The recommendations are being made by the Committee keeping in view the fact that, any code of Corporate Governance should be dynamic, and should change with changing context and times. This code is the first formal and comprehensive attempt, in the context of prevailing conditions of governance in Indian companies, as well as the state of capital markets. This code may need to be reviewed from time to time, keeping pace with the changing expectations of the stakeholders and increasing sophistication achieved in capital markets.

1. The Committee agreed that the fundamental objective of corporate governance is the "enhancement of the long-term shareholder value while at the same time protecting the interests of other stakeholders." This definition harmonises the need for a company to strike a balance at all times between the need to enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other stakeholders in the company such as suppliers, customers, creditors, the bankers, the employees of the company, the government and the society at large.

2. In the opinion of the Committee, the imperative for corporate governance lies not merely in drafting a code of corporate governance, but in practising it. Even now, some companies, are following exemplary practices, without the existence of formal guidelines on this subject. Structures and rules are important because they provide a framework, which will encourage and enforce good governance; but alone, these cannot raise the standards of corporate governance. What counts is the way in which these are put to use. The Committee is thus of the firm view, that the best results would be achieved when the companies begin to treat the code not as a mere structure, but as a way of life

3. It follows that the real onus of achieving the desired level of corporate governance, lies in the proactive initiatives taken by the companies themselves and not in the external measures like breadth and depth of a code or stringency of enforcement of norms. The extent of discipline, transparency and fairness, and the willingness shown by the companies, will be the crucial factors in achieving the desired confidence of stakeholders and the goals of the company

The Code is to be followed by listed companies, their directors, management, employees and professionals associated with the companies. They should be responsible for complying with the code in letter and spirit and interpreting it always in a manner that always gives precedence to substance over form. The ultimate responsibility for putting the Code into practice however lies directly with the boards of directors.

The Committee recognised, that it will be difficult to immediately implement and follow this code, to the last letter, by relatively smaller companies. Equally, implementation of some of the recommendations will require change in existing law. The Committee felt that it would be desirable to divide the recommendations into mandatory and non-mandatory categories

1. The Committee recommends to SEBI, that as in other countries, the mandatory provisions of the recommendations may be implemented through the listing agreement of the stock exchanges.

2. The Committee recognises that the listing agreement is not a very powerful instrument and the penalties for violation are not sufficiently stringent to act as a deterrent. The Committee therefore recommends to SEBI, that the listing agreement of the stock exchanges be strengthened and the exchanges themselves be vested with more powers, so that they can ensure proper compliance of code of Corporate Governance. In this context the Committee further recommends that the Securities Contract (Regulation) Act, 1956 should be amended, so that in addition to the above, the concept of listing agreement be replaced by listing conditions.

3. The Committee also recommends that SEBI write to the Department of Company Affairs for suitable amendments to the Companies Act in respect of the recommendations which fall within their jurisdiction.

4. The Committee recommends that there should be a separate section on Corporate Governance in the annual reports of companies, with a detailed compliance report on Code of Corporate Governance. Non-compliance of any section of the code and the reasons thereof should be specifically highlighted. This will enable the shareholders and the securities market to assess for themselves the standards of corporate governance followed by a company. A Format for compliance report is enclosed. In Annexure 4.
   [This is a mandatory recommendation ]

The Committee at the end of its report has again summarised its objectives in framing the guidelines as under.

There are several corporate governance structures available in the developed world but there is no one structure, which can be singled out as being better than the others. There is no "one size fits all" structure for corporate governance. The Committee's recommendations are not therefore based on any one model but are designed for the Indian environment.

Corporate governance extends beyond corporate law. Its fundamental objective is not mere fulfillment of the requirements of law but in ensuring commitment of the board in managing the company in a transparent manner for maximising long term shareholder value. The corporate governance has as many votaries as claimants. Among the latter, the Committee has primarily focussed its recommendations on investors and shareholders, as they are the prime constituencies of SEBI. Effectiveness of corporate governance system cannot merely be legislated by law neither can any system of corporate governance be static. As competition increases, technology pronounces the death of distance and speeds up communication, the environment in which firms operate in India also changes. In this dynamic environment the systems of corporate governance also need to evolve. The Committee believes that its recommendations will go a long way in raising the standards of corporate governance in Indian firms and make them attractive destinations for local and global capital. These recommendations will also form the base for further evolution of the structure of corporate governance in consonance with the rapidly changing economic and industrial environment of the country in the new millenium