indicated that managers of private banks consider their banks working as quite

favourable for value oriented employees and particular in protecting the interest of

employees‟ women shareholders.

Model 6: Corporate Ethical Value

Note: – CEV1, CEV2, CEV3, CEV4, CEV5, CEV6 - Indicators of corporate

ethical value e1, e2, e3, e4, e5, e6– Errors variances for model items

Corporate

Ethical Value

CEV6e6

1

1

CEV5e5

1

CEV4e4

1

CEV3e3

1

CEV2e2

1

CEV1e1

1

128

5.4.2 Consequences of Corporate Governance

5.4.2.1 Business Performance

Majority of the items related to business performance have scored high degree of mean

values which includes „value added information to customers (MV=4.47)‟, „customer are

satisfied (MV=4.25)‟, „achievement of desired goals (MV=4.46)‟, „timely return on

assets (MV=4.35)‟, „achievement of branch profits (MV=4.33)‟ and „overall

organizational goal (MV=4.40)‟. These values indicated high degree of managerial

perception towards business performance. The overall mean value is calculated as 4.36,

reflecting that private banks are performing quite well (Table 5.4.2).

To verify the relationship between the items of business performance model, two

covariances were required between the items „timely return on assets and achievement of

branch profits (MI=5.580, RMSEA=.112)‟ and „achievement of branch profits‟ and

„overall organizational goal (MI=5.995 and RMSEA=.91)‟. This inclusion resulted in the

model fitness with values arrived at χ2/ df= 1.860, GFI=0.958, AGFI=0.903, NFI=0.850,

CFI=0.912 and RMSEA=0.08. The result indicated that three items „timely return on

assets‟, „achievement of branch profits‟ and „overall organizational goal‟ integrally

contributed to business performance whereas the rest three items „value added

information to customers‟, „customer are satisfied‟ and „achievement of desired goals‟

individually affect the bank performance.

129

Model 7: Business Performance

Note: – BP1, BP2, BP3.BP4, BP5, BP6- Indicators of business performance

e1, e2,e3,e4,e5,e6 – Errors variances for model items

5.4.2.2 Corporate Reputation

The bank customers have rated reputation of banks to be average (3.61). The mean score

of majority of items ranged between 3.55 (employees who are concerned about customer

need) to 3.33 (takes customer rights seriously).

The corporate reputation model showed strong fit as all the fitness measures were

found to be acceptable with χ2 /df= 2.541, GFI = 0.960, AGFI = 0.923, NFI = 0.892, CFI

= 0.931, RMSEA = 0.075. Among the two factors, customer orientation contributes more

towards corporate reputation than emotional appeal. Thus, the results indicated that items

that include „treats its customers fairly (CR=7.312, SRW =.777)‟, „takes customer rights

seriously (CR= 6.986 SRW=.508)‟, „concerned about its customers (CR =5.312‟, SRW

Business

Performance

BP6e6

1

1

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1

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1

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1

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1

BP1e1

1

130

=.426)‟, „employees are concerned about customer need (CR=6.563, SRW=.595)‟,

„treats customer fairly (CR=5.314, SRW=.513)‟, „good feelings about the bank

(CR=6.418, SRW=.476)‟, „admire and respect (SRW=.623)‟ and „trust the bank

(CR=3.994, SRW=.280)‟ are significant reflective indicators of corporate reputation.

Model 8: Corporate Reputation

Note: – CO1, CO2, CO3, CO4, CO5- Indicators of customer orientation

and EP1, Ep2, EP3= Indicators of emotional appeal

e1, e2,e3,e4, e5,e6,e7,e8,e9,e10,e11 – Errors variances for model items

5.5 HYPOTHESES TESTING

Before proceeding for hypotheses testing following steps were conducted. Since overall

structure models of corporate governance dimensions with corporate culture, corporate

ethical value, corporate reputation and business performance came out to be quite

Customer

Orientation

CO5e5

1

1

CO4e4

1

CO3e3

1

CO2e2

1

CO1e1

1

Emotional

Appeal

EP3e9

1

1

EP2e8

1

EP1e7

1

Corporate

Reputation

0.5

e10

1

e11

1

131

complex using SEM, average approach was followed for hypotheses testing for corporate

governance, corporate culture, corporate ethical value, corporate reputation and business

performance. Before testing for various hypotheses respective indicators of dimensions of

corporate governance, corporate culture, corporate ethical value, corporate reputation and

business performance were averaged to make the latent factors as observed indicators.

5.5.1 Corporate Governance

The corporate governance dimensions (accountability, transparency, effectiveness and

corporate social responsibility) were tested on the basis of square regression weight

(SRW) and critical ratio (CR) and global fit indices. The overall result revealed that

accountability, transparency, effectiveness and corporate social responsibility contribute

significantly to corporate governance practices. The measurement result indicated that

effectiveness (SRW=.879), transparency (CR=6.12, SRW=.976) and corporate social

responsibility (CR=5.49, SRW=.542) have strong predicting power than accountability

(CR=.300, SRW=.300) in influence corporate governance. Hypothesis 1a that all

dimensions accountability, transparency, effectiveness and corporate social responsibility

contribute significantly is accepted. However among the four dimensions, transparency

contributes highly to corporate governance in comparison to corporate social

responsibility. The study results thus support the findings of Chen et al. (2006) and

Klapper and Love (2004) who finds the relevance of these dimensions in predicting

corporate governance. However discipline and integrity dimensions though established as

important for corporate governance by these studies in the private sector, were found to

be insignificant in the banking sector as both of these two dimensions were deleted at the

time of purification stage. However, the hypothesis that accountability and corporate

132

social responsibility contributed more to corporate governance is rejected (1b). The

studies conducted by Bhat, Hope and Kang (2006) and Khanchal (2007) identify

financial transparency and disclosures to be relatively important than other dimensions

like accountability and integrity. However the present study results for private banking

sector show effectiveness followed by transparency relatively more significant than the

accountability and social responsibility dimensions. This might be because the bank

managers consider effectiveness and efficiency of board of directors to be most

significant, that eventually takes care of transparency and other dimensions.

Model 9: Corporate Governance

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

e1, e2,e3,e4 – Errors variances for model items

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e1

1

e2

1

e4

1

e5

1

0.5

133

5.5.2 Effect of Corporate Ethical Value and Corporate Culture on Corporate

Governance

5.5.2.1 Corporate Ethical Value

The fitness indices of the model viz., χ2/df = 1.200, GFI=0.988, AGFI=0.961,

NFI=0.972, CFI=0.995, and RMSEA=.036 also indicated the overall fitness of the model.

The effect of corporate ethical values on corporate governance dimensions based on

SEM, show that corporate ethical value has moderate capability in influencing corporate

governance practices (SRW=.526, CR=3.19). The results indicated that effectiveness

(CR=10.34, SRW=.899) and transparency (CR=8.09, SRW=.676) have strong

relationship in influencing corporate governance. Hence the hypothesis that corporate

ethical value positively and significantly influences corporate governance stands accepted

(Table-5.3).

Model 10: Corporate Ethical Value - Corporate Governance (CEV-CG)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

and corporate ethical value

e1, e2,e3,e4, e5, e6, e7 – Errors variances for model items

Corporate Ethical

Value

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e21

e31

e4

1

e5

1

0.5

e1

1

134

5.5.2.2 Corporate Culture

The result indicated that mission and value driven and action-against unethical practice

dimensions of corporate culture significantly influence corporate governance. Between

the two, mission and value driven (SRW=.852) contributed more to corporate

governance. Further the CFA results also showed that all the indicators that include

accountability (SRW= .254, CR= 3.01), transparency (SRW= .714, CR= 9.17),

effectiveness (SRW= .783, CR= 10.11) and social responsibility (SRW= .649, CR= 8.21)

are significantly contributing to corporate governance. Lastly the corporate culture and

corporate governance data also fits the hypothesis based model adequately as all the

values (χ2/df= 1.718, GFI=0.965, AGFI=0.918, NFI=0.939, CFI=0.969, RMSEA=.077)

of measures are as per the acceptable criteria. Therefore, hypothesis 3a is accepted in

private sector banks. The result is further supported by the work of Li and Harrison

(2008) who find that culture has a dominant influence on corporate governance structure.

Model 11: Corporate Culture- Corporate Governance (CC-CG)

Note: – Mission and value driven and leadership effectiveness-indicators of

corporate culture and accountability, transparency, effectiveness and

corporate social responsibility - indicators of corporate governance

e1, e2,e3,e4,e5,e6,e7 – Errors variances for model items

Mission and Value

Driven

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e21

e3

1

e4

e51

e1

1

Action Against

Uenthical Valuee6

1

Corporate

Culture

0.5

0.5

e7

1

1

135

5.5.2.3 Integrated Effect

The combined effect of corporate culture on corporate ethical value and corporate

governance is found to be accepted as per the measurement model and structure fit

measures. Among the four corporate governance dimensions accountability (CR=9.045,

SRW=0.229) showed least predicting power on corporate governance. Further corporate

culture (CR=2.754, SRW=0.472) and corporate ethical value (CR=8.018, SRW=0.696) are

found to have significant influence on corporate governance. The fitness indices of the

model χ2/df= 1.659, GFI=0.970, AGFI=0.916, NFI=0.955, CFI=0.981, RMSEA=.065

indicate the overall fit of the model. Therefore, hypothesis 3b is also accepted.

Model 12: Corporate Culture-Corporate Ethical Value - Corporate Governance

(CC-CEV-CG)

Note: – Mission and value driven and action against unethical value-

indicator of corporate culture, culture-corporate ethical value - and

accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

e1, e2,e3,e4,e5,e6,e7 – Errors variances for model items

Mission and Value

Driven

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e21

e3

1

e4

1

e5

1

e1

1

Action Against

Uenthical Valuee6

1Corporate

Culture

0.5

e7

1

Corporate Ethical

Valuee8

1

136

5.5.3 Effect of Corporate Governance on Business Performance and Corporate

Reputation

5.5.3.1 Business Performance

The result of the CR and SRW values suggest that business performance significantly but

moderately contributes toward corporate governance (CR=2.201, SRW=.311). Further

the result showed that corporate governance indicators that include accountability

(CR=3.39, SRW=.300), transparency (CR=8.23, SRW=.675), effectiveness (CR=6.16,

SRW=.900) and corporate social responsibility (CR=5.91, SRW=.293) contribute

significantly towards corporate governance. The overall result indicated (χ2 /df= 1.250,

GFI=0.983, AGFI=0.950, NFI=0.953, CFI=0.990, RMSEA=.040) good fit of the model.

To conclude corporate governance influences business performance led to the acceptance

of hypothesis 4. These results support Connelly, Limpaphayom and Nagarajan (2012)

findings who established that CG measures are positively associated with financial

performance, which is measured in terms of Tobin‟s Q. Further Bae and Goyal (2010)

also signify that better governance increases stock price and equity of the organisation.

Model 13: Corporate Governance- Business Performance (CG-BP)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance and corporate business

performance

e1, e2,e3,e4,e5 – Errors variances for model items

Corporate

Governance

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Business

Performance

e5

1

e1

1

e2

1

e3

1

e4

1

137

5.5.3.2 Corporate Reputation

The effect of corporate governance dimensions on corporate reputation is also examined.

The result indicate that customer orientation (SRW=0.605) and emotional appeal

(CR=1.29, SRW=.529) significantly influence corporate reputation. However all the

indicators of corporate governance that include accountability (CR=3.19, SRW=.303),

transparency (CR=5.52, SRW=.672), effectiveness (CR=5.06, SRW=.905) and corporate

social responsibility (SRW=.481) are significantly contributing to corporate governance.

The fitness indices viz χ2 /df= 1.716, GFI=0.967, AGFI=0.924, NFI=0.919, CFI=0.963,

RMSEA=0.068 indicate overall fit of the model. The result concluded that corporate

reputation is significant outcome of corporate governance. Consequently, hypothesis 5a

that corporate reputation is the significant outcome of corporate governance stands

accepted. The literature identifies positive relationship between corporate reputation and

different dimensions such as CEO reputation, capital board and corporate governance. To

support this, MacMillan et al. (2004) remarked that board of directors need to develop

awareness about the application of CG practices to enhance corporate reputation and

responsibility. Besides, Ljubojevic and Ljubojevic (2008) also expressed that relationship

between reputation of CEO and corporate reputation are positively related whereas Ting

(2009) established positive relationship between reputational capital board (majority of

outside director) and corporate reputation.

138

Model 14: Corporate Governance – Corporate Reputation (CG-CR)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance and

Customer orientation, emotional appeal- indicators of corporate reputation

e1, e2,e3,e4,e5,e6,e7 – Errors variances for model items

5.5.3.3 Integrated Effect

The result of SEM output indicates that corporate reputation variables (customer

orientation and emotional appeal) and corporate governance variables (accountability,

transparency, effectiveness and corporate social responsibility) significantly influence

business performance. The results of the CR and SRW values for model suggest that

business performance (SRW=1.000) and corporate reputation (SRW=1.000)

insignificantly contribute towards corporate governance. Hence hypothesis (5b) is

rejected.

Accountability

Transparency

Effectiveness

Corporate

Social Responsibility

Customer

orientation

Emotional

Appeal

Corporate

Governance

Corporate

Reputation

e7

1

e1

1

e2

1

e3

1

e4

1

e5

1

e6

1

139

Model 15: Corporate Governance- Corporate Reputation- Business Performance (CG-

CR-BP)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

customer orientation, emotional appeal- indicator of corporate reputation

and business performance

e1, e2,e3,e4, e5, e6, e7,e8,e9.e10,e11 – Errors variances for model items

5.6 CONCLUSION

The study results for integrated model summarise that CG practices of private sector banks

is quite good. Excluding accountability all the rest three dimensions transparency,

effectiveness and corporate social responsibility significantly predict the CG environment.

Further corporate ethical value in comparison to corporate culture contributes more to CG

practices. The study further reveals that the effect of CG on business performance and

corporate reputation is very low. The model fit measures for the integrated model are

arrived at χ2/df=1.058, GFI=0.994, AGFI=0.987, NFI=0.926, CFI=0.996, and

RMSEA=0.019. Even studies such as Aebi, Sabato and Schmid (2011), Chen, Chen and

Wei (2009), Orlitzky, Schmidt and Rynes (2003) and Inglis Morley and Sammut (2006)

Corporate

Governance

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Customer

Orientation

0.5

0.5

e51

e1

1

e2

1

e3

1

e4

1

Corporate

Reputation

Emotional

Appeale6

1

0.5

e7

1

Business

Performance

e8

1

140

found weak impact of corporate governance on business performance. This might be

because corporate governance is one of the basic components that reflect transparency in

the general functioning of the organisation. Overall, the results of the integrated model with

respect to various dimensions are in line with the individual model results.

Model 16: Corporate Governance- Corporate Culture- Corporate Ethical Value-

Business Performance- Corporate Reputation (Integrated CG Model)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance, corporate culture,

corporate ethical value –antecedents of corporate governance and business

performance and corporate reputation consequences of corporate

governance

e1, e2,e3,e4,e5,e6,e7,e8 – errors variances for model items

Corporate

Culture

Corporate

Ethical

Value

Business

Performance

Corporate

Reputation

Corpporate

Governance

Accountability Transparency Effectiveness Corporate Social

Responsbility

e1

1

e2

1

e3

1

e4

1

e5

1

e6

e7

e8

1

1

1

141

TABLE 5.1.1

DEMOGRAPHIC PROFILE OF THE MANAGERS‟ OF PRIVATE BANKS

PARTICULARS FREQUENCY PERCENTAGE

(%)

Gender

Male 124 79.5

Female 32 20.5

Age

20-30 43 27.6

30-40 35 22.4

40-50 62 39.7

50 and above 16 10.3

Education

Graduate 73 46.8

Post graduate 83 53.2

Income (Annual)

Income

2 Lakh - 3 Lakh 19 12.2

3 Lakh - 4 Lakh 21 13.5

4 Lakh - 5 Lakh 56 35.9

5 Lakh - 6 Lakh 60 38.5

Total experience

(years)

1-10 59 37.8

10-20 36 23.1

20-30 61 39.1

Experience in the

present post (years)

1-5 81 51.9

5-10 34 21.8

10-15 27 17.3

15-20 14 9.0

N= 156

142

TABLE 5.1.2

DEMOGRAPHIC PROFILE OF THE CUSTOMERS‟ OF PRIVATE BANKS

PARTICULARS FREQUENCY PERCENTAGE

(%)

Gender

Male 92 67.2

Female 45 32.8

Age

20-30 64 46.7

30-40 46 33.6

40-50 20 14.6

50 and above 7 5.1

Education

Graduate 68 49.7

Post graduate 58 42.3

10+2 11 8.0

Service

Business Class 56 40.9

Service Class 64 46.7

Student 17 12.4

Length of

Relationship in Years

5-10 18 13.1

10-15 74 54

15-20 35 25.5

20-25 10 7.3

N= 137

143

TABLE 5.2

OVERALL ALPHA, COMPOSITE RELIABILITY AND AVERAGE VARIANCE

EXTRACTED

Respondents Variables Alpha C R AVE SMC

Managers

Corporate

Governance

Overall

Alpha

(0.854)

Split-half Min. Max.

Sample

I

Sample

II

Accountability 0.756 0.82 0.91 0.813 0.524 0.230 0.359

Transparency 0.749 0.86 0.83 0.924 0.682 0.148 0.607

Effectiveness 0.720 0.85 0.90 0.926 0.659 0.117 0.544

Corporate social

responsibility

0.815 0.76 0.89 0.952 0.708 0.170 0.788

CG Antecedents

Corporate

Culture

0.720

0.87 0.642

Mission/ value

driven

0.721 0.86 0.92 0.89 0.662 0.194 0.606

Action against

unethical

practices

0.720 0.76 0.79 0.85 0.623 0.211 0.626

Corporate

Ethical Value

0.787 0.87 0.82 0.94 0.707 0.079 0.630

CG Consequences

Business

performance

0.82 0.87 0.91 0.92 0.72 0.023 0.550

Customers Corporate

Reputation

0.88 0.92 0.64

Customer

Orientation

0.85 0.82 0.85 0.91 0.680 0.330 0.567

Emotional

Appeal

0.91 0.86 0.81 0.93 0.600 0.210 0.728

Note: CR= Composite Reliability, AVE= Average Variance Extracted, SMC= Square Multiple

Correlation

148

TABLE 5.3

CONFIRMATORY FACTOR ANAYSIS (CFA) RESULTS FOR CORPORATE

GOVERNANCE DIMEMSIONS

CG Dimensions Confirmatory Factor Analysis

Accountability MV SD CR SRW SMC

The bank conducts an annual assessment. 4.08 1.06 5.60 .599 .230

χ2/df=8.787

GFI=0.988

AGFI=0.965

NFI=0.853

CFI=0.978

RMSEA=0.052

The bank set up formal criteria to assess its

performance.

3.64 0.96 5.30 .525 .318

Managers have clearly defined job description &

set performance targets.

4.26 0.71 5.41 .548 .300

Code of conduct is in place & has been agreed by

managers.

4.10 0.68 5.48 .564 .276

Decision made by managers are recorded &

communicated to the appropriate members.

3.60 0.93 ---- .480 .359

Overall 3.94 0.67

Transparency

Organization provides all relevant information

within sufficient time.

4.10 0.823 ---- .708 .501

χ2/df= 8.248

GFI=0.980

AGFI=0.940

NFI=0.948

CFI=0.978

RMSEA=0.065

The information regarding meetings is put on the

internet.

3.69 1.14 7.24 .779 .607

Prompt disclosure of market sensitive information. 4.04 0.83 4.15 .385 .148

Conflicts of interest are fully resolved through a

clear & well established mechanism.

4.06 0.89 7.03 .705 .496

Overall 4.00 0.89

Effectiveness

Effective communication is in place to keep staff

informed about new & existing policies.

4.06 0.80 5.50 .500 .320

χ2/df= 4.881

GFI=0.9591

AGFI=0.956

NFI=0.967

CFI=0.980

RMSEA=0.07

Managers‟ performance reflects consideration of

corporate objectives & policies.

4.05 0.78 5.84 .520 .270

Employees generally communicate about any

mislead & unethical behaviour of employees to

the management.

3.71 1.00 5.76 .505 .308

Board members have enough experience to

discharge their duties.

3.97 1.04 3.60 .342 .117

Bank gives sufficient attention to the role of share

holder & the functioning of the share holder

meetings.

4.10 0.84 5.73 .501 .326

Management communicates to the BOD about

business risk faced by the company.

4.29 0.79 ----- .738 .544

Overall 3.98 0.85

Corporate social responsibility

Explicit equal employment policy. 3.50 0.94 ---- .888 .400

χ2/df= 2.916

GFI=0.979

AGFI=0.936

NFI=0.951

CFI=0.981

RMSEA=0.06

Policies are regularly upgraded to safeguard the

interest of employees/organization.

4.12 0.91 7.02 .614 .445

Bank continuously discharges social responsibility

to protect the environment.

3.98 1.00 5.96 .528 .377

Bank continuously discharges social responsibility

to protect the community.

3.52 1.16 6.19 .667 .788

Bank provides help to needy persons. 4.04 0.85 7.19 .632 .229

Online banking services are of good quality. 4.24 0.09 3.20 .265 .170

Overall 3.88 0.82

149

TABLE 5.4.1

CONFIRMATORY FACTOR ANAYSIS (CFA) RESULTS FOR CORPORATE

CULTURE AND CORPORATE ETHICAL VALUES

CG Antecedents Confirmatory Factor Analysis

Corporate Culture MV SD CR SRW SMC

Mission and value driven (MVD) ----- .680 .462

χ

2 /df= 1.752

GFI=0.954 AGFI=0.906 NFI=0.923 CFI=0.935

RMSEA=0.07

Action against unethical practices(AAUP) ----- .582 .338

Management actively seeks feedback from

client and customer with a view to improving

service.(MVD1)

3.96 1.02 9.56 .815 .277

Your bank has developed its code of ethics to be

followed by employees.(MVD2) 4.16 0.68 6.28 .451 .194

The mission and value of your bank are well

communicated to the employees.(MVD3) 4.25 0.68 6.92 .526 .277

Management shares business strategies with all

employees.(MVD4) 4.05 0.97 12.38 .778 .606

Your bank maintains relationship of trust with

all employees. (MVD5) 4.12 0.72 8.07 .588 .336

Your bank gives equal treatment to employees,

customer, owners and community.(MVD6) 4.15 1.09 3.78 .671 .451

Effort to hiring employees who fit into the

organisation. (AAUP1) 3.15 1.33 8.47 .750 .562

Unethical behaviour is promptly reprimanded

when discovered if it results in personal

gain.(AAUP2)

3.58 1.26 9.78 .633 .400

Unethical behaviour is promptly reprimanded

when discovered if it results in gain to

firm.(AAUP3)

3.54 1.13 8.90 .791 .626

Overall 3.88 0.98

χ

2 /df= 1.265

GFI=0.981 AGFI=0.944 NFI=0.964 CFI=0.992

RMSEA=0.041

Corporate Ethical Value Your organization working is behaviour

consistent with the stated ethics & values of the

organization.

4.07 0.89 ----- .745 .324

Your organization takes action against

employees who are involved /employed in

misconduct.

4.40 0.61 6.445 .570 .323

Your organization is particular in protecting

women shareholders. 3.52 1.14 6.425 .568 .555

Your organisation gives rewards to the ethical

behaviour. 3.81 0.92 7.625 .794 .630

The bank is fully committed towards

accomplishing the agreed tasks. 4.26 0.86 4.160 .480 .179

You disfavour any gift to favour your

organisation interest. 3.87 1.15 4.076 .402 .162

Overall 3.98 0.93

150

TABLE 5.4.2

CONFIRMATORY FACTOR ANAYSIS (CFA) RESULTS FOR BUSINESS

PERFORMANCE AND CORPORATE REPUTATION

Respondents CG Consequences Confirmatory Factor Analysis

Managers

Business Performance MV SD CR SRW SMC Value added information to customers. 4.47 0.86 --- .224 .154

χ2 /df= 1.860 GFI=0.958

AGFI=0.903 NFI=0.850 CFI=0.912

RMSEA=0.08

Customers are satisfied. 4.25 1.03 2.59 .215 .246 Achievement of desired goals.

4.46 0.98 3.28 .287 .023

Timely return on assets. 4.35 1.19 2.87 .528 .279 Achievement of branch profits. 4.33 0.89 4.93 .733 .538 Overall organizational goal.

4.40 1.56 5.93 .742 .550

Overall 4.38 1.07

Corporate Reputation

χ2 /df= 2.541 GFI=0.960

AGFI=0.923 NFI=0.893 CFI=0.931

RMSEA=.075

Customers

Customer Orientation (CO) ---- .645 .325

Emotional Appeal(EP) 6.727 .523 .236

Bank has employees who are

concerned about customer need. (CO1) 3.55 .946 6.563 .595 .354

Bank employees who treat customer

courteously. (CO2) 3.48 1.15 7.312 .777 .604

Bank is concerned about its customers.

(CO3) 3.53 1.16 5.312 .426 .182

Bank treats its customers fairly. (CO4) 3.50 1.17 5.314 .513 .264 Bank takes customer rights seriously.

(CO5) 3.33 1.29 6.986 .508 .258

You admire and respect the

bank.(EP1) 3.86 1.09 ---- .623 .388

You trust the bank.(EP2) 3.78 0.81 3.994 .280 .078 You have a good feeling about the

bank.(EP3) 3.63 1.10 6.418 .476 .227

Overall

3.61 1.05

151

TABLE 5.5

HYPOTHESES TESTING RESULTS

HYPOTHESES Measurement Model Structural

Model

CR SRW SMC

1a

Accountability Corporate governance 3.33 .300 .290 χ2

/df= 1.796 GFI=0.988

AGFI=0.941 NFI=0.973 CFI=0.987

RMSEA=.072

Transparency Corporate governance 6.12 .676 .456 Effectiveness Corporate governance --- .879 .808 Corporate social responsibility Corporate

governance 5.49 .542 .294

2

Corporate ethical value Corporate governance 3.19 .526 .318 χ

2 /df= 1.200

GFI=0.988 AGFI=0.961 NFI=0.972 CFI=0.995

RMSEA=.036

Accountability Corporate governance ---- .308 .095 Transparency Corporate governance 3.39 .676 .456 Effectiveness Corporate governance 10.34 .899 .808 Corporate social responsibility Corporate

governance 6.52 .543 .294

3a

Corporate culture Corporate governance ---- .375 .296 χ

2 /df= 1.718

GFI=0.965 AGFI=0.918 NFI=0.939 CFI=0.969

RMSEA=.077

Accountability Corporate governance 3.01 .254 .066 Transparency Corporate governance 9.17 .714 .510 Effectiveness Corporate governance 10.11 .783 .614 Corporate social responsibility Corporate

governance 8.21 .649 .421

Mission value driven Corporate governance ---- .852 .722 Action against unethical practices Corporate

governance 3.40 .289 .184

3b

Corporate governance Corporate ethical value 8.018 .696 .708

χ

2 /df= 1.659

GFI=0.970 AGFI=0.916 NFI=0.955 CFI=0.981

RMSEA=.065

Corporate governanceCorporate culture 2.754 .472 .208 Accountability Corporate governance 2.623 .229 .052 Transparency Corporate governance --- .725 .526 Effectiveness Corporate governance 9.045 .780 .609 Corporate social responsibility Corporate

governance 7.396 .635 .403

Mission and value driven Corporate culture --- .924 .854 Action against unethical practices Corporate

culture 2.238 .261 .068

4

Corporate performance Corporate governance 2.201 .311 .081 χ2

/df= 1.250 GFI=0.983

AGFI=0.950 NFI=0.953 CFI=0.990

RMSEA=.040

Accountability Corporate governance 3.332 .301 .090 Transparency Corporate governance 6.16 .675 .456 Effectiveness Corporate governance 6.48 .899 .809 Corporate social responsibility Corporate

governance 6.164 .675 .456

152

5a

Corporate reputation Corporate governance --- .172 .029

χ2

/df= 1.716

GFI=0.967

AGFI=0.924

NFI=0.919

CFI=0.963

RMSEA=.068

Accountability Corporate governance 3.19 .303 .092

Transparency Corporate governance 5.52 .672 .452

Effectiveness Corporate governance 5.06 .905 .820

Corporate social responsibility Corporate

governance

--- .481 .232

Customer orientation Corporate reputation ---- .500 .209

Emotional appeal Corporate reputation 2.29 .529 .280

χ2

/df= 1.799

GFI=0.956

AGFI=0.911

NFI=0.870

CFI=0.935

RMSEA=.072

5b

Accountability Corporate governance 3.165 .289 .084

Transparency Corporate governance 6.667 .725 .526

Effectiveness Corporate governance ----- .818 .669

Corporate social responsibility Corporate

governance

5.833 .557 .310

Customer orientation Corporate governance ------ .254 .065

Emotional appeal Corporate governance 1.930 .114 .021

Corporate reputation Corporate governance ----- 1.000 .015

Corporate performance Corporate

governance

.245 1.000 .014

Corporate performance Corporate reputation 11.84 1.000 .027

INTEGRATED CG MODEL

Accountability Corporate governance 3.139 .280 .078

χ2

/df= 1.058

GFI=0.994

AGFI=0.987

NFI=0.926

CFI=0.996

RMSEA=.012

Transparency Corporate governance 7.215 .714 .510

Effectiveness Corporate governance 7.885 .827 .684

Corporate social responsibility Corporate

governance

6.142 .583 .340

Corporate ethical value Corporate

governance

7.111 .700 .491

Corporate Culture Corporate governance ------- .647 .418

Corporate reputation Corporate governance 3.281 .108 0.38

Business performance Corporate governance 3.125 .116 .065

153

CORPORATE GOVERNANCE PRACTICES OF PUBLIC

SECTOR BANKS

The chapter discusses corporate governance framework comprising antecedents

(corporate culture and corporate ethical value) and consequences (corporate

performance) from managerial perspective. Beside, the corporate reputation of the

bank is also analysed from customer perceptive. The demographic profile, validity

and reliability and hypotheses testing results are also discussed.

6.1 DEMOGRAPHIC PROFILE

6.1.1 Managers

The sample (163 respondents) of managers consisted of 86.5% males (141

respondents) and 13.5% females (22 respondents). Majority of the managers were

post graduates (52%), who fell in age group III i.e. between 40 years to 50 years, with

income ranging between 4 lakh- 6 lakh (81.1%). Further majority of them had total

work experience between 20 years to 30 years and job experience in the present

position between 1 year to 5 years (Table: 6.1.1).

6.1.2 Customers

The customers sample consisted of (62.1%) male respondents and (37.9%) female

respondents (Table: 6.1.2). The majority of respondents were graduate (47.6%)

followed by post-graduate (37.95) and under graduate (14.6%) respondents. 47.6%,

30.1%, 12.6% and 9.7% respondents fell in four respective age groups that is 20 years

to 30 years, 30 years to 40 years, 40 years to 50 years and above 50 years. These

respondents belonged to different professions - service (40.8%), business (39.8%) and

students (19.4%), with their length of relationship with respective banks ranging

154

between 5 years to 10 years (32%), 10 years to 15 years (38.8%), 15 years to 20 years

(38.8%) and 20 years to 30 years (6.8 %).

6.2 RELIABILITY AND VALIDITY

6.2.1 Reliability

6.2.1.1 Managers

The overall alpha value for corporate governance scale was arrived at 0.879,

indicating high internal consistency of the scale. The dimension-wise alpha for

corporate governance was found to be 0.658 for accountability, 0.759 for

transparency, 0.707 for effectiveness and 0.746 for corporate social responsibility.

Reliability of the data was further established through split - half method (Sample I=

182 respondents and Sample II= 83-165 respondents). The split half alpha value for

accountability (Sample I= 0.600, Sample II= 0.657), transparency (Sample I= 0.773,

Sample II= 0.769), effectiveness (Sample I= 0.796, Sample II= 0.724) and corporate

social responsibility (Sample I= 0.659, Sample II= 0.689) also supported internal

consistency of the data.

The overall cornbach alpha value for corporate culture (0.755) and corporate

ethical values (0.781) further demonstrated high consistency in the data. Further split

half reliability was carried out for corporate culture dimensions i.e. mission and value

driven (Sample I= .799, Sample II= .831) and action against unethical practices

(Sample I= .726, Sample II= .764) and for corporate ethical value (Sample I= .682,

Sample II= .641). All the results supported internal consistency. Lastly, business

performance dimension also provided strong evidence for reliability analysis (Table

6.2). The next stage in the analysis was to examine the composite reliability of

corporate governance, corporate culture, corporate ethical value and business

155

performance scales. All values (reported in Table-6.2) exceed the recommended

standard of Hair et al. (2003) which provided evidence of the internal consistency.

6.2.1.2 Customers

Similarly overall alpha value for corporate reputation scale was found to be 0.775

while dimension-wise it came to be 0.705 and 0.774 for customer orientation and

emotional appeal respectively indicating reliability of the data. Dimensions-wise split

sample alpha values for Sample I and Sample II were arrived at 0.721 and 0.831 for

customer orientation and 0.676 and 0.654 for emotional appeal. The values supported

internal consistency for customer orientation while internal consistency for emotional

appeal was found to be quite marginal. The composite reliability of customer based

corporate reputation was arrived at 0.612.

6.2.2 Validity

6.2.2.1 Managers

The convergent validity of the corporate governance scale was established through

factor loading (FL), communality values (CV) and average variance explained (AVE).

All dimensions of corporate governance passed the test and reflected the convergent

validity. Factor loading values ranged between 0.731 to 0.513 for accountability,

0.833 to 0.621 for transparency, 0.778 to 0.562 for effectiveness, 0.769 to 0.664 for

social responsibility and communalities values were in range between 0.694 to 5.13

(accountability), 0.693 to 0.521 (transparency), 0.65 to 0.561 (effectiveness) and

0.591 to 0.503 (corporate social responsibility). Further, all the dimensions of

corporate governance - accountability (0.945), transparency (0.701), effectiveness

(0.514) and corporate social responsibility (0.885) have shown significant AVE

values, which provided evidence for convergent validity.

156

The corporate culture and corporate ethical value supported the convergent

validity as FL and CV were found to be ranged between 0.849 to 0.589 and 0.733 to

0.502 respectively. The AVE values of corporate culture dimension came out to be

0.854 for mission and value driven and 0.632 for action against unethical practices,

suggesting that the items adequately represented the dimensions that they purport to

measure. The AVE for corporate ethical value was arrived at 0.792, again indicating

the convergent validity. The discriminant validity was accepted for the corporate

culture (Table - 6.2).

The convergent validity of business performance scale was also established

through FL and CV. In addition to this, overall AVE for business performance scale

also came out to be above 0.7 (i.e. 0.721). Further business performance dimensions

also confirmed the convergent validity of the scales.

6.2.2.2 Customers

The FL and CV for customer-based consequence of corporate governance (corporate

reputation) was above the recommended threshold criteria which established

convergent validity. The convergent validity through AVE, where AVE for corporate

reputation was arrived at 0.615. Dimension-wise the convergent validity for customer

orientation and emotional appeal were arrived at 0.670 and 0.604 respectively. The

corporate reputation showed discriminiant validity with values of minimum 0.064 and

maximum 0.567 for customer orientation and minimum 0.236 and maximum 0.503

for emotional appeal against AVE of 0.68 and 0.50 respectively (Table 6.2).

157

6.3 CORPORATE GOVERNANCE DIMENSIONS

6.3.1 Accountability

The mean values for five items ranged between 3.75 (recording and communication

to managerial decision to concerned members) to 4.25 (clearly and defined job

description & set performance targets), depicting somewhat high managerial

perception, with overall mean score as 3.97.

The overall fitness (χ2/df=1.928, GFI=0.986, AGFI=0.956, NFI=0.955,

CFI=0.998, and RMSEA=0.021) of the accountability model was found to be

excellent. Further all the items „bank conducts an annual assessment (CR= 4.40,

SRW=.610)‟, „evaluation of performance (CR= 4.32, SRW=.586)‟, „code of conduct

(CR= 4.31, SRW=.583)‟ „recording and communicating of managerial decision to

concerned members (SRW= .549)‟ and „clear and defined job description and

performance (CR=4.055, SRW=.523)‟ were found to be moderately predicting

accountability dimension of corporate governance (Table 6.3).

