Introduction

A corporation is a congregation of various stakeholders, namely, customers, employees, investors, vendor partners, government and society. A corporation should be fair and transparent to its stakeholders in all its transactions. This has become imperative in todays globalized business world where corporations need to access global pools of capital, need to attract and retain the best human capital from various parts of the world, need to partner with vendors on mega collaborations and need to live in harmony with the community. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation or company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. Corporate Governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimized. Sound Corporate Governance is, therefore, critical to enhance and retain investors trust.

Definition of Corporate Governance Report of SEBI Committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company. The OECD provides the most authoritative functional definition of corporate governance: Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the

corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the

company objectives are set, and the means of attaining those objectives and monitoring performance. Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and

other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of interests among the stakeholders.

Importance of corporate governance

 Changing Ownership Structure : In recent years, the ownership structure of companies has changed a lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc. The also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance. Importance of Social Responsibility : Today, social responsibility is given a lot of importance. The Board of Directors have to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance. Growing Number of Scams : In recent years, many scams, frauds and corrupt practices have taken place. Misuse and misappropriation of public money are happening everyday in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate governance.

Indifference on the part of Shareholders : In general, shareholders are inactive in the management of their companies. They only attend theAnnual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings. Shareholders associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance to protect all the stakeholders of the company. Globalisation : Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and foreign

 Takeovers and Mergers : Today, there are many takeovers and mergers in the business world. Corporate governance is required to protect the interest of all the parties during takeovers and mergers. SEBI : SEBI has made

corporate

governance

compulsory for

certain

companies. This is done to protect the interest of the investors and other stakeholders.

Principles of corporate governance

Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and OECD reports present general principles around which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports.

Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings.

Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local

communities, customers, and policy makers.

Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It

also needs adequate size and appropriate levels of independence and commitment.

Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.

Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

Indias approach towards corporate governance

India's SEBI Committee on Corporate Governance defines corporate governance as the "acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company." It has been suggested that the Indian approach is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution, but this conceptualization of corporate objectives is also prevalent in Anglo-American and most other jurisdictions.Corporate governance is all about promoting corporate fairness, transperncy, and accountability.

Corporate Governance in TATA STEEL

1) The Companys Corporate Governance Philosophy

The Company has set itself the objective of expanding its capacities and becoming globally competitive in its business. As a part of its growth strategy, the Company believes in adopting the best practices that are followed in the area of Corporate Governance across various geographies. The Company emphasises the need for full transparency and accountability in all its transactions, in order to protect the interests of its stakeholders. The Board considers itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for creation and safeguarding their wealth.In accordance with the Tata Steel Group Vision, Tata Steel Group (the Group) aspires to be the global steel industry benchmark for value creation and corporate citizenship. The Group expects to realise its Vision by taking such actions as may be necessary in order to achieve its goals of value creation, safety, environment and people.

2) Corporate governance in accordance to board of directors The Company has a Non-Executive Chairman and the number of Independent Directors is more than fifty percent of the total number of Directors in compliance with the Clause 49 of the listing Agreement. As on 31st March, 2013, the Company has 13 Directors on its Board, of which 7 Directors are independent. The number of Non-Executive Directors (NEDs) is more than fifty percent of the total number of Directors. The Company is in compliance with the Clause 49 of the Listing Agreements pertaining to compositions of Directors.

None of the Directors on the Board is a Member on more than 10 Committees and Chairman of more than 5 Committees (as specified in Clause 49), across all the companies in which he is a Director. The necessary disclosures regarding Committee positions have been made by the Directors. The company also publishes the attendance sheet of BOD of all the meetings held in their corporate governance report.

3) Audit Committee:-

The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee are broadly as follows:

a. To review compliance with internal control systems; b. To review the findings of the Internal Auditor relating to various functions of the Company; c. To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/Internal Auditors; d. To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board; e. To make recommendations to the Board on any matter relating to the financial management of the Company, including Statutory & Internal Audit Reports; f. Recommending the appointment of cost auditors and statutory auditors and fixation of their remuneration. g. Review of Cost Audit Report. h. Reviewing the Companys financial and risk management policies.