CG Model 1: Accountability

Note: – A1, A2, A3, A4, A5 - Indicators of accountability

e1, e2,e3,e4, e5 – Errors variances for model items

Accountability

A5e5

1

1

A4e4

1

A3e3

1

A2e2

1

A1e1

1

158

6.3.2 Transparency

Similar to accountability dimension, the transparency dimension was found to be

perceived highly (MS=3.99) by public sector management with standard deviation

ranging between 0.801 (prompt disclosure of market sensitive information) to 1.15

(information regarding meetings is put on the internet). The mean score of four out of

five items are above four while one item has scored mean of 3.70 indicating that

public sector banks are quite transparent in their functioning.

The CR and SRW values for four items „organization provides all relevant

information within sufficient time (CR=3.414, SRW=.845)‟, „prompt disclosure of

market sensitive information (CR=3.349, SRW=.714)‟, „information regarding

meetings is put on the internet (CR=3.340, SRW=.703)‟ and „conflicts of interest are

fully resolved through a clear & well established mechanism (CR=3.571,

SRW=.634)‟ showed high to moderate predicting power of the items in explaining

transparency dimension. Further, the overall result indicated that relevant information,

information about meeting on the internet, disclosure practices and well established

mechanism positively contributed towards transparency dimension in public banks.

The relative contribution of the items was confirmed as model fit measures (χ2/df=

1.561, GFI=0.982, AGFI=0.933, NFI=0.969, CFI=0.988, RMSEA=0.065) were found

to be as per the threshold criteria.

159

CG Model 2: Transparency

Note: – T1, T2, T3, T4 - Indicators of transparency

e1, e2,e3,e4 – Errors variances for model items

6.3.3 Effectiveness

The overall mean was found to be 3.91 indicating managers‟ positive perception

towards effectiveness dimension. Specifically effectiveness of the organisation was

based on four items that include „sufficient attention to the role of shareholders (MV=

4.10, SD= .782)‟, „effective communication about new existing polices to staff

(MV=3.68, SD=.869)‟, „performance as per corporate objective and policies

(MV=3.93, SD=.868)‟ and „communication about any mislead & unethical behaviour

of employees to the management (MV = 3.68, SD=1.03)‟.

The CFA result showed that the items „effective communication about new

existing polices to staff (CR= 3.645, SRW=.718)‟ and „sufficient attention to the role

of shareholders (CR=3.63, SRW=.643)‟ were highly contributing to effectiveness

while two items „performance as per corporate objective and policies (SRW=.643)‟

and „communication about any mislead & unethical behaviour of employees to the

management (CR=3.439, SRW= .546)‟ moderately affected the effectiveness

Transparency

T4e4

1

T3e3

1

T2e2

1

T1e10.5

1

160

dimension. Lastly the result of model fit indices further supported the relationships

(χ2/df= 1.913, GFI=0.980, AGFI=0.931, NFI=0.952, CFI=0.975, and RMSEA=0.08).

CG Model 3: Effectiveness

Note: – E1, E2, E3, E4 - Indicators of effectiveness

e1, e2,e3,e4 – Errors variances for model items

6.3.4 Corporate Social Responsibility

The corporate governance practice of public sector banks with respect to corporate

social responsibility was labelled as little bit below average with items „safeguarding

the interest of employees (MV= 4.18)‟ and „help to the needy persons (MV = 4.29)‟

score high mean value whereas „social responsibility towards environment protection

(MV=3.75)‟, „social responsibility towards protect the community (MV= 3.72)‟ and

„equal employment policy (MV= 3.71)‟ items score somewhat low but average mean

values.

However unlike the results of private sector banks the „online banking

services‟ CR=0.326) was found to be insignificant. Hence corporate social

responsibility model is seen as a function of „social responsibility towards protect the

community (CR=6.738, SRW=.684)‟, „social responsibility towards environment

Effectiveness

E4e4

1

E3e3

1

E2e2

1

E1e1

1

161

protection (CR=6.33, SRW=.635)‟, „help to the need persons (CR=6.117,

SRW=.610)‟ , „safeguarding the interest of employees (CR=5.918, SRW=.589)‟ with

moderate predictive strength and one item „equal employment policy (SRW=.757)‟

with high predicting strength. The relative contribution of the items was further

confirmed with model fit measures χ2/df= 1.603, GFI=0.977, AGFI=0.930,

NFI=0.955, CFI=0.982, and RMSEA=0.068 were found to be as per the threshold

criteria.

CG Model 4: Corporate Social Responsibility

Note: – CSR1, CSR2, CSR3, CSR4, CSR5 Indicators of corporate social

responsibility

e1, e2,e3,e4, e5 – Errors variances for model items

Corporate

Social

Responsibility

CSR5e5

1

1

CSR4e4

1

CSR3e3

1

CSR2e2

1

CSR1e1

1

0.6

162

6.4 ANTECEDENTS AND CONSEQUENCES OF CORPORATE

GOVRNANCE

6.4.1 Antecedents of Corporate Governance

6.4.1.1 Corporate Culture

The corporate culture environment of public banks is found 3.95 to be quite

satisfactory as per managerial responses. All mean values for the items are above 3.11

and ranged between 4.21 and 3.11 with standard deviation ranged between 0.705 to

1.21.

To establish the relationship in the corporate culture model, one covariance

between „sharing of business strategies with employees gain‟ and „feedback from

clients and customers to improve the services gain (MI=8.523)‟ was added. The

model fitness measure that is χ2/df= 1.388, GFI=0.960, AGFI=0.920, NFI=0.923,

CFI=0.923, RMSEA=0.054 indicate good fit between the hypothetical measurement

model and the public sector data. Further, item construct relationship is also found to

be significant for all the items (Table 6.4.1). Among these seven significant items

„unethical behaviour is promptly reprimanded when discovered if it results in

personal gain (CR=3.894, SRW=.845)‟, „maintaining relationship with employees

gain (SRW=.770)‟, „equal treatment for employees, customers, owners and

community gain (CR=7.002, SRW=.739)‟, „communicating of mission and value to

the employees gain (CR=7.125, SRW=.710)‟, „sharing of business strategies with

employees gain (CR=6.360, SRW=.637)‟, „feedback from clients and customers to

improve the services gain (CR=6.360 SRW=.637)‟, „employees following code of

ethics gain (CR=6.308, SRW=.617)‟ are found to have significant predicting

capability while „unethical behaviour is promptly reprimanded when discovered if it

results in gain to firm (SRW=.529)‟ and „effort to hiring employees who fit into the

organisation (CR=4.347, SRW=.537)‟ show moderate relationship with corporate

163

culture. The employees of the public sector bank appreciate the ethical culture, equal

treatment and relationship of trust among the employees in the banks (Table 6.4.1).

Model 5: Corporate Culture

Note: – MVD1, MVD2, MVD3, MVD4, MVD5 - Indicators of mission

and value driven and AUEP1, AUEP2, AUEP3-Indicators of action

against unethical practices

e1, e2,e3,e4, e5,e6, e7,e8,e9,e10 – Errors variances for model items

6.4.1.2 Corporate Ethical Value

The mean score items of corporate ethical value items lie between 3.50 (organization

is particular in protecting women shareholders‟ to 4.50 (organization gives rewards

to the ethical behaviour) with standard deviation ranging from 0.05 to 1.15. The

managers overall perceive corporate ethical value of the pubic sector bank as quite

appreciable (Table 6.4.1).

The contribution of six items towards the corporate ethical value dimension

represent adequate fitness of model as all values χ2/df= 1.598, GFI=0.971,

AGFI=0.925, NFI=0.924, CFI=0.969, RMSEA=0.067 are found to be within the

Mission and

Value Driven

MVD5e5

1

1

MVD4e4

1

MVD3e3

1

MVD2e2

1

MVD1e1

1

Action Against

Unethical Practices

AUEP3e8

1

1

AUEP2e7

1

AUEP1e6

1

Corporate

Culture

0.5

0.5

e9

1

e10

1

164

acceptable criteria. The CR and SRW values of four items organization working

behaviour is consistent with the stated ethics and values of the organization

(SRW=.841)‟, „organization gives rewards to the ethical behaviour (CR=5.89,

SRW=.621)‟, „organization takes action against employees who are involved

/employed in misconduct (CR=5.524, SRW=.569)‟, „organization is particular in

protecting women shareholders CR= 5.064, SRW=.513) are found to be significantly

contributing to the ethical dimension. However two items „bank is fully committed

towards accomplishing the agreed tasks (CR=2.678, SRW=.366) and „disfavour any

gift to favour your organisation interest (CR=3.683, SRW=.364)‟ are found to effect

corporate ethical value moderately. The significant contribution of all the six items

toward corporate ethical value is conformed as all the fit measures (χ2/df= 1.5987,

GFI=0.971, AGFI=0.925, NFI=0.924, CFI=0.969, RMSEA=0.067) were quite

acceptable. The results depict that public bank are more influenced by stated ethical

values. The mangers perceived that bank gives reward to employees for ethical

behaviour and also takes action against any misconduct and hence the bank is quite

appreciable.

Model 6: Corporate Ethical Value

Note: – CEV1, CEV2, CEV3, CEV4, CEV5, CEV6 - Indicators of corporate

ethical value

e1, e2,e3,e4, e5, e6, e7 – Errors variances for model items

Corporate

Ethical Value

CEV6e6

1

1

CEV5e5

1

CEV4e4

1

CEV3e3

1

CEV2e2

1

CEV1e1

1

165

6.4.2 Consequences of Corporate Governance

6.4.2.1 Business Performance

The overall mean is found to be 4.31 with standard deviation of 0.639 indicating high

degree of managerial perception towards business performance. The mean score of all

the items are above four indicating that public sector bank is particular in achieving

the business performance (Table 6.4.2).

For better model fit, covariance based on modification indices was added

between „value added information to customers and „customers are satisfied‟ which

resulted in the fitness of the model (χ2/df= 1.163, GFI=0.980, AGFI=0.952,

NFI=0.954, CFI=0.958, RMSEA=0.032). The CR and SRW values for three items

„value added information to customers (SRW=.672), „achievement of branch profits

(CR=2.03, SRW=.621)‟ and „achievement of desired goals (CR=2.02, SRW=.699)‟

show moderate predicting power of the items in explaining the business performance.

However „customer are satisfied (CR=2.84, SRW=.512)‟, „timely return on assets

(CR=2.05, SRW=.555)‟ and „overall organizational goal (SRW=.528)‟ show low but

significant contribution towards business performance.

Model 7: Business Performance

Note: – EA1, EA2, EA3, EA4, E5, E6- Indicators of business performance

e1, e2,e3,e4,e5,e6 – Errors variances for model items

Business

Performance

BP6e6

1

1

BP5e5

1

BP4e4

1

BP3e3

1

BP2e2

1

BP1e1

1

166

6.4.2.2 Corporate Reputation

The overall mean is found to be 3.79 indicating somewhat average satisfaction of

customers towards corporate reputation dimension. All the items have scored average

degree of mean values. All the items „employees are concerned about customer need

(MV=3.93, SD=.854)‟, „treats its customers fairly (MV=3.72, SD=.961)‟, „concerned

about its customers (MV=3.79, SD=.963)‟, „takes customer rights seriously

(SD=3.60, SD=1.14)‟ and „employees treat customer courteously (MV=3.79,

SD=.939)‟, „admire and respect the bank (MV=3.97)‟, „trust the bank (MV=3.83)‟,

„good feeling about the bank (MV=3.75)‟ are found to be significant in both the two

dimensions that is customer orientation and emotional appeal.

The item construct relationship was found to be significant for all the items.

The CR and SRW values range between „employees are concerned about customer

need (CR=2.33, SRW=.666)‟ to „concerned about its customers (SRW=.303)‟.

Further the model fitness measures that is χ2/df= 1.341, GFI=0.994, AGFI=0.894,

NFI=0.986, CFI=0.983, RMSEA=0.052 are within the acceptable range. The result

indicated that the customers of the public bank appreciate the employees‟ fair attitude

towards them.

167

Model 8: Corporate Reputation

Note: – CO1, CO2, CO3, CO4, CO5- Indicators of customer orientation

and EP1, Ep2, EP3= Indicators of emotional appeal

e1, e2,e3,e4, e5,e6,e7,e8,e9,e10,e11 – Errors variances for model items

6.5 HYPOTHESES TESTING

6.5.1 Corporate Governance

The hypothesis 1a is accepted as all the CG dimensions contribute significantly to

corporate governance. Chen et al. (2006) in their study also established the

significance of all the four dimensions in predicting corporate governance in the

private sector. Among four dimensions, effectiveness (SRW=.825) has strong

contribution to corporate governance followed by corporate social responsibility

(CR=11.166, SRW=.851), transparency (CR=11.198, SRW=.793) and accountability

(CR=6.092, SRW=.521). The overall fit indices were arrived at χ2/df= 1.087,

GFI=0.997, AGFI=0.967, NFI=0.996, CFI=0.998, RMSEA=0.023 after adding one

additional covariance path between accountability and corporate social responsibility.

However hypothesis 1b that accountability and corporate social responsibility

contribute more to corporate governance is rejected (Table 6.5).

Customer

Orientation

CO5e5

1

1

CO4e4

1

CO3e3

1

CO2e2

1

CO1e1

1

Emotional

Appeal

EP3e9

1

1

EP2e8

1

EP1e7

1

Corporate

Reputation

0.5

e10

1

e11

1

168

Model 9: Corporate Governance

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

e1, e2,e3,e4 – errors variances for model items

6.5.2 Effect of Corporate Ethical Value and Corporate Culture on Corporate

Governance

6.5.2.1 Corporate Ethical Value

The corporate ethical value – corporate governance relationship is labelled as

significant (CR=4.134, SRW=.565). Hence the hypothesis 2 that corporate ethical

value influences significantly to corporate governance is accepted. This result is in

line with the results of studies conducted by Small (2006) and Leary and Stewart

(2007). Ghosh (2007) also put forth that quality of CG is affected by the individual

ethical values. The corporate governance measurement model showed three strong

and significant relationships which include corporate social responsibility (CR=

4.590, SRW=.841), effectiveness (CR= 4.969, SRW=.823), (transparency (CR=

4.562, SRW=.806) variables. The model shows moderate fitness (χ2/df= 2.372,

GFI=0.978, AGFI=0.917, NFI=0.971, CFI=0.983, RMSEA=0.092) after adding path

between accountability and effectiveness.

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e1

1

e2

1

e4

1

e5

1

0.5

169

Model 10: Corporate Ethical Value -Corporate Governance (CEV-CG)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance and indicator of

corporate financial performance

e1, e2,e3,e4,e5,e6,e7 – Errors variances for model items

6.5.2.2 Corporate Culture

The model fitness is also established, for corporate culture model as all the values are

arrived at χ2/df=1.736, GFI=0.976, AGFI=0.928, NFI=0.974, CFI=0.989,

RMSEA=0.067 indicating good fit of the model. Specifically, results indicate that

mission and value driven (CR= 3.558, SRW=.982) contribute more to corporate

culture, whereas action against unethical practices (SRW=.323) has low contribution

towards corporate culture. In addition to this, the result further established that the

indicators of corporate governance that is transparency (SRW=.800), effectiveness

(CR=11.485, SRW=.810), corporate social responsibility (CR= 12.312, SRW=.866),

accountability CR=6.100, SRW=.490) were significantly contributing to corporate

governance. Hence, hypothesis 3a that corporate culture positively influence

corporate governance (CR=4.036, SRW=.868) is accepted. Thus, the results support

Machuga and Teitel (2009) findings which highlight that culture along with legal

environment positively affect corporate governance. The authors specifically

Corporate Ethical

Value

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e21

e31

e4

1

e5

1

0.5

e1

1

170

expressed that institutional environment play important role in the operational

functioning of the organisations, which subsequently influence corporate governance

quality.

Model 11: Corporate Culture- Corporate Governance (CC-CG)

Note: – Mission and value driven and action against unethical practices-

indicators of corporate culture and accountability, transparency,

effectiveness and corporate social responsibility - indicators of corporate

governance

e1, e2,e3,e4,e5,e6,e7 – Errors variances for model items

6.5.2.3 Integrated Effect

Similar to results of private banks the integrated effect of corporate culture and

corporate ethical value is also found to be significant. However accountability

(CR=12.28, SRW=.491) was seen to have moderate influence on corporate

governance. Further, model shows good fit as all the values arrived at χ2/df= 1.540,

GFI=0.974, AGFI=0.927, NFI=0.972, CFI=0.900, RMSEA=0.058 (Table: 6.5) Hence

the hypothesis 3b that both corporate culture and corporate ethical value influence

corporate governance is accepted. Further the results endorse the findings of Johns

(2006) who find that corporate ethical values act as a mechanism for corporate culture

Mission and Value

Driven

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e21

e3

1

e4

e51

e1

1

Action Against

Uenthical Valuee6

1

Corporate

Culture

0.5

0.5

e7

1

1

171

and these values such as stated code mechanism, shared values, fairness and

stewardship improve CG practices.

Model 12: Corporate Culture-Corporate Ethical Value - Corporate Governance

(CC-CEV-CG)

Note: – Mission and value driven and action against unethical value-

indicator of corporate culture, culture-corporate ethical value - and

accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

e1, e2,e3,e4,e5,e6,e7,e8 – Errors variances for model items

6.5.3 Effect of Corporate Governance on Business Performance and Corporate

Reputation

6.5.3.1 Business Performance

The effect of corporate governance on business performance is found to be significant

(CR=5.125, SRW=.510). The SEM output further indicate the fitness of the as all the

values arrived at χ2/df= 1.395, GFI=0.986, AGFI=0.947, NFI=0.980, CFI=0.994,

RMSEA=0.049. Further the corporate governance variables corporate social

responsibility (CR=11.164, SRW=.851), effectiveness (SRW=.825), transparency

(CR=11.197, SRW=.793) and accountability (CR=6.098, SRW=.513) showed

positive contribution to corporate governance. Hence the hypothesis 4 was accepted.

Mission and Value

Driven

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Corporate

Governance

e21

e3

1

e4

1

e5

1

e1

1

Action Against

Uenthical Valuee6

1Corporate

Culture

0.5

e7

1

Corporate Ethical

Valuee8

1

172

The authors such as Bartholomeusz and Tanewski (2006) and Abor and Biekpe

(2007) also confirm positive relationship between corporate governance and

performance.

Model 13: Corporate Governance- Business Performance (CG-BP)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance and indicator of

corporate business performance

e1, e2,e3,e4,e5,e6,e7 – errors variances for model items

6.5.3.2 Corporate Reputation

The SEM results indicate corporate reputation to be the significant outcome of

corporate governance. However the impact of corporate governance on corporate

reputation found to be moderate (CR=3.573, SRW=.336). The CR-CG Model showed

a good fit as all the model fit indicators are as per the accepted criteria χ2/df= 1.718,

GFI=0.965, AGFI=0.918, NFI=0.939, CFI=0.969, RMSEA=0.077. Hence, hypothesis

5a is accepted. The CR and SRW values further indicate that dimensions of corporate

governance that included transparency (CRW=.809), effectiveness (CR=12.267,

SRW=.826), corporate social responsibility (CR= 12.268, SRW=.836) are positively

Corporate

Governance

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Business

Performance

e5

1

e1

1

e2

1

e3

1

e4

1

173

contributing to corporate reputation. Between the two dimensions of corporate

reputation, customer orientation (SRW=.802) contributes more to the corporate

reputation.

Model 14: Corporate Governance – Corporate Reputation (CG-CR)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance and

customer orientation, emotional appeal- indicators of corporate

reputation

e1, e2,e3,e4,e5,e6,e7 – errors variances for model items

6.6.3.3 Integrated Effect

The CG-BP model established the significant contribution of CG dimensions on CG

The CR and SRW values indicate strong predicating power of the transparency

(CR=10.908, CRW=.811), effectiveness (SRW=.837), corporate social responsibility

(CR= 11.820, SRW=.821) excluding accountability (CR=5.410, SRW=.438).

Between the corporate reputation, customer orientation (CR=5.210, SRW=.526)

contributed more than emotional appeal (CR=4.435, SRW=.302). Model

identification was achieved and the fit indices suggest that the model adequately

Accountability

Transparency

Effectiveness

Corporate

Social Responsibility

Customer

orientation

Emotional

Appeal

Corporate

Governance

Corporate

Reputation

e7

1

e1

1

e2

1

e3

1

e4

1

e5

1

e6

1

174

represents the input data (χ2/df= 1.983, GFI=0.961, AGFI=0.909, NFI=0.921,

CFI=0.958 and RMSEA=0.078). All indices exceeded the recommended threshold

levels. Further the impact of corporate governance on corporate reputation (CR=

4.851, SRW=.371) and business performance (5.234, SRW=.534) is found to be

significant. Consequently, hypothesis 5 b is accepted.

Model 15: Corporate Governance- Corporate Reputation- Business Performance

(CG-CR-BP)

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance

e1, e2,e3,e4,e5,e6,e7 – errors variances for model items

6.6 CONCLUSION

The integrated results of public sector banks indicate significant relationship among CG

dimensions. Among the four dimensions corporate social responsibility (SRW=.865),

effectiveness (SRW=.814) and transparency (SRW= .784) have strong predicting power

than accountability (SRW=.488) dimension. Further it is also established that the

corporate culture has more predicting capability (SWR=.682) than corporate ethical

Corporate

Governance

Accountability

Transparency

Effectiveness

Corporate Social

Responsibility

Customer

Orientation

0.5

0.5

e51

e1

1

e2

1

e3

1

e4

1

Corporate

Reputation

Emotional

Appeale6

1

0.5

e7

1

Business

Performance

e8

1

175

value (CR=6.804, SRW=.579) in influencing CG environment. The study also found

significant but weak relationship between business performance (CR=3.021,

SWR=.135) and corporate reputation (CR=2.125, SRW=.102) in influencing CG

environment. The model fitness indices such as α2/df=2.274, GFI=.977, AGFI=.947,

NFI=.970, CFI=.983 and RMSEA=.067 were within the acceptable range. The results

of the integrated model matched with the hypotheses results of the individual models.

Model 16: Corporate Governance- Corporate Culture- Corporate Ethical Value-

Business Performance- Corporate Reputation ((Integrated CG Model))

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance, corporate culture,

corporate ethical value –antecedents of corporate governance

and business performance and corporate reputation consequences of

corporate governance

e1, e2,e3,e4,e5,e6,e7,e8 – errors variances for model items

Corporate

Culture

Corporate

Ethical

Value

Business

Performance

Corporate

Reputation

Corpporate

Governance

Accountability Transparency Effectiveness Corporate Social

Responsbility

e1

1

e2

1

e3

1

e4

1

e5

1

e6

e7

e8

1

1

1

176

TABLE 6.1.1

DEMOGRAPHIC PROFILE OF THE MANAGERS‟ OF PUBLIC BANKS

PARTICULARS FREQUENCY PERCENTAGE

(%)

Gender

Male 141 86.5

Female 22 13.5

Age

20-30 6 3.7

30-40 27 16.6

40-50 125 76.7

50 and above 3 1.8

Education

Graduate 85 46.9

Post graduate 78 52.1

Income (Annual)

Income

2 Lakh - 3 Lakh 6 3.7

3 Lakh - 4 Lakh 23 14.1

4 Lakh - 5 Lakh 68 41.7

5 Lakh - 6 Lakh 66 40.5

Total experience

(years)

1-10 40 24.5

10-20 36 21.5

20-30 87 53.4

Experience in the

present post (years)

1-5 82 50.3

5-10 45 27.6

10-15 26 16.0

15-20 10 6.1

N= 163

177

TABLE 6.1.2

DEMOGRAPHIC PROFILE OF THE CUSTOMERS‟ OF PRIVATE BANKS

PARTICULARS FREQUENCY PERCENTAGE

(%)

Gender

Male 64 62.1

Female 39 37.9

Age

20-30 49 47.6

30-40 31 30.1

40-50 13 12.6

50 and above 10 9.7

Education

10+2 15 14.6

Graduate 49 47.6

Post graduate 39 37.9

Service

Business Class 20 39.8

Service Class 41 40.8

Student 42 19.4

Length of

Relationship in Years

5-10 7 6.8

10-15 40 38.8

15-20 23 22.3

20-25 33 32

N= 103

178

TABLE 6.2

OVERALL ALPHA, COMPOSITE RELIABILITY AND AVERAGE

VARIANCE EXTRACTED

Respondents Variables Alpha C R AVE SMC

Managers

Corporate

Governance

Overall

Alpha

(.879)

Split-half Min. Max.

Sample

I

Sample

II

Accountability 0.658 0.600 0.657 0.988 0.945 0.273 0.373

Transparency 0.759 0.773 0.769 0.851 0.701 0.205 0.714

Effectiveness 0.707 0.796 0.724 0.806 0.514 0.274 0.515

Corporate social

responsibility

0.746 0.754 0.689 0.974 0.885 0.346 0.574

Antecedents of Corporate Governance

Corporate

Culture

0.755 0.789 0.607 0.960 0.739 0.244 0.774

Mission/ value

driven 0.833 0.699 0.831 0.921 0.721 0.380 0.593

Action against

unethical

practices

0.631 0.626 0.664 0.903 0.699 0.280 0.715

Corporate

Ethical Value

0.681 0.681 0.641 0.954 0.792 0.271 0.708

Consequences of Corporate Governance

Corporate

Performance

0.721 0.706 0.742 0.724 .721 0.116 0.421

Customers Corporate

Reputation

0.675 0.632 0.923 0.645 .615

Customer

Orientation

0.605 0.602 0.522 0.670 .680 0.064 0.567

Emotional

Appeal

0.664 0.663 0.662 0.604 .500 0.236 0.503

Note: CR= Composite Reliability, AVE= Average Variance Extracted,

SMC=Square Multiple Correlation

179

TABLE 6.3

CONFIRMATORY FACTOR ANAYSIS (CFA) RESULTS FOR CORPORATE

GOVERNANCE DIMEMSIONS

CG Dimensions Confirmatory Factor Analysis Accountability MV S.D CR SRW SMC The bank conducts an annual assessment. 4.00 1.07 4.403 .610 .373

χ2/df= 1.928 GFI=0.986

AGFI=0.956 NFI=0.955 CFI=0.998

RMSEA=0.021

The bank set up formal criteria to assess its

performance. 3.78 .948 4.319 .586 .343

Managers have clearly defined job description

& set performance targets. 4.25 .623 4.055 .523 .273

Code of conduct is in place & has been agreed

by managers. 4.05 .643 4.309 .583 .340

Decision made by managers are recorded &

communicated to the appropriate members. 3.75 .856 ---- .549 .301

Overall 3.97 .828

Transparency Organization provides all relevant information

within sufficient time. 4.03 .801 3.414 .845 .714

χ2/df= 1.561

GFI=0.982 AGFI=0.933 NFI=0.969 CFI=0.988

RMSEA=0.065

The information regarding meetings is put on

the internet. 3.70 1.15 3.340 .703 .495

Prompt disclosure of market sensitive

information. 4.03 .820 3.349 .714 .510

Conflicts of interest are fully resolved through

a clear & well established mechanism. 3.96 .969 3.571 .634 .402

Overall 3.93 2.85

Effectiveness Effective communication is in place to keep

staff informed about new & existing policies. 3.95 .869 3.645 .718 .515

χ2/df= 1.913 GFI=0.986

AGFI=0.931 NFI=0.952 CFI=0.975

RMSEA=0.08

Managers‟ performance reflects consideration

of corporate objectives & policies. 3.93 .868 --- .517 .274

Employees generally communicate about any

mislead & unethical behaviour of employees

to the management.

3.68 1.03 3.439 .546 .293

Bank gives sufficient attention to the role of

share holder & the functioning of the share

holder meetings.

4.10 .782 3.631 .643 .413

Overall 3.91 0.887

Corporate social responsibility Explicit equal employment policy. 3.71 .981 ---- .757 .574

χ2/df= 1.603

GFI=0.977 AGFI=0.930 NFI=0.955 CFI=0.982

RMSEA=0.068

Policies are regularly upgraded to safeguard

the interest of employees/organization. 4.18 .796 5.918 .589 .346

Bank continuously discharges social

responsibility to protect the environment. 3.75 .994 6.333 .635 .403

Bank continuously discharges social

responsibility to protect the community. 3.72 1.10 6.738 .684 .468

Bank provides help to needy persons. 4.29 .561 6.117 .610 .372 Overall 3.93 0.886

180

TABLE 6.4.1

CONFIRMATORY FACTOR ANAYSIS (CFA) RESULTS FOR CORPORATE

CULTURE AND CORPORATE ETHICAL VALUES

CG Antecedents Confirmatory Factor Analysis Corporate Culture MV S.D CR SRW SMC

Mission and value driven (MVD) ---- .587 .344

χ2/df= 1.388 GFI=0.960

AGFI=0.920 NFI=0.923 CFI=0.977

RMSEA=0.054

Action against unethical practices ----- .494 .244

Management actively seeks feedback from

client and customer with a view to improving

service.(MVD1)

3.96 1.04 6.360 .637 .405

Your bank has developed its code of ethics to

be followed by employees. (MVD2) 4.18 .705 6.308 .617 .380

The mission and value of your bank are well

communicated to the employees. (MVD3) 4.21 .752 7.125 .710 .504

Management shares business strategies with all

employees. (MVD4) 4.00 .984 6.784 .679 .462

Your bank maintains relationship of trust with

all employees. (MVD5) 4.12 .762 ----- .770 .593

Your bank gives equal treatment to employees,

customer, owners and community. (MVD5) 3.70 1.12 7.002 .739 .547

Effort to hiring employees who fit into the

organisation.(AAUP1) 3.71 1.21 4.347 .537 .289

Your organization, unethical behaviour is

promptly reprimanded when discovered if it

result in personal gain. (AAUP2)

3.70 1.21 3.894 .845 .715

Your organization, unethical behaviour is

promptly reprimanded when discovered if it

result in gain to firm. (AAUP3)

3.11 1.31 ----- .529 .280

Overall 3.09 0.864

Corporate Ethical Value Your organization working is behaviour

consistent with the stated ethics & values of the

organization.

3.94 .898 ----- .841 .708

χ2/df= 1.598 GFI=0.971

AGFI=0.925 NFI=0.924 CFI=0.969

RMSEA=0.067

Your organization takes action against

employees who are involved /employed in

misconduct.

4.31 .653 5.524 .569 .324

Your organization is particular in protecting

women shareholders. 3.50 1.15 5.064 .513 .263

Your organization gives rewards to the ethical

behaviour. 3.75 .907 5.895 .621 .386

The bank is fully committed towards

accomplishing the agreed tasks. 4.50 .821 2.678 .466 .271

You disfavour any gift to favour your

organization interest. 3.67 1.21 3.683 .464 .333

Overall 3.94 0.93

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TABLE 6.4.2

CONFIRMATORY FACTOR ANAYSIS (CFA) RESULTS FOR BUSINESS

PERFORMANCE AND CORPORATE REPUTATION

CG Consequence Confirmatory Factor Analysis

Managers

Business Performance MV SD CR SRW SMC χ2/df= 1.163 GFI=0.980

AGFI=0.952 NFI=0.954 CFI=0.958

RMSEA=0.032

Value added information to

customers 4.26 .709 ----- .672 .421

Customer are satisfied

4.38 .668 2.84 .512 .236

Achievement of desired goals 4.23 .727 2.02 .699 .324 Timely return on assets 4.26 .598 2.05 .555 .207 Achievement of branch profits

4.20 .623 2.03 .621 .272

Overall organizational goal 4.55 .510 ---- .528 .116

Overall 4.31 .639

Corporate Reputation

χ2 /df= 1.341 GFI=0.994

AGFI=0.894 NFI=0.986 CFI=0.982

RMSEA=.052

Customers

Customer Orientation(CO) ----- .526 .426

Emotional Appeal(EP) 2.31 .423 .236

Bank has employees who are

concerned about customer

need.(CO1)

3.93 .854 2.33 .666 .444

Bank employees who treat

customer courteously.(CO2)

3.80 .939 2.33 .439 .192

Bank is concerned about its

customers.(CO3)

3.79 .963 2.99 .303 .092

Bank treats its customers

fairly.(CO4)

3.72 .961 2.05 .357 .127

Bank takes customer rights

seriously.(CO5)

3.60 1.14 ----- 402 .101

You admire and respect the

bank.(EP1)

3.97 .937 2.62 .562 .261

You trust the bank.(EP2) 3.83 .908 2.92 .483 .138

You have a good feeling

about the bank.(EP3)

3.75 1.05 2.28 .481 .134

Overall 3.79 0.84

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TABLE 6.5

HYPOTHESES TESTING RESULTS

HYPOTHESES Measurement Model

Structural Model

CR SRW SMC

1a

Accountability Corporate governance 6.093 .512 .262 χ2 /df= 1.087 GFI=0.997

AGFI=0.967 NFI=0.996 CFI=0.998

RMSEA=.023

Transparency Corporate governance 11.198 .793 .638 Effectiveness Corporate governance ----- .825 .681 Corporate social responsibility Corporate

governance 11.166 .851 .724

2

Corporate ethical value Corporate

governance 4.134 .565 .320

χ2 /df= 2.372 GFI=0.978

AGFI=0.917 NFI=0.971 CFI=0.983

RMSEA=.092

Accountability Corporate governance --- .384 .148 Transparency Corporate governance 4.562 .806 .650 Effectiveness Corporate governance 4.969 .823 .677 Corporate social responsibility Corporate

governance 4.590 .841 .708

3a

Corporate culture Corporate governance 4.036 .808 .754 χ2 /df= 1.718 GFI=0.965

AGFI=0.918 NFI=0.939 CFI=0.969

RMSEA=.077

Accountability Corporate governance ---- .323 .104 Transparency Corporate governance ---- .800 .641 Effectiveness Corporate governance 11.485 .810 .656 Corporate social responsibility Corporate

governance 12.312 .866 .750

Mission value driven Corporate governance 3.558 .982 .964 Action against unethical practices Corporate

governance --- .323 .104

3b

Corporate governance Corporate ethical

value 7.254 .560 .221

χ2 /df= 1.540 GFI=0.974

AGFI=0.927 NFI=0.972 CFI=0.990

RMSEA=.058

Corporate governanceCorporate culture 2.336 .470 .534 Accountability Corporate governance 6.125 .491 .241 Transparency Corporate governance --- .801 .641 Effectiveness Corporate governance 11.524 .812 .659 Corporate social responsibility Corporate

governance 12.283 .864 .746

Mission and value driven Corporate culture ---- .591 .326 Action against unethical practices Corporate

culture 2.584 .290 .084

4

Business performance Corporate governance 5.125 .510 .321 χ2

/df= 1.395 GFI=0.986

AGFI=0.947 NFI=0.980 CFI=0.994

RMSEA=.049

Accountability Corporate governance 6.098 .513 .263 Transparency Corporate governance 11.197 .793 .628 Effectiveness Corporate governance --- .825 .681

Corporate social responsibility Corporate 11.164 .851 .724

183

governance

5a

Corporate reputation Corporate governance 3.573 .336 .213 χ2 /df= 1.718 GFI=0.965

AGFI=0.918 NFI=0.939 CFI=0.969

RMSEA=.077

Accountability Corporate governance 4.527 .379 .143 Transparency Corporate governance ---- .809 .654 Effectiveness Corporate governance 12267 .826 .682 Corporate social responsibility Corporate

governance 12.268 .836 .699

Customer orientation Corporate reputation --- .802 .643 Emotional appeal Corporate reputation 3.175 .242 .059

5b

Accountability Corporate governance 5.410 .438 .192

χ2 /df= 1.983 GFI=0.961

AGFI=0.909 NFI=0.921 CFI=0.958

RMSEA=.078

Transparency Corporate governance 10.908 .811 .657 Effectiveness Corporate governance ------ .837 .700 Corporate social responsibility Corporate

governance 11.820 .821 .674

Customer orientation Corporate reputation 5.210 .526 .384 Emotional appeal Corporate reputation 4.435 .302 .219 Corporate reputation Corporate governance 4.851 .371 .153 Business performance Corporate

governance 5.234 .534 .254

Business performance Corporate reputation 5.754 .509 .247

INTEGRATED CG MODEL

Accountability Corporate governance 5.574 .488 .238

χ2 /df= 2.274 GFI=0.977

AGFI=0.947 NFI=0.970 CFI=0.982

RMSEA=.067

Transparency Corporate governance 8.969 .784 .615

Effectiveness Corporate governance 9.312 .814 .671

Corporate social responsibility Corporate

governance 9.557 .865 .748

Corporate ethical value Corporate

governance 6.804 .579 .335

Corporate Culture Corporate governance ----- .682 .465

Corporate reputation Corporate governance 2.125 .102 .001

Business performance Corporate

governance 3.021 .135 .026

184

DISCLOSURE PRACTICES OF PUBLIC AND PRIVATE

BANKS

The present chapter highlights on the CG disclosure practices mandatory as well as non-

mandatory and additional committee, of public and private banks. The CG reports of six

financial years i.e. 2005-2006 to 2010-2011 of the selected three private and public three

banks are analysed under:-

7.1 DISCLOSURE PRACTICES OF PRIVATE BANKS

7.1.1 Jammu and Kashmir Bank (JKB)

7.1.1.1 Mandatory CG Disclosures

CG practices of the JKB as per Clause 49 of the listing agreement are analysed with

respect to composition, participation and number of meeting held for varied mandatory

committee.

Board Committee

Board of Directors: The bank‟s board of directors comprises a judicious mix of

executive, non executive and independent director as per the corporate governance

requirement (Chahal and Kumari, 2011). Appreciating the fact that board composition is

a key to CG, the board of directors of the bank consist of persons with

considerable/extensive professional experience and expertise in banking, finance,

economics, industry, law etc., combining their wide ranging experiences to impart values

and provide direction to bank‟s development. The bank has gained immensely from their

incisive observations, guidelines wide ranging expertise and practical acumen. The CG

framework of the bank spans multi- dimensional parameters such as ethical business

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practices, ownership of corporate actions, independence of board and auditors, treating

business partners fairly, putting stakeholders interest first and foremost transparency and

propriety (JKB Annual Report 2008-09). The board of directors has constituted several

mandatory committees namely audit committee, shareholder investor grievance

committee of the board to take decision on matters requiring special focus. However

information regarding remuneration committee was not mentioned in the CG report.

Table 7.1.1.1 portrays the information on the composition, number of board meetings

held and attended by the various members of the board of director from 2005-06 to 2010-

11 (JKB Annual Reports 2005 -06 to 2010-11).

Composition: The composition of board of director was found to be quite rational and

judicious as per clause 49 requirements, for six financial years that is 2005-06 to 2010-

11. Further, function of board, board procedure, brief profile of directors and disclosure

are mentioned in 2005-06 to 2010-11 CG section of all annual reports the bank.

Participation: The participation of CEO/Chairman in the board meetings held in the six

financial years i.e. 2005-06 to 2010-11 was found to be adequate through out. The

participation of Non-Executive Director (NED) in the board meetings held in the

financial year 2006-2007 was lowest i.e. 36% whereas in the four financial periods 2005-

2006, 2007-2008, 2009-2010 and 2010-11, the NED showed quite better participation in

the range of 60% to 88%. However in the financial year 2008-2009 the NED was not

present in the board meeting which demonstrate lack of their contribution in the board

meetings. The table 7.1.1.1 also reveals that participation of Independent Non- Executive

Directors (INED) in annual board meeting is more than average in all the years except in

2008-2009 in which the participation of INED was found to be 45% only. The

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participation of ED was found to be better in the financial year 2005-2006 in comparison

to rest five financial years.

Board meetings: - The average gap (in days) between varied meetings held during the

six financial years is found to be 14 days, 10 days, 11 days, 15 days 19 days and 24 days

which is much above the threshold limit of 120 days gap (SEBI 2006), indicating good

contribution towards CG practices.

Audit Committee

Audit committee was first time constituted in 2001-02 to assess, review and check the

accuracy of the financial statements of the bank.

Composition: Table 7.1.1.1 depicts the composition, number of audit committee

meetings held and attended by the each category of directors. The composition of audit

committee of the board was found to be rational as per clause 49 of the listing agreement

for all the six financial years (2005-2006 to 2010-11). However, the composition of audit

committee in 2005-06 did not include executive directors (ED) in the audit committee. To

add, it is mandatory for the listed companies to include ED in the audit committee. The

NEDs‟ were included in the committee in three years i.e. 2005-06, 2006-07 and 2007-08.

However, the number of INED through out six financial years under study was quite

satisfactory as per clause 49 which requires minimum three INED in audit committee.

Further, chairman of the committee was INED director in all the six financial years. The

CG environment is found to be quite adequate for all financial years as all the annual

reports disclose the participation of audit committee members.

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Participation: The overall participation of the members in audit committee meeting

ranged between 91% to 100% (2005-2006 to 2010-2011). Individually, the participation

of chairman was 100% only in three financial years i.e. 2007-08, 2009-10 and 2010-11

whereas in the rest years it was between 50% to 88%. The participation of ED who were

appointed only from 2006-2007 onwards, was found to be good. The participation of

INED was found to be minimum (65%) in the year 2007-08 and showed a positive but

mixed trend of participation Lastly, the participations on NED also showed a varying

pattern with maximum participation in the financial year 2005-2006 (50%) followed by

2007-2008 (67%), and was nil in the year 2006-2007 and in the rest years 2008-09, 2009-

2010 and 2010-11, the NED were not included.

Committee meeting: The finding reveals that audit committee meetings were frequently

organized to review and check the financial information disclosed in all the financial

years. The respective average gap between the two meetings held in six years was arrived

at 45 days, 32 days, 30 days, 34 days, 29 days and 35 days days in the financial years

from 2005-06 to 2010-11.

Shareholders/Investors Grievance Committee

This committee constituted in 2001-02, occupies significant place as it is concerned with

the complaints and redressal of shareholders and investors of the bank (Annual Report,

2005-06).

Composition: The overall composition and participation of the committee members was

not up to mark (Table 7.1.1.1). This is particularly because the bank had constituted the

committee with its members but the information regarding the participation of member in

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the meeting was not mentioned in the 2005-2006 and 2006-07 financial years. The bank

had appointed four members (a chairman, one INED and two ED) initially in 2007-08

and later in the 2008-09 committee comprised of one ED and two INED and in 2010-11

the members were three with one chairman, one ED and one INED. Further not even a

single NED was appointed as member of the committee till today which is mandatory for

the bank.

Participation: The participation of the chairman and ED of the committee was 100% in

the two financial years 2007-08 and 2010-11. In the year 2006-07 INED showed 75% of

participation whereas in the three financial years 2008-09, 2009-10 and 2010-11 they

showed 100% participation in the committee meetings. The results thus reflect responsive

attitude of chairman and members of the committee.

Committee meeting: The information on varied grievances committee meetings held was

disclosed from 2007-08 onwards. The average gap between grievances committee held

was arrived at 93 days (2007-08) and 53days (2008-09), 92 days (2009-10), 58 days

(2010-11).

7.1.1.2 Non- Mandatory and additional CG Disclosures

Management Committee

The management committee of the board was constituted in 2001-2002 with the object of

considering various business matters of material significance such as sanctioning of loan,

proposals, compromise/write off cases, sanction of capital and revenue expenditure etc.

(Annual Report 2006-07). The Management committee of the board presently consists of

chairman/CEO and its members (ED, NED and INED). Table 7.1.1.2 shows that the

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members (INED) form the major composition of management committee of board

throughout six financial period (2005-2006 to 2010- 2011). Regarding the participation pf

each category of director in management committee meetings, table 7.1.1.2 exhibits

appreciable participation of chairman (100%) in all the six financial years. The ED

though included in the committee from 2005-2006 onwards showed above average

participation in the committee meetings. The year wise participation of NED is seen as

74%, 88%, 83%, 76%, 98% and 83% in the respective years from 2005-2006 to 2010-

2011. This reveals above average participation of members in the committee meetings.

Further, the NED included in the committee meetings in the years 2006-07, 2007-08 and

2010-11 showed lowest participation (25%) in the financial year in 2006-07 whereas it

was nil 2007-08 and reported as impressive (94%) in 2010-11.

The numbers of meeting held during the six financial years from 2005-2006 to

2010 -11 is quite satisfactory. The average gap between two management committee

meetings in respective six financial years 2005-2006 to 2010-11 was found to be 45 days,

32 day, 30 days 25 days, 30 days 31 days. Table 7.1.1.2 also reveals that the average gap

in management committee meeting ranged between 30 days to 40 days which reflects

adequate number of meetings held and hence positively contributes to CG environment.

Integrated Risk Management Committee

Integrated risk management committee was constituted in 2003-04 to manage market

risk, credit risk and operational risk in an integrated and efficient manner. Excluding

chairman, the committee comprised of five ED/NED/INED directors in all the financial

years. Further NED was included in the last financial years only (2010-11). However,

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nothing was mentioned about its composition and meetings held and participation of

members in the financial year 2005 - 06. Regarding the number of meeting held and

attended by all members, two meetings (94 days average gap) were fully attended by

members in 2006-2007, four meetings (91 days average gap), were attended by 93 %

members collectively in the financial year 2007-08, two meetings (188 days gap) were

organized in the financial year 2008-09 ,which were attended by 75% members and three

meetings (94 days average gap) were organized in the financial year 2009-10 which only

85% members attended and three meetings (91 days average gap) were organized in the

financial year 2010-11 and were attended by all directors.

Compensation Committee

The bank had constituted the compensation committee in the year 2001-02 to consider

and approve the amount of performance linked incentives to be paid to chairman and

senior executives of the bank and framed the guidelines for the introduction and

management of employees‟ stock option scheme. Although compensation committee was

framed in all for six financial years (2005-06 to 2010-11) but its composition and

meetings held were disclosed only in the periods from 2007-08 and 2110-11. However

the bank had disclosed the role and functions of the committee in the rest two financial

periods(2005-06 and 2006-07) specifically. Whereas in 2007-2008, two INED, and one

NED were appointed in the compensation committee, one meeting was held and attended

by all the committee members. Whereas in 2010-11 four INED were included and

showed 85% participation in the meetings.

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Monitoring of Large Value Fraud Committee

Monitoring of large fraud committee was formed in the year 2003-04 in pursuant to RBI

directions to monitor the fraud cases involving an amount of Rs. 1 crore and above. The

information about the committee was disclosed in four financial years only i.e. 2007-08

to 2010-11. The composition of the committee members is given in table 7.1.1.2. The

percentage of meetings held and attended was found to be 100% in 2010-11 (average gap

of 91 days) and 2007-08 (average gap of 44 days) whereas the respective participation

was 75% and 91% in the 2008-09 (average gap of 67 days) and 2009-10 (average gap of

91 days). For the remaining two financial years (2005-06 and 2006-07) only role and

functions of the committee were mentioned.

Nomination Committee

Nomination committee was constituted in the year 2005-06 on the recommendation of

Ganguly Committee for appointment and extension of the BOD. The CG report

mentioned about the role and functions in three financial years (2005-06, 2006-07 and

2008-09) and detailed information in the rest three periods (2007-08, 2009-10 and 2010-

11). In the financial year 2007-08, one chairman and four INED were appointed who

attended two meetings, held with an average gap of 163 days while in the year 2009-10,

one chairman, one ED, three INED and one NED were appointed who attended nine

meetings, held with an average gap of 74 days and in the year 2010-11, one chairman,

two NED, two INED were appointed who attended five meetings held with an average

gap of 91 days.

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Customer Service Committee

Customer service committee was set up in 2005-06 with a view to look into matters

relating to customer complaints and speedy redressal thereof. The detailed information

about the committee was given in the four financial years i.e. 2007-08 to 2010-11. The

composition of the committee is given in Table 7.1.1.2. Overall the table reveals that all

the members have attended all the meetings held during 2008-09 (average gap of 91

days), 2009-10 (average gap of 53 days) and 2010-11 (average gap of 91 days), excluding

2007-08 (average gap of 93 days) where the participation was 80%.

Information Technology Committee

Information technology committee was first time constituted in January 2004 with a view

to monitor the progress of effective assimilation and speedy implementation of

information technology in the bank. However the information on composition of

committee was disclosed from 2007-onwards. The composition and number of meetings

held and attended reveals almost full participation of the members in the meetings

excluding INED in 2009-10 with participative percentage as 67%.

Legal Committee

The bank has constituted legal committee to take review of all legal filed cases in the

financial years 2009-10 and 2010-11. The composition of the committee was quite

adequate as detailed information regarding composition of directors, number of meeting

held and attended by the members are disclosed in both the two annual reports. The

participation of the members in the committee was found to be 95% (eighteen meetings

193

held and seventeen attended) in 2009-10 the legal committee met six times during the

year with an average gap of 25 days. In the financial year 2010-11 the participation was

also 95% (twenty one meeting held and twenty attended) but with an average gap 39

days.

Estates Committee

The bank has constituted the Estate Committee to evaluate, negotiate and finalise the

purchase and lease of premises for bank branches/ offices and staff quarters, within and

outside the state. Table 7.1.1.2 portrays the composition, meeting held and attended of the

committee members. The overall participation of the members was found to be 88%

(sixteen meetings held and fourteen attended) in 2009-10 and 100% (seventeen meetings

held and seventeen attended) in 2010-11. The average gap between the meetings is 27

days (2009-10) and 45 days (2010-11). In the rest periods the bank has not constituted

the estates committee in the financial years.

7.1.2 Housing Development Finance Corporations (HDFC)

7.1.2.1 Mandatory CG Disclosures

Board Committee

Composition: The board comprised of optimum combination of ED and NED that is not

less than one-third of the directors are INED (2005-2006 to 2010-2011) which is as per

Clause 49. Further in the financial years 2005-06 to 2008-09 financial experts were also

included in the board meetings (Table 7.1.2.1).

Participation: The overall participation of members in board meetings is in the range of

80% (2005-06) to 93% (2010-11). The participation of chairman and ED was 100% for

194

all six financial years (2005-06 to 2010-11). Further the table 7.1.2.1 exhibits that all

participation of NED is 85% (nine members, forty four meetings held), 85% (nine

members, fifty nine meetings held), 81% (eight members, eighty meetings held), 90%

(seven members, forty nine meetings held), 95% (seven members, forty nine meeting

held) and 95% (ten members, fifty seven meeting held) in the financial years 2005-06,

2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 respectively. (HDFC Annual Reports

2005 -06 to 2010-11)

Board Meetings: The findings reveal that board meetings are frequently organized to

review and check the financial information disclosed in all six financial years. The

average gap between the two meetings held in six financial years 2005-06 to 2009-10 is

arrived at 23 days, 33 days, 57 days, 64 days and 58 days in the respective years.

Audit and Compliance Committee

Composition: The audit and compliance committee of the bank is chaired by NED in all

the six financial years. The composition of the audit and compliance committee of the

board is found to be rational as per Clause 49 of the Listing Agreement as the committee

comprised of more than three members that is 6, 6, 5, 5, and 5 in the financial years from

2005-06 to 2010-11. However, the composition of audit committee in six years did not

include ED, which is mandatory for the banks. Only NED was included in the committee

in the six financial years.

Participation: The overall participation of members in audit committee meetings is in

the range of 93% (2005-2006) to 97% (2006-2007). The audit committee was chaired by

the ED in all the six financial years. Individually the participation of NED was found to

195

be 91% (four members, twenty two meetings held and twenty attended), 100% (five

members, twenty nine meetings held and twenty nine attended), 92% (four members,

twenty five meetings held and twenty five attended), 91% (four members, thirty six

meetings held and thirty three attended), 94% (four members, thirty two meetings held

and thirty attended) and 90% (two members, ten meetings held and nine attended) in the

respective six financial years 2005-2006 to 2010-11.

Committee Meeting: The CG report has disclosed number of meetings with average gap

of 59 days only in one financial period i.e. 2010-11.

Investor Grievance (Share) Committee

Composition: The composition of the investor grievance (share) committee of the board

is adequate in all the six financial years i.e. 2006-07 to 2010-2011 (Table 7.1.2.1). The

overall committee comprised of 2, 3, 3, 3, 3 and 4 members and the committee was

chaired by NED in all the six financial years.

Participation: The participation of ED is found to be 100% in three financial years i.e.

2005-06, 2006-07,2008-09 (one member, thirteen meetings held and 13 attended)and

2010-11 100% (one member, three meetings held and three attended). However in the

financial years 2007-08 and 2009-10 the participation was found to be 64% (one member,

eleven meetings held and seven attended) and 60% (one member, fifteen meetings held

and nine meeting attended). The table 7.1.2.1 reveals declining trend of participation of

ED in the investor grievance (share) committee meetings. The NED showed somewhat

mixed trend of participation as the percentage is arrived at 100% (one member, thirteen

meetings held and 13 attended), 100% (one member, six meetings held and six attended),

196

100% (one member, eleven meetings held and eleven attended), 92% (one member,

thirteen meetings held and twelve attended) 100% (one member, fifteen meetings held

and fifteen attended) and 100% (two members, three meetings held and three attended).

Board Meeting: Although number of meetings held during the selected periods were

disclosed but no information on the dates meetings were held was given.

7.1.2.1 Non-Mandatory and Additional CG Disclosures

Compensation Committee

The compensation committee in the six financial periods (2005-06 to 2010-11) is chaired

by NED and his participation was found to be 100% in five financial years that is 2005-

06, 2006-07, 2007-08, 2008-09 and 2010-11, whereas in the financial year 2009-10 it was

just 83%. Further the participation of other NED was found to be outstanding (100%) in

four financial years 2005-06, 2006-07, 2008-09 and 2010-2011 (Table 7.1.2.2). In the

rest two financial periods 2007-08 and 2009-10 it was 71% (three members, seven

meetings held and five attended) and 94% (three members, eighteen meetings held and

seventeen attended).

Risk Monitoring Committee

The risk management committee was chaired by ED for five financial years i.e. 2006-07,

2007-08, 2008-09, 2009-10 and 2010-11, whereas in the financial 2005-06 it was chaired

by NED, who was also the financial expert of the bank. Overall risk monitoring

committee was composed of 5, 5, 4, 4, 4 and 3 members in the six respective financial

years from 2005-06 to 2010-11. The ED was included in the committee for two financial

periods i.e. 2005-06 and 2008-07 and their participation was found to be 100% in both

197

the periods (Table 7.1.2.2). The NED participation ranged between 100% to 94%. The

overall participation of the members in the committee meetings reveals excellent

participation in all financial years excluding 2009-10.

Nomination Committee

The table 7.1.2.2 depicts the overall composition of the committee which is arrived as

five members (a chairman and four NED) in 2005-06, three members (a chairman and

two NED) in four financial years 2006-07, 2007-08, 2008-09 and 2009-10.In the

financial year 2010-11 the bank has not constituted the committee. The committee is

chaired by NED in all the five financial years 2005-06 to 2009-10 and their participation

is found to be 100% in all the five financial years. The participation of NED and ED in

the respective years is found to be 83% (four members, six meetings held and five

attended), 100% (two members, five meetings held and five attended), 100% (two

members, three meetings held and three attended), 100% (two members, two meetings

held and two attended) and 100% (two members, two meetings held and two attended).

Credit Approval Committee

The credit approval committee approves credit exposures, which are beyond the powers

delegated to executives of the bank. This committee facilitates quick response to the

needs of the customers and speedy disbursement of loans. The committee comprised of

one ED and two NED in the all five financial years i.e. 2005-06 to 2009-10. The NED

was the chairman of the committee for five financial years and their participation ranged

between 100% to 80% (Table 7.1.2.2). The ED showed excellent participation in the

financial years 2005-06, 2006-07 and 2007-08 whereas in the financial years 2008-09 and

198

2009-10 the participation was above 50% i.e. 57% and 60% respectively. Similarly the

NED also showed good participation, which was arrived as 83% (2 members, six

meetings held and five attended) in 2005-06, 100% (2 members, three meetings held and

three attended) in 2006-07, 100% (2 members, four meetings held and four attended) in

2007-08, 86% (2 members, fourteen meetings held and twelve attended) in 2008-09 and

93% (2 members, thirty meetings held and twenty eight attended) in 2009-10. The overall

results reveal that the committee member‟s accountability, fairness and responsive

attitude towards their job assignments.

Fraud Monitoring Committee

The information about the committee was disclosed in the first five financial years i.e.

2005-06 to 2009-10 and was not constituted in 2010-11. The committee comprised of a

chairman, one ED and two NED in the financial years 2005-06 and 2007-08, while in the

financial years 2006-07, 2008-09 and 2009-10 it included a chairman, one ED and three

NED (Table 7.1.2.2). The overall members‟ participation (ED and NED) is found to be

excellent in three financial years i.e. 2006-07, 2007-08 and 2008-09. However in the two

financial years 2005-06 and 2009-10 the NED showed above 50% i.e. 75% and 92%

participation respectively

Premises Committee

The premises committee approves purchases and leasing of premises for the use of

bank‟s branches, back offices, ATMs and residence of executives in accordance with the

guidelines laid down by the board. The premises committee is chaired by an ED in five

financial years 2005-06 to 2009-10 and who showed 100% participation. Besides

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chairman the committee comprised and three NED in all the financial years (Table

7.1.2.2).The participation of NED also found to be 100% in the five years. The

committee was not constituted in 2010-11.

Customer Service Committee

The committee comprised of a chairman and three NED in the two financial years 2005-

06 and 2009-10 while in 2006-07, 2007-08 and 2008-09 their was a chairman and two

NED. The participation of NED was found to be 92% (three members, twelve meetings

held and eleven attended), 100% (two members, eight meetings held and eight attended),

100% (two members, eight meetings held and eight attended) and (three members, twelve

meetings held and twelve attended) in 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10

respectively (Table 7.1.2.2).

7.1.3 Industrial Credit and Investment Corporation of India (ICICI)

7.1.3.1 Mandatory CG Disclosures

Board Committee

Board of Directors: ICICI Bank has a broad-based Board of Directors, constituted in

compliance with the Banking Regulation Act, 1949, Companies Act, 1956 and listing

agreements with stock exchanges.

Composition: The composition of the board is found to be quite satisfactory GOI all the

six financial years (Table 7.1.3.1). Unlike JKB and HDFC nominee of the Government of

India was also included to have effective supervision.

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Participation: The year-wise participation of independent director shows a declining

trend with participation as 83%, 79% and 61% in three respective years i.e. 2006-07,

2007-08 and 2008-09. However in the financial years2009-10 and 2010-11 their

participation was increased to 72% and 78% respectively. The participation of director

(WD) is found to be excellent (100%) for five financial years (2006-07 to 2010-11). The

board committee included the Government of India (NGOI) and his participation ranged

between 38% (2006-07) to 100% (2009-10), indicating impressive participation in the

bank‟s functioning (ICICI Annual Reports 2005 -06 to 2010-11).

Meetings: The finding reveals that board committee meetings are regularly organized to

review and check the financial information disclosed in the five financial years. The

respective average gap between the meetings held in 2006-07 to 2010-11 is calculated as

42 days, 69 days, 29 days, 33 days and 31 days.

Audit Committee

Composition: In terms of Clause 49 of the Listing Agreement, the composition of audit

committee is found to be quite adequate (minimum three directors) for all the five

financial years (2006-07 to 2010-11) as the committee comprised of a chairman and two

ID each in 2006-07, 2007-08 and in 2008-09, a chairman and three IDs in 2009-10 and a

chairman and five ID in 2010-11.

Participation: The participation of ID was found to be 92 %, 83 %, 83 % ,87 % and

100% in the respective five i.e. years 2006-07, 2007-08, 2009-10 2008-09 and 2010-11,

indicating good participation of the ID directors (Table 7.1.3.1). However the committee

in the selected five financial years has not included any WTD and NGOI.

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Committee Meeting: The committee met 8, 9,6,7,8 and 9 times during 2005-06 to 2010-

11 but the dates were not mentioned.

Board Governance, Remuneration & Nomination Committee

Composition: The composition of board governance, remuneration and nomination

committee is found to be rational as per Clause 49 of the Listing Agreement for five

financial years 2006-07 to 2009-10.

Participation: The participation of a chairman of the committee was 100% in five

financial years 2006-07 to 2009-10 (Table 7.1.3.1). The participation of the IDs under the

five selected periods ranged between 92% (2006-07) to 100% (2010-11).

Committee Meeting: No information on the no. of meetings held was disclosed in the

annual report

Share Transfer and Shareholder Investor Grievance Committee

Composition: The share transfer & shareholders‟/investors‟ grievance committee is

comprised of four to seven members including chairman, WTD and IDs in the five

financial years (Table 7.1.3.1). The overall composition of the committee is up to the

mark as judicious mix of the directors was presented in all the committees constituted in

the five financial years. However committee did not included ID in 2008-09.

Participation: The participation of IDs in the meetings is found to be 92%, 58%, 25%

and 80% in the three respective years i.e. 2006-07, 2007-08 and 2009-10. Overall

participation of IDs was not up to the mark. In comparison to the IDs, the WTDs have

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showed comparatively impressive participation, which was found to be 71%, 100%,

87%, 100% and 100% in the respective financial years i.e. 20006-07 to 2010-11 (Table

7.1.3.1).

7.1.3.2 Non-Mandatory and Additional CG Disclosures

Credit Committee

The functions of the credit committee include review developments in key industrial

sectors and approval of credit proposals as per authorisation approved by the board. The

participation of IDs in the five financial years was found to be 78% (four members, sixty

meetings), 90 % (three members, sixty three meetings held), 96% (three members, fifty

four meetings held), 90% (four members, sixty three meetings held) and 100% (four

members, forty four meetings held) in the years 2006-07, 2007-08, 2008-09, 2009-10 and

2010-11 respectively. This also reflected the increasing trend of participation of members

in the respective years (Table 7.1.3.2). In comparison to IDs, WTDs showed outstanding

participation (100%) in the four years 2006-07, 2008-09, 2009-10 and 2010-11 excluding

2008-09. where the participation was 81%.

Customer Service Committee

The information on composition of the customer service committee was disclosed in all

five financial years from 2006-07 to 2010-11. The year-wise composition of committee

in the five periods was given in table 7.1.3.2 which included chairman, WTD and IDs.

The table shows the increasing trend of participation of ID which was found to be 67%,

75%, 92%, 93% and 100% in the respective five financial years 2006-07, 2007-08, 2008-

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09, 2009-10 and 2010-11. The year-wise participation of WTD is seen as 56%, 67%,

50%, 100%, 83% in the respective five years from 2006-07 to 2010-11.

Fraud Monitoring Committee

The fraud monitoring committee has included ID, WD and NED to monitor and review

all frauds involving an amount of Rs. 10.0 million and above. The composition is found

to be quite judious (Table 7.1.3.2). The participation of members in the meetings held

ranged between 100 % to 75% (CEO), 75% to 33 % (ID) and 100% to 56% (WD) across

selected five financial years.

Risk Committee

The risk committee was chaired by NED and comprised of ID and WTD with varying

number in the selected five financial years (Table 7.1.3.2). The participation of ID in the

risk committee was found to be lowest (67%) in the financial year 2009-10, in

comparison to the remaining years i.e. 2006-07(83%), 2007-08(73%), 2008-09(94%),

(2009-10) 67% and (2010-11) 65%. Further, the participation of WTDs‟ is found to be

excellent (100%) in only two financial years that is 2006-07 and 2009-10 and was 60% in

the financial year 2007-08 (Table 7.1.3.2). The committee has not included WTD in the

financial year 2008-09.

Committee of Executive Directors

The powers of the committee of executive directors include approval of credit proposals

as per authorisation approved by the board in respect of borrowings, treasury operations

premises and property related matters. The information on the composition of the

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committee was disclosed in the financial years i.e. 2006-07 to 2009-10excluding 2010-

11further, no information was mentioned about the meetings held and attended by each

category of directors in five annual reports from 2006-07 to 2010-11.

Asset Liability Management Committee

No information was mentioned about composition, meetings held and attended by the

directors in the four financial years in the annual reports (Table 7.1.3.2).

Strategy Committee

The functions of the committee relate to evaluating various strategic opportunities,

including acquisitions/divestitures, restructuring and other strategic initiatives for the

bank and its subsidiaries and to recommend the same to the board. The strategy

committee was constituted in only two years (2007-08 and 2008-09). The committee

comprised of five members each in the two years, excluding ID and WTD. However no

information was given in three financial years 2006-07, 2009-10 and 2010-11.

Corporate Social Responsibility Committee

The board of directors at its meeting held on October 30, 2009 constituted Corporate

Social Responsibility (CSR) Committee. The Committee is empowered to review CSR

initiatives undertaken by the ICICI Group and the ICICI Foundation for inclusive growth,

make recommendations to the board with respect to the CSR initiatives, policies and

practices of the ICICI Group and to review and implement, if required, any other matter

related to corporate social responsibility initiatives as recommended/ suggested by RBI or

any other body. The committee was constituted in two years i.e. 2009-10 and 2010-11. It

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comprised of a chairman, one ID and one WTD in 2009-10 and a chairman, three ID and

one WTD in 2010-11. The overall participation is found to be 67% in 2009-10 and 75%

in 2010-11.

7.2 DISCLOSURE PRACTICES OF PUBLIC BANKS

7.2.1 State Bank of India

7.2.1.1 Mandatory CG Disclosure

Board Committee

Board of Directors: The board of directors, the apex of internal control system, is

charged with advising and monitoring management and has the responsibility to hire and

compensate the senior management. Board of the SBI consists of eminent persons with

considerable professional, experience and expertise in banking, finance, economic,

industry, law etc who provide information and decisions for the banks development and

frame policies and practices. This reflects the talent and competent skills of board of

directors. The board considers transparency, accuracy and accountability to its

stakeholders as its primary responsibility to ensure the implementation of CG laws and

regulation.

Composition: The BoD‟s committee comprised of chairman/CEO any with varying mix

of ED (2) and NED (9). Table 7.2.1.1 depicts that the composition of the board is quite

rational and judicious as per clause 49, in all the annual reports from 2006-07 to 2010-11.

Participation: Table 7.2.1.1 exhibits appreciable participation of chairman (100%) in all

the five financial years (2006-07 to 2010-11). The ED were included in the committee

from 2006-07 onwards and they showed good (above average) participation in board

committee meetings which is arrived as 100%, 100%, 65%, 95% and 80% in respective

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five years. Regarding NED, the year wise participation is seen as 96% (2006-07), 97%

(2007-08), 64% (2008-09), 83% (2009-10) and 81% (2010-11), which also show above

average participation of NED in board committee meetings ( SBI Annual Reports 2006 -

07 to 2010-11).

Board Meetings: Regarding the number of meetings held during the five financial years

from 2006-07 to 2010-11, information disclosed is quite satisfactory. The average gap

between two board meetings in all financial periods under study (2006-07 to 2010-11) is

arrived at 34 days, 30 days 32 days 30 days and 41 days respectively. The average range

of gap in board committee meetings is between 32 days to 41 days, which showed good

functioning of CG bank in respect to CG practices in terms of number of board

committee meetings held in the financial years.

Audit Committee

The audit committee of the board was initially constituted on 27th

July 1994 and later re-

constituted on the 1st Oct 2006. Audit committee of the board provides direction and

oversees the operation of the total audit function of the bank.

Composition: The audit committee comprised of 9, 11, 8, 5 and 8 members, more than

required under clause 49 in the respective five financial years i.e. from 2005-2006 to

2010-11. The varying mix of ED and NED was seen in the audit committee in the five

periods.

Participation: The CG practices of SBI bank is found to be quite adequate from 2006-07

period onwards as all annual reports disclosed the participation of audit committee

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members. Further their participation in last five periods is found to be 100% (nine

members, forty meetings held and forty attended), 87% (eleven members, forty three

meetings held and thirty seven attended), 61% (eight members, fifty nine meetings held

and 36 attended), 62 % (five members, thirty nine meetings held and twenty four

attended) and 72% (twelve members, seventeen one meeting held and fifty one attended)

in 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 respectively. Further the bank has

also included nominees of RBI and GOI in the three financial years - 2006-07, 2007-08

and 2008-09. The participation of RBI nominee was found to be 50% (one member, ten

meetings held and five attended), 50% (one member, nine meetings held and three

attended) in the financial years 2006-07 and 2007-08, whereas in the financial year 2008-

09 the RBI nominee was not included. Regarding the participation of nominees of GOI

two members were included but no meetings were held in the financial years 2006-07 and

2007-2008 while in the financial year 2008-09 only one member was included but

surprisingly he had not attended any meeting out of nine meetings held (Table 7.2.1.1).

Committee Meetings: The information on varied audit committee meetings was

disclosed in all five financial years i.e., 2006-07 to 2010-11. The average gap between

two audit committee meetings held was 31 days (2006-07), 38 days (2007-08), 36 days

(2008-09) 32 days (2009-10) and 27 days (2010-11). The information disclosed adequate

number of meetings held during the periods.

Remuneration Committee

Composition: The bank has constituted the remuneration committee from 2008-09

onwards. In the financial year 2008-09 the committee comprised of one member of RBI,

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two NED and one GOI while in the years 2009-10 and 2010-11 it comprised of one

member of RBI, one GOI and two NED (Table 7.2.1.1).

Participation: The annual reports (2008-09 to 2010-11) have not disclosed any

information about meetings held and attended by the members of remuneration

committee.

Shareholder/ Investor Grievance Committee

Composition: The complete information about the shareholder/ investor grievance

committee was given in financial years 2006-07 to 2010-11. The meeting was chaired by

a NED in five financial years (2005-06 to 2010-11). The overall composition in terms of

number of directors i.e. 4, 5, 3, 5 and 6 for the financial years 2006-07 to 2010-11 is

found to be quite adequate, with varying mix of ED and NED.

Participation: The participation of chairman was found to be 100% in four financial years

2007-08 to 2010-11 excluding 2006-07 in which it was 75%. Table 7.2.1.1 also reveals

the participation of ED was 100% in 2007-08 (two members, two meetings held and two

attended) and 2008-09 (two members, six meetings held and three attended) and 2010-11

(4 members, 4 meetings held and 2 attended) financial years whereas in the rest years

2006-07 and 2009-10 it was found to be 80% (three members, five meetings held and

four attended) and 88% (two members, eight meetings held and seven attended)

respectively. Similarly the participation of NED ranged between 63% (2009-10) to 100 %

(2007-08), indicating a moderate to high participation in the committee meetings. To add

there was no NED in 2008-09 committees.

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7.2.1.2 Non - Mandatory Corporate Governance Disclosure

Risk Management Committee

The risk management committee was constituted on the 23rd

March 2004, to oversee the

policy and strategy for integrated risk management relating to credit risk, market risk and

operational risk. The ED chaired the committee in all the financial years from 2005-06 to

2010-11. The committee met four times a year, (once in each quarter) in all the financial

years (Table 7.2.1.2). The participation of ED was found to be excellent (100%) for two

financial years i.e. 2006-07 and 2008-09, whereas in 2009-10 and 2010-11 it was found

good (75%). The NED showed mix trend of participation that is 87% (two members,

eight meetings held and seven attended), 100% (three members, seven meetings held and

attended), 90% (three members, ten meetings held and nine attended), 75% (four

members, sixteen meetings held and twelve attended) and 73% (four members, fifteen

meetings held eleven attended) in the respective five years.

Special Committee for Monitoring of Large Frauds

The special committee for monitoring of large frauds (Rs 1 Crore and above) was

constituted on the 29th

March 2004. In the five financial years under study i.e. 2006-07 to

2010-11 the Managing Director and Chief Credit and Risk Officer chaired the committee.

The committee comprised of four NED (2006-07), five NED each (2007-08), one ED and

five NED (2008-09 and 2009-10) and one ED and six NED (2010-11) in five financial

periods and met 5, 9, 3, 4 and 4 times during the respective financial years. The

participation of the ED was found to be 100% in two financial years i.e. 2008-09 and

2009-10 whereas in 2010-11 it was found to be 75%. Further the participation of NED

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was found to be 95% (four members, twenty meetings held and ninety attended), 100%

(five members, nine meetings held and nine attended), 91% (five members, eleven

meetings held and ten attended), 65% (five members, twenty meetings held and thirteen

attended) and 73% (six members, fifteen meetings held and eleven attended). Among the

five periods, the overall participation of the committee members (ED and NED) was

found to be excellent in the year 2007-08.

Customer Service Committee of the Board

The customer service committee of the board was constituted on 26th

August 2004, to

bring about on going improvement on a continuous basis in the quality of customer

service provided by the bank. The Managing Director and Chief Credit and Risk Officer

is chaired committee in all five financial years (2006-07 to 2010-11). The committee

comprised of varying number of ED and NED, excluding 2006-07 where only NED (two

in number) was the members of the committee. The participation of the ED was found to

be 100% in four financial years i.e. 2007-08 to 2010-11. The participation of NED was

83% (six meetings held and five attended), 100% (eight meetings held and eight

attended), 83% (six meetings held and five attended), 81% (sixteen meetings held and

thirteen attended) and 86% (fourteen meetings held and twelve attended) in the respective

five financial years.

Technology Committee of the Board

Technology committee was constituted on 26th

August 2004 and is chaired by a NED for

the five financial years from 2006-07 to 2010-11. The committee comprised of adequate

number of members (ED and NED) in all financial years excluding 2006-07, where only

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one NED was the member. The number of meetings and the participation of ED and

NED is given in Table 7.2.1.2. The meetings were held in timely manner.