4) Whistle Blower Policy The Audit Committee at its meeting held on 25th October, 2005, approved framing of a Whistle Blower Policy that provides a formal mechanism for all employees of the Company to approach the Ethics Counsellor/Chairman of the Audit Committee of the Company and make protective disclosures about the unethical behaviour, actual or suspected fraud or violation of the Companys Code of Conduct. The Whistle Blower Policy is an extension of the Tata Code of Conduct, which requires every employee to promptly report to the Management any actual or possible violation of the Code or an event he becomes aware of that could affect the business or reputation of the

Company.The disclosures reported are addressed in the manner and within the time frames prescribed in the Policy. Under the Policy, each employee of the Company has an assured access to the Ethics Counsellor/Chairman of the Audit Committee.

5) Cost Auditors details The Central Government has approved the appointment of M/s Shome & Banerjee, Cost Accountants as Cost Auditors for conducting Cost Audit of the Company for the Financial Year 2012-13.

The due date for filing the Cost Audit Reports for the Financial Year ended 31st March, 2013 is 30th September, 2013. The due date for filing the Cost Audit Report of the Company for the Financial Year ended 31st March, 2012 was 30th September, 2012 and the Cost Audit Report was filed by the Cost Auditor M/s Shome & Banerjee, Cost Accountants, on 4th December, 2012 in XBRL Mode as mandated by the Ministry of Corporate Affairs vide their circular no. 8/2012 dated 10th May, 2012. The Company was felicitated by the Institute of Cost Accountants of India for being the first company in India to file the Cost Audit Report in XBRL Mode.

6) Remuneration Committee The Company had constituted a Remuneration Committee in the year 1993.The broad terms of reference of the Remuneration Committee are as follows: a. Review the performance of the Managing Director and the Whole-time Directors, after considering the Companys performance. b. Recommend to the Board remuneration including salary, perquisites and commission to be paid to the Companys Managing Director and Whole -time Directors. c. Finalise the perquisites package of the Managing Director and Whole-time Directors within the overall ceiling fixed by the Board.

d. Recommend to the Board, retirement benefits to be paid to the Managing Director and Whole-time Directors under the Retirement Benefit Guidelines adopted by the Board.

The

Remuneration

Committee

also

functions as

the

Compensation

Committee as per SEBI guidelines on the Employees Stock Option Scheme. The Company, however, has not yet introduced the Employees Stock Option Scheme.

7) Remuneration Policy The Company while deciding the remuneration package of the senior management members takes into consideration the following items: (a) employment scenario (b) remuneration package of the industry and (c) remuneration package of the managerial talent of other industries.

The annual variable pay of senior managers is linked to the performance of the Company in general and their individual performance for the relevant year measured against specific Key Result Areas, which are aligned to the Companys objectives. Other than this TATA STEEL have also formed following committees: 8) Shareholders Committee An Investors Grievance Committee was constituted on 23rd March, 2000 to specifically look into the redressal of Investors complaints like transfer of shares, non-receipt of balance sheet and non-receipt of declared dividend, etc.

9) Ethics and Compliance Committee In accordance with the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations,1992, as amended (the Regulations), the Board of Directors of the Company adopted the revised Tata Code of Conduct for Prevention of Insider Trading and the Code of Corporate Disclosure Practices (the Code) to be followed by Directors, Officers and other Employees.

10) Safety health and environment comitee. 11) Comitee of investments and projects. 12) Compulsory disclosures and means of disclosure. 13) Means of communication for different purposes.

Satyam Scandal

Raju resigned from the Satyam board after admitting to falsfiying revenues, margins and over Rs 50 billion of cash balances as the company. The Indian affiliate of PricewaterhouseCoopers, the company's auditors, appears to have certified the company had $1.1 Billion in cash when the real number was $78 million. Just a few months before the scandal broke out, Mr. Raju tried to persuade investors by claiming that the company is sound and that past October he surprised analysts with better-than-expected results, claiming that "the company had achieved this in a challenging global macroencomic environment, and amidst the volatile currency scenario that became reality" A botched acquisition attempt involving Maytas in December 2008 led to a plunge in the share price of Satyam. In January 2009, Raju indicated that Satyam's accounts had been falsified over a number of years. He admitted to an accounting dupery to the tune of 7000 crore rupees or 1.5 Billion US Dollars and resigned from the Satyam board on 7 January 2009. Satyam was purchased by Tech Mahindra in April 2009 and renamed Mahindra Satyam. In his letter, Raju explained his modus operandi to something that started as a single lie but led to another as "What started as a marginal gap between actual operating profit and the one reflected in the books continued to grow over the years. It has attained unmanageable proportions as the size of the companys operations grew over the years.". Raju described how an initial cover-up for a poor quarterly performance escalated: "It was like riding a tiger, not knowing how to get off without being eaten.". Raju and his brother, B Rama Raju, were then arrested by the CID Andhra Pradesh police headed by Mr. V S K Kaumudi, IPS on charges of breach of trust, conspiracy,