Committee on Rural Sector Business

The committee of the board on rural sector business was constituted earlier on 27th

October 2005 and was reconstituted on 29th March 2008 with renewed focus on the

bank‟s agri-business initiatives. The committee was chaired by NED for three financial

years 2006-07, 2007-08 and 2008-09, and the its composition included 1 NED (2006-07),

one ED & one NED (2007-08), two ED and two NED (2008-09). Whereas in the

financial years 2009-10 and 2010-11 the bank did not constituted the committee. Further

it was also seen that the participation of ED was not satisfactory as it was found to be

only 50% in two financial years 2006-07 and 2007-08 but their participation was quite

remarkable (93%) in the committee in 2008-09. On the other hand NED showed

somewhat mix trend of participation in the committee meetings (Table 7.2.1.2).

7.2.2 Punjab National Bank

7.2.2.1 Mandatory CG Disclosures

Board Committee

Board of Directors: Board of the PNB consists of eminent persons with considerable

professional experience and expertise in banking, finance, economic, industry, law etc

who provide directions for bank development and designing policies and practices. The

board considers its primary responsibility is to ensure the implementation of CG laws and

regulation with respect to transparency, accuracy and accountability to its stakeholders.

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Table 7.2.2.1 portrays the information on the composition, number of board meetings

held and attended by various members of the board of directors from 2006-07 to 2010-11.

Composition: The composition of the board of directors is found to be quite rational and

judicious as per Clause 49 requirements, for four financial years i.e. 2006-07, 2007-08,

2009-10 and 2010-11. However the composition of board of directors lacks judicious mix

in 2008-09, as ED was not included in the board meeting, which is otherwise mandatory.

Participation: The participation of ED in board meetings held during various financial

years is found to be quite appreciable. Categorically, the participation is found to be

excellent (100%) in two financial years 2006-07 and 2009-10, it was found to be good

with 94% and 93% respective participation whereas in 2007-08 and 2010-11. The table

7.2.2.1 also reveals the participation of NED in board meetings which was found to be

90%, 89%, 87%, 87% and 87% respectively in respective five periods, signifying good

CG practices (PNB Annual Reports 2006 -07 to 2010-11).

Board Meetings: Regarding number of board meetings, the average gap (in days)

between meetings held during the financial periods is found to be in the range of 16 days

to 31 days which is much below the threshold limit of 120 days (SEBI 2006). The

meetings organized during the period reflect CG quality of the bank.

Audit Committee

Audit committee was constituted to review and check the accuracy of the financial

statement of the bank in (Annual Report 2006-07).

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Composition: The composition of audit committee of the board is found to be rational, in

all the five financial years i.e. 2006-07 to 2010-11. The NED and ED included in the

committee in all the selected financial years excluding 2008-09 where only NED were

the members.

Participation: The overall participation of members in audit committee meetings was in

the range of 76% (2008-09) to 94% (2006-07). Individually, the participation of chairman

was 100% in all financial years, which remarked his effective participation (Table

7.2.2.1). The participation of ED showed 100% participation in 2006-07 and 2010-11,

whereas it was nil in the 2008-09. The participation of NED, on the other hand showed a

declining trend in the first three periods i.e. 85% (2006-07), 81% (2007-08) and 76%

(2008-09), whereas increasing trend was observed in 2009-10 (77%) and 2010-11(79%).

Committee Meetings: The findings reveal that audit committee meetings were frequently

organised to review and check the financial disclosures in all the financial years. The

respective average gap between the two meetings held during five periods i.e. 2006-07 to

2010-11, is arrived at 24 days, 25 days and 30 and 30 days respectively.

Remuneration Committee

The remuneration committee was constituted in 2007 with its prime function to evaluate

the performance of whole time directors.

Composition: The composition of committee members is found to be quite rational and

judicious in all financial years from 2006-07 to 2010-11. However, the ED was not

214

included in the committee in all the five financial years. To add the chairman of the

committee was NED in all financial years i.e. 2006-07 to 2010-11.

Participation: The meetings of the committee were regularly organized from 2007-08

onwards. Although the committee members were defined but meeting could not be held

during the 2006-07 period. Both overall and individual participation of committee

members were found to be 100% in the five financial periods.

Committee Meeting: No information on number of meetings held is given in any annual

reports in the section of CG report.

Shareholders/ Investors Grievance Committee

The overall information of the committee is quite up to the mark, the committee disclosed

all the information (composition of the board, number of meeting held and number of

meeting attended) as laid under clause 49 listing agreement.

Composition: The committee included a judicious mix of ED and NED. The number of

ED and NED members in the committee in five periods is given in Table 7.2.2.1. The

NED chaired the committee in all the five financial periods (2006-07 to 2010-11).

Participation: The participation of all members, including chairman was 100% in all four

financial years, excluding 2007-08 where participation of chairman was 75% and ED was

90% and 2008-09 where participation of NED was just 50%.

Committee Meetings: The number of meetings held and attended was not mentioned in

the annual reports.

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7.2.2.2 Non-Mandatory Corporate and additional CG Disclosure

Management Committee

The composition and participation of board members meetings in management committee

is disclosed in all the five financial years i.e. 2006-07 to 2010-11. The participation of

chairman in the meetings ranged between 100% to 95% for chairman and ED and from

96% to 86% for NED across the five financial years (Table 7.2.2.2). The average gap

between two committee meetings in the five financial years is arrived at 16 days, 13 days,

14 days, 14 days and 17 days respectively.

Risk Management Committee

The composition of the risk management committee is found to be quite adequate in all

five financial periods (2006-07 to 2010-11) (Table 7.2.2.2). The chairman of the

committee was NED in all five years. The participation of chairman and ED was 100%

through out excluding 2007-08 where participation of ED was just 75%. The

participation of NED in the committee showed positive trend from 2006-07 to 2009-10

that is 57 % (2006-07), 64 % (2007-08), 83 % (2008-09) and 90% (2009-10). The

participation of NED was 70% in 2010-11, which was very much low in comparison to

previous years.

Committee of Director

The committee of director reviews disposal of vigilance/non vigilance disciplinary action

cases on quarterly basis. The total number of ED and NED present in the committee were

4, 5, 5, 5 and 7 in the financial years 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11

respectively (Table 7.2.2.2). The participation of the chairman and ED was 100% in all

216

the five financial periods. However the participation of NED showed a varying pattern

with maximum participation of 83 % (2006-07) followed by 75% (2007-08), 50 % (2008-

09) 89% (2009-10) and 50% (2010-11) in different periods.

Information Technology

The committee was constituted by the board to study various aspects of information

security and information initiatives and to suggest appropriate measures to strengthen the

same. The composition of the committee is quite adequate (Table 7.2.2.2). The

participation of ED in the committee was found to be 100% in the four financial years

that is 2007-08, 2008-09, 2009-10 and 2010-11 while participation of NED was found to

be 83 % (twelve meetings held and ten attended), 87% (fifteen meetings held and thirteen

attended), 92 % (thirteen meetings held and twelve attended), 100% (two meetings held

and two attended) and 95% (nineteen meetings held and eighteen attended) in the

respective five financial years.

Directors Promotion Committee

The directors‟ promotion committee considers candidates for promotions and

representations of candidates against non-approval for promotion to top executive grade

scale-VII. The committee was chaired by ED and its members included NED in all the

five financial years (2006-07 to 2010-11). The information on meetings held and attended

was disclosed in all years excluding 2008-09. One meeting each was held during 2006-

07, 2007-08 and 2009-10 which were fully attended by all the directors in the committee,

whereas only two meetings were held in 2010-11 and attended by all the four directors

(Table 7.2.2.2).

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Special Committee of Board for Monitoring Fraud Cases

The special committee of board for monitoring fraud consists of chairman/ managing

director, ED and NED. The participation of ED was found to be excellent as it was 100%

in all five financial years 2006-07 to 2010-11. Further the participation of NED was also

good. It was 100% (six meetings held and six meetings attended), 65% (seventeen

meetings held and eleven meetings attended), 69% (sixteen meetings held and eleven

meetings attended), 86% (twenty meetings held and nineteen meetings attended) and 79%

(twenty four meetings held and nineteen meetings attended) in respective five years.

Nomination Committee

Although nomination committee was constituted in the financial year 2006-07 but

composition of the board, meetings held and participation of committee members was not

disclosed in the annual report. The committee was reconstituted from March 2008

onwards. The CG section disclosed its composition which included a chairman and three

NED (in 2008-09) and a chairman and four NED in 2010-11. However nothing was

mentioned about the meetings held and attended by the directors during 2006-07 and

2009-10 whereas complete disclosure was given in that is 2008-09 and 2010-11 financial

years i.e. 87% (four members and six meetings held) and 100% (five members and four

meetings held) respectively.

Customer Service Committee

The information on composition of board, meetings held and meeting attended was

disclosed in the all financial years from 2006-07 to 2010-11 (Table 7.2.2.2). The

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participation of chairman and ED was found to be 100% in the all the five financial years

However the ED was not included in the composition of the committee in the year 2006-

07. The NED showed 100% participation only in one 2006-07, whereas in rest financial

years it ranged between 79% (2009-10) to 94% (2008-09).

Power of Attorney Committee

The power of attorney committee grants power of attorney to officers/ employees of the

bank authorizing them to execute documents and represent on behalf of the bank. The

composition of the committee was found to be quite adequate in all financial years from

2006-07 to 2010-11 with respective as 3, 4, 7, 6 and 6 board members. The detail about

the number of meetings held and attended by ED and NED is given in Table 7.2.2.2.

HRD Committee of Director

The HRD committee was constituted to look into macro level HR issues, training issues

and formulation of action plan for improving quality of the banks, human resource and its

implementation. The detailed information about the committee was given in three

financial years (2007-08 to 2009-10). However the committee disclosed information on

its composition of the committee only in 2010-11. The participation of ED ranged

between 100% to 71% while participation of NED ranged between 100% to 50% across

three financial periods.

Share Transfer Committee

The share transfer committee was constituted by the bank in accordance with the

provision of PNB (shares and meetings) Regulation, 2000. The committee monitors and

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approves share transfers, issuance of duplicate share certificates/new certificates,

transmission of shares and dematerialization of share etc. The composition of share

transfer committee and participation of members in the meetings is disclosed in all five

financial years from 2006-07 to 2010-11 in the CG report of the annual reports. The

chairman‟s participation in the committee was 100% in 2008-09 and 2010-11 financial

years whereas in 2006-07, 2007-08 and 2009-10 the participation ranged between 86% to

92%. The ED individually showed excellent participation in two financial years i.e. 2007-

08 and 2009-10, however the committee did not include any ED in 2006-07. The NED

participation in last five periods is found to be 90% (sixty three meetings held and fifty

seven attended), 89% (forty seven meetings held and forty two attended), 74% (twenty

seven meetings held and twenty attended), 95% (forty two meetings held and thirty nine

attended) and 88% (twenty four meetings held and twenty one attended) in 2006-07,

2007-08, 2008-09, 2009-10 and 2010-11 respectively (Table 7.2.2.2).

Appellate Authority and Reviewing Authority Committee of the Board

The committee was constituted to act as appellate authority/ reviewing authority in terms

of schedule of disciplinary authorities of PNB officers and employees (Discipline and

Appeal) Regulation, 1977. The composition of the committee included a chairman as a

managing director, two ED and two NED in financial years from 2006-07 to 2010-11.

The information regarding the number of meetings held and attended was not disclosed in

any annual report of the selected period (Table 7.2.2.2).

220

Steering Committee for Vision 2013

The committee reviews the progress in implementation of Vision 2013 and deliberates

upon most of the requirements as warranted in the aspects of plan. The committee was

framed only in 2009-10 and 2010-11 years. The committee comprised of a chairman, a

ED who attended all three meetings and four NED who attended four out of six meetings

in 2009-10 and a chairman, two ED and four NED who attended all the meetings in

2010-11. The overall members‟ participation in steering committee for vision 2013 was

found to be 83% (six members, twelve meetings held and 10 attended) and 100% (six

members, twenty three meetings held and twenty three attended) (Table 7.2.2.2).

7.2.3 Bank of India (BOI)

7.2.3.1 Mandatory CG Disclosures

Board Committee

Board of Director: The BOI bank is constituted under the Banking Companies

(Acquisition and Transfer of Undertaking) Act 1970. The chairman and managing

director is appointed by the Centre Government. Part-time non-official directors

(PTNOD), shareholder director (SD), nominee of the centre (CG), non-workmen

employee director (NWED), workmen employee director (WED) and nominee of

Reserve Bank of India (RBI) are also members of the board committee who monitors

business functioning and works for the improvement of the corporate performance (BOI

Annual Reports 2005-2006 to 2010- 2011).

Composition: During the period under study, the composition of the board is found to be

quite satisfactory. The table 7.2.3.1 reveals that directors from each category have

221

attended the meetings in three financial years i.e. 2005-06, 2006-07 and 2007-08.

Nominees of RBI were present in later financial years (2005-06, 2007-08 and 2010-11)

but were not appointed in latter two periods (2008-09 and 2009-10).

Participation: The participation of ED in the board meetings was found to be 100% in

the three financial years i.e. 2006-07 2008-09 and 2010-11. Whereas in the rest periods

their participation ranged between 95% (2007-08) to 89 % (2005-2006). The participation

of the PTNOD in the board meetings held during six financial years was lowest in the

year 2005-06 (67%) whereas it was above 80% i.e. 86%, 90%, 84% 87% and 89% in

2006-07, 2007-08, 2008-09 2009-10 and 2010-11 respectively. The results for SD have

shown fluctuating trend of participation with participation ranging between 65 % (2008-

09) to 92% (2009-10). The year-wise participation of NCG demonstrated increasing trend

of participation with percentage seen as 36% (2005-06), 82% (2006-07), 83% (2007-08),

90% (2008-09) and 92% (2009-10) excluding 2010-11 where the percentage was dropped

down to 57%. The participation of NED and WED was found to be above 90% in five all

financial years that is from 2005-06 to 2009-10 (Table 7.2.3.1). Further, participation of

RBI nominee in the board meeting was 45 % in the year 2005-06 and which was

increased to 100% ( 2006-07), and again came down to 75% (2007-08). However in the

three financial years (2008- 09, 2009-10 and 2010-11), board committee did not included

any RBI nominee.

Board Meeting: The table7.2.3.1 also reveals that board of directors meetings were held

regularly and board had met on an average of 24 days, 27 days, 16 days, 24 days, 25 days

and 24 days during respective six periods (2005-06 to 2010-11), which were found to be

more than the minimum required as per Clause 49 Listing Agreement. Functions of

222

board, board procedure, brief profile of directors and disclosure are mentioned in CG

report section of all the six annual reports. The respective numbers of meetings held from

2005-06 to 2010 -11 were 11, 11, 13, 12, 13 and 14 respectively.

Audit Committee

Composition: The composition of audit committee of the board is found to be rational as

per clause 49 of the listing agreement across six financial years i.e. 2005-06 to 2010-11.

The various categories of directors in the audit committee include ED, PTNOD, SD and

RBI nominee. The respective number of members were 8, 9, 8, 8, 5 and 7 in the

meetings from 2005-06 to 2010-11 periods (Table 7.2.3.1).

Participation: Table 7.2.3.1 reveals that participation of ED in the board meetings is

quite good, as their participation was 100% in the financial years 2006-07, 2008-09,

2009-10 and 2010-11 and 92% and 93% in the two respective years i.e. 2007-08 and

2005-06. The participation of PTNOD was found to be quite good with minimum

participation as 75% in 2007-08 and 100% in 2005-06 and 2008-09. The result reveals

high degree of participation of PTNOD in the board meetings. SD‟ presence in the audit

meeting was seen as 88% (2005-06), 71% (2006-07), 75% (2007-08), 80% (2008-09) and

33% (2010-11) however in the financial year 2009-10 the committee did not include any

SD. Further, NWED and WED were not included in the selected six financial years. To

add, the nominee of GOI was not included in the audit committee in the initial year

(2005-06). Furthermore, good participation was observed in all years i.e. 88% (2006-07),

87% (2007-08), 88% (2008-09), 100% (2009-10) and 73% (2010-11). Similarly the

223

participation of nominees of RBI was arrived at 75 % (2005-6) 87% (2007-08) and 91%

(2010-11) in the three financial years.

Committee Meeting: The study finding reveals that audit committee meetings were

frequently organized to review and check the financial information disclosure in all the

financial years (2005-06 to 2010-11). The respective average gap between the two

meetings held in six years is calculated as 48 days, 41 days, 42 days, 40 days, 37 days

and 34 days. The committee met 9 times each (2005-06 to 2009-10) and 11 times (2010-

11) during the selected financial periods.

Shareholder/ Investor Grievance Committee

Composition: In all the financial years shareholders/ investor grievance committee

comprised of ED and SD. The total number of members in the committee were quite

adequate that is 5 (three ED, two SD), 4 (two ED, two SD), 3 (two ED, one SD), 4 (three

ED, one SD), 4 (two ED, one SD) and 4 (three ED, one SD) in respective six financial

years from 2005-06 to 2010-11 respectively (Table 7.2.3.1).

Participation: The overall participation of the members was found to be quite adequate

in all financial years i.e. 2005-06 to 2010-11. The participation of ED and SD was

excellent (100%) in the two financial years i.e. 2008-09 and 2009-10.

Committee Meetings: The information on varied shareholder/investor grievance

committee held was disclosed in all six years i.e. 2005-2006 to 2010-11. The average gap

between two grievance committee held was 69 days (2005-06), 68 days (2006-07), 72

224

days (2007-08), 70 days (2008-09), 72 days (2009-10) and 69 days (2010-11). The

committee met 4 times during each financial year i.e. 2005-06 to 2010-11.

7.2.3.2 Non – Mandatory and additional CG Disclosures

Management Committee

The composition of the management committee was found to be excellent as there

adequate number of directors in the management committee. The overall participation of

the members in the committee is in the range of 82% (2008-09) to 91% (2009-10).

Individually the participation of ED was found to be 100 % in three financial years 2005-

06, 2008-09 and 2009-10, whereas in the rest years it was found to be 90% (2006-07),

94% (2007-08) and 98% (2010-11). The participation of SD showed a declined trend i.e.

100% (2005-06), 80% (2006-07), 72% (2007-08), 65% (2008-09). Whereas in the

financial years 2009-10 and 2010-11 the SD‟s shows better participation i.e. 80% and

85% respectively in comparison to the pervious year i.e. 2008-09. Further, table 7.2.3.2

also exhibits an increasing trend in the participation of nominee of GOI which was

arrived as 43% (2005-06), 58% (2006-07), 94% (2008-09) and 95% (2009-10) and 100%

(2010-11) excluding 2007-08 year in which the committee did not include GOI nominee

in the committee. The participation of NWED was found to be 50%, 100%, 89%, 91%,

75% and 100% in the respective five years i.e. 2005-06, 2006-07, 2007-08, 2008-09,

2009-10 and 2010-11. The management committee also included WED in the committee

in the financial years 2005-06, 2007-08 and 2008-09 and their participation was found to

be 100% all the three years. However, WED was not included in 2006-07, 2009-10 and

2010-11 periods. Further, the RBI nominee was the member of committee only in three

financial years 2005-06, 2007-08 and 2010-11 and their respective attendance was 67%,

225

100% and 100%. The number of meetings held during six financial years from 2005-06

to 2010-2011 is quite satisfactory. The average gap between two management committee

meetings in the six financial years at arrived as 17 days (met 21 times), 16 days (met 16

times), 21 days (met 21 times) 19 days ( met 19 times), 17 days (met 20 times) and 11

days (met 31 times) in the respective six years. The average gap of in the committee

meetings ranged between 16 days to 21 days which showed good implementation of CG

practices in terms of number of committee meetings held in these years (Table 7.2.3.2).

7.3 CONCLUSION

The analyses of varied committee (mandatory and non-mandatory) conclude that only

PNB and SBI public banks have constituted four mandatory committees. However PNB

bank leads in term of number of non-mandatory committee (9) reflecting high degree of

accountability and transparency in the functioning of the bank followed by SBI (five) and

BOI (one). Regarding the private banks, ICICI and HDFC banks have constituted all the

four mandatory committee while JKB has not constituted remuneration committee.

However in terms of number of non-mandatory committee, JKB has constituted nine

committees followed by ICICI (8) and HDFC (7).

226

TABLE: 7.1.1.1

COMPOSTION, PARTICIPATION AND NUMBER OF MANDATORY COMMITTEES IN JKB

(2005-2006 to 2009-2010)

Mandatory Committee

YEARS

2005-2006 2006-2007 2007-2008 Board committee CEO ED NED INED Total CEO ED NED INED Total CEO ED NED INED Total

CEO/Chairman 1 1 2 10 15 1 2 1 5 9 1 2 1 5 9

No. of meeting held 10 7 10 78 107 11 13 11 55 90 15 28 15 63 121

No. of meeting attended 10 7 6 63 88 11 11 4 41 67 15 25 9 49 98

Percentage of meeting

100% 100% 60% 81% 82% 100% 85% 36% 74% 74% 100% 89% 60% 78% 81%

Board committee 2008-2009 2009-2010 2010-2011 CEO ED NED INED Total CEO ED NED INED Total CEO ED NED INED Total

CEO/Chairman 1 2 1 6 10 1 2 1 11 15 1 2 1 10 14

No. of meeting held 12 24 12 47 95 14 28 14 80 136 11 28 11 116 166

No. of meeting attended 12 23 --- 21 56 14 27 7 70 118 11 27 7 97 142

Percentage of meeting 100% 96% --- 45% 59% 100% 96% 50% 88% 88% 100% 96% 64% 84% 85%

Cont….

227

Mandatory

committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Audit

Committee

CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total

CEO/Chairman 1 --- 6 1 8 1 1 3 1 6 1 3 2 1 13 1 2 3 --- 6 1 2 4 -- 7 1 2 -- 1 4

No. of meeting

held

6 --- 51 4 61 8 1 19 8 36 9 9 18 3 39 8 16 24 ----- 48 9 9 36 --- 54 10 15 -- 6 31

No. of meeting

attended

3 --- 48 2 53 7 1 18 NIL 26 9 8 17 2 36 6 16 16 ----- 38 6 9 36 --- 51 10 14 -- 3 27

% of meeting

50 --- 94 50 87 80 100 95 NIL 72 100 89 94 67 92 75 100 67 ----- 79 67 100% 100 --- 94 100 93 -- 50 87

Compensation Committee CEO/Chairman RF RF RF RF RF RF 1 --- 2 1 4 RF RF RF RF RF RF RF 1 --- 4 -- 5

No. of meeting

held

RF RF RF RF RF RF 1 --- 2 1 4 RF RF RF RF RF RF RF 5 -- 20 --- 25

No. of meeting

attended

RF RF RF RF RF RF 1 ---- 2 1 4 RF RF RF RF RF RF RF 5 --- 17 --- 22

% of meeting

RF RF RF RF RF RF 100 100 100 100 RF RF RF RF RF RF RF 100 85 88

Shareholders Investor Grievance Committee

CEO/Chairman 1 --- 2 --- 3 1 2 --- -- 3 1 2 1 --- 4 1 --- 1 --- 1 1 2 --- 4 1 1 --- 1 1

No. of meeting

held

NC NC NC NC NC NC --- --- --- --- 4 3 4 ----- 11 2 --- 2 ----- 3 3 6 --- 12 3 3 --- 4 ------

No. of meeting

attended

NC NC NC NC NC NC --- --- --- --- 4 3 3 ----- 10 2 ---- 2 ----- 3 2 6 --- 12 3 3 --- 4 ------

% of

meeting

NC NC NC NC NC NC ---- ---- ---- ---- 100 100 75 ----- 86 100 -- 100 ----- 100 67 100 --- 100 100 100 --- 100% ------

228

Table: 7.1.1.2

COMPOSTION, PARTICIPATION AND NUMBER OF NON-MANDATORY COMMITTEE IN JKB

(2005-2006 to 2010-2011) Non mandatory

committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Management

Committee

CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total

CEO/Chairman 1 1 8 --- 10 1 1 3 1 6 1 2 3 1 7 1 2 3 --- 5 1 1 5 --- 7 1 2 3 --- 5

No. of meeting

held

5 5 31 --- 41 8 8 24 8 40 10 10 30 2 52 12 17 29 --- 58 9 9 45 --- 63 12 15 29 --- 54

No. of meeting

attended

5 5 23 ---- 33 8 6 21 2 37 10 9 25 NIL 44 12 17 22 ---- 51 9 9 44 ---- 62 12 14 24 --- 48

% of

meeting

100 100 74 ----- 80 100 75 88 25 93 100 90 83 NIL 85 100 100 76 ----- 87 100 100 98 ----- 98 100 93 83 --- 89

Integrated Risk Management Committee

CEO/Chairman RF RF RF RF 1 2 2 --- 5 1 2 2 5 1 1 2 --- 4 1 1 3 --- 5 1 1 --- 4 6

No. of meeting

held

RF RF RF RF 2 2 4 ---- 8 4 3 4 11 2 1 4 --- 7 3 3 7 --- 13 3 3 ---- 9 15

No. of meeting

attended

RF RF RF RF 2 2 4 ---- 8 4 2 4 10 2 2 2 ---- 6 3 3 5 ---- 11 3 3 --- 7 13

% of meeting

RF RF RF RF 100 100 100 --- 100 100 67 100 91 100 100 50 ----- 86 100 100 85 ----- 85 100 100 --- 78 87

Monitoring of Large Value Frauds

CEO/Chairman RF RF RF RF RF RF RF 1 2 2 --- 5 1 1 2 --- 4 1 1 2 --- 4 1 1 2 1 5

No. of meeting

held

RF RF RF RF RF RF RF 3 6 6 --- 15 2 2 4 --- 8 3 3 5 ---- 11 3 3 5 2 13

No. of meeting

attended

RF RF RF RF RF RF RF 3 6 6 --- 15 2 2 2 --- 6 3 2 5 --- 10 3 3 5 2 13

% of meeting

RF RF RF RF RF RF RF 100 100 100 --- 100 100 100 50 ---- 75 100 67 100 ---- 91 100 100 100 100 100

229

Non mandatory

committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Nomination

Committee

CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total

CEO/Chairman RF RF RF RF RF RF RF 1 --- 4 --- 5 RF RF RF RF 1 1 3 1 6 1 -- 2 1 4

No. of meeting

held

RF RF RF RF RF RF RF 2 --- 8 --- 10 RF RF RF RF 3 2 6 2 13 1 -- 3 2 6

No. of meeting

attended

RF RF RF RF RF RF RF 2 --- 8 --- 10 RF RF RF RF 3 1 4 1 9 1 -- 3 1 6

%of meeting

RF RF RF RF RF RF RF 100 --- 100 --- 100 RF RF RF RF 100 50 67 50 69 100 -- 100 50 100

Customer Service Committee

CEO/Chairman NC NC NC NC NC NC NC 1 3 2 --- 6 1 1 1 --- 3 1 1 3 --- 5 1 1 3 1 6

No. of meeting

held

NC NC NC NC NC NC NC 3 2 2 --- 14 2 2 2 ---- 6 2 2 3 ---- 7 3 3 7 3 16

No. of meeting

attended

NC NC NC NC NC NC NC 3 2 2 --- 12 2 2 2 --- 6 2 2 3 --- 7 3 3 7 3 16

Percentage of

meeting

NC NC NC NC NC NC NC 100 100 100 --- 86 100 100 100 --- 100 100 100 100 --- 100 100 100 100 100 100

Information Technology Committee CEO/Chairman RF RF RF RF RF RF RF 1 2 1 --- --- 1 2 1 --- 4 1 1 3 --- 5 1 1 3 1 6

No. of meeting

held

RF RF RF RF RF RF 3 2 2 --- --- 2 2 1 -- 5 2 2 3 ---- 7 3 2 9 1 15

No. of meeting

attended

RF RF RF RF RF RF 3 2 2 --- --- 2 2 1 -- 5 2 2 2 ---- 6 3 2 9 1 15

% of meeting

RF RF RF RF RF RF 100 100 100 --- --- 100 100 100 ---- 100 100 100 67 ---- 86 100 100 100 100 100

Cont…

230

Non mandatory

committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Legal Committee

CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total CEO ED IN

ED

NED Total

CEO/Chairman NC NC NC NC NC NC NC NC NC NC NC NC 1 --- 3 --- 4 1 1 1 1 4

No. of meeting

held

NC NC NC NC NC NC NC NC NC NC NC NC 6 ---- 12 ---- 18 6 3 6 6 21

No. of meeting

attended

NC NC NC NC NC NC NC NC NC NC NC NC 6 ---- 11 ---- 17 6 3 6 5 20

Percentage of meeting

NC NC NC NC NC NC NC NC NC NC NC NC 100 ---- 92 ---- 95 100 100 100 83 95

Estates Committee

CEO/Chairman NC NC NC NC NC NC NC NC NC NC NC NC NC 1 --- 3 --- 4 1 1 1 1 4

No. of meeting

held

NC NC NC NC NC NC NC NC NC NC NC NC NC 4 ---- 12 ---- 16 5 2 5 5 17

No. of meeting

attended

NC NC NC NC NC NC NC NC NC NC NC NC NC 3 ---- 11 ---- 14 5 2 5 5 17

Percentage of

meeting

NC NC NC NC NC NC NC NC NC NC NC NC NC 75 ---- 92 ---- 88 100 100 100 100 100

Note:

Role and Reference (RF) Chief Executive Officer (CEO) Executive Director (ED)

Non Executive Director (NED) Independent Non Executive Director (INED) Not Constituted (NC)

231

Table: 7.1.2.1

COMPOSTION, PARTICIPATION AND NUMBER OF MANDATORY COMMITTEES IN HDFC BANK

(2005-2006 to 2010-2011)

Mandatory

Committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-11

Board Committee CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total

CEO/Chairman 1 1 9 11 1 1 9 11 1 3 8 12 1 3 7 11 1 3 7 11 1 4 10 15

No. of meeting held 6 6 47 59 8 8 59 88 10 22 80 112 7 21 49 77 6 18 42 66 6 24 57 89

No. of meeting attended 6 6 40 52 8 8 50 71 10 22 65 97 7 21 44 72 5 18 40 53 6 22 54 82

% of meeting

100 100 85 88 100 100 85 81 100 100 81 87 100 100 90 93 83 100 95 80 100 94 95 92

Audit & Compliance Committee CEO/Chairman 1 ---- 5 6 1 ---- 5 6 1 ---- 4 5 1 -- 4 5 1 -- 4 5 1 -- 2 3

No. of meeting held 6 ----- 22 28 9 ----- 29 38 7 ---- 25 32 9 --- 36 45 8 --- 32 40 5 --- 10 15

No. of meeting attended 6 ---- 20 26 8 ---- 29 37 7 ---- 23 30 9 --- 33 42 8 --- 30 38 5 --- 9 14

% of meeting

100 ----- 91 93 89 ----- 100 97 100 ---- 92 94 100 --- 92 93 100 --- 94 95 100 --- 90 93

Compensation Committee

CEO/Chairman 1 --- 4 5 1 --- 4 5 1 3 4 1 --- 3 4 1 --- 3 4 1 --- 2 3

No. of meeting held 4 --- 12 16 3 --- 8 11 3 7 10 2 --- 6 8 6 --- 18 24 2 --- 4 6

No. of meeting attended 4 --- 12 16 3 --- 8 11 3 5 8 2 --- 6 8 5 --- 17 22 2 --- 4 6

% of meeting

100 --- 100 100 100 --- 100 100 100 33 71 80 100 --- 100 100 83 --- 94 92 100 --- 100 100

Investor Grievance (Share) Committee

CEO/Chairman 1 1 ---- 2 1 1 1 3 1 1 1 3 1 1 1 3 1 1 1 3 1 1 2 4

No. of meeting held 13 13 -----

26 13 13 6 32 11 11 11 33 13 13 13 39 15 15 15 45 3 3 3 12

No. of meeting attended 13 13 ---- 26 13 13 6 32 11 7 11 29 13 8 12 33 14 9 15 38 3 3 3 12

% of meeting

100 100 ----

-

100 100 100 100 100 100 64 100 88 100 62 92 85 93 60 100 84 100 100 100 100

Cont…

232

Table: 7.1.2.2

COMPOSTION, PARTICIPATION AND NUMBER OF NON MANDATORY COMMITTEE IN HDFC BANK

(2005-2006 to 2009-2010)

Non- Mandatory

Committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-11

Risk Monitoring Committee

CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total

CEO/Chairman 1 1 2 4 1 --- 3 4 1 --- 1 2 1 1 2 4 1 --- 3 4 NC NC NC

No. of meeting held 3 5 5 13 6 --- 11 17 5 --- 5 10 6 2 12 20 6 --- 18 24 NC NC NC

No. of meeting attended 3 5 5 13 6 --- 11 17 5 --- 5 10 6 2 12 20 6 --- 17 23 NC NC NC

% of meeting

100 100 100 100 100 --- 100 100 100 --- 100 100 100 100 100 100 100 --- 94 96 NC NC NC

Nomination Committee

CEO/Chairman 1 --- 4 5 1 --- 2 3 1 --- 2 3 1 --- 2 --- 1 --- 2 3 NC NC NC

No. of meeting held 2 --- 6 8 3 --- 5 8 2 --- 3 5 1 --- 2 --- 1 --- 2 3 NC NC NC

No. of meeting attended 2 --- 5 7 3 --- 5 8 2 --- 3 5 1 --- 2 --- 1 --- 2 3 NC NC NC

% of meeting

100 --- 83 87 100 --- 100 100 100 --- 100 100 100 --- 100 --- 100 --- 100 100 NC NC NC

Credit Approval Committee

CEO/Chairman 1 1 2 4 1 1 2 4 1 1 2 4 1 1 2 4 1 1 2 5 NC NC NC

No. of meeting held 3 3 6 12 2 2 3 7 2 2 4 8 7 7 14 28 15 15 30 60 NC NC NC

No. of meeting attended 3 3 5 11 2 2 3 7 2 2 4 8 7 4 12 23 12 9 28 49 NC NC NC

% of meeting

100 100 83 92 100 100 100 100 100 100 100 100 100 57 86 82 80 60 93 82 NC NC NC

Fraud Monitoring Committee

CEO/Chairman 1 1 2 4 1 1 3 5 1 1 2 4 1 1 3 5 1 1 3 5 NC NC NC

No. of meeting held 4 4 8 16 3 3 7 13 4 4 8 16 4 4 9 17 4 4 12 20 NC NC NC

No. of meeting attended 4 4 6 16 3 3 7 13 4 4 8 16 4 4 7 15 4 4 11 19 NC NC NC

% of meeting 100 100 75 100 100 100 100 100 100 100 100 100 100 100 78 88 100 100 92 95 NC NC NC

Cont…

233

Non- Mandatory

Committee

YEARS

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Premises Committee CEO ED NED

Total CEO ED NED

Total CEO ED NED

Total CEO ED NED

Total CEO ED NED

Total CEO ED NED

CEO/Chairman 1 ---- 3 4 1 ---- 3 4 1 ---- 3 4 1 ---- 3 4 1 --- 3 4 NC NC NC

No. of meeting held 5 ---- 10 15 3 ---- 7 10 4 ---- 11 15 7 ---- 21 28 5 ---- 15 26 NC NC NC

No. of meeting attended 5 ----- 10 15 3 ----- 7 10 4 ----- 11 15 7 ----- 17 24 5 ---- 15 20 NC NC NC

% of meeting

100 ----- 100 100 100 ----- 100 100 100 ----- 100 100 100 ----- 81 86 100 ---- 100 77

Customer Service Committee

CEO/Chairman 1 --- 3 4 1 --- 2 3 1 --- 2 3 1 1 2 4 1 --- 3 4 NC NC NC

No. of meeting held 4 --- 12 16 4 -- 8 12 4 --- 7 11 4 1 8 13 4 ---- 12 16 NC NC NC

No. of meeting attended 4 --- 11 15 4 --- 8 12 4 --- 7 11 4 1 8 13 4 ---- 12 16 NC NC NC

% of meeting

100 ---- 92 94 100 ---- 100 100 100 ---- 100 100 100 100 100 100 100 ---- 100 100 NC NC NC

Note:

CEO – Chairman Executive Officer

and Managing Director WD – Whole- Time Director

ID - Independent Director GOI – Nominee of Government of

India

RF –Role and Reference NC –Not Constituted

234

TABLE: 7.1.3.1

COMPOSTION, PARTICIPATION AND NUMBER OF MANDATORY COMMITTEE IN ICICI BANK

(2006-2007 to 2010-2011)

Mandatory

Committee

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11

Board committee CEO ID WD GOI Total CEO ID WD GOI Total CEO ID WD GOI Total CEO ID WD GOI NED Total CEO ID WD Total

No. CEO/Chairman 1 10 6 1 18 1 10 7 1 19 1 10 6 1 18 1 14 6 1 1 22 1 11 6 18

No. of meeting held 8 64 41 8 121 5 46 25 5 81 8 72 40 1 121 6 57 29 6 6 98 9 63 38 110

No. of meeting attended 8 53 41 3 105 5 37 25 3 70 8 44 40 1 92 6 41 29 6 6 82 9 49 38 96

Percentage of meeting

100 83 100 38 87 100 79 100 60 86 100 61 100 100 76 100 72 100 100 100 84 100 78 100 87

Audit Committee

No. CEO/Chairman 1 2 --- --- 3 1 2 --- --- 3 1 2 --- --- 3 1 3 --- --- NIL 4 1 5 ---- 6

No. of meeting held 6 11 --- --- 16 6 10 --- --- 16 6 10 --- --- 16 8 14 --- --- NIL 22 7 20 ----- 27

No. of meeting attended 6 12 --- --- 18 6 12 --- --- 18 6 12 --- --- 18 8 16 --- --- NIL 24 7 20 ---- 27

Percentage of meeting

100 92 --- ---- 89 100 83 --- ---- 89 100 83 --- ---- 89 100 87 --- ---- NIL 92 100 100 ---- 100

Board Governance, Remuneration & Nomination Committee

No. CEO/Chairman 1 4 ----- ------ 5 1 4 ----- ------ 5 1 4 ----- ------ 5 1 3 --- --- 1 5 1 4 --- 6

No. of meeting held 3 12 ----- ------ 12 4 16 ----- ------ 20 4 16 ----- ------ 20 5 15 --- --- 4 22 6 10 --- 16

No. of meeting attended 3 17 ----- ------ 14 4 13 ----- ------ 17 4 15 ----- ------ 19 5 15 --- --- 4 22 6 10 --- 16

Percentage of meeting

100 92 ----- ------ 93 100 81 ----- ------ 85 100 94 ----- ------ 95 100 100 --- ---- 100 100 100 100 --- 100

Share Transfer & Shareholder/investor Grievance Committee

No. CEO/Chairman 1 1 2 ----- 4 1 1 3 ----- 7 1 ----- 3 ----- 4 1 1 2 --- NIL 4 1 3 1 5

No. of meeting held 12 12 24 ----- 48 12 12 19 ----- 21 5 ----- 15 ----- 20 4 4 4 --- NIL 12 5 5 5 15

No. of meeting attended 8 11 17 ----- 36 12 7 19 ----- 20 4 ----- 13 ----- 17 4 1 4 --- NIL 9 5 4 5 14

% of meeting 67 92 71 ----- 75 100 58 100 ----- 95 80 ----- 87 ----- 85 100 25 100 ---- NIL 75 100 80 100 93

Note: CEO – Chairman Executive Officer and Managing Director WD – Whole- Time Director

ID - Independent Director GOI – Nominee of Government of India

RF –Role and Reference

NC –Not Constituted

235

TABLE: 7.1.3.2

COMPOSTION, PARTICIPATION AND NUMBER OF NON MANDATORY COMMITTEE IN ICICI BANK

(2006-2007 to 2010-2011)

Non-Mandatory

Committee

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11

Credit Committee CEO ID WD Total CEO ID WD Total CEO ID WD Total CEO ID WD Total CEO ID WD Total

No. CEO/Chairman 1 4 1 5 1 3 1 5 1 3 1 5 1 4 1 6 1 4 1 6

No. of meeting held 19 60 19 98 21 63 21 105 18 54 16 88 20 63 17 99 21 44 21 86

No. of meeting attended 19 47 19 85 20 57 17 94 16 52 16 84 20 57 17 93 20 44 21 85

% of meeting 100 78 100 87 95 90 81 90 89 96 100 95 100 90 100 94 95 100 100 99

Customer Service Committee

No. CEO/Chairman 1 3 1 5 1 1 3 5 1 3 1 5 1 7 1 9 1 5 1 7

No. of meeting held 1 3 1 5 4 4 12 20 4 12 4 20 6 15 3 24 6 11 6 23

No. of meeting attended 1 2 1 4 4 3 9 16 4 11 4 19 6 14 3 23 6 11 5 22

% of meeting 100 67 100 80 100 75 75 80 100 92 100 95 100 93 100 96 100 100 83 96

Fraud Monitoring Committee

No. CEO/Chairman 1 1 3 5 1 1 4 6 1 2 2 5 1 1 3 6 1 4 3 8

No. of meeting held 12 12 36 38 9 9 24 42 2 4 4 10 6 6 12 30 4 11 12 16

No. of meeting attended 9 9 20 60 8 6 23 37 2 2 3 7 5 2 12 25 4 11 12 16

% of meeting 75 75 56 63 89 67 96 88 100 50 75 70 83 33 100 83 100 100 100 100

Risk Committee

No. CEO/Chairman 1 3 1 5 1 3 1 5 1 4 ----- 5 1 4 1 6 1 5 1 7

No. of meeting held 4 12 4 20 5 15 5 25 8 32 ----- 40 8 24 6 37 5 20 5 30

No. of meeting attended 4 10 4 18 5 11 3 19 7 30 ------ 37 8 16 6 29 5 13 5 23

% of meeting 100 83 100 90 100 73 60 76 87 94 ------ 92 100 67 100 78 100 65 100 77

Cont…

236

Note:

CEO - Chairman and Managing Director WD – Whole- Time Director RF- Role and Reference

ID - Independent Director GOI – Nominee of Government of India NC- Not Constituted

Non-Mandatory

Committee

YEARS 2006-07 2007-08 2008-09 2009-10 2010-11

Committee of

Executive Directors

CEO ID WD Total CEO ID WD Total CEO ID WD Total CEO ID WD Total CEO ID WD Total

No. CEO/Chairman 1 ---- 5 6 1 ---- 4 5 1 --- 4 5 1 --- 3 NC NC NC NC NC

No. of meeting held NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

No. of meeting attended NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

% of meeting NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

Asset Liability Management Committee

No. CEO/Chairman 1 --- --- NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

No. of meeting held --- -- NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

No. of meeting attended -- --- NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

% of meeting --- --- NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC NC

Strategy Committee No. CEO/Chairman NC NC NC 1 3 2 5 1 2 2 5 NC NC NC NC NC NC NC

No. of meeting held NC NC NC ---- ---- --- --- ---- ---- --- --- NC NC NC NC NC NC NC

No. of meeting attended NC NC NC ---- ---- --- --- ---- ---- --- --- NC NC NC NC NC NC NC

% of meeting NC NC NC ---- ---- --- --- ---- ---- --- --- NC NC NC NC NC NC NC

Corporate Social Responsibility Committee No. CEO/Chairman NC NC NC NC NC NC NC NC NC 1 1 1 3 1 3 1 5

No. of meeting held NC NC NC NC NC NC NC NC NC 1 1 1 3 2 4 2 8

No. of meeting attended NC NC NC NC NC NC NC NC NC 1 -- 1 2 2 2 2 6

% of meeting 100 0 100 67 100 50 100 75

237

Table: 7.2.1.1

COMPOSTION, PARTICIPATION AND NUMBER OF NON MANDATORY COMMITTEE IN SBI

(2006-2007 to 2010-2011)

CG Determinants

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11 Board Committee CEO ED NED GOI/

RBI

Total CEO ED NED GOI/

RBI

Total CEO ED NED GOI Total CEO ED GOI/

RBI

NED Total CEO ED NED GOI/

RBI

Total

No. of board members 1 2 9 2/1 12 1 1 15 2/1 17 1 1 9 ---- 11 1 2 -- 9 12 1 1 10 12

No. of meeting held 9 18 14 --/15 41 11 100 122 --/9 99 9 3 53 ---- 65 10 20 ---- 90 120 5 10 73 88

No. of meeting attended 9 14 73 --/5 96 7 100 118 --/3 IV 9 3 34 ---- 46 10 19 ---- 75 104 4 8 59 71

% of meeting 100 78 96 --/33 42 64 100 97 --/50 91 100 100 64 ---- 71 100 95 ---- 83 87 80 80 81 81

Audit committee

CEO/Chairman 1 3 2 --- 9 1 3 3 11 1 1 5 1 8 1 1 ---- 3 5 1 1 6 8

No. of meeting held 10 15 10 --- 40 9 13 12 43 9 4 37 9 59 8 8 --- 23 39 6 11 54 71

No. of meeting attended 10 15 10 --- 40 9 13 12 37 9 3 24 NIL 36 7 7 ---- 10 24 6 10 35 51

% of meeting 100 100 100 --- 100 100 100 100 87 100 75 65 NIL 61 88 88 --- 43 62 100 91 65 72

Remuneration Committee

CEO/Chairman NC NC NC NC NC NC NC 2 1/1 4 --- --- 1/1 2 4 2 1/1 4

No. of meeting held NC NC NC NC NC NC NC ---- ---- ---- --- --- ---- ---- ---- ---- ---- ----

No. of meeting attended NC NC NC NC NC NC NC ---- ---- ---- --- --- ---- ---- ---- ---- ---- ----

% of meeting NC NC NC NC NC NC NC ---- ---- ---- --- --- ---- ---- ---- ---- ---- ----

Shareholder/Investor Grievance Committee

CEO/Chairman 1 3 1 4 1 2 2 5 1 2 ---- ---- 3 1 2 2 5 1 1 5 6

No. of meeting held 4 5 4 11 4 2 3 9 4 6 ---- ---- 8 4 8 8 20 2 4 12 18

No. of meeting attended 3 4 4 13 4 2 3 9 4 6 ---- ---- 8 4 7 5 16 2 4 11 17

% of meeting 75 80 100

85 100 100 100 100 100 100 ---- ---- 100 100 88 63 80 100 100 92 94

238

Table: 7.2.1.2

COMPOSTION, PARTICIPATION AND NUMBER OF NON MANDATORY COMMITTEE IN SBI

(2006-2007 to 2010-2011)

Non-Mandatory

Committee

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11

Risk Management

Committee

CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total

CEO/Chairman 1 2 2 5 1 3 4 1 1 3 5 1 1 4 6 1 1 4 6 No. of meeting held 4 3 8 15 4 7 11 6 2 10 18 4 4 16 24 3 4 15 22 No. of meeting attended 4 3 7 14 4 7 11 6 2 9 17 4 3 12 19 3 3 11 17

% of meeting 100 100 87 93 100 100 100 100 100 90 94 100 75 75 79 100 75 73 74

Special Committee For Monitoring of Large Frauds

CEO/Chairman 1 --- 4 5 1 --- 5 6 1 1 5 7 1 1 5 7 1 1 6 8

No. of meeting held 5 ---- 20 25 3 ---- 9 12 3 1 11 15 4 4 20 28 2 4 15 21 No. of meeting attended 5 ---- 19 24 3 ---- 9 12 3 1 10 14 4 4 13 21 2 3 11 16

% of meeting 100 --- 95 69 100 --- 100 100 100 100 91 93 100 100 65 75 100 75 73 76

Customer Service Committee

CEO/Chairman 1 ---- 2 3 1 1 3 5 1 1 2 4 1 1 4 6 1 1 6 8 No. of meeting held 3 ---- 6 9 4 1 8 13 3 1 6 10 4 4 16 24 3 4 14 21 No. of meeting attended 3 ---- 5 8 4 1 8 13 3 1 5 9 3 4 13 20 3 4 12 19

% of meeting 100 ---- 83 89 100 100 100 100 100 100 83 90 75 100 81 83 100 100 86 90

Technology Committee

CEO/Chairman 1 ---- 1 2 1 1 1 3 1 2 2 5 1 2 5 7 1 1 3 5 No. of meeting held 9 ---- 9 18 7 7 7 21 4 5 6 15 7 14 19 40 3 5 14 22 No. of meeting attended 8 ---- 6 12 7 4 4 15 4 5 5 14 7 13 14 34 3 5 7 15

% of meeting 89 ---- 67 67 100 57 57 71 100 100 83 93 100 93 73 85 100 100 50 68

Committee on Rural Sector Business

CEO/Chairman 1 2 1 4 1 1 1 3 1 2 3 6 NC NC NC NC NC NC NC NC No. of meeting held 2 2 2 6 4 4 4 12 3 4 8 15 NC NC NC NC NC NC NC NC No. of meeting attended 2 1 2 5 4 2 3 9 3 4 5 12 NC NC NC NC NC NC NC NC

% of meeting 100 50 100 83 100 50 75 75 100 100 62 80 NC NC NC NC NC NC NC NC

239

Table: 7.2.2.1

COMPOSTION, PARTICIPATION AND NUMBER OF MANDATORY COMMITTEE IN PNB

(2005-2006 to 2010-2011)

Mandatory

Committee YEARS

2006-07 2007-08 2008-09 2009-10 2010-2011 Board committee CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total

No. CEO/Chairman 1 1 6 8 1 2 9 12 1 - 11 12 1 3 12 16 1 3 11 17

No. of meeting held 14 14 80 108 11 17 102 130 18 ---- 141 159 3 20 141 164 15 30 146 191

No. of meeting attended 14 14 72 100 11 16 91 118 18 ---- 123 141 3 20 122 145 15 28 128 171

% of meeting 100 100 90 92 100 94 89 91 100 ---- 87 89 100 100 87 88 100 93 87 89

Audit Committee No. CEO/Chairman 1 1 3 5 1 2 3 6 1 2 4 7 1 2 4 7 1 2 6 9

No. of meeting held 9 9 13 31 3 20 31 54 12 ---- 30 42 11 28 56 95 10 12 38 60

No. of meeting attended 9 9 11 29 3 19 22 44 12 ---- 20 32 11 27 43 81 10 12 30 52

% of meeting 100 100 85 94 100 95 71 81 100 ---- 67 76 100 96 77 85 100 100 79 87

Remuneration Committee

No. CEO/Chairman 1 ---- 3 4 1 --- 3 4 1 4 5 1 ---- 4 5 1 --- 4 4

No. of meeting held ---- --- --- -- 2 ---- 6 8 1 3 4 1 ---- 3 4 1 --- 3 4

No. of meeting attended --- --- --- -- 2 ---- 6 8 --- 3 3 1 ---- 3 4 1 --- 3 4

% of meeting --- --- ---- ---- 100 --- 100 100 --- 100 75 100 ---- 100 100 100 --- 100 100

Shareholder/investor Grievance Committee

No. CEO/Chairman 1 1 1 3 1 2 1 4 1 2 3 6 1 2 1 4 1 3 --- 4

No. of meeting held 6 6 6 18 4 10 7 21 6 7 6 19 6 12 6 24 6 12 --- 18

No. of meeting attended 6 6 6 18 3 9 7 19 6 7 3 16 6 12 6 24 6 12 --- 18

% of meeting 100 100 100 100 75 90 100 90 100 100 50 84 100 100 100 100 100 100 --- 100

Note: NED -Non Executive Director RF- Role and Function

240

Table: 7.2.2.2

COMPOSTION, PARTICIPATION AND NUMBER OF NON MANDATORY COMMITTEE IN PNB

(2006-2007 to 2010-2011)

Non-Mandatory

Committee

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11

Management

Committee

CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total

No. CEO/Chairman 1 1 3 5 1 2 5 8 1 2 4 7 1 2 6 9 1 3 10 14

No. of meeting held 19 19 21 59 18 38 86 142 20 2 54 76 10 46 112 168 22 44 88 154

No. of meeting attended 18 18 18 54 18 37 79 134 20 2 52 74 10 44 103 157 21 43 82 146

% of meeting 95 95 86 91 100 97 92 94 100 100 96 97 100 96 92 93 95 98 93 95

Risk Management Committee

No. CEO/Chairman 1 1 3 5 1 4 5 10 1 2 4 7 1 2 7 10 1 2 6 9

No. of meeting held 4 4 7 11 4 8 12 24 4 4 13 21 2 10 20 32 4 8 20 32

No. of meeting attended 4 4 4 11 4 8 8 20 4 3 10 17 2 10 18 30 4 8 14 26

Percentage of meeting

100 100 57 100 100 100 67 83 100 75 83 81 100 100 90 94 100 100 70 81

Committee of Director

No. CEO/Chairman 1 1 3 4 1 2 20 5 1 4 2 5 1 2 2 5 1 3 3 7

No. of meeting held 4 4 6 14 4 7 8 16 4 4 8 12 2 8 8 18 4 8 8 20

No. of meeting attended 4 4 5 13 4 7 6 14 4 4 4 8 2 8 6 16 4 8 4 16

% of meeting 100 100 83 93 100 100 75 88 100 100 50 67 100 100 75 89 100 100 50 80

Information Technology Committee

No. CEO/Chairman 1 ---- 5 6 1 1 5 7 1 1 4 5 1 2 3 6 1 2 4 7

No. of meeting held 4 ---- 12 20 4 3 15 22 2 2 13 15 4 8 2 14 5 5 19 29

No. of meeting attended 4 ---- 10 14 4 3 13 20 2 2 12 14 4 8 2 14 5 5 18 28

% of meeting 100 ---- 83 70 100 100 87 91 100 100 92 93 100 100 100 100 100 100 95 97

Cont…

241

Non-Mandatory

Committee (PNB)

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11

Director Promotion Committee

CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total CEO ED NED Total

No. CEO/Chairman 1 ---- 2 3 1 ---- 2 3 1 - 2 3 1 - 2 3 1 ---- 3 4

No. of meeting held 1 ---- 2 3 1 ---- 2 3 ---- ---- ---- ---- 1 - 2 3 2 ---- 4 6

No. of meeting attended 1 ---- 2 3 1 ---- 2 3 ---- ---- ---- ---- 1 - 2 3 2 ---- 4 6

% of meeting 100 ---- 100 100 100 ---- 100 100 ---- ---- ---- ---- 100 - 100 100 100 ---- 100 100

Special Committee of Board-Monitoring Fraud Cases

No. CEO/Chairman 1 1 3 5 1 2 2 5 1 2 5 8 1 2 7 10 1 3 4 8

No. of meeting held 4 4 6 14 6 11 17 34 6 6 16 28 1 10 22 33 6 12 24 42

No. of meeting attended 3 4 6 13 6 11 11 28 6 6 11 23 1 10 19 30 6 12 19 37

% of meeting 75 100 100 93 100 100 65 82 100 100 69 82 100 100 86 91 100 100 79 88

Nomination Committee

No. CEO/Chairman NC NC NC --- 1 -- 3 4 1 ---- 3 4 1 ---- 3 4 1 ---- 4 5

No. of meeting held NC NC NC ---- ---- ---- ---- ---- 2 ---- 6 8 ---- ---- ---- ---- 1 ---- 3 4

No. of meeting attended NC NC NC ---- ---- ---- ---- ---- 2 ---- 5 7 ---- ---- ---- ---- 1 ---- 3 4

% of meeting NC NC NC ---- ---- ---- ---- ---- 100 ---- 83 87 ---- ---- ---- ---- 100 ---- 100 100

Customer Service

No. CEO/Chairman 1 ---- 2 3 1 1 6 8 1 1 6 8 1 2 6 9 1 3 6 10

No. of meeting held 4 ---- 5 9 4 3 14 21 2 2 18 22 1 8 14 22 4 8 19 31

No. of meeting attended 4 ---- 5 9 4 3 13 20 2 2 17 21 1 8 11 19 4 8 17 29

Percentage of meeting

% of meeting

100 ---- 100 100 100 100 92 95 100 100 94 95 100 100 79 86 100 100 89 94

Cont…

242

Non-Mandatory

Committee (PNB)

YEARS

2006-07 2007-08 2008-09 2009-10 2010-11

Power of Attorney Committee

No. CEO/Chairman 1 ---- 2 3 1 1 2 4 1 3 3 7 1 1 4 6 1 2 3 6

No. of meeting held 5 ---- 10 15 7 4 14 25 nil 5 7 13 4 4 4 12 5 5 13 23

No. of meeting attended 4 ---- 10 14 7 4 13 24 ---- 4 7 11 3 4 3 10 5 5 8 18

% of meeting 80 ---- 100 93 100 100 93 96 ---- 80 100 85 75 100 75 83 100 100 61 78

HRD Committee of Director

No. CEO/Chairman NC NC NC NC 1 1 4 6 1 1 7 9 1 2 4 7 1 2 1 4

No. of meeting held NC NC NC NC 7 7 22 36 1 2 6 9 1 2 4 7 ---- ----- ---- ----

No. of meeting attended NC NC NC NC 5 5 21 31 1 2 3 6 1 2 4 7 ---- ----- ---- ----

% of meeting NC NC NC NC 71 71 95 86 100 100 50 67 100 100 100 100 ---- ----- ---- ----

Shares Transfer Committee

No. CEO/Chairman 1 NC 3 4 1 1 4 5 1 2 5 8 1 1 2 4 1 2 1 4

No. of meeting held 24 NC 63 87 25 17 47 89 24 ---- 27 51 24 24 42 90 6 40 24 70

No. of meeting attended 22 NC 57 79 23 17 42 82 24 ---- 20 44 24 24 39 87 6 39 21 66

% of meeting 92 NC 90 91 92 100 89 92 100 ----- 74 86 100 100 86 93 100 98 88 94

Appellate Authority Reviewing Authority Committee

No. CEO/Chairman 1 1 2 4 1 2 2 5 1 2 2 5 1 2 2 5 1 2 2 5

No. of meeting held ---- ---- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- -----

No. of meeting attended ---- ---- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- -----

% of meeting ---- --- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- -----

Steering Committee for Vision Committee

No. CEO/Chairman NC NC NC NC NC NC NC NC NC 1 1 4 6 1 2 4 7

No. of meeting held NC NC NC NC NC NC NC NC NC 3 3 6 12 4 4 15 23

No. of meeting attended NC NC NC NC NC NC NC NC NC 3 3 4 10 4 4 15 23

% of meeting NC NC NC NC NC NC NC NC NC 100 100 67 83 100 100 100 100

284

TABLE: 7.2.3.1

COMPOSTION, PARTICIPATION AND NUMBER OF MANDATORY COMMITTEE IN BOI (2006-2007 to 2010-2011)

Mandatory

Committee YEARS

2005-2006 2006-2007 2007-2008 Board Committee

CEO ED PTN

OD

SH NCG NW

ED

WED RBI CEO ED PTN

OD

SH NCG NW

ED

WED RBI CEO ED PTN

OD

SH NCG NW

ED

WED RBI

No. CEO/

Chairman 1 1 3 6 1 1 1 2 1 2 1 4 2 1 2 1 1 2 5 2 2 1 1 1

No. of

meeting held

12 9 21 33 11 11 11 11 11 1 28 42 11 11 11 10 11 22 40 24 12 12 12 9

No.of meeting

attended

12 8 14 27 4 10 11 5 11 1 24 29 9 10 10 10 11 21 36 20 9 11 12 12

% of meeting 100 89 67 82 36 91 100 45 100 100 86 69 82 91 91 100 100 95 90 83 75 92 10 75

2008-2009 2009-2010 2010-2011 Board Committee

CEO ED PTN

OD

SH NCG NW

ED

WED RBI CEO ED PTN

OD

SH NCG NW

ED

WED RBI CEO ED PTN

OD

SH NCG NW

ED

WED RBI

CEO/

Chairman 1 3 5 4 2 2 1 ---- 1 2 4 2 2 1 1 ---- 1 3 3 3 1 2 ----- 2

No.of meeting

held

10 12 43 23 20 9 10 ---- 11 26 46 26 26 13 4 ------ 14 28 36 42 14 14 ----- 14

No.of meeting

attended 10 12 36 15 18 9 9 ---- 11 26 40 22 24 13 4 ---- 14 28 32 38 8 14 ------ 14

% of meeting 100 100 84 65 90 100 90 ---- 100 100 87 85 92 100 100 ----- 100 100 89 90 57 100 ------ 100

Cont….

285

YEARS

2005-2006 2006-2007 2007-2008

Audit Committee CEO ED PTNOD SH NCG RBI CEO ED PTNOD SH NCG CEO ED PTNOD SH NCG RBI

No. CEO/Chairman 1 2 1 2 ---- 2 1 2 2 2 2 1 2 1 1 2 1

No. of meeting held 8 14 1 8 ---- 8 4 8 5 7 8 8 13 8 8 8 8

No. of meeting attended 7 13 1 7 ---- 6 3 8 4 5 7 8 12 6 6 7 7 % of meeting 88 93 100 88 ---- 75 75 100 80 71 88 100 92 75 75 87 87

2008-2009 2009-2010 2010-2011 Audit Committee CEO ED PTNOD SH NCG RBI CEO ED PTNOD SH NCG CEO ED PTNOD SH NCG RBI

CEO/Chairman 1 3 1 1 2 ----- 1 2 1 --- 1 1 2 1 1 1 2

No. of meeting held 8 15 3 5 16 ----- 9 18 9 --- 9 11 11 9 6 11 11

No. of meeting attended 5 15 3 4 14 ----- 7 18 8 --- 9 11 11 8 2 8 10 % of meeting 63 100 100 80 88 ----- 78 100 89 --- 100 100 100 89 33 73 91

Shareholder Investor

Grievances Committee

(SIGC)

CEO ED PTNOD SH NCG RBI CEO ED PTNOD SH NCG CEO ED PTNOD SH NCG RBI

No. CEO/Chairman 1 3 ---- 2 ---- ---- 1 2 --- 2 --- 1 2 --- 1 --- ---

No. of meeting held 4 4 ---- 4 ---- ---- 4 4 --- 5 --- 4 8 --- 4 --- ---

No. of meeting attended 4 3 ---- 4 ---- ---- 4 4 --- 4 --- 3 5 --- 4 --- --- % of meeting 100 75 ---- 100 ----- ---- 100 100 --- 86 --- 75 63 --- 100 --- ---

SIGC 2008-09 2009-10 2010-2011

Audit Committee 1 3 --- 1 --- --- 1 2 --- --- --- 1 3 --- 1 --- ---

No. CEO/Chairman 2 5 --- 2 --- --- 4 8 --- --- --- 4 8 --- 4 --- ---

No. of meeting held 2 5 --- 2 --- --- 4 8 --- --- --- 4 7 --- 4 --- ---

No. of meeting attended 100 100 --- 100 --- --- 100 100 --- --- --- 100 87 --- 100 --- --- % of meeting

286

Table: 7.2.3.2

COMPOSTION, PARTICIPATION AND NUMBER OF NON-MANDATORY COMMITTEE IN BOI BANK

(2006-2007 to 2010-2011)

Non

Mandatory

Disclosure

Years 2005-2006 2006-2008 2007-2008

Management

committee

CEO ED PTNOD SH NCG NWE

D

WED RBI CEO ED PTNOD SH NCG NWED CEO ED PTNOD SH NCG NWED WED RBI

No. CEO/

Chairman 1 2 1 3 1 1 1 2 1 2 3 4 2 1 1 2 3 2 ---- 1 1 1

No. of

meeting held

2 35 2 27 21 4 10 21 21 21 26 20 19 6 18 33 42 18 ---- 9 10 12

No. of meeting

attended

1 35 2 27 9 3 10 14 21 19 21 16 11 6 17 31 35 13 ---- 8 10 12

% of meeting 50 100 100 100 43 50 100 67 100 90 81 80 58 100 94 94 83 72 ---- 89 100 100

2008-2009 2009-10 2010-2011

Management

committee

CEO ED PTNOD SH NCG NWE

D

WED RBI CEO ED PTNOD SH NCG NWED CEO ED PTNOD SH NCG NWED WED RBI

CEO/

Chairman

1 3 3 4 1 2 1 ---- 1 2 4 4 1 1 1 3 2 3 ---- 2 ---- 2

No. of meeting

held 18 23 31 23 18 11 1 ---- 19 44 38 30 22 7 31 62 22 54 ---- 26 ---- 31

No. of meeting

attended 18 23 18 15 17 10 1 ---- 19 44 33 24 21 5 30 61 22 46 ---- 26 ---- 31

% of meeting 100 100 58 65 94 91 100 ---- 100 100 87 80 95 71 96 98 100 80 100 100

Note: CEO - Chairman and Managing Director

PTNOD - Part-Time Non-Official Director NCG – Nominee of the Centre Government WED - Workmen Employee Director

ED - Executive Director

SH - Shareholder Director

NWED - Non-Workmen Employee Director

RBI - Nominee of Reserve Bank of India

284

COMPARATIVE ANALYSIS OF PRIVATE AND PUBLIC

BANKS

The chapter put forth comparative position of private and public banks on the basis of

empirical as well as content analysis.

8.1 EMPIRICAL BASED COMPARATIVE ANALYSIS

8.1.1 Corporate Governance

The empirical based comparison is done with respect to four CG dimensions and two

antecedents along with performance measures. The statistical significance of the

perceptual gap between public and private bank managers with respect to CG measures is

identified (Table 8.1) and discussed as under:

8.1.1.1 Accountability

The results indicate that among the five accountability items, three items that include

„bank conduct annual assessment‟, „clear and defined job description‟ and „code of

conduct‟ were perceived highly by both public and private bank managers. The private

bank managers supporting this ranged between 85% to 92% while public bank managers

supporting the three items ranged between 89% to 93%. However private bank managers

have given somewhat higher mean values to these items. Further, public bank managers

have given somewhat high mean value, in comparison to private bank managers to two

items „formal criteria to assess its performance‟ and „recording and communicating of

managerial decision to concerned members‟. The results indicate significant difference in

the perception of public and private banks managers for „formal criteria to assess its

285

performance‟ items and insignificant difference for „recording and communicating of

managerial decision to concerned members‟.

8.1.1.2 Transparency

On an average private bank managers have shown comparatively little bit higher

perception scores for the transparency items. The difference between the mean value

scores achieved by private and public managers was found to be quite significant. The

private banks‟ managers ranged between 71% (information regarding meetings is put on

the internet) to 86 % (organisation provide all relevant information within sufficient

time) and public bank managers ranged between 75% (information regarding meetings is

put on the internet) to 87% (organisation provide all relevant information within

sufficient time) endorsed transparency being followed in banks‟ functioning.

8.1.1.3 Effectiveness

The overall perceptual difference between public and private bank managers for

effectiveness dimension was found to be significant (Table 8.1). The specific items

include „managers performance reflects consideration of corporate objectives and

policies‟ (public bank managers = 82% and private bank managers = 83%) and „bank

gives sufficient attention to the role of share holder and the functioning of the

shareholder meetings‟ (public bank managers = 85% and private bank managers = 78%).

However insignificant difference in the perception of public and private bank managers

was arrived for two items which include „effective communication is in place to keep staff

informed about new and existing policies‟ (public bank managers = 85% and private bank

managers = 86%) and „employees generally communicate about any mislead & unethical

286

behaviour of employees to the management‟ (public bank managers = 87% and private

bank managers = 66%). The private bank managers scored have given somewhat higher

mean values for three items „effective communication is in place to keep staff informed

about new and existing policies‟, „managers‟ performance reflects consideration of

corporate objectives and policies‟ and „bank gives sufficient attention to the role of share

holder and the functioning of the share holder meetings‟ in comparison to public bank.

8.1.1.4 Corporate Social Responsibility

Among the five items of corporate social responsibility, four items that included „equal

employment policy‟, „social responsibility towards environment protection‟, „social

responsibility towards the community‟ and „help to the needy persons‟ were perceived

highly by both public and private bank managers with endorsement percentage ranged

between 72 % to 97% for public bank managers and 61% to 82% for private banks

managers. Both the public and private bank managers have given somewhat high mean

values to the items. Further, „safeguarding the interest of employees‟ showed

insignificant difference in the perception of public and private bank managers. The mean

scores for all the items, excluding „policies are regularly upgraded to safeguard the

interest of employees‟ was found to be somewhat high for public bank managers in

comparison to private bank managers. The overall results revealed significant difference

in the perception of public and private bank managers.

8.1.2 Antecedents of Corporate Governance

The managers‟ perceptual gap related to corporate culture, corporate ethical value, was

analysed as under.

287

8.1.2.1 Corporate Culture

The perception of public and private bank managers was found to be same with

respective mean values arrived at 3.96 (SD=1.04) and 4.12 (SD=.762) for „management

actively seeks feedback from client and customer with a view to improve service‟ (public

bank managers = 81% and private bank managers =80%) „your bank maintains

relationship of trust with all employees‟ (public bank managers and private bank

managers = 90% each). Further five items namely „management actively seeks feedback

from client and customer with a view to improve service‟ (public bank managers = 81%

and private bank managers = 80%), „the mission and value of your bank are well

communicated to the employee‟ (public bank managers = 92% and private bank managers

= 81%), „your bank has developed its code of ethics to be followed by employees‟ (public

bank managers = 92% and private bank managers = 88%), „unethical behaviour is

promptly reprimanded when discovered if it result in personal gain‟ (public bank

managers = 44% and private bank managers = 48%) and „bank gives equal treatment to

employees, customer, owners and community‟ (public bank managers =77% and private

bank = 76%) indicated significant difference in the perception of public and private banks

managers while items that include „effort to hiring employees who fit into the

organisation‟ and „management share business strategies with all employees‟ showed

insignificant difference in the perception of public and private banks managers.

8.1.2.2 Corporate Ethical Value

Four items namely „organization working behaviour is consistent with the stated ethics

and values‟ , „organization takes action against employees who are involved /employed

288

in misconduct‟ , „bank is fully committed towards accomplishing the agreed tasks‟ and

„disfavour any gift to favour your organization interest‟ indicated positive but varying

degree of perceptions of public and private bank managers. This has been supported by

managers which ranged between 80% to 97% (public bank managers) and 63% to 96%

(private bank managers). However remaining two items show insignificant perceptual

gap for „organization is particular in protecting women shareholders‟ and „organization

gives rewards to the ethical behaviour‟ items. The overall result further indicated that

there exist difference in the perception of managers in case of public (MS= 4.72) and

private banks (MS=3.88).

8.1.3 Consequences of Corporate Governance

8.1.3.1 Employees-Based Business Performance

Under the dimension business performance six items „value added information to

customers‟ , „customer are satisfied‟, „achievement of desired goals‟, timely return on

assets‟ , „ achievement of branch profit‟ and „organisation goal‟ have scored high mean

values in the range of 4.55 to 4.23 by public bank managers and 4.25 to 4.47 by private

bank managers. All these items showed significant difference in the perception of the

public and private banks managers at 5% level of significant. Percentage of managers

supporting these items ranged between 73% to 88% (public bank managers) and 62% to

87% (private bank managers). The overall t value reflects significant difference in the

attitudes of public and private managers for business performance.

289

8.1.3.2 Customer-Based Business Performance

Corporate Reputation

Customer Orientation

The dimension „customer orientation‟ depicts significant difference between public and

private banks customers for items „employees who are concerned about customer needs‟,

„employees treat customer courteously‟ and „employees treat its customer fairly‟ which

scored somewhat average mean value. About 69% to 82% public bank customers and

62% to 78% and private bank customers endorsed customer orientation of the banks. Two

items that include „bank is concerned about customers‟ (public bank customers = 69%

and private bank customers =60%) and „bank takes customer rights seriously‟

(public=55% and private= 62%) showed insignificant difference, indicating similar

perception of public and private bank customers. However, overall t-value (0.069)

showed that the perceptions of public banks customers are different from private bank

customers with respect to customer orientation.

Emotional Appeal

Overall result represents insignificant difference among the perception of public and

private bank customers with respect to emotional appeal. However three out of four

statements reflect significant perceptual gap between the two banks. These items include

„bank stands behind the services it offers‟, „trust the bank‟ and „good feeling about the

bank‟. Majority of the customers supported the same.

290

8.2 CONTENT- BASED COMPARATIVE ANALYSIS

Since no standard guidelines are available for the calculation of CG score, the

measurement of ethical CG practices is done through the development of CG scorecard.

The CG scorecard comprise of seventeen significant dimensions, based on clause 49 of

listing agreement. These dimensions are related to functioning of bank with respect to

board structure, disclosures, code of conduct, board committees and general body

meetings. Some of these dimensions are further categorised into sub-dimensions to assess

more objectively the CG practices of the bank. A point value system is applied where by

adequate weightage is given to various dimensions and sub dimensions and items

according to their importance. The key governance parameters are assigned hundred

score point to assess the overall and relative significance of the dimension of CG. The

quality of CG practices is evaluated on the basis of point value scale viz., 86-100

(excellent); 71-85 (very good); 56-70 (good); 41-55 (average); below 41 (poor). This

methodology for CG scorecard is derived from the work of Das (2007a, b). The

dimensions used for the calculation of CG score by Das (2007a, b) are modified

according to the information discussed in CG report of the bank. The score assigned to

seventeen dimensions and sub dimensions (Tables 8.2.1 to 8.2.6) are discussed as under:

8.2.1 Statement of Company Philosophy on Code of Governance

All the six public and private banks have given a brief account on the philosophy of CG

and hence are assigned maximum score value. The basic philosophy of CG in all public

and private banks revolved around achieving business excellence and dedicating

291

themselves for increasing long-term shareholder value, keeping in view the need and

interest of all its shareholders.