cheating, falsification of records. Raju may face life imprisonment if convicted of misleading investors. Raju had also used dummy accounts to trade in Satyam's shares, violating the insider trading norm. The Andhra Pradesh government attached 44 properties belonging to the family members of the promoters of Satyam Computers in the case against Raju. It has now been alleged that these accounts may have been the means of siphoning off the missing funds. Raju has admitted to overstating the company's cash reserves by USD$ 1.5 billion. Raju was hospitalized in September 2009 following a minor heart attack and underwent angioplasty. Raju was granted bail on condition that he should report to the local police station once a day and that he shouldn't attempt to tamper with the current evidence. This bail was revoked on 26 October 2010 by the Supreme Court of India and he has been ordered to surrender by 8 November 2010. The people of his native village, Garagaparru, hail the development works undertaken by the Byrraju Foundation, the charitable arm of Satyam. Investigation by the authorities revealed that Raju led a lavish lifestyle including 321 pairs of shoes, 310 belts, 13 cars including Mercedes and BMWs. His house contained a telescope worth 140,000. It was also claimed that he donated huge quantities of gold to temples in Andhra Pradesh and possessed villas and properties in 63 countries.

Court proceedings

In November 2010, Raju surrendered after the Supreme Court in August cancelled the bail granted to him by a lower court in Hyderabad, where Satyam is based. The Supreme Court on 4 November 2011 granted bail to Raju since the Central Bureau of Investigation (CBI) failed to file charges on time. According to Indian law, a charge-sheet against an accused must be filed within 90 days of arrest. On 28 October 2013, the Enforcement directorate filed a chargesheet against Raju and 212 others. The filed report states that it transpires that the accused resorted to inter-connected transactions, so as to ensure that crime proceeds were distanced

from its initial beneficiaries, and laundered the said proceeds under the cover of the corporate veil, with an ulterior motive to project the properties so acquired as untainted ones.

Final punishment by law as on Jan 10, 2014,

The Economic Offences Court on Thursday convicted and sentenced to imprisonment ranging from six months to one year 84 directors of 19 companies floated by the relatives and friends of Satyam Computers founder B Ramalinga Raju. Ramalinga Raju's wife Nandini Raju, sons Teja and Rama, and the wives of Ramalinga Raju's younger brothers were among those convicted for evading paying income tax of around Rs 30 crore relating to the Maytas Hill County housing project. The 19 companies had declared they had generated income through the sale of 90 acres of land and apartments. Special judge M Laxman suspended the sentence for a month to enable the convicted persons to seek remedial legal measures. Those convicted were directed to furnish sureties to avail of this facility. While all the male directors were sentenced to a one-year jail term and ordered to pay a penalty of Rs 10,000, the female directors were sentenced to six months in jail and asked to pay a similar penalty. All of them paid the penalty and furnished the sureties after the pronouncement of the order.

Overview of legal proceedings

It all began with Satyam Computers announcing on December 16, 2008 that it was buying a 100 per cent stake in two companies owned by Ramalinga Rajus sons -Mytas Properties and Mytas Infra -- for a consideration of $1.6 billion. It was a proposal which came in for severe criticism from investors and analysts who smelt a rat and dubbed it as one of the worst cases of the failure of corporate governance in the country.The very next day, on December 17, under tremendous pressure from

the financial market, Satyam did a U-turn and 12 hours later, the deal was called off. But the damage had already been done and the companys shares were pounded on the bourses and it lost $2 billion on the New York Stock Exchange.