8.2.2 Structure and Strength of Board

The information on structure and strength of board of public and private banks had been

mentioned in all annual reports of selected periods. All the banks had thus scored

maximum on structure and strength of board aspect.

8.2 3. Chairman and CEO Duality

A good CG principle expects that there should be a clear division of responsibilities at the

helm of a company, which should ensure a balance of power and authority so that no

individual has unfettered power of decision. The CG information discussed in the

previous chapter highlights that the public and private banks have judious mix of

directors. However the Bank of India (BOI) has a broad base of directors that include

PTNOD, SH, NWED and WED. Unlike other banks in which board of directors generally

includes ED, NED and INED and hence given five score against four assigned to rest

banks.

8.2.4. Disclosure of Tenure and Age Limit of Directors

The code of best practices demands that ID have limited tenure, not exceeding in

aggregate a period of 9 years on the board of a company. Although the age limit of

directors to retire may be decided by the respective banks, the corporate board should

have an adequate mechanism of self renewal as part of corporate governance best

practices. The public and private banks did not disclose in their policy any information on

292

age limit of the directors. However the banks (both public and private) have disclosed the

tenure of services of their directors in all the financial years. The score assigned to all

banks for this aspect is one.

8.2.5. Disclosure of definition of independent directors, financial experts and

selection criteria for board members including independent directors

A good governance system demands that a company should also disclose in its annual

report, the definition of ID and financial expert as the selection criteria for board

members followed by corporate board. Both public and private banks have not disclosed

in their annual reports any information on definition of ID, financial experts and selection

criterion of board members. However, only HDFC bank has included financial experts in

its board. Whereas disclosure and reference of financial experts was not mentioned in the

annual report of any other banks. Hence no score was assigned.

8.2.6. Board meeting held and attended

All the public and private banks had disclosed information regarding the number of

meetings held and attended in the respective years.

8.2.7. Post- Board Meeting Follow up System and Compliance of the Board

Procedure

The annual reports revealed that none of the public and private banks had disclosed any

information about post-board meetings follow up system and compliance in their annual

reports

293

8.2.8. Disclosure of other Provision as to the Boards and Committee

All the public and private banks had disclosed the required information about the

directorships in other bank/companies and details of committee membership and

committee chairmanship. Hence maximum score of one was assigned in all the selected

years.

8.2.9. Disclosure of Remuneration Policy and Remuneration of Directors

Clause 49 of the listing Agreement requires the companies to establish and disclose a

formal and transparent policy on executive remuneration and on fixing remuneration

package of individual directors based on the principle of fairness, reasonableness and

accountability. Further there should be clear relationship between responsibility and

performance including remuneration. The BOI had disclosed the remuneration policy and

remuneration policy and remuneration of directors while PNB bank had not disclosed

about the remuneration policy and remuneration of directors. Regarding private banks

ICICI and JKB had disclosed the information with regard to remuneration policy and

remuneration of directors. Whereas HDFC and SBI bank had disclosed only about the

remuneration of directors in the annual report of the selected financial years.

8.2.10. Code of conduct

Clause 49 1(1) of the Listing Agreement stipulates that it shall be obligatory for the board

of company to lay down code of conduct for all its board members and senior

management. All board members and senior management persons shall affirm

294

compliance with the code on annual basis and contain declaration to this effect signed by

CEO.

The annual reports revealed that all the selected banks had furnished information

on adoption of the code of conduct and also affirmed compliance with the code of

conduct endorsed by CEO declaration in the annual report.

8.2. 11. Board Committees

A. Audit Committee

Both the public and private banks have complied with the condition of the Clause 49 of

the Listing Agreement with regard to formation of audit committee and minimum

member of ID in the committee. Clause 4911 (B) of the listing agreement also stipulates

that the audit committee should meet at least 4 times a years and both public and private

banks have satisfied this condition. The audit committee report had published in the CG

report in all the financial years in detail about number of meetings held and attended by

the directors, which are in ranged between 29 days to 45 days (JKB), 27 days to 38 days

(SBI), 24 days to 30 days (PNB) and 34 days to 42 days (BOI).

B. Remuneration Committee/Compensation Committee

Formulation of remuneration committee in a listing company was a mandatory/non-

mandatory requirement as per Clause 49 of the Listing Agreement. Among the different

banks ICICI and HDFC banks had set up a remuneration committee from 2006-07 to

2009-10, whereas BOI had not constituted the committee. On the other hand committee

of SBI was framed only in 2008-09 and 2009-10 and comprised of only two NED against

the minimum requirement of three NED as per the Clause. Regarding PNB bank

295

remuneration committee although rationally constituted by PNB bank but no meetings

were held during the financial year 2006-07. Hence, the purpose of setting up such a

committee was vitiated in absence of any meetings of the committee in the respective

year. Further, JKB bank had disclosed only about the role and function of the committee

in financial years 2005-06 to 2009-10. Hence the average CG score assigned to different

banks JKB, HDFC, ICICI, SBI, PNB and BOI was 3, 6, 6, 0.6, 7.4 and 0 and

respectively.

C. Shareholder/Investor Grievance Committee

Both public and private banks had complied with requirements of Clause 49 of the

Listing Agreement in regard to composition of the shareholder investor grievance

committee. They had also furnished required information regarding the number of

committee meetings held during the years to look into various complaints and queries of

the shareholders. However, JKB had not disclosed any information about the meetings

held and attended by the members in two financial years 2005- 06 and 2006- 07.

D. Nomination Committee

Among the six banks, two banks i.e. HDFC and ICICI had constituted the nomination

committee in all the selected periods. The HDFC bank had nomination committee in six

financial periods i.e. 2005-06 to 2010-11 and provided all relevant information about the

committee in all the financial years. However in ICICI the nomination committee was

functioning with multiple aspects as it is also named as „Board Governance,

Remuneration and Nomination Committee‟. The function of the committee as disclosed

by the bank in the CG report include recommendation of appointments to the board,

296

evaluation of the performance of the Managing Director & CEO and whole time directors

on predetermined parameters, recommendation to the board of the remuneration

(including performance bonus and perquisites) to whole time directors, approval of the

policy for and quantum of bonus payable to the members of the staff, framing of

guidelines for the employees stock option scheme and recommendation of grant of ICICI

Bank stock options to the employees and whole time directors of ICICI Bank and its

subsidiary companies. JKB bank has also given complete information about the

composition, number of meeting held and attended in 2007-08, 2009-10 and 2010-11.

However in 2005-06, 2006-07 and 2008-09 the bank has disclosed about the committee

role and function only. The PNB bank on the other hand has framed out the committee in

only two financial years i.e. 2008-09 and 2010-11, whereas in 2006-07 the committee

was not framed out. Further SBI and BOI had not set up the committee in any of the

financial years under study.

E. Management Committee

The management committee was constituted by three banks namely JKB, PNB and BOI

in all the financial years.

F. Investment Committee

The investment committee was not constituted by any of the public and private banks in

the respective years.

297

G. Share Transfer Committee

Among the six banks only ICICI and PNB banks have constituted the committee from

2006-07 to 2010-11.

8.2.12. Disclosure and Transparency

Disclosure in the reports of CG of the annual reports of public and private banks, as

required by the Clause 49 of the Listing Agreement had been given in two parts:

statutory disclosure and non-mandatory disclosure.

Mandatory information on significant related party transitions having potential

conflict with the interest of the company, accounting treatment, and management

discussion and analysis are disclosed by all the public and private banks in all the

financial years i.e. 2005-06 to 2010-11. However, disclosure on non-compliance related

to capital market matters was disclosed by HDFC, ICICI, SBI, and PNB bank.

Shareholder information on „appointment of new director and director‟s responsibility

statement is mentioned in each financial year by all public and private banks. However

information on share transfer is given by all the banks i.e. JKB, ICICI HDFC, SBI, PNB

and BOI. Further, the disclosures on the quarterly results of all the public and private

banks are available on the bank web site.

The non-mandatory disclosures related to shareholder rights, auditor qualification,

evaluation of NED, training of directors and whistle blower policy is disclosed by HDFC

bank in all the financial years i.e. 2005-06 to 2010-11. The ICICI bank has framed out the

whistle blower policy in all the six financial years whereas the information regarding the

298

other non-mandatory disclosures such as shareholder rights, auditor qualification,

evaluation of NED, training of directors was not given in any of the annual reports. JKB

on the other hand has mentioned about the shareholder right and auditor qualification

only. Information on shareholder right and evaluation of NED was disclosed in the

annual reports of BOI. The SBI provided the information on shareholder right only, and

no information on auditor qualification, training of board of directors, evaluation of non-

executive directors and whistle blower policy was disclosed by the bank. Lastly the PNB

bank had mentioned only about the training of board members and evaluation of NED in

the current report i.e. 2010-11. In addition, the bank was considering matter for

formulating the whistle blower policy. The scores assigned on various aspects of CG

range between 25 (HDFC) to 12 (SBI).

8.2. 13. General Body Meetings

With regard to reporting of information on company‟s general body meetings, following

information is statutorily required to be disclosed in the annual report:

i) Location and timing of general meetings held at last three years,

ii) Detail of special resolution passed in the last three AGM/EGM,

iii) Details of resolution passed last years through postal ballot including the name of

the conducting official and voting pattern procedures.

The respective tables scores 8.2.1 to 8.2.6 reveal that all the banks had provided required

information on all the aforesaid items.

299

8.2.14. Means of communication and General Shareholder Information

All the public and private banks had provided general shareholder information and also

adopted various means of communication every year as prescribed by the Listing

Agreement to be included in the report of CG.

8.2.15. CEO & CFO Certification

Clause 49 of the Listing Agreement had mandated CEO and CFO certificated to the

board of directors of a listed company on certain specific matters and disclosure of the

same in the CG report. Among the various banks JKB, ICICI and BOI had complied with

this requirement and published the certificate in their CG reports.

8.2.16. Compliance of CG and Auditors Certificate

The compliance certificate on CG and auditor‟s certificate certifies that the bank had

complied with the condition of CG as stipulated in Clause 49 of the listing agreement

with the stock exchange and the same needed to be annexed to the annual report. All the

public and private banks had framed out compliance related to CG and auditor certificate.

8.2. 17. Disclosure of Stakeholder Interest

The brief focus on the disclosures made by public and private banks in their annual

reports on various initiatives and measures taken by them to meet their commitments on

the expectations and interest of stakeholders on the items such as insider trading code,

distribution pattern and shareholder pattern and market price data need to be disclosed

300

The tables on CG score 8.2.1 to 8.2.6 revealed that all the public and private

banks had disclosed in brief the initiatives and measures taken by them in the annual

reports except SBI which in its annual reports had not mentioned about the inside trading

code.

88.3 HYPOTHESES TESTING

8.3.1 Empirical Based

On the basis of guidelines discussed in the previous chapters, various hypotheses were

tested using SEM for overall sample, comprising private and public banks (Table 8.6).

Hypothesis 1a i.e. all the CG dimensions contribute significantly towards CG is accepted

while hypothesis 1b i.e. accountability and corporate social responsibility contribute more

to CG is rejected. Further, based on SRW and CR values, hypotheses 2, 3a and 3b are also

found to be accepted. The direct effect of CG on business performance (H4) is accepted

whereas the effect of corporate reputation on CG (5a) was rejected on overall sample.

However the hypothesis that CG affects business performance and corporate reputation

(H5b) is rejected.

Model 1: Corporate Governance- Corporate Culture- Corporate Ethical Value- Business

Performance- Corporate Reputation ((Integrated CG Model))

Note: – Accountability, transparency, effectiveness and corporate social

responsibility - indicators of corporate governance, corporate culture, corporate

ethical value –antecedents of corporate governance and business performance and

corporate reputation consequences of corporate governance

e1, e2,e3,e4,e5,e6,e7,e8 – errors variances for model items

Corporate

Culture

Corporate

Ethical

Value

Business

Performance

Corporate

Reputation

Corpporate

Governance

Accountability Transparency Effectiveness Corporate Social

Responsbility

e1

1

e2

1

e3

1

e4

1

e5

1

e6

e7

e8

1

1

1

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8.3.2 Archival Based

The application of ANOVA was done to examine overall and dimension wise difference

between the public and private banks. The results indicated insignificant difference both

from overall as well as dimensions perspective. Hence, hypotheses 6a and 6b were

accepted. One sample t-test was applied using range of t values (minimum=56, average=63

and maximum=70) falling in good CG score range. The t-test value results indicate at

minimum (56) and at average (63) values that JKB, SBI and PNB enjoyed good CG score.

However at test value 70 SBI and PNB were showing significant performance while JKB

showed insignificant performance. However, t result could not be calculated for ICICI,

HDFC and BOI as standard deviation could not be computed. But at the same time all these

three banks had showed 84, 81 and 78 score respectively. Hence, hypothesis 7a is accepted.

The correlation between corporate governance and ROE is found to be significant for SBI

and PNB while insignificant on ROA (SBI, ICICI, PNB and JKB). The result could not be

computed for HDFC and BOI. The hypothesis 7b is partially accepted. This result is in

congruence with the study conducted by Ibrahim (2010) in which he found significant

impact of corporate governance on ROE but insignificant impact on ROA. Further,

correlation between ROA, ROE, corporate governance scores and profitability is found to

be insignificant for the respective bank that is SBI, ICICI, PNB and JKB (Table 8.3).

8.4 CONCLUSION

Based on empirical findings, the overall results revealed that corporate governance

dimensions significantly contribute to corporate governance. The corporate ethical value

and corporate culture was found to be significant predicators of corporate governance.

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The impact of corporate governance on business performance showed insignificant

relationship. Based on archival findings average corporate governance score was found

to be highest for HDFC (84), followed by ICICI (81) and JKB (74.1) in the private sector

whereas PNB (79.8) scored highest followed by BOI (78) and SBI (60.6) in the public

sector.

On evaluation of the scores of banks, the results showed that the governance

standard and practices of five banks namely JKB, ICICI, HDFC, PNB and BOI are

encouraging as the banks have shown „very good‟ performance in terms of disclosure

practices excluding SBI which has scored „good‟ performance. Among the private bank

HDFC banks can be ranked at the top followed by ICICI and JKB on all the aspect of

mandatory and non-mandatory. On the flip side, among public banks, PNB can be rated at

top followed by BOI and SBI.

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TABLE: 8.1.1

STATEMENT-WISE MEAN, PERCENTAGE AND T-VALUES REGARDING

PERCEPTUAL GAP BETWEEN PUBLIC AND PRIVATE BANK MANAGERS

TOWARD CORPORATE GOVERNANCE

CG Dimensions Private Bank Public Bank

Accountability MV S. D % MV S.D % t-value significant

The bank conducts an annual assessment. 4.08 1.06 85 4.00 1.07 92 3.41 significant

The bank set up formal criteria to assess

its performance.

3.64 0.96 86 3.78 .948 78 6.23 significant

Managers have clearly defined job

description & set performance targets.

4.26 0.71 92 4.25 .623 93 4.40 significant

Code of conduct are in place & have been

agreed by managers

4.10 0.68 90 4.05 .643 89 3.65 significant

Decision made by managers are recorded

& communicated to the appropriate

members

3.60 0.93 88 3.75 .856 71 1.20 insignificant

Overall 3.93 0.86 3.97 .828 ---- 7.45 significant

Transparency

The information regarding meetings is put

on the internet.

3.69 1.14 71 3.70 1.15 75 8.16 significant

Organization provides all relevant

information within sufficient time.

4.10 0.82 86 4.03 .801 87 6.45 significant

Prompt disclosure of market sensitive

information.

4.04 0.83 80 4.03 .820 83 5.72 significant

Conflicts of interest are fully resolved

through a clear & well established

mechanism

4.06 0.89 77 3.96 .969 81 9.21 significant

Overall 4.00 0.89 ---- 3.93 0.93 ---- 4.67 significant

Effectiveness

Managers‟ performance reflects

consideration of corporate objectives &

policies.

4.05 0.78 83 3.93 .868 82 8.82 significant

Bank gives sufficient attention to the role

of share holder & the functioning of the

share holder meetings.

4.10 0.84 78 4.10 .782 85 3.18 significant

Effective communication is in place to

keep staff informed about new & existing

policies.

4.06 0.80 86 3.95 .869 85 0.35 insignificant

Employees generally communicate about

any mislead & unethical behaviour of

employees to the management.

3.71 1.00 66 3.68 1.03 87 1.54 insignificant

Overall 3.98 0.85 ---- 3.91 0.88 ---- 6.12 significant

Corporate social responsibility

Explicit equal employment policy. 3.50 0.94 72 3.71 .981 72 4.87 significant

Bank continuously discharges social

responsibility to protect the environment

3.98 1.00 78 3.75 .994 78 50.2 significant

Bank continuously discharges social

responsibility to protect the community.

3.52 1.16 61 3.72 1.10 73 7.24 significant

Bank provides help to needy persons. 4.04 0.85 78 4.29 .561 97 5.82 significant

Policies are regularly upgraded to

safeguard the interest of employees.

4.12 0.91 85 4.18 .796 89 0.18 insignificant

Overall 3.88 .825 3.93 .88 7.89 significant

304

TABLE: 8.1.2

STATEMENT-WISE MEAN, PERCENTAGE AND T-VALUES REGARDING

PERCEPTUAL GAP BETWEEN PUBLIC AND PRIVATE BANK MANAGERS

TOWARD CORPORATE CULTURE AND CORPORATE ETHICAL VALUE

Corporate Culture Private Bank Public Bank MV S D % MV SD % t-value significant Management actively seeks feedback from

client and customer with a view to

improving service.

3.96 1.02 80 3.96 1.04 81 5.61 significant

Your bank has developed its code of ethics

to be followed by employees

4.16 0.68 88 4.18 .705 92 5.53 significant

The mission and value of your bank are

well communicated to the employees

4.25 0.68 81 4.21 .752 92 4.62 significant

Your organization, unethical behaviour is

promptly reprimanded when discovered if

it result in personal gain

3.58 1.26 69 3.70 1.21 69 9.24 significant

Your bank maintains relationship of trust

with all employees

4.12 0.72 90 4.12 .762 90 12.47 significant

Your bank gives equal treatment to

employees, customer, owners and

community

4.15 1.09 76 3.70 1.12 77 15.23 significant

Your organization, unethical behaviour is

promptly reprimanded when discovered if

it result in gain to firm

3.54 1.13 48 3.11 1.31 44 4.28 significant

Effort to hiring employees who fit into the

organisation

3.15 1.33 77 3.71 1.21 71 1.24 insignificant

Management shares business strategies

with all employees.

4.05 0.97 90 4.00 .984 83 1.88 insignificant

Overall 3.88 0.98 4.72 1.01 4.67 significant

CORPORATE ETHICAL VALUE

Your organization working is behaviour

consistent with the stated ethics & values

of the organization

4.07 0.89 84 3.94 .898 80 6.25

significant

Your organization takes action against

employees who are involved /employed in

misconduct

4.40 0.61 96 4.31 .653 97 8.52 significant

The bank is fully committed towards

accomplishing the agreed tasks

4.26 0.86 63 4.50 .821 85 10.23 significant

You disfavour any gift to favour your

organization interest

3.87 1.15 73 3.67 1.21 73 5.26 significant

Your organization is particular in

protecting women shareholders

3.52 1.14 60 3.50 1.15 60 .505 insignificant

Your organization gives rewards to the

ethical behaviour

3.81 0.92 67 3.75 .907 67 1.24 insignificant

Overall 3.98 0.93 6.56 significant

305

TABLE: 8.1.3

STATEMENT-WISE MEAN, PERCENTAGE AND T-VALUES REGARDING

PERCEPTUAL GAP BETWEEN PUBLIC AND PRIVATE BANK MANAGERS

TOWARD BUSINESS PERFORMANCE

Business Performance Private Bank Public Bank

MV S D % MV SD % t-value significant

Value added information to

customers 4.47 0.86 75 4.26 .709 73 4.35 insignificant

Customer are satisfied 4.25 1.03 62 4.38 .668 68 8.39 insignificant Achievement of desired goals 4.46 0.98 80 4.23 .727 84 6.34 insignificant Timely return on assets 4.35 1.19 83 4.26 .598 86 11.45 insignificant Achievement of branch profits 4.33 0.89 87 4.20 .623 82 9.35 insignificant Overall organizational goal 4.40 1.56 85 4.55 .510 88 5.21 insignificant Overall 4.38 1.07 ---- 4.31 .639 -- 8.34 insignificant

Corporate Reputation

Customer Orientation Bank has employees who are

concerned about customer need. 3.55 .946 78 3.93 .854 82 4.26 significant

Bank employees who treat

customer courteously. 3.48 1.15 62 3.80 .939 68 3.83 significant

Bank is concerned about its

customers. 3.53 1.16 60 3.79 .963 69 7.34 significant

Bank treats its customers fairly. 3.50 1.17 63 3.72 .961 69 2.34 significant Bank takes customer rights

seriously. 3.33 1.29 62 3.60 1.14 55 1.45 insignificant

Overall 3.48 1.14 ---- 3.77 0.78 ---- 4.254 significant Emotional Appeal Bank stand behind the services that

it offers. 3.72 0.86 68 3.51 .948 60 4.52 significant

You admire and respect the bank. 3.86 1.09 57 3.97 .937 56 .569 insignificant

You trust the bank. 3.78 0.81 75 3.83 .908 54 2.53 significant You have a good feeling about the

bank. 3.63 1.10 76 3.75 1.05 69 6.27 significant

Overall 3.75 0.96 ---- 3.76 0.96 --- 5.27 significant Grand Mean 3.61 1.05 3.76 0.88

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TABLE-8.2.1

CORPORATE GOVERNANCE SCORE FOR CG PARAMETERS (JKB)

(2005-06 to 2010-11)

Corporate Governance 2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

AV

1 Statement of company‟s philosophy on COG

2

2 2 2 2 2 2 2

2 Structure & strength of board 2 2 2 2 2 2 2 2

3 Chairman &CEO duality 5

a) Chief executive officer MD/CEO (1) 1 1 1 1 1 1

b) Executive director / ED (1) 1 1 1 1 1 1

c) Non executive director /NED (1) 1 1 1 1 1 1

d) Independent non executive director (1) 1 1 1 1 1 1

e) other directors (1) --- ---- --- --- --- ---

Total 4 4 4 4 4 4 4

4 Disclosure of tenure & age limit of directors

(2)

1 1 1 1 1 1 1

5 Disclosure of

(3)

a) Definition of independent director ----- ---- ---- ---- ---- ---

b) Definition of financial expert ----- ----- ---- ---- --- ---

c) Selection criteria of BOD independent director ----- ---- ---- ---- ---- ---

Total 0

6 Board meetings held and attended (2) 2 2 2 2 2 2 2

7 Post-board meeting follow up system (2) ----- ---- ---- ---- ---- --- 0

8 Disclosure of other provision as to the board &

committees 1

1 1 1 1 1 1 1

9 Disclosures of (2)

a) Remuneration policy --- 1 ----- 1 1 1

b) Remuneration of directors 1 1 1 1 1 1

Total 1 2 1 2 2 2 1.6

10 Code of conduct (2)

a) Information on code of conduct (1) 1 1 1 1 1 1

b) Affirmation of compliance. (1) --- --- ---- --- --- ----

Total

1 1 1 1 1 1 1

11 Board committees

A Audit committee (8)

a) Transparency in composition of audit

committee.

1 1 1 1 1 1

b) Compliance of minimum requirement of no. of

independent director in the committee.

1 1 1 1 1 1

c) Compliance of minimum requirement of no. of

meeting of the committee.

1 1 1 1 1 1

d)Information about literacy expertise of

committee members.

1 1 1 1 1 1

307

e)Information about participation of head of

finance, statutory auditor & chief internal auditor

in the committee meeting.

1 1 1 1 1 1

f)Disclosure of audit committee charter & terms of

reference. (2)

2 2 2 1 1 1

g)Publishing of audit committee report 1 1 1 1 1 1

Total 8 8 8 8 8 8 8

B Compensation committee (6)

a) Formation of the committee. 1 1 1 1 1 1

b) Information about no. of committee meetings. ----- ------ 1 ----- ----- 1

c) Compliance of minimum requirement of the no.

of non executive director in the committee.

----- --- 1 ----- ----- 1

d) Compliance of the provision of independent

director as chairman of the committee.

----- ----- 1 ----- ----- 1

e) Information about participation of all members

in the committee meeting.

----- ----- 1 ----- ----- 1

f) Publishing of committee report. ----- --- 1 1 1 1

Total 1 1 6 2 2 6 3

C Shareholder‟s/Invertors grievance committee 5

a) Transparency in composition of the committee. 1 1 1 1 1 1

b) Information about nature of complaints queries

received & disposed item wise.

1 1 1 1 1 1

c) Information about number of committee

meetings

----- ----- 1 1 1 1

d)Information about action taken and

invertors/shareholder survey.

----- ----- 1 1 1 1

e) Publishing of committee reports. ----- ----- 1 1 1 1

Total 2 2 5 5 5 5 4

D Nomination Committee (2)

a) Formation of the committee 1 1 1 1 1 1

b) Publishing of committee report ----- ----- 1 -- 1 1

Total 1 1 2 1 2 2 1.5

E Management committee (2) 2 2 2 2 2 2 2

F Investment committee (1) ----- ----- --- ----- ---- ---- 0

G Share transfer committee (1) ----- ------- ---- --- -- -- 0

12 Disclosures & Transparency

(25)

a) Significant related party transactions having

potential with the interest of the co. (2)

------ ------- -------- ------ ----- --------

b) Non-compliance related to capital market

matters during last three years

(2)

----- ----- ----- ----- ----- -------

c) Accounting treatment (2) 2 2 2 2 2 2

d) Board disclosure- risk management

i) Information to the board on risk management (2) 2 2 2 2 2 2

ii) Publishing of risk management report (1) 1 1 1 1 1 1

e) Management discussion and analysis (2) 1 1 1 1 1 1

f) Shareholders information :-

308

(i) Appointment of new director (1) 1 1 1 1 1 1

ii) Quarterly result & presentation (2) ----- ----- ----- ----- ----- -----

ii) Share transfers (2) 2 2 2 2 2 2

iii) Directors responsibility statement (1) 1 1 1 1 1 1

g) Shareholder rights (2) 2 2 2 2 2 2

h) Audit qualification (2) 2 2 2 2 2 2

i) Training of board members (2) ----- ----- ----- ----- ----- -----

j) Evaluation of non executive directors (2) ----- ----- ----- ----- ----- -----

k) Whistle blower policy (2) ----- ----- ----- ----- ----- -----

Total 14 14 14 14 14 14 14

13 General body meeting (3)

i) Location and time of general meeting held in last

three years

1 1 1 1 1 1

ii)Details of special resolution passed in the three

AGMs/EGMs

1 1 1 1 1 1

iii)Details of resolution passed last year through

postal ballot including the name of conducting

official voting procedure

1 1 1 1 1 1

Total 3 3 3 3 3 3 3

14 Means of communication & general shareholder

information (2)

2 2 2 2 2 2 2

15 CEO/CFO Certification (2) 2 2 2 2 2 2 2

16 Compliance of CG and auditors certificate

(10)

i) Auditors certificate on CG 5 5 5 5 5 5

ii) Compliance certificate of the auditors 5 5 5 5 5 5

Total 10 10 10 10 10 10 10

17 Disclosure of stakeholders interest

(10)

i)Insider trading code 2 2 2 2 2 2 2

ii) Shareholder & distribution pattern

a) Shareholder pattern 2 2 2 2 2 2 2

b) Distribution pattern 2 2 2 2 2 2 2

c) Detail of shareholder in physical form 2 2 2 2 2 2 2

d) Share price information 2 2 2 2 2 2 2 10

GRAND TOTAL 67 68 76 72 72 77 74.1

Note: AV=Average

Score Range 86-100 71-85 56-70 41-55 Below

Rank Excellent Very Good Good Average Poor

309

TABLE-8.2.2

CORPORATE GOVERNANCE SCORE FOR CG PARAMETERS (HDFC)

(2001-02 to 2007-08)

GOVERNANCE PARAMETERS 2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

AV

1 Statement of company‟s philosophy on

code of governance (2)

2 2 2 2 2 2 2

2 Structure & strength of board (2) 2 2 2 2 2 2 2

3 Chairman &CEO duality (5)

a) Chief executive officer MD/CEO (2) 2 2 2 2 2 2

b) Executive director / ED (1) 1 1 1 1 1 1

c) Non executive director /NED (1) 1 1 1 1 1 1

d) Independent non executive director (1) ---- ---- ---- ---- ---- ----

e) other directors (1)

Total 4 4 4 4 4 4 4

4 Disclosure of tenure & age limit of directors (2) 1 1 1 1 1 1 1

5 Disclosure of ; (3)

a)Definition of independent director ------- ------- ------- ------ ------ -----

b)Definition of financial reports ------- ------ ------ ----- ------ -----

c)Selection criteria of BOD independent director ------- ------ ------- ------ ------ -----

Total 0

6 Board meetings held and attended (2) 2 2 2 2 2 2 2

7 Post-board meeting follow up system (2) ------- ------ ------ ----- ------ ----- 0

8 Disclosure of other provision as to the board &

committees (1)

1 1 1 1 1 1 1

9 Disclosures of (2)

a) Remuneration policy NM NM NM NM NM NM

b) Remuneration of directors 1 1 1 1 1 1

Total 1 1 1 1 1 1 1

10 Code of conduct (2)

a) Information on code of conduct. (1) 1 1 1 1 1 1

b) Affirmation of compliance. (1) ------- ------ ------- ------ ------ -----

Total 1 1 1 1 1 1 1

11 Board committees

A Audit committee (8)

a) Transparency in composition of audit committee. 1 1 1 1 1 1

b) Compliance of minimum requirement of no. of

independent director in the committee.

1 1 1 1 1 1

c) Compliance of minimum requirement of no. of

meeting of the committee.

1 1 1 1 1 1

d)Information about literacy expertise of committee

members.

1 1 1 1 1 1

e)Information about participation of head of finance,

statutory auditor & chief internal auditor in the

committee meeting.

1 1 1 1 1 1

310

f)Disclosure of audit committee charter & terms of

reference. (2)

2 2 2 2 2 2

g)Publishing of audit committee report 1 1 1 1 1 1

Total 8 8 8 8 8 8 8

B Compensation committee (6)

a) Formation of the committee. 1 1 1 1 1 1

b) Information about no. of committee meetings. 1 1 1 1 1 1

c) Compliance of minimum requirement of the no. of

non executive director in the committee.

1 1 1 1 1 1

d)Compliance of the provision of independent director

as chairman of the committee.

1 1 1 1 1 1

e)Information about participation of all members in

the committee meeting.

1 1 1 1 1 1

f) Publishing of committee report. 1 1 1 1 1 1

Total 6 6 6 6 6 6 6

C Shareholder‟s/Invertors grievance committee (5)

a) Transparency in composition of the committee. 1 1 1 1 1 1

b) Information about nature of complaints queries

received & disposed item wise.

1 1 1 1 1 1

c)Information about number of committee meetings 1 1 1 1 1 1

d)Information about action taken and

invertors/shareholder survey.

1 1 1 1 1 1

e) Publishing of committee reports. 1 1 1 1 1 1

Total 5 5 5 5 5 5 5

D Nomination Committee (2)

a) Formation of the committee 1 1 1 1 1 1

b) Publishing of committee report 1 1 1 1 1 1

Total 2 2 2 2 2 2 2

E Management committee (2) ---- ----- ---- ---- ----- ---- 0

F Investment committee (1) ---- ---- ---- ---- ---- ----- 0

G Share transfer process (1) 1 1 1 1 1 1 1

12 Disclosures & Transparency (25)

a)Significant related party transactions having

potential with the interest of the co. (2)

2 2 2 2 2 2

b) Non-compliance related to capital market matters

during last three years (2)

2 2 2 2 2 2

c) Accounting treatment (2) 2 2 2 2 2 2

d) Board disclosure- risk management

i) Information to the board on risk management (2) 2 2 2 2 2 2

ii) Publishing of risk management report (1) 1 1 1 1 1 1

e) Management discussion and analysis (2) 2 2 2 2 2 2

f) Shareholders information :-

(i) Appointment of new director (1) 1 1 1 1 1 1

ii) Quarterly result & presentation (2) NM NM NM NM NM NM

ii) Share transfers system/code/process (2) 2 2 2 2 2 2

iii) Directors responsibility statement (1) 1 1 1 1 1 1

311

g) Shareholder rights (2) 2 2 2 2 2 2

h) Audit qualification (2) 2 2 2 2 2 2

i) Training of board members (2) 2 2 2 2 2 2

j) Evaluation of non executive directors (2) 2 2 2 2 2 2

k) Whistle blower policy (2) 2 2 2 2 2 2

Total 25 25 25 25 25 25 25

13 General body meeting (3)

i)Location and time of general meeting held in last

three years

1 1 1 1 1 1

ii)Details of special resolution passed in the three

AGMs/EGMs

1 1 1 1 1 1

iii)Details of resolution passed last year through postal

ballot including the name of conducting official

voting procedure

1 1 1 1 1 1

Total 3 3 3 3 3 3 3

14 Means of communication &general shareholder

information (2)

2 2 2 2 2 2 2

15 CEO/CFO Certification (2) ----- ---- ---- ---- ----- ----- 0

16 Compliance of corporate governance and auditors

certificate (10)

i) auditors certificate on CG 5 5 5 5 5 5

ii) compliance certificate of the auditors 5 5 5 5 5 5

Total

10 10 10 10 10 10 10

17 Disclosure of stakeholders interests (10)

i)Insider trading code 2 2 2 2 2 2 2

ii) shareholder & distribution pattern

a) shareholder pattern 2 2 2 2 2 2 2

b) distribution pattern 2 2 2 2 2 2 2

c) detail of shareholder in physical form 2

d) share price information 2 2 2 2 2 2 2

10 10 10 10 10 10 10

GRAND TOTAL 84 84 84 84 84 84 84

Note: AV=Average

Score Range 86-100 71-85 56-70 41-55 Below

Rank Excellent Very Good Good Average Poor

312

TABLE-8.2.3

CORPORATE GOVERNANCE SCORE FOR CG PARAMETERS (ICICI)

(2001-02 to 2007-08) GOVERNANCE PARAMETERS 2006-07 2007-08 2008-09 2009-10 2010-11 AV

1 Statement of company‟s philosophy on COG (2) 2 2 2 2 2 2

2 Structure & strength of board (2) 2 2 2 2 2 2

3 Chairman & CEO duality (5)

a) Chief executive officer MD/CEO (1) 1 1 1 1 1

b) Executive director / ED (1) 1 1 1 1 1

c) Non executive director /NED (1) 1 1 1 1 1

d) Independent non executive director (1) 1 1 1 1 1

e) other directors (1) ---- --- --- --- ---

Total 4 4 4 4 4 4

4 Disclosure of tenure & age limit of directors (2) 1 1 1 1 1 1

5 Disclosure of ; (3)

a)Definition of independent director ---- ---- ----- ---- -----

b)Definition of financial reports ---- ---- ----- ---- -----

c)Selection criteria of BOD independent director ---- ---- ----- ---- -----

Total 0

6 Board meetings held and attended (2) 2 2 2 2 2 2

7 Post-board meeting follow up system (2) ---- ---- ----- ---- ----- 0

8 Disclosure of other provision as to the board &

committees (1)

1 1 1 1 1 1

9 Disclosures of (2)

a) Remuneration policy 1 1 1 1 1

b) Remuneration of directors 1 1 1 1 1

Total 2 2 2 2 2 2

10 Code of conduct (2)

a) Information on code of conduct. (1) 1 1 1 1 1

b) Affirmation of compliance. (1) ---- ---- ----- ---- -----

Total 1 1 1 1 1 1

11 Board committees

A Audit committee (8)

a) Transparency in composition of audit committee. 1 1 1 1 1

b) Compliance of minimum requirement of no. of

independent director in the committee.

1 1 1 1 1

c) Compliance of minimum requirement of no. of

meeting of the committee.

1 1 1 1 1

d)Information about literacy expertise of committee

members.

1 1 1 1 1

e)Information about participation of head of finance,

statutory auditor & chief internal auditor in the

committee meeting.

1 1 1 1 1

f)Disclosure of audit committee charter & terms of

reference. (2)

2 2 2 2 2

g)Publishing of audit committee report 1 1 1 1 1

Total 8 8 8 8 8 8

313

GOVERNANCE PARAMETERS 2006-07 2007-08 2008-09 2009-10 2010-11 AV

B Compensation committee/ Remuneration

(6)

a) Formation of the committee. 1 1 1 1 1

b) Information about no. of committee meetings. 1 1 1 1 1

c) Compliance of minimum requirement of the

no. of non executive director in the committee.

1 1 1 1 1

d)Compliance of the provision of independent

director as chairman of the committee.

1 1 1 1 1

e)Information about participation of all members

in the committee meeting.

1 1 1 1 1

f) Publishing of committee report. 1 1 1 1 1

Total 6 6 6 6 6 6

C Shareholder‟s / Invertors grievance committee

(5)

a) Transparency in composition of the committee. 1 1 1 1 1

b) Information about nature of complaints queries

received & disposed item wise.

1 1 1 1 1

c)Information about number of committee

meetings

1 1 1 1 1

d)Information about action taken and

invertors/shareholder survey.

1 1 1 1 1

e) Publishing of committee reports. 1 1 1 1 1

Total 5 5 5 5 5 5

D Nomination Committee (2)

a) Formation of the committee 1 1 1 1 1

b) Publishing of committee report 1 1 1 1 1

Total 2 2 2 2 2 2

E Management committee (2) --- --- --- --- --- 0

F Investment committee (1) ----- ---- ----- ---- ----- 0

G Share transfer committee (1) 1 1 1 1 1 1

12 Disclosures & Transparency (25)

a) Significant related party transactions having

potential with the interest of the co.

(2)

2 2 2 2 2

b) Non-compliance related to capital market

matters during last three years

(2)

2 2 2 2 2

c)Accounting treatment (2) 2 2 2 2 2

d) Board disclosure- risk management

i) Information to the board on risk management

(2)

2 2 2 2 2

ii)Publishing of risk management report (1) ---- ---- ----- ---- -----

e) Management discussion and analysis

(2)

2 2 2 2

f) Shareholders information :-

(i)Appointment of new director (1) 1 1 1 1 1

ii) Quarterly result & presentation (2) 2 2 2 2 2

314

ii) Share transfers system (2) 2 2 2 2 2

iii) Directors responsibility statement (1) 1 1 1 1 1

g) Shareholder rights (2) ------ ------- ------ ------ -----

h) Audit qualification (2)

i) Training of board members (2) ------- ------ --------- ------- -----

j) Evaluation of non executive directors (2) -------- -------- ---- --- -----

k) Whistle blower policy (2) 2 2 2 2 2

Total 18 18 18 18 18 18

13 General body meeting (3)

i)Location and time of general meeting held in

last three years

1 1 1 1 1

ii)Details of special resolution passed in the three

AGMs/EGMs

1 1 1 1 1

iii)Details of resolution passed last year through

postal ballot including the name of conducting

official voting procedure

1 1 1 1 1

Total 3 3 3 3 3 3

14 Means of communication & general

shareholder information (2)

2 2 2 2 2 2

15 CEO/CFO Certification (2) 2 2 2 2 2 2

16 Compliance of corporate governance and

auditors certificate (10)

i) auditors certificate on CG 5 5 5 5 5

ii) compliance certificate of the auditors 5 5 5 5 5

Total 10 10 10 10 10 10

17 Disclosure of stakeholders interests

(10)

i)Insider trading code 2 2 2 2 2 2

ii) Shareholder & distribution pattern

a)Shareholder pattern 2 2 2 2 2 2

b)Distribution pattern 2 2 2 2 2 2

c)Detail of shareholder in physical form 2 2 2 2 2 2

d) Market price data 2 2 2 2 2 2

10 10 10 10 10 10

GRAND TOTAL 81 81 81 81 81 81

Note: AV=Average

Score Range 86-100 71-85 56-70 41-55 Below

Rank Excellent Very Good Good Average Poor

315

TABLE-8.2.4

CORPORATE GOVERNANCE SCORE FOR CG PARAMETERS (SBI)

(2006-07 to 2010-11)

GOVERNANCE PARAMETERS 2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

AV

1 Statement of company‟s philosophy on COG

(2)

2 2 2 2 2 2

2 Structure & strength of board (2) 2 2 2 2 2 2

3 Chairman &CEO duality (5)

a) Chief executive officer MD/CEO (2) 2 2 2 2

b) Executive director / ED (1) 1 1 1 1

c) Non executive director /NED (1) 1 1 1 1

d) Independent non executive director (1) -- -- -- ---

Total 4 4 4 4 4 4

44 Disclosure of tenure & age limit of directors (2) 1 1 1 1 1 1

5 Disclosure of ; (3)

a)Definition of independent director ---- ---- ---- ---

b)Definition of financial reports --- ---- ---- ----

c)Selection criteria of BOD independent director ---- ---- ---- -----

Total 0

6 Board meetings held and attended (2) 2 2 2 2 2 2

7 Post - board meeting follow up system (2) --- --- --- --- --- 0

8 Disclosure of other provision as to the board &

committees (1)

1 1 1 1 1 1

9 Disclosures of (2)

a) Remuneration policy/committee --- --- ---- ---- ----

b) Remuneration of directors 1 1 1 1 1

Total 1 1 1 1 1 1

10 Code of conduct (2)

a) Information on code of conduct. (1) 1 1 1 1 1

b) Affirmation of compliance. (1) 1 1 1 1 1

Total 2 2 2 2 2 2

11 Board committees

A Audit committee (8)

a) Transparency in composition of audit committee. 1 1 1 1 1

b) Compliance of minimum requirement of no. of

independent director in the committee.

1 1 1 1 1

c) Compliance of minimum requirement of no. of

meeting of the committee.

1 1 1 1 1

d)Information about literacy expertise of committee

members.

1 1 1 1 1

e)Information about participation of head of finance,

statutory auditor & chief internal auditor in the

committee meeting.

1 1 1 1 1

f)Disclosure of audit committee charter & terms of 1 1 1 1 1

316

reference. (2)

g)Publishing of audit committee report 1 1 1 1 1

Total 8 8 8 8 8 8

B Compensation committee/remuneration (6)

a) Formation of the committee. ------ ------ 1 1 1

b) Information about no. of committee meetings. ----- ----- ----- ----- ----

c) Compliance of minimum requirement of the no. of

non executive director in the committee.

---- ---- ----- ----- ----

d)Compliance of the provision of independent

director as chairman of the committee.

----- ----- ----- ----- ----

e)Information about participation of all members in

the committee meeting.

----- ----- ----- ----- ----

f) Publishing of committee report. ------ ------ ----- ----- ----

Total 0 0 1 1 1 0.6

C Shareholder‟s / Invertors grievance committee

(5)

a) Transparency in composition of the committee. 1 1 1 1 1

b) Information about nature of complaints queries

received & disposed item wise.

1 1 1 1 1

c)Information about number of committee meetings 1 1 1 1 1

d)Information about action taken and

invertors/shareholder survey.

1 1 1 1 1

e) Publishing of committee reports. 1 1 1 1 1

Total 5 5 5 5 5 5

D Nomination Committee (2)

a) Formation of the committee ---- ----- ----- ------ -----

b) Publishing of committee report ---- ----- ----- ------ -----

Total 0

E Management committee (2) --- ---- ---- ---- ----- 0

F Investment committee (1) ---- ----- ----- ------ ----- 0

G Share transfer committee (1) ---- ----- ----- ------ ----- 0

12 Disclosures & Transparency (25)

a)Significant related party transactions having

potential with the interest of the co. (2)

2 2 2 2 2

b) Non-compliance related to capital market matters

during last three years (2)

---- ----- ----- ------ -----

c) Accounting treatment (2) 2 2 2 2 2

d) Board disclosure- risk management

i) Information to the board on risk management (2) 2 2 2 2 2

ii) Publishing of risk management report (1) 1 1 1 1 1

e) Management discussion and analysis (2) 2 2 2 2 1

f) Shareholders information :-

(i) Appointment of new director (1) 1 1 1 1 1

ii) Quarterly result & presentation (2) ---- ----- ----- ------ -----

ii) Share transfers (2) 1 1 1 1 1

iii) Directors responsibility statement (1) 1 1 1 1 1

317

g) Shareholder rights (2) ---- ----- ----- ---- ------

--

h) Audit qualification (2) ---- ----- ----- ------ -----

i) Training of board members (2) ---- ----- ----- ------ -----

j) Evaluation of non executive directors (2) ---- ----- ----- ------ -----

k) Whistle blower policy (2) ---- ----- ----- ------ -----

Total 12 12 12 12 12 12

13 General body meeting (3)

i)Location and time of general meeting held in last

three years

1 1 1 1 1

ii)Details of special resolution passed in the three

AGMs/EGMs

1 1 1 1 1

iii)Details of resolution passed last year through

postal ballot including the name of conducting official

voting procedure

1 1 1 1 1

Total 3 3 3 3 3 3

14 Means of communication &general shareholder

information (2)

2 2 2 2 2 2

15 CEO/CFO Certification (2) ---- ---- ----- --- ----- 0

16 Compliance of CG and auditors certificate

(10)

---- ---- ----- --- -----

i) auditors certificate on CG 5 5 5 5 5

ii) compliance certificate of the auditors --- -------- ---- ----- - 5

17 Disclosure of stakeholders interests (10)

i)Insider trading code 2 ---- ---- ----- --- -----

ii) Shareholder & distribution pattern

a)Shareholder pattern 2 2 2 2 2 2

b)Distribution pattern 2 2 2 2 2 2

c)Detail of shareholder in physical form 2 2 2 2 2 2

d) Market price data 2 2 2 2 2 2

Total 10 10 10 10 10 10

GRAND TOTAL 60 60 61 61 61 60.6

Note: AV=Average

Score Range 86-100 71-85 56-70 41-55 Below

Rank Excellent Very Good Good Average Poor

318

TABLE-8.2.5

CORPORATE GOVERNANCE SCORE FOR CG PARAMETERS (PNB)

(2006-07 to 2010-11)

GOVERNANCE PARAMETERS 2006-07 2007-08 2008-09 2009-10 2010-11 AV

1 Statement of company‟s philosophy on COG

(2)

2 2 2 2 2 2

2 Structure & strength of board (2) 2 2 2 2 2 2

3 Chairman & CEO duality (5)

a) Chief executive officer MD/CEO (2) 2 2 2 2 2

b) Executive director / ED (1) 1 1 1 1 1

c) Non executive director /NED (1) 1 1 1 1 1

d) Independent non executive director (1) ----- ----- ----- ---- -----

e) other directors (1) ------ ----- ------- ----- -----

Total 4 4 4 4 4 4

4 Disclosure of tenure & age limit of directors (2) 1 1 1 1 1 1

5 Disclosure of ; (3)

a) Definition of independent director --------- ----- ----- ---- -----

b) Definition financial expert ----- ---- ---- ---- ----

c) Selection criteria of BOD independent director ----- ---- ---- ---- ----

Total 0

6 Board meetings held and attended (2) 2 2 2 2 2 2

7 Post-board meeting follow up system (2) ----- ---- ---- ---- ---- 0

8 Disclosure of other provision as to the board &

committees (1)

1 1 1 1 1 1

9 Disclosures of (2)

a) Remuneration policy ----- ---- ---- ---- ----

b) Remuneration of directors 1 1 1 1 1 1

Total

10 Code of conduct (2)

a) Information on code of conduct. 1 1 1 1 1

b) Affirmation of compliance. -- ---- ---- --- ---

Total 1 1 1 1 1 1

11 Board committees

A Audit committee (8)

a) Transparency in composition of audit committee. 1 1 1 1 1

b) Compliance of minimum requirement of no. of

independent director in the committee.

1 1 1 1 1

c) Compliance of minimum requirement of no. of

meeting of the committee.

1 1 1 1 1

d)Information about literacy expertise of committee

members.

1 1 1 1 1

e)Information about participation of head of finance,

statutory auditor & chief internal auditor in the

committee meeting.

1 1 1 1 1

f) Disclosure of audit committee charter & terms of 2 2 2 2 2

319

reference. (2)

g) Publishing of audit committee report 1 1 1 1 1

Total 8 8 8 8 8 8

B Compensation committee/remuneration (6)

a) Formation of the committee. 1 1 1 1 1

b) Information about no. of committee meetings. 1 1 1 1

c) Compliance of minimum requirement of the no. of

non executive director in the committee.

1 1 1 1

d) Compliance of the provision of independent

director as chairman of the committee.

1 1 1 1

e) Information about participation of all members in

the committee meeting.

1 1 1 1

f) Publishing of committee report. 1 1 1 1

Total 1 6 6 6 6 7.4

C Shareholder‟s/Invertors grievance committee

(5)

a) Transparency in composition of the committee. 1 1 1 1 1

b) Information about nature of complaints queries

received & disposed item wise.

1 1 1 1 1

c)Information about number of committee meetings 1 1 1 1 1

d)Information about action taken and

invertors/shareholder survey.

1 1 1 1 1

e) Publishing of committee reports. 1 1 1 1 1

Total 5 5 5 5 5 5

D Nomination Committee (2)

a) Formation of the committee ---- 1 1 1 1

b) Publishing of committee report ---- --- 1 1 1

Total 0 1 2 2 2 1.4

E Management committee (2) 2 2 2 2 2 2

F Investment committee (1) -- ---- ---- ---- ---- 0

G Share transfer committee (1) 1 1 1 1 1 1

12 Disclosures & Transparency (25)

a) Significant related party transactions having

potential with the interest of the co. (2)

2 2 2 2 2

b) Non-compliance related to capital market matters

during last three years (2)

2 2 2 2 2

c) Accounting treatment (2) 2 2 2 2 2

d) Board disclosure- risk management

i) Information to the board on risk management (2) 2 2 2 2 2

ii) Publishing of risk management report (1) 2 2 2 2 2

e) Management discussion and analysis (2) 2 2 2 2 2

f) Shareholders information :-

(i) Appointment of new director (1) 1 1 1 1 1

ii) Quarterly result & presentation (2) ---- ---- --- ----- ----

ii) Share transfers (2) 2 2 2 2

iii) Directors responsibility statement (1) 1 1 1 1 1

320

g) Shareholder rights (2) ---- ---- ---- ---- ----

h) Audit qualification (2) 2 2 2 2 2

i) Training of board members (2) -- ---- --- ---- 2

j) Evaluation of non executive directors (2) 2 2 2 2 2

k) Whistle blower policy (2) ------ ------ ------ ------ 2

Total 20 20 20 20 20 20

13 General body meeting (3)

i) Location and time of general meeting held in last

three years

1 1 1 1 1

ii) Details of special resolution passed in the three

AGMs/EGMs

1 1 1 1 1

iii) Details of resolution passed last year through

postal ballot including the name of conducting

official voting procedure

1 1 1 1 1

Total 3 3 3 3 3 3

14 Means of communication & general shareholder

information (2)

2 2 2 2 2 2

15 CEO/CFO Certification (2) ----- ------ ----- ----- --- 0

16 Compliance of CG and auditors certificate

(10)

i) auditors certificate on CG 5 5 5 5 5

ii) compliance certificate of the auditors 5 5 5 5 5

Total 10 10 10 10 10 10

17 Disclosure of stakeholders interest (10)

i)Insider trading code 2 ---- ---- ----- ----- ----

ii)shareholder & distribution pattern

a)shareholder pattern 2 2 2 2 2 2

b)distribution pattern 2 2 2 2 2 2

c)detail of shareholder in physical form 2 2 2 2 2 2

d) share price information 2 2 2 2 2 2

Total 8 8 8 8 8 8

GRAND TOTAL 74 80 80 80 80 78.8

Note: AV=Average

Score Range 86-100 71-85 56-70 41-55 Below

Rank Excellent Very Good Good Average Poor

321

TABLE-8.2.6

CORPORATE GOVERNANCE SCORE FOR CG PARAMETERS (BOI)

(2005-06 to 2010-11)

GOVERNANCE PARAMETERS 2005-

06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

AV

1 Statement of company‟s philosophy on COG

(2)

2 2 2 2 2 2 2

2 Structure & strength of board (2) 2 2 2 2 2 2 2

3 Chairman & CEO duality (5)

a) Chief executive officer MD/CEO (1) 1 1 1 1 1 1

b) Executive director / ED (1) 2 2 2 2 2 2

c) Non executive director /NED (1) 1 1 1 1 1 1

d) Independent non executive director (1) --- ---- ---- --- --- ---

e) other directors (1) 1 1 1 1 1 1

Total 5 5 5 5 5 5 5

4 Disclosure of tenure & age limit of directors (2) 1 1 1 1 1 1 1

5 Disclosure of ; (3)

a) Definition of independent director -- -- -- -- -- ----

b) Definition of financial reports -- --- --- --- --- ---

c) Selection criteria of BOD independent director -- ---- ---- --- -- --

Total 0

6 Board meetings held and attended (2) 2 2 2 2 2 2 2

7 Post –board meeting follow up system (2) ----- ---- ---- ----- ----- ---- 0

8 Disclosure of other provision as to the board &

committees (1)

1 1 1 1 1 1 1

9 Disclosures of (2)

a) Remuneration policy -- ---- ---- ------

-

-----

---

----

b) Remuneration of directors 1 1 1 1 1 1

Total 1 1 1 1 1 1 1

10 Code of conduct (2)

a) Information on code of conduct. (1) 1 1 1 1 1 1

b) Affirmation of compliance. (1) -- - - - -- --

Total 1 1 1 1 1 1 1

11 Board committees

A Audit committee (8)

a) Transparency in composition of audit committee. 1 1 1 1 1 1

b) Compliance of minimum requirement of no. of

independent director in the committee.

1 1 1 1 1 1

c) Compliance of minimum requirement of no. of

meeting of the committee.

1 1 1 1 1 1

d)Information about literacy expertise of committee

members.

1 1 1 1 1 1

e)Information about participation of head of finance,

statutory auditor & chief internal auditor in the

1 1 1 1 1 1

322

committee meeting.

f)Disclosure of audit committee charter & terms of

reference. (2)

2 2 2 2 2 2

g)Publishing of audit committee report 1 1 1 1 1 1

Total 8 8 8 8 8 8 8

B Compensation committee (6)

a) Formation of the committee. -- --- --- ---- -- ----

b) Information about no. of committee meetings. -- --- --- ---- -- ----

c) Compliance of minimum requirement of the no. of

non executive director in the committee.

-- --- --- ---- -- ----

d) Compliance of the provision of independent director

as chairman of the committee.

-- --- --- ---- -- ----

e)Information about participation of all members in the

committee meeting.

-- --- --- ---- -- ----

f) Publishing of committee report. -- --- --- ---- -- ----

Total 0

C Shareholder‟s / Invertors grievance committee

(5)

a) Transparency in composition of the committee. 1 1 1 1 1 1

b) Information about nature of complaints queries

received & disposed item wise.

1 1 1 1 1 1

c)Information about number of committee meetings 1 1 1 1 1 1

d)Information about action taken and

invertors/shareholder survey.

1 1 1 1 1 1

e) Publishing of committee reports. 1 1 1 1 1 1

Total 5 5 5 5 5 5 5

D Nomination Committee (2)

a) Formation of the committee --- --- --- -- ---- ----

b) Publishing of committee report --- --- --- -- ---- ----

Total 0 0 0 0 0 0 0

E Management committee (2) --- --- --- -- ---- ----

F Investment committee (1) --- --- --- -- ---- ---- 0

G Share transfer committee (1) 1 1 1 1 1 1 1

12 Disclosures & Transparency (25)

a) Significant related party transactions having

potential with the interest of the co. (2)

2 2 2 2 2 2

b) Non-compliance related to capital market matters

during last three years (2)

------ ------- ------

---

------

----

-----

-

-----

c) Accounting treatment (2) 2 2 2 2 2 2

d) Board disclosure- risk management

i) Information to the board on risk management (2) 2 2 2 2 2 2

ii) Publishing of risk management report (1) 2 2 2 2 2 2

e) Management discussion and analysis (2) 2 2 2 2 2 2

f) Shareholders information :-

(i) Appointment of new director (1) 1 1 1 1 1 1

ii) Quarterly result & presentation (2) 2 2 2 2 2 2

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ii) Share transfers (2) 2 2 2 2 2 2

iii) Directors responsibility statement (1) 1 1 1 1 1 1

g) Shareholder rights (2) 1 1 1 1 1 1

h) Audit qualification (2) 2 2 2 2 2 1

i) Training of board members (2) -- --- -- -- -- --

j) Evaluation of non executive directors (2) 2 2 2 2 2 2

k) Whistle blower policy (2) --- ---- --- --- --- ----

Total 20 20 20 20 20 20 20

13 General body meeting (3)

i)Location and time of general meeting held in last

three years

1 1 1 1 1 1

ii)Details of special resolution passed in the three

AGMs/EGMs

1 1 1 1 1 1

iii)Details of resolution passed last year through postal

ballot including the name of conducting official voting

procedure

1 1 1 1 1 1

Total 3 3 3 3 3 3 3

14 Means of communication & general shareholder

information (2)

2 2 2 2 2 2

15 CEO/CFO Certification (2) 2 2 2 2 2 2

16 Compliance of corporate governance and auditors

certificate (10)

i) auditors certificate on CG 5 5 5 5 5 5

ii) compliance certificate of the auditors --- --- ---- --- --- ---

Total 5 5 5 5 5 5 5

17 Disclosure of stakeholders interests (10)

i)Insider trading code

2

--- ---- ---- ---- --- ----

ii) Shareholder & distribution pattern

a) Shareholder pattern 2 2 2 2 2 2

b)Distribution pattern

2

2 2 2 2 2 2

c)Detail of shareholder in physical form

2

2 2 2 2 2 2

d)Market price data

2 2 2 2 2 2 2

TOTAL 8 8 8 8 8 8 8

GRAND TOTAL 78 78 78 78 78 78 78

Note: AV=Average

Score Range 86-100 71-85 56-70 41-55 Below

Rank Excellent Very Good Good Average Poor

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TABLE: 8.3

CORRELATION BETWEEN RETURN ON ASSETS, RETURN ON EQUITY, CG

SCORES AND PROFITABILITY

Return on Assets Return on Equity CG Scores Profitability

JKB

ROA 1 .450 .422 .029

ROE 1 .488 .185

CG 1 .867

1

ICICI

ROA 1 .362 -.360 .852

ROE 1 -.603 .173

CG 1 .014

1

SBI

ROA 1 .975** .053 .290

ROE 1 .205 .185

CG 1 .867

1

PNB

ROA 1 .993** .816 .372

ROE 1 .869 .326

CG 1 .361

1

** Correlation is significant at the 0.01 level (2-tailed

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TABLE: 8.4

CG VARIABLES, F VALUE AND SIGNIFICANT LEVELS (ANOVA)

CG Variables

F Sig.

1 Statement of company‟s philosophy on COG 3.000 .752

2 Structure & strength of board .542. .157

3 Chairman & CEO duality 1.000 .374

4 Disclosure of tenure & age limit of directors .578 .139

5 Board meetings held and attended 4.000 .481

6 Disclosures of remuneration policy and remuneration of

directors

3.368 .140

7 Code of conduct 1.000 .374

8 Board committees .936 .388

9 Disclosures & Transparency .374 .574

10 General body meeting .584

11 Means of communication & general shareholder information .412

12 CEO/CFO Certification .500 .519

13 Compliance of corporate governance and auditors certificate 4.000 .116

14 Disclosure of stakeholders interests 4.000 .116

TABLE: 8.5

CG SCORES, F VALUE AND SIGNIFICANT LEVELS (ANOVA)

CG SCORES F Sig.

1 CG score JKB .909 .394

2 CG score ICICI 1.281 .321

5 CG score HDFC .730 .441

4 CG score SBI .730 .441

5 CG score PNB 1.453 .294

6 CG score BOI 1.234 .224

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TABLE 8.6

OVERALL RESULTS

Integrated CG Model Measurement Model Structural Model

CR SRW SMC

1a

Accountability Corporate governance 5.307 .341 .117 χ2

/df=1.692

GFI=0.994

AGFI=0.971

NFI=0.990

CFI=0.996

RMSEA=.049

Transparency Corporate governance ---- .748 .557

Effectiveness Corporate governance 11.64 .749 .744

Corporate social responsibility Corporate

governance

12.13

.862

.562

2

Corporate ethical value Corporate governance 8.952 .564 .321

GFI=0.994

AGFI=0.981

NFI=0.980

CFI=0.981

RMSEA=.052

Accountability Corporate governance 5.426 .347 .564

Transparency Corporate governance ---- .754 .730

Effectiveness Corporate governance 12.89 .854 .569

Corporate social responsibility Corporate

governance

11.914

.751

.120

3a

Corporate culture Corporate governance 5.161 .783 .613

χ2

/df=2.112

GFI=0.986

AGFI=0.957

NFI=0.981

CFI=0.990

RMSEA=.063

Accountability Corporate governance ----- .324 .105

Transparency Corporate governance 5.150 .773 .598

Effectiveness Corporate governance 5.195 .818 .669

Corporate social responsibility Corporate

governance

5.154 .776 .603

Mission value driven Corporate governance 5.247 .523 .340

Action against unethical practices Corporate

governance

5.145 .503 .315

3b

Corporate governance Corporate ethical value 4.951 .600 .360

χ2

/df= 2.274

GFI=0.977

AGFI=0.947

NFI=0.970

CFI=0.983

RMSEA=.067

Corporate governanceCorporate culture 5.272 .802 .643

Accountability Corporate governance 5.671 .328 .108

Transparency Corporate governance 5.235 .769 .591

Effectiveness Corporate governance 5.281 .810 .657

Corporate social responsibility Corporate

governance

5.233 .767 .589

Mission and value driven Corporate culture 4.328 .623 .352

Action against unethical practices Corporate

culture

4.674 .541 .360

4

Corporate performance Corporate governance 2.717 .214 .021 χ2

/df=2.541

GFI=0.988

AGFI=0.964

NFI=0.984

CFI=0.989

RMSEA=.068

Accountability Corporate governance 3.354 .471 .152

Transparency Corporate governance 4.740 .727 .527

Effectiveness Corporate governance 5.278

.718 .541

Corporate social responsibility Corporate

governance

5.762 .745 .634

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5a

Corporate reputation Corporate governance .815 .002 .000

χ2

/df=2.494

GFI=0.955

AGFI=0.964

NFI=0.979

CFI=0.993

RMSEA=.096

Accountability Corporate governance 5.31 .344 .147

Transparency Corporate governance 12.12 .747 .624

Effectiveness Corporate governance 11.6 .863 .684

Corporate social responsibility Corporate

governance

---- .750 .535

Customer orientation Corporate reputation 2.27 .421 .247

Emotional appeal Corporate reputation 2.04 .221 .174

5b

Accountability Corporate governance 5.12 .320 .153

χ2

/df=3.245

GFI=0.952

AGFI=0.909

NFI=0.942

CFI=0.964

RMSEA=.321

Transparency Corporate governance 5.7 .741 .356

Effectiveness Corporate governance -----

.753

.274

Corporate social responsibility Corporate

governance

5.45 .842 .634

Customer orientation Corporate governance 3.24 .205 .011

Emotional appeal Corporate governance 1.92 .001 .00

Corporate reputation Corporate governance 0.45 .021 .00

Corporate performance Corporate

governance

---- .002 .00

Corporate performance Corporate reputation 10.5 .201 .027

INTEGRATED CG MODEL

Accountability Corporate governance 5.27 .247 .128 χ2 /df= 3.574 GFI=0.912

AGFI=0.935 NFI=0.970 CFI=0.857

RMSEA=.098

Transparency Corporate governance 7.65 .541 .375 Effectiveness Corporate governance 5.37 .753 .456 Corporate social responsibility Corporate

governance 5.91 .671 .534

Corporate ethical value Corporate governance 5.35 .653 .342 Corporate Culture Corporate governance 4.58 .534 .327 Corporate reputation Corporate governance .730 .00 .00 Business performance Corporate governance 2.31 .120 .01

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STRATEGIC ACTIONS

This chapter discussed strategic actions and their implication for enhancing CG practices,

and their impact on business performance. The strategies framed on the basis of empirical

and archival/content based findings are discussed as under:

9.1 CG DIMENSIONS

9.1.1 Accountability

Although accountability dimension of CG signifies high degree of perception of all bank

managers, however the managers exhibit average degree of perception towards „formal

criteria to assess its own performance‟ and „decision made by the managers are recorded

and communicated to the appropriate persons‟ with respective mean values as 3.81

(JKB) 3.75 (ICICI), 3.37 (HDFC), 3.49 (SBI), 3.70 (PNB) and 3.33 (BOI). Hence

findings indicate that managers need to focus on the quality of information sharing and

performance evaluation to make CG practices more effective. Artley and Stroh (2001)

suggested that information sharing in order to be more effective need to be

multidirectional, that is, running top–down, bottom-up and horizontally within and across

the organisation. Thus, for inculcating impressive CG environment, all the banks should

redesign its information communication to improve the quality of information and

communication. Some of the suggested measures in this context include strengthening

and increasing more interactive discussions among the employees, online dissemination

of decisions to its employees and disclosing relevant information regarding meetings

organised and attended and also about the absence/ non-availability of members during

the meetings.

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Regarding performance evaluation, banks should implement formal system for

evaluating the performance of managers. In this regard it is suggested that all the banks

can implement performance evaluation system based balance scorecard approach. The

balance scorecard is considered as a tool based on objective, targets, action and

performance. This approach can provide a powerful means for communicating a firm‟s

vision and strategy and for focusing attention on the drivers of long –term organisational

performance.

9.1.2 Transparency

Transparency dimension in both private and public banks [JKB (3.83), ICICI (3.97),

HDFC (3.80), SBI (3.62) and PNB (3.78)] is averagely scored by the respective branch

managers. JKB and PNB managers perceived that banks should focus more on aspects

such as „relevant information‟, „market sensitive information‟ and „information and

discussion regarding the meeting‟. As quoted by managers‟ relevant information such as

new policy guidelines are not communicated timely. The managers suggested that latest

information should be electronically communicated to avoid any delay in the information

transfer. Further, information that is relevant at different levels as and when possible

should be entered at decentralized location to share the same among the employees

operating at different levels. The JKB, HDFC, SBI and PNB managers demand

customised package on market sensitive information. The market sensitive information

refers to information that is susceptible to wild fluctuations in price (greater extent to

good and bad views) and which has a direct impact on market share, share price image

etc. In this regard it is suggested that standardised reporting system should be introduced

and implemented to provide information related to risk and systemic risk issues. The

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bank should also facilitate timely sharing of quantitative/qualitative information on

market condition, trends and risk profile developments. Some of the managers suggested

that potentially more useful channel of early warning information should be built on

informal contact between senior risk managers and the key financial intermediates and

such information need to shared either through the homepage link or communication

through email account of the managers. They also suggested that meetings should also be

organised with market participants represented by official with responsibility for global

risk taking business or firm wide risk policy matters.

On the other hand, the managers of SBI (3.78) and PNB (3.92) perceived

averagely towards „well-established mechanism for conflict redressal‟. The SBI and PNB

managers remarked the need for well established mechanism for solving grievance of

different stakeholders to make the working environment more transparent. Although

banks have formulated a committee on shareholder/investor grievances but effective

participation was missing of the concerned members. This is also supported by

information disclosure in the annual reports. A very low degree of participation of the

board of directors was found in majority of selected study periods. To add, no meetings

were held in the some of the two financial years, for instance 2005-06 and 2006-07.

Hence, it is suggested that board of directors should participate more effectively and

further reasons for not participating in the meeting should also be disclosed. Overall high

degree of transparency is required in all banks for disclosing information with respect to

incorporating reasons for not attending the meetings and sharing of important decisions

taken in various committees.

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9.1.3 Effectiveness

The JKB (3.94), SBI (3.81), HDFC (3.68) and PNB (3.80) managers have given average

score to effectiveness dimension of CG. Whereas BOI (4.05) and ICICI (3.97) banks

have perceived high degree of perception towards effectiveness dimension. The item

„control over misleading/unethical practices‟ is averagely perceived by managers of the

public and private banks. Oparanma (2010) remarked that in an organisation, decision,

action and behaviour of management speaks volume about the value the company places

on effective and ethical conduct. In this regard, the bank managers are suggested to

communicate the ethical practices to employees by placing and sharing dos and don‟t

information in the organisation. Further, the banks also need to focus on raising the

employees‟ ethical IQ level either through effective interactions or discussions/training

programmes in the form of workshops, seminars and implementation of good whistle

blowing meetings (Kumar, 2011 and Brown and Trevino, 2006). Such practices may

foster an environment that encourages and embraces ethical decision making by

providing real-world opportunities for employees to wrestle with ethical dilemmas.

The SBI (3.93), PNB (3.67) and HDFC (2.75) banks‟ managers remarked average

perception towards „sufficient attention should be given to the role and functioning of

shareholders‟. Gulzar and Wang (2010) remarked that shareholders right is necessary for

the company to function and grow. Thus it is suggested that banks should provide timely

information regarding the annual general meetings, so that the shareholders can

participate in the meetings more effectively. Further communication either which can be

structured/unstructured, formal/informal should take place to ensure alignment and

understanding with the goals.

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9.1.1.4 Corporate Social Responsibility

The research findings indicate overall above average involvement of public and private

banks towards corporate social responsibility activities JKB (3.83), ICICI (3.70), HDFC

(4.09), SBI (3.79), PNB (3.84) and BOI (3.82). This is also corroborated by the

information disclosed in the annual reports of the selected banks. Majority of the banks

in the latter financial periods that is 2008-09 to 2010-11 were involved in varied CSR

activities. Specifically SBI was involved in activities such as donation, community

service, financial inclusion based activities and research and development. Similarly the

CSR programmes undertaken by PNB bank included community based services, relating

to environment, donations, micro and small enterprises, various welfare schemes,

educational initiatives and promotion of sports. BOI on the other hand, contributed

towards solar power project, biometric ATMs (physically challenged person) and gram

yojana. JKB‟s key initiatives in this regard focused primarily on providing education

facilities, supporting society and health, donations, eco-culture perseveration, community

services and supporting sport (football). ICICI bank had also taken the social

responsibility with regard to educational initiatives, donations, providing financial

assistance for microfinance and self help group and agriculture and allied activities.

Lastly, HDFC bank was involved in CSR practices such as donation, micro finance,

community initiatives, environmental responsibility, rural initiatives and agriculture and

allied activities.

The overall study results revealed above average CSR practices of the public and

private banks operating in Jammu region. Sector-wise PNB, among the three public

banks is being considered to be performing above average CSR activities from overall

333

perspective. However, other two banks i.e. SBI and BOI have scored above average mean

values for „help to the needy persons‟ and „safeguarding the interest of employees‟ while

the average values for the remaining three items that include „social responsibility

towards the community protection‟, „social responsibility towards environment‟ and

„equal employment policy‟. But at the same time CSR practices showed variation in the

average degree of perception of managers. Among the three banks, HDFC is seen to have

better positioning as all items have shown high average score, excluding „help to the

needy persons‟, „social responsibility towards community protection‟, „equal employment

policy‟ and „social responsibility towards environment‟ whereas the other two banks have

shown varied results. Howerver the overall results indicated almost same level of

perception for the CSR dimension of CG. To further strengthen and improve the CSR

image of the banks, the study suggests following CSR based practices:

i) Although banks are involved to certain extent in charitable activities but these are

not regular in nature. Thus, it is suggested that proposed plan on CSR initiatives

should be undertaken by all banks with focus on specific community

development. The banks can implement the same in a phase manner by adopting

different areas/villages one by one. CSR activities such as distribution of

computer system, sports, equipments, sewing machines, blankets, television to the

orphanage, books, relief fund to the victims of the earthquake, floods, draught and

other support material should be provided across the selected areas/villages.

ii) Separate cell for community investment programmes in the banks need to be

opened to manage and monitor various charitable activities.

334

iii) The banks should focus on the special schemes for physically challenged persons

such as special sitting arrangement facility in all the branches, processing their

forms without letting them standing in a queue, introduction of biometric ATMs

to make easy accessibility for the physically challenged person, by banks

excluding BOI. The JKB activities such as providing hearing aids to the deaf and

dumb, paddled tricycle for the physical challenged persons, etc. are other

activities that banks can introduce.

iv) Further, to enhance the state tourism all the banks must promote tourism

development activities (such as sightseeing) by printing calendar and diaries,

notebook on tourist spots etc. Further bank and ATM facilities can be installed

nearby heritage/tourist sites to promote the J & K tourism.

v) To explore and promote the culture of the state, the banks could also organise

custom based activities such as cultural exhibition fares etc.

vi) In addition to aforesaid suggestions, seminars and conferences on subject of social

concerns should be organised from time to time to enrich and empower the

community on social awareness and issues.