Three weeks later, on January 9, 2009, Ramalinga Raju shocked the country by admitting to a Rs 7,800-crore fraud and how he had systematically siphoned off the money from Satyam. It was a confession which he was to retract later, but the CBI which had taken up the case, arrested him along with his brother and managing director of the company, B Rama Raju. The police slapped them with cases on charges of criminal conspiracy, cheating, forgery, misappropriation of funds and criminal breach of trust.For over two years now, the cases are being fought in the CBI designated court and the Andhra Pradesh high court, with the end no where in sight. Meanwhile, last week on November 5, the Supreme Court ordered the release on bail of Ramalinga Raju, Rama Raju and V Srinivas, the former chief financial officer of the company. The next day, the Raju brothers and Srinivas, walked out of the Chanchalaguda prison in Hyderabad.The software industry welcomed the Satyam founders release on bail, but the legal circles said it had further reduced the chances of speedy resolution of the case. Even in judicial custody Raju had stalled the trial for over six months on health grounds till November 2010 after the CBI filed its second chargesheet. Imagine what his aides can do now? They will try every trick to ensure that the trial takes longer, said a member of the AP Bar association. On August 16 last year, when the trials began in real earnest Ramalinga Raju retracted his confession in the trial court by responding in the negative to a questionnaire sent by the court to the state-run NIMS, where he was being treated for hepatitis C. The burden of proof for Rajus fraud now rests with the CBI. Proceedings have been stalled as Raju, undergoing treatment for a liver infection, has not been appearing in court since September.The Supreme Court had directed that the trial be completed before July 2011 while cancelling the bail granted to Raju. The CBI had submitted a detailed schedule to the court for the trial. But as the delays continued, the enormity of the fraud and complexities involved became apparent. CBI has now submitted a plea before the apex court seeking permission to reduce the number of eyewitnesses and documents to be examined. There were 697

witnesses and 3,057 documents to be examined in the three chargesheets filed by CBI so far, but it later reduced the number of witnesses to 226 to speed up the trial as directed by the Supreme Court.

Corporate Governance in Toyota Motors

Toyota's top management priority is to steadily increase corporate value over the long term. In order to achieve that, Toyota builds favorable relationships with all of its stakeholders, including shareholders, customers, business partners, local

communities and employees. We are convinced that providing products that fully cater to customer needs is essential to achieve stable, long-term growth. Given this situation, Toyota is seeking to strengthen its corporate governance through various policies in order to further enhance its competitiveness as a global corporation.

Toyota's Basic Approach to Corporate Governance

Specifically, Toyota has introduced a unique management system focused on prompt decision making for developing our global strategy and speeding up operations. Furthermore, Toyota has a range of long-standing in-house committees and councils responsible for monitoring and discussing management and corporate activities from the viewpoints of various stakeholders to ensure heightened transparency and the fulfillment of social obligations.

Toyota has a unique corporate culture that places emphasis on problem solving and preventative measures. Toyota's approach is to build in quality through manufacturing processes, enhancing the quality of everyday operations and consequently strengthening corporate governance. Toyota's management team and employees conduct operations and make decisions founded on that common system of checks and balances and on high ethical standards.

In the current managerial system, introduced in 2003, the Chief Officers, who are directors, serve as the highest authorities of their specific operational functions

across the entire company, while non-board Managing Officers implement the actual operations. The distinctive feature of this system is that based on

Toyota's philosophy of emphasizing developments on the site, the Chief Officers serve as the link between management and on-site operations, instead of focusing exclusively on management. This system enables the management

to make decisions directly with on-site operations, by reflecting on-site personnel opinions on management strategy and swiftly implementing management decisions into actual operations. In March 2011, Toyota announced the "Toyota Global Vision" and commenced "Visionary Management."

In April 2011, Toyota reduced the decision-making layers and at the general meeting of shareholders in June 2011, reduced the size of the Board of Directors, in order to swiftly communicate the views of customers and information from operations onground to management and facilitate rapid management decision making.

In April 2013, Toyota made organizational changes with the aim of further increasing the speed of decision-making by clarifying responsibilities for operations and earnings. The automotive business was divided into four units and an Executive Vice President was put in charge of the operations of each unit in order to realize organizational change that supports operations and earnings responsibility. Additionally, in June 2013, three Outside Directors were appointed in order to further reflect the opinions of those from outside the company in management's decisionmaking process. Toyota believes that the Outside Directors will advise the company in the management decision-making process based on their broad experiences and insight in their respective fields of expertise.