Besides the community based activities, the study also suggested banks should to

formulate and implement environmental policy which could play an important role in

strengthening corporate social responsibility image of the banks. In this regard, the

following suggestions are suggested:

i) Providing loans at relatively reduced interest rate to manufacturing companies

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producing green products or providing finance to renewable energy providers,

ii) Promoting energy by utilising solar equipments for instant solar geysers, heaters

etc.,

iii) Usage of recycled stationary,

iv) Development and maintenance of parks, roads, crossings. Among the six banks,

JKB is very much involved in such types of activities. For instance the Rajinder

Park is maintained by the bank. Thus, other banks should also put a step forward

in this regard.

v) Planting medicinal tree like Neem, Eucalyotus, Aloevera etc. on different

occasions such as Independent Day, Republic Day, environment week etc.

vi) Motivating employees and general public to minimiSe the use of motor vehicle by

promoting use of public transport once in a week, and/or sharing automobiles by

the employees.

9.2 CORPORATE CULTURE

Corporate culture is seen as an important aspect that provides sound platform for the CG

implementation. Majority of bank managers (public and private banks) consider

organisational culture to be moderate to influence CG practices. The „regular feedback

from clients and customers‟, „stated code of ethics‟ and „mission and value of the

organisation‟ are the items that reflect organisations overall working culture values.

However the managers‟ perception is quite below average for two items namely „equal

336

treatment for different stakeholders‟ and „transparent working culture‟. To enhance the

level of work culture in the banks, the study suggests following actions:

i) To encourage the CG savvy work culture, banks should recognise and appreciate

persons who perform the tasks and base their decision making on the ethical

guidelines. Further, banks should also publicly foster result-based personnel

performance and reward employees for their positive work culture behaviour.

ii) The study suggests that working culture of the organisation can also be improved

by implementing rational and feasible suggestions of employees relating to

operational functions, corporate values, mission, leadership, fair and impartial

treatment. Xenilcoil and Simosi (2006) in this context suggested that leadership

must be guided by a realistic vision of what types of culture enhance performance

and systematically work towards strengthening or even creating these culture

trails. Such type of working environment can help in contributing to transparent

working atmospheres and their CG environment.

iii) The orientation programme on CG, code of ethics and other relevent topics need

to be organised for the new entrants. Lamb (1999) believed that ethics can only be

implemented effectively when CEO gives priority to ethical behaviour in the

organisation. As suggested by Kelly (2005), banks can employ/hire officers such

as ethics compliance officer and provide training to them on ethical judgement

philosophies and heuristics, profession specific areas of ethical concern,

organisation ethical expectation and rules, own ethical tendencies and trainees to

practices and return, sharing widely ethics code, setting up whistle blower

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hotlines and launch ethical training. Such type of inclusion can provide boost to

the CG - savvy working environment in the banks.

9.3 CORPORATE ETHICAL VALUE

The study findings indicate corporate ethical value significantly contributes to the CG

savvy functioning in the banks. Ethics connote activities of the banks that should be

directed towards the respect of human rights and norms (Singh, Sanchez and Bosque,

2007). Indian Banking Association (IBA) has provided list of ethical practices relating to

its operational activities which include timely receipts of deposits, proper introduction of

savings and current accounts, collection of term deposit receipts on maturity, renewal of

overdue domestic term deposit at minimum time, payment of interest on term deposit

mature on holidays, issue of maturity value certificate, and other ethical activities such as

not to offer prizes, gifts and donation etc., disassociation with chit fund companies, non

printing of customer logo on cheques leaves, avoidance of negative publicity and

payment of interest regularly. Afakli (2011) remarked that ethical principles such as

honesty, impartiality, trustworthiness, harmonisation with the legislation of the bank and

transparency, integrity, responsibility, accountability, social responsibility and justice

should be followed for effective functioning of the banks. To corroborate with these

findings, following suggestion are suggested:

i) Stevens (1999) identified training progremmes, coaching of employees, reading

manual and ethical code as the top four sources to be implemented in the

organisation to enhance corporate ethical value culture.

ii) In comparison to public banks, private banks managers have shown high

338

perception for „organisation working behaviour consistent with the stated ethics

& values‟. Thus, it is suggested that the public bank managers should focus on

strengthening ethical and value based culture in the organisations to improve their

functioning and motivate their employees to behave in a way which is consistent

with the above mentioned values.

iii) The overall respective mean of managers for corporate ethical value is arrived at

4.04 (JKB), 4.29 (ICICI), 4.16 (HDFC), 3.93 (SBI), 3.97 (PNB) and 3.99 (BOI)

indicating almost above average perception towards the ethical values dimension.

Under this dimension only single statement that was „organisation gives rewards

to the ethical behaviour‟ has achieved average degree of perception by JKB,

ICICI, HDFC, SBI and PNB while mean score is found to be above 4 for

„employees who are working is behaviour consistent with the stated ethics and

values of the organisation‟, „committed towards accomplishing the agreed tasks‟

and „working behaviour consistent with the stated ethics and values of the

organisation‟. Based on the results, it is suggested that banks can enhance the

ethical health of the organisation by chalking out preferred and not-preferred

ethical guidelines. Svwnsson Wood and Callaghan (2009) suggested that ethical

tools such as ethical performance appraisal (ethical decision making should

become a part of the performance appraisal of individual) should also be

considered along with other performance measures for giving promotion to

employees.

iv) Further, among the various items of corporate ethical value, „organisation is

particular in protecting women employees interest‟ shows least mean value by

339

HDFC managers (2.75) while the score for the same is found to be average in

other banks that is SBI (3.40), JKB (3.61), BOI (3.66) and PNB (3.67).

Evidences suggest that companies with a strong female representation at board

and top management level perform better and gender, diverse board has a positive

impact on performance (Terjesen, Ruth and Singh, 2009). To provide equal

opportunities for women employees, all the banks should bring more women in

decision making process. The study suggests that formal mentoring programme

for women should be developed and implemented in the organisations as women

with mentors are more likely to achieve career success, receive more promotion

and advance at a faster rate. Further, career planning seminars focussing on

helping female candidates should be placed for faculty position selection

processes. To further add, to enhance the women employees, women from outside

the corporate mainstream including entrepreneurs, academics, civil servants and

senior women with professional service background should be incorporated at

corporate board position.

9.4 CORPORATE REPUTATION

9.4.1 Customer Orientation

In the customer centric competitive environment, quality and satisfaction are the key

factors in a causal relationship process that make the customers loyal to the service

providers. It is well established that higher service quality, always pave way to customer

satisfaction (Munusamy, Chelliah and Mun, 2010 and Wang and Lo, 2002) viz-a-viz

increase profitability and market share. The study put forth following suggestions to

improve banks orientation towards customers viz-a-viz their relationship with them.

340

i) The study findings reflect that both public and private banks need to improve their

relationship with the customers, specifically with regard to understanding

customers‟ needs, fair treatment with customers and concern about customers and

their rights. In addition, the banks should also provide continual training to

personnel to aware them of their roles and responsibilities are customer savvy.

Ndubisi (2006) suggested that customer satisfaction can be achieved by offering

personalised, flexible and adjustable service to suit the needs of the customers.

ii) Frontline personnel, especially customer service employees must be encouraged

to have open-ended discussions with customers so that the customers are

equipped with more information and service. The banks are suggested to set up

customer service committee at all branches level so that any conflict of interest

can be resolved immediately and well in time. Presently such committees are

framed only at the board level and therefore for effective problem resolution,

customer service committee should be operated at all branches. Such committees

can meet monthly.

iii) The study considered customer orientation as the most critical market-driven

factor and have suggested marketing strategies to make the firm more customer

savvy. These strategies include developing a shared vision and how it is expected

to change in the further, selecting avenues to deliver superior value to customers,

introducing new schemes services at an attractive price, positioning the

organisation and its brand in the market place using distinctive competencies and

recognising the potential value of collaborative relationship with stakeholders.

341

iv) Uppal (2011) suggested that to enhance customer satisfaction in public sector

banks (PSB), cost effective communication channels should be introduced and

made available to improve the efficiency in the service delivery process and

which may boost customer confidence.

Based on the aforesaid suggestions, the banks can become more customers oriented to

deliver better value to them in comparison to competition.

9.4.2 Emotional Appeal

Fombrun, Gardberg and Sever (2000) and Partoom (2011) remarked that emotional

appeal is an important factor in building corporate reputation. However, the customers of

four banks namely JKB, HDFC, PNB and BOI banks have perceived averagely about

emotional appeal variables which included „admire and respect the bank‟, „trust the

bank‟, „good feeling about the bank‟ and „stand behind the services that it offers‟.

Whereas customers of ICICI and SBI are highly appreciate about with emotion appeal

dimension. The study findings reveal that all the six banks should improve and customise

their concern more towards the emotional aspect of the service delivery. To enhance

emotional appeal characteristics, the banks need to incorporate affection-based offerings

such as wishing and sending online cards to the customers on special personal occasions

(such as on festivals, birthdays, anniversary etc) and special/unique services offering for

the needy (like delivering payment at the customer‟s door and special gifts for the

children of the customers). In addition, banks should also focus on improving customer

trust through offering loyalty programmes to reward existing customers or those who

342

refer others to the banks for continued support and loyalty. Further, to share good feelings

the bank can also think of introducing and celebrating „Customer Day‟.

9.5 CG DISCLOSURE IN ANNUAL REPORTS

On the basis of information disclosed in the CG section of the annual reports of the public

and private banks, the following suggestions are given under mandatory and non-

mandatory heads to make the CG practices more transparent and accountable.

9.5.1 Mandatory Disclosure

i) All the six banks have not disclosed any information regarding the absence of

members in the general body meetings, annual general meetings and committee

meetings of the board which need to disclosed in the annual reports for better

transparency.

ii) Although profile of the members/directors at the end of each financial year is given

by all the banks in their CG section, however, it is suggested that the brief profile of

members served and retired during the financial year should also be mentioned.

iii) Clauses 49 of the Listing Agreement with SEBI does not define and differentiate

between non-executive directors and independent non-executive directors however,

both non- executive directors as well as independent non-executive directors are

mentioned in all the annual reports of all the respective banks i.e. JKB, HDFC,

ICICI, SBI PNB and BOI. This is also remarked by Das (2007). This creates

confusion in the minds of the users. Among the six studied banks, BOI has broad-

based board of directors but again nothing is defined that provide guidelines to

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differentiate clearly between the nature of different directors.

iv) Shareholder Grievance Committee, which occupies a very important place in board

committees, has not been properly composed by JKB bank. For better transparency,

rational decision-making and accountability towards shareholders/investors, due

attention should be given in terms of composition and participation of each

category of directors in the committee.

9.5.2 Non –Mandatory Disclosures

i) The information on employees who are the integral part of the banks should also be

incorporated in the report of the banks. However banks namely JKB, SBI, PNB and

BOI have discussed any information on whistle blower policy. Similar to HDFC

and ICICI banks it is suggested that these four banks should also frame out whistle

blower policy wherein the employees can easily submit their grievances to audit

committee and get the redressal (Das, 2007a, b).

ii) In order to keep the employees abreast with the latest information, it is suggested to

send the employees to attend seminars and conferences being conducted by

financial institutions or government bodies and/or to send them for training and

interaction to other benchmark banks which were performing well. Further, Das

(2007a,b) also recommended that banks should disclose of information on the

training of board members.

iii) As per Clause 49, it is voluntarily required for all the banks to disclose information

about the evaluation of non-executive directors. The content analysis highlights that

344

banks namely SBI, JKB and ICICI banks have not disclosed any information on this

aspect unlike the rest three banks BOI, HDFC and PNB. Thus it is suggested that

such information should also be incorporated.

9.5.3 Additional Information Disclosures

i) For better understanding about the banks CG practises and as also suggested under

Clause 49 of the Listing Agreement with SEBI, the CG information should be

disclosed separately for Mandatory Requirement and Non-Mandatory

Requirements.

ii) Though all the banks are putting great efforts for transparent CG practices, it is also

suggested that additional committees (such as compensation, asset liability

management, information technology, nomination, corporate social responsibility

and ethical and compliance committee etc.) constituted by the banks, should

disclose detailed and relevant information with respect to composition, meeting

held and attended by each category of directors

iii) Information on CG disclosure is primarily meant for the shareholders only. It is

suggested that banks should also give information which can satisfy the

informational needs of other primarily stakeholders such as employees and

customers.

9.6 STRATEGIC IMPLICATIONS

The strategic implications of the study from managerial, theoretical and research,

consumers‟ and financial perspectives are discussed as under:

345

9.6.1 Managerial

To sustain competition in the banking sector it is important for the banks, both public as

well as private to build good corporate governance practices. The managerial implication

of the study reflects that banking service sector providers can consider factors such as

accountability, transparency, effectiveness and social responsibility to improve the CG

environment and communicate the quality of governance to markets which can bring an

increase in the market valuation of their banks and attract more investors. Further, to

enhance the quality of CG, guidelines for maintenance of CG disclosure practices,

corporate culture and corporate ethical environment should be implemented in the banking

organisation. This subsequently can enhance performance and improve corporate

reputation of the banking organisations.

9.6.2 Financial

Banks across the country have realised the importance of CG and its role in safeguarding

against unhealthy management practices and meeting soul objectives. The study suggests

that banks can set aside a certain part out of profit for meeting the expenditures required

for implementing the strategic actions. The varied strategies may relate to developing

village/areas, parks, roads and crossings under corporate social responsibility dimension

of CG, conducting orientation programme on ethical value, hiring ethical leaders,

organizing mentoring programme for women etc. The suggestions regarding incorporation

of additional information in the annual financial reports, relating to disclosing information

on meeting not attended by the directors and profile of members who have served and

retired in the previous year, will enhance the publication and distribution cost of the

346

annual reports. To monitor such cost expenditure, continuous attempt has to be made by

the banks to examine cost and benefit relationship in order to enhance the level of

transparency in the bank functioning.

9.7 CONCLUSION

The overall study revealed good CG practices in the public and private sector banks

operating in Jammu region. The managers of all the three private banks have given mean

scores in the range of 3.70 to 3.99 to all the four dimensions of CG excluding ICICI

managers who had rated accountability above average and HDFC managers who have rated

accountability and CSR (two CG dimensions) above average. Among the four CG

dimensions only accountability has been perceived to be falling in above average level while

the other three dimensions i.e. transparency, effectiveness and social responsibility are falling

in below average level in the range of 3.86 to 3.90. In context to public sector banks, BOI

had rated transparency (4.19) and effectiveness (4.05) dimensions to be above average while

rest two dimensions i.e. accountability and CSR are rated lowest among the three banks but

fall at below average level. On the other hand, SBI and PNB have rated all the dimensions in

the average level category that is between 3.62 to 3.86. The corporate culture and corporate

ethical value above averagely perceived by the managers of public and private banks have

significant influence on their CG practices Private sector banks ICICI and HDFC have

scored above average mean value for corporate culture and corporate ethical value. JKB has

scored high mean value for corporate ethical value and above average for corporate culture.

Further, sector-wise managers of all the three public sector banks (SBI, PNB and BOI) have

given somewhat less score in comparison to private sector banks (JKB, ICICI, HDFC) to

347

corporate ethical value. With regard to business performance, both public and private banks

are performing financially well. However, despite good CG practices and good financial

performance overall corporate reputation of public and private banks is seen to be average.

348

TABLE 9.1

ITEM-WISE MEAN OF PUBLIC AND PRIVATE BANKS FOR CG

DIMENSIONS, ANTECEDENTS AND CONSEQUENCES

CG Dimensions Private Banks Public Banks

Accountability JKB ICICI HDFC SBI PNB BOI

The bank conducts an annual assessment. 3.98 4.37 4.75 3.89 4.03 3.23

The bank set up formal criteria to assess its

performance. 3.81 3.75 3.37 3.49 3.70 3.33

Managers have clearly defined job description &

set performance targets 4.25 4.00 4.25 3.98 4.15 4.33

Code of conduct are in place & have been agreed

by managers 4.09 4.50 4.50 3.86 3.75 4.00

Decision made by managers are recorded &

communicated to the appropriate members 3.58 4.12 3.75 3.43 3.68 3.33

Overall Mean 3.94 4.15 4.12 3.73 3.86 3.64

Transparency

Conflicts of interest are fully resolved through a

clear & well established mechanism. 4.02 4.12 4.37 3.78 3.92 4.00

Prompt disclosure of market sensitive information. 3.67 4.12 2.37 3.55 3.63 4.33 The information regarding meetings is put on the

internet. 3.67 3.50 4.37 3.27 3.57 4.13

Organisation provides all relevant information

within sufficient time. 3.95 4.12 4.12 3.90 4.00 4.33

Overall Mean 3.83 3.97 3.80 3.62 3.78 4.19

Effectiveness Effective communication is in place to keep staff

informed about new & existing policies. 3.92 3.75 4.75 3.78 4.04 3.66

Managers‟ performance reflects consideration of

corporate objectives & policies. 4.01 4.62 4.25 3.84 4.04 4.33

Employees generally communicate about any

mislead & unethical behaviour of employees to the

management.

3.83 3.37 3.25 3.76 3.67 4.23

Bank gives sufficient attention to the role of share

holder & the functioning of the share holder

meetings.

4.18 4.25 2.77 3.93 3.67 4.00

Overall Mean 3.98 3.99 3.75 3.82 3.85 4.05 Corporate social responsibility Bank provides help to needy persons. 4.04 3.50 4.00 4.10 3.66 4.28 Bank continuously discharges social responsibility

to protect the community. 3.54 3.00 3.87 3.60 3.67 3.57

Policies are regularly upgraded to safeguard the

interest of employees. 4.10 4.02 4.00 4.00 4.33 4.25

Explicit equal employment policy. 3.69 3.87 4.00 3.64 3.66 3.40 Bank continuously discharges social responsibility

to protect the environment. 3.82 4.12 4.62 3.63 3.67 3.60

349

Overall Mean 3.83 3.70 4.09 3.79 3.84 3.82 CG Antecedents

Corporate Culture

Mission and value driven Management actively seeks feedback from client

and customer with a view to improving service. 3.95 3.75 4.25 3.96 3.90 4.66

Your bank has developed its code of ethics to be

followed by employees 4.16 4.12 4.25 4.13 4.18 4.67

The mission and value of your bank are well

communicated to the employees 4.25 4.50 4.62 4.01 4.23 4.00

Management shares business strategies with all

employees 4.02 4.00 4.37 3.95 4.01 4.33

Your bank maintains relationship of trust with all

employees 4.08 4.37 4.37 4.00 4.10 4.00

Your bank gives equal treatment to employees,

customer, owners and community 3.83 3.87 4.87 3.67 3.70 4.00

Overall Mean 4.04 4.01 4.45 3.95 4.02 4.27

Effective leadership Effort to hiring employees who fit into the

organisation 4.02 3.92 4.00 3.86 3.92 4.03

Your organisation, unethical behaviour is

promptly reprimanded when discovered if it result

in personal gain

3.87 4.21 3.95 4.23 3.97 3.95

Your organisation, unethical behaviour is

promptly reprimanded when discovered if it result

in gain to firm

3.06 4.01 2.87 3.21 2.93 2.66

Overall Mean 3.65 4.04 3.60 3.76 3.60 3.54

Corporate Ethical Value JKB ICICI HDFC SBI PNB BOI Your organisation takes action against employees

who are involved /employed in misconduct 4.38 4.50 4.87 4.27 4.34 4.33

Your organisation takes action against employees

who are involved /employed in misconduct 4.16 4.25 4.75 4.16 4.04 4.32

The bank is fully committed towards

accomplishing the agreed tasks 4.25 4.50 4.75 4.21 4.14 4.00

Your organisation is particular in protecting

women shareholders 3.61 4.00 2.75 3.40 3.67 3.66

Your organisation working is behaviour consistent

with the stated ethics & values of the organisation 4.02 4.62 4.00 3.86 3.93 3.66

Your organisation gives rewards to the ethical

behaviour 3.83 3.87 3.87 3.70 3.73 4.00

Overall Mean 4.04 4.29 4.16 3.93 3.97 3.99

350

CG Consequences Private Bank Public Bank

Business Performance JKB ICICI HDFC SBI PNB BOI Value added information to customers 4.28 4.22 4.35 4.41 4.32 4.12

Customer are satisfied 4.47 4.32 4.40 4.35 4.27 4.31

Achievement of desired goals

4.23 4.21 4.26 4.12 4.16 4.20

Timely return on assets 4.26 4.23 4.14 4.21 4.32 4.26

Achievement of branch profits 4.45 4.23 4.12 4.30 4.27 4.14

Organisational goal

4.04 4.01 4.12 4.16 4.08 4.02

Overall Mean 4.28 4.20 4.23 4.25 4.23 4.17

Corporate Reputation

Customer Orientation

Bank has employees who are concerned about

customer need.

3.45 3.76 3.25 3.84 3.12 3.85

Bank employees who treat customer

courteously.

3.42 3.64 3.50 4.00 3.27 4.33

Bank is concerned about its customers. 3.57 3.44 3.85 3.84 3.05 4.00

Bank treats its customers fairly. 3.52 3.84 3.75 4.11 3.37 4.57

Bank takes customer rights seriously. 3.30 3.68 3.30 4.23 3.18 4.28

Overall Mean 3.45 3.67 3.53 4.00 3.19 4.20

Emotional Appeal

Bank stand behind the services that it offers. 3.52 3.36 3.60 4.38 3.85 3.02

You admire and respect the bank. 3.64 4.08 3.95 4.53 4.57 3.25

You trust the bank. 3.26 4.32 3.55 4.15 3.95 3.30

You have a good feeling about the bank. 3.35 4.40 3.23 4.38 3.19 3.55

Overall Mean 3.44 4.04 3.58 4.36 3.89 3.28

351

TABLE 9.2

SECTOR AND BANK-WISE OVERALL MEAN VALUES FOR CG PRACTICES

Private Sector Banks

Public Sector Banks

Grand Mean

Corporate

Governance JKB ICICI HDFC Mean SBI PNB BOI Mean

Accountability 3.94 4.15 4.12 4.07 3.73 3.86 3.64 3.74 3.90 Transparency 3.83 3.97 3.80 3.86 3.62 3.78 4.19 3.86 3.86 Effectiveness 3.98 3.99 3.75 3.90 3.82 3.85 4.05 3.90 3.90 Corporate social

responsibility 3.83 3.70 4.09 3.87 3.79 3.84 3.82 3.59 3.73

Overall Mean 3.89 3.95 3.94 3.92 3.74 3.82 3.76 3.77 3.84 Corporate Culture Mission/ value driven 4.04 4.01 4.45 4.16 3.95 4.02 4.27 4.08 4.12 Action against

Unethical practices 3.65 4.04 3.60 3.76 3.76 3.60 3.54 3.63 3.69

Overall Mean 3.84 4.02 4.02 3.96 3.85 3.81 3.90 3.85 3.90 Corporate Ethical

Value 4.04 4.29 4.16 4.16 3.93 3.97 3.99 3.96 4.06

Business Performance 4.23 4.42 4.20 4.29 4.41 4.35 4.24 4.12 4.33 Corporate Reputation Customer orientation 3.45 3.67 3.53 3.55 4.00 2.98 4.20 3.72 3.63 Emotional appeal 3.44 4.04 3.58 3.68 4.36 3.89 3.28 3.84 3.76 Overall Mean 3.44 3.85 3.55 3.61 4.18 3.43 3.74 3.78 3.69

352

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378

APPENDIX: 1

Questionnaire

Dear Sir/Madam

I am Ph. D Scholar of Department of Commerce; University of Jammu doing research on

topic entitled “Corporate Governance and Business Performance of Indian Banks”.

Please oblige and help in filling up the questionnaire with fair and frank responses. I

assure that the information supplied will be kept strictly confidential and used for

research only. The questionnaire comprises of two sections viz. Part A dealing with

general information and Part B dealing with corporate governance dimensions.

PART- A

GENERAL INFORMATION

1 Gender

a) Male b) Female

2 Education

3 Annual Income

4 Experience

a) Total experience in the bank

b) Total experience in the present post

5 Name of the Branch

6) Age

PART-B

This part attempts to seek information on the degree of your satisfaction level with

corporate governance dimensions, corporate culture, corporate ethical value and business

performance with six options namely 1, 2, 3, 4, 5, 6 where 5=strongly agree, 4=agree,

3=indifferent, 2=disagree, 1=strongly disagree, 6=do not know. You are required to tick

only the best suitable option.

CORPORATE GOVERNANCE 5 4 3 2 1 6

Accountability

1 The personal responsibilities of the mangers are clearly identified.

2 Managers have clearly defined job description & set performance targets

3 The attendance performance of the board members during the past 12 mouths

is effective (more than 1/3).

4 Decision made by mangers are recorded & communicated to the appropriate

members.

5 The board of director provides code of ethics or statement of business to all

directors.

379

6 The bank conducts an annual.

7 Codes of conduct are in the place & have been agreed by mangers.

8 The bank set up formal criteria to assess its performance.

9 Board plays a supervisory rather than executive role.

10 Board small enough to be efficient and effective.

11 Board members participate in training on corporate governance

12 The bank conducts record of board meeting attendance of individual

director/executive.

13 Senior management have made decisions in recent years seen to benefit them.

14 Company been seen as acting effectively against individuals responsibility.

Transparency 1 All mangers use the most up to date version of corporate policies for the

maintained of their records.

2 Banks annual financial statement is published within 3 months. 3 Conflicts of interest are fully resolved through a clear & well established

mechanism.

4 All financial analysts are treated equally about information dissemination. 5 Regular analyst meeting are held (e.g. quarterly or biannually). 6 The information regarding meetings is put on the internet. 7 Organisation provides all relevant information within sufficient time. 8 Board meeting are held according to planned regular schedule. 9 Prompt disclosure of market sensitive information. 10 Prompt disclosure of result with no leakage ahead of announcement. 11 Regular audit of inventory is conducted. Effectiveness 1 Board members have enough experience to discharge their duties. 2 The BOD/bank give sufficient attention to the role of share holder & the

functioning of the share holder meetings.

3 Board has performance evaluation system to evaluate it‟s own performance 4 Effective communication is in place to keep staff informed about new &

existing policies.

5 Managers‟ performance reflects consideration of corporate objectives &

policies.

6 Employees generally communicate about any mislead & unethical behaviour

of employees to the management.

7 Adequate save measures are taken by managers to protect the employees 8 Management communicates to the BOD about business risk faced by the

company.

9 Adequate save measures are taken by managers to protect the employees 10 Management communicates to the BOD about business risk faced by the

380

company.

Corporate social responsibility

1 Bank continuously discharges social responsibility to protect the community

by providing non-cash/ cash items.

2 Explicit equal employment policy

3 Not employing the under-aged

4 Abstaining from countries where leaders lack legitimacy (e.g. Myanmar).

5 Bank continuously discharges social responsibility top protect the

community.

6 Banks provides help to needy persons.

7 Bank has sufficient number of branches to cater to the needs of customers.

8 Bank has adequate complaint & suggestion system to resolve issues relating

to products and services.

9 Policies are regularly upgraded to safeguard the interest of

employees/organisation.

10 Bank has sufficient mobile branches to serve the remotely located customers.

11 Operational functioning of ATM is always good.

12 ATM centres provide adequate security to the customers.

13 Online banking service is of good quality.

14 Bank branches are located at convenient places.

Integrity

1 Managers always get supported from top management team.

2 Top management meets regularly, with planned agendas. .

3 All customers‟ complaints are resolved in minimum time duration.

4 The composition/ mix of varied age groups are good for effective functioning

of the company.

5 The male & female composition of employees generates conducive

environment in the company.

6 Bank adhere‟s to code of integrity values.

Discipline 1 The mission statement clearly place priority on goof CG 2 The dividend distribution policy is quite transparent. 3 Detailed information on all significant aspects of CG is given. CORPORATE CULTURE

1 The mission and value of your bank are well communicated to the employees 2 Your bank maintains relationship of trust with all employees. 3 Your bank has developed its code of ethics to be followed by employees. 4 Management share business strategies with all the employees.

5 Your bank gives equal treatment to employees, customer, owners and

community.

6 Your organisation pay equal and fair compensation to all employees at all

381

levels.

7 Your are regular in understanding the project of the community development.

8 Your organisation rewards employees for specific behaviours. 9 Sometimes management/managers are pressurized to accommodate persons

for the vacant position.

10 Sometimes business pressures are placed to sacrifice process integrity of the

bank.

11 Management puts a great deal to effort to hiring employees who will fit to the

organisation.

12 In your organisation, unethical behaviour is promptly reprimanded when

discover if it results in personal gain.

13 In your organisation, unethical behaviour is promptly reprimanded when

discover if it results in gain to firm.

14 Your organisation stand on ethical is just „window dressing‟ to maintain their

public image and has on real substance.

15 Promotes professional ethics within the profession/in the market.

CORPORATE ETHICAL VALUE

1 Your organisation takes action against employees who are involved/employed

in misconduct.

2 The bank is fully committed towards accomplishing the agreed tasks.

3 You disfavour any gift to favour your organisational interest.

4 Your organisation is particular in protecting women shareholders.

5 The organisation makes it sure that employees do not repeat any mis-

conducts.

6 Bank follows orders regardless if they appear unethical.

7 Your organisation withheld information that is detrimental to the company

interest.

8 Sometimes your bank show favouritism while taking decisions

9 Your organisation gives rewards to the ethical behaviour.

10 Your organisation working is behavoiur consistence with the stated ethics and

value pf the organisation.

11 Your organisation offer training on business ethics.

12 Your organisation sometimes ignores ethical guidelines to favours

organisation decision.

BUSINESS PERFORMANCE

1 Customers are satisfied with the organisation performance.

2 Organisation provides valuable services to customers.

3 Organisation plans for securing desired goals.

4 Organisation measures each department profitability.

5 Organisation gets timely return on assets.

6 Organisation is effective in achieving financial goals.

382

APPENDIX: 2

Questionnaire

Dear Sir/Madam

I (Archana Kumari) an pursing Ph.D in Department of commerce to examine the business

performance of banks. Please oblige and help in filling up the questionnaire with fair and

frank responses. I assure that the information supplied will be kept confidential and used

for research purpose.

Please put the most appropriate number against the following statements:-

1 Gender

a) Male b) Female

2 Education

3 Age

4 Service type

5 Length of relationship in years

6 Name of the bank

1 2 3 4 5 6

Strong disagree Disagree Indifference Agree Strongly agree Do not know

1 Bank has employees who are concerned about customer needs. 5 4 3 2 1 6

2 Bank has employees who treat customers politely.

3 Bank is concerned about its customers.

4 Bank treats its customer in a fair and just manner.

5 Bank takes customer rights seriously.

6 Bank seems to care about all of its customers regardless of how

much money they spend with them.

7 Bank looks like a good company to work for.

8 Banks seems to treat its people well.

9 Bank seems to have excellent leadership.

10 Bank pay attention to the needs of its employees.

11 Bank is successful in attracting high quality employees.

12 Bank maintains high standards in the way that it treats people

equally.

13 Bank is seemed to be well managed.

14 Bank has faire attitude towards competitors.

15 Bank seems to recognize & take advantage of market

opportunities.

16a Bank looks it has strong prospects for future growth.

16 Bank looks it would be a good investment.

383

17 Bank appears to make financially sound decisions.

18 Bank has a strong record of profitability.

19 Bank is doing well financially.

20 Bank seems to have a clear vision of its future.

21 Bank appears to be aware of its responsibility to society.

22 Bank offers high quality of products and services.

23 Bank is a strong reliable company.

24 Bank stands behind the services that it offers.

25 Bank develops innovative services.

26 Bank offers services that are a good value for the money.

27 Bank seems to make an effort to create new jobs.

28 Bank would reduce its profits to ensure a clean environment.

29 Bank seems to be environmentally responsible

30 Bank appears to support good cause.

31 You intend to remain the bank‟s customer.

32 You would recommend becoming a customer of the company.

33 You would recommend this bank to friends and relatives.

384

APPENDIX: 3

Suggested List of Items to be Included in the Report on Corporate Governance in

the Annual Report of Companies (Clause 49, Annexure-I C)

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

2. Board of Directors:

i Composition and category of directors, for example, promoter, executive,

non-executive, independent non-executive, nominee director, which

institution represented as lender or as equity investor.

ii Attendance of each director at the Board meetings and the last AGM.

iii. Number of other Boards or Board Committees in which he/she is a

member or chairperson.

iv. Number of Board meetings held, dates on which held.

3. Audit Committee:

i Brief description of terms of reference.

ii Composition, name of members and Chairperson.

iii Meetings and attendance during the year.

4. Remuneration Committee:

i Brief description of terms of reference

ii Composition, name of members and Chairperson.

iii Attendance during the year.

iv Remuneration policy.

v Details of remuneration to all the directors, as per format in main report.

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5. Shareholders Committee:

i. Name of non-executive director heading the committee

ii Name and designation of compliance officer

iii Number of shareholders‟ complaints received so far

iv Number not solved to satisfaction of shareholders

v. Number of pending complaints

6. General Body meetings:

i. Location and time, where last three AGMs held

ii. Whether any special resolutions passed in the previous 3 AGMs

iii. Whether any special resolution passed last year through postal ballot

details of voting pattern

iv. Person who conducted the postal ballot exercise

v. Whether any special resolution is proposed to be conducted through postal

ballot.

vi. Procedure for postal ballot

7. Disclosures:

i. Disclosures on materially significant related party transactions that may

have potential conflict with the interests of company at large.

ii. Details of on-compliance by the company, penalties, strictures imposed on

the company by Stock Exchange or SEBI or any statutory authority, on

any matter related to capital markets, during the last three years.

iii. Whistle Blower policy and affirmation: that no personnel has been denied

access to the audit committee.

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iv. Details of compliance with mandatory requirements and adoption of the

non - mandatory requirements of this clause.

8. Means of communication.

i. Quarterly results.

ii. Newspapers wherein results normally published.

iii. Any website, where displayed.

iv. Whether it also displays official news releases and

v. The presentations made to institutional investors or to the analysts.

9. General Shareholder information ;

i. AGM ; Date , time and venue.

ii. Financial year.

iii. Date of Book closure.

iv. Dividend Payment Date.

v. Listing on Stock Exchanges.

vi. Stock Code.

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Non – Mandatory Requirements (Clause 49, Annexure – I D)

1. The Board

A non – executive Chairman may be entitled to maintain a Chairman‟s office at

the company‟s expense and also allowed reimbursement of expenses incurred in

performance of his duties .Independent Directors may have a tenure not

exceeding, in the aggregate, a period of nine years , on the Board of a company.

2. Remuneration Committee

i. The board may set up a remuneration committee to determine on their

behalf and on behalf of the shareholders with agreed terms of reference,

the company‟s policy on specific remuneration packages for executive

directors including pension rights and any compensation payment.

ii. To avoid conflicts of interest, the remuneration committee, which would

determine the remuneration packages of the executive e directors may

comprise of a least three directors, all of whom should be non executive

directors, the Chairman of committee being a independent director.

iii. All the members of the remuneration committee could be present at the

meeting.

iv. The Chairman of the remuneration committee could be present at the

Annual General Meeting, to answer the shareholder queries. However, it

would be up to the Chairman to decide who should answer the queries.

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3. Shareholder Right

A half – year declaration of financial performance including summary of the

significant e vents in last six – months , may be sent to each household of

shareholders.

4. Audit qualifications

Company may move towards a regime of unqualified financial statements.

5. Training of Board Members

A company may train its Board members in the business model of the company as

well as the risk profile of the business parameters of the company, their

responsibilities as directors, and the best ways to discharge them.

6. Mechanism for evaluating non – executive board members

The performance evaluation of non-executive director could be done by a peer

group comprising the entire Board of Directors, excluding the director being

evaluated, and Peer Group evaluation could be the mechanism to determine

whether to extend/ continue the terms of appointment of non-executive

directors.7.

7. Whistle Blower Policy

The company may establish a mechanism for employees to, report to the

management concerns about unethical behavior, actual or suspected fraud or

violation of the company„s code of conduct or ethics policy. This mechanism

could also provide for adequate safeguards against victimization of employees

who avail of the mechanism and also provide for direct access to the Chairman of

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the Audit committee in exceptional cases. Once established, the existence of the

mechanism may be appropriately communicated within the organisation.