Toyota has adopted an auditor system to monitor management. Four of Toyota's seven corporate auditors are external auditors employed to increase transparency of corporate activities. Since 1996, Toyota has convened periodic meetings of its International Advisory Board (IAB). The IAB consists of approximately 10 distinguished advisors from overseas with backgrounds in a wide range of fields, including politics and economics. Since 2011, Toyota has also convened Regional Advisory Committees as needed in major regions. such as North America, Europe and Asia.and receives advice on diverse business issues from a global perspective.

Under the basic policies established in May 2006, Toyota implements an internal control system while conducting necessary enhancements. Responding specifically to a series of quality issues that caused anxiety for Toyota customers, it established the "Toyota Special Committee for Global Quality" in March 2010, and the "Risk Management Committee" in June 2010. Working to ensure fair and transparent corporate governance by emphasizing frontline operations and multidirectional monitoring.

Basic Approach to Internal Control System and its Development :

TMC, together with its subsidiaries, has created and maintained a sound corporate climate based on the Guiding Principles at Toyota and the Toyota Code of Conduct. TMC integrates the principles of problem identification and continuous improvement into its business operation process and makes continuous efforts to train employees who will put these principles into practice.

Accordingly, TMC has developed its basic policy regarding the following items as stipulated in the Companies Act: 1. System to ensure that the Directors execute their responsibilities in compliance with relevant laws and regulations and the Articles of Incorporation

TMC will ensure that Directors act in compliance with relevant laws and regulations and the Articles of Incorporation, based on the Code of Ethics and other explanatory documents that include necessary legal information, presented on occasions such as trainings for new Directors.

TMC will make decisions regarding business operations after comprehensive discussions at the Board of Directors meeting and other meetings of various cross-sectional decision-making bodies. Matters to be decided are properly

submitted and discussed at the meetings of those decision-making bodies in accordance with the relevant rules.

TMC will appropriately discuss significant matters and measures relating to issues such as corporate ethics, compliance, and risk management at the CSR Committee and other meetings. TMC will also discuss and decide, at the meetings of various cross-sectional decision-making bodies, policies and systems to monitor and respond to risks relating to organizational function.

2. System to retain and manage information relating to performance of duties by Directors Information relating to exercising duties by Directors shall be appropriately retained and managed by each division in charge pursuant to the relevant internal rules and laws and regulations.

TMC will properly manage the capital fund through its budgeting system and other forms of control, conduct business operations, and manage the budget, based on the authorities and responsibilities in accordance with the Ringi system (effective consensus-building and approval system) and other systems. Significant matters will be properly submitted and discussed at the Board of Directors meeting and other meetings of various bodies in accordance with the standards stipulated in the relevant rules.

TMC will ensure accurate financial reporting by issuing documentation on the financial flow and the control system, etc., and by properly and promptly disclosing information through the Disclosure Committee.

TMC will manage various risks relating to safety, quality, the environment, etc. and compliance by establishing coordinated systems with all regions, establishing rules or preparing and delivering manuals and by other means, as necessary through each relevant division.

3. System to ensure that Directors exercise their duties efficiently

TMC will manage consistent policies by specifying the policies at each level of the organization based on the medium- to long-term management policies and the Companys policies for each fiscal term.

The Directors will promptly determine the management policies based on precise on-the-spot information and, in accordance with Toyotas advantageous field-oriented approach, appoint and delegate a high level of authority to officers who take responsibility for business operations in each center, region, function, and process. The responsible officers will proactively compose relevant business plans under their leadership and execute them in a swift and timely manner in order to carry out Toyotas management policies. The Directors will supervise the execution of duties by the responsible officers.

TMC, from time to time, will make opportunities to listen to the opinions of various stakeholders, including external experts in each region, and reflect those opinions in TMCs management and corporate activities.

4. System to ensure that employees conduct business in compliance with relevant laws and regulations and the Articles of Incorporation

TMC will clarify the responsibilities of each organization unit and maintain a basis to ensure continuous improvements in the system.

TMC will continuously review the legal compliance and risk management framework to ensure effectiveness. For this purpose, each organization unit shall confirm the effectiveness by conducting self-checks among others, and report the result to the CSR Committee and other committees.

TMC will promptly obtain information regarding legal compliance and corporate ethics and respond to problems and questions related to compliance through its corporate ethics inquiry office and other channels.

5. System to ensure the appropriateness of business operations of the corporation and the business group consisting of the parent company and subsidiaries. TMC will expand the Guiding Principles at Toyota and the Toyota Code of Conduct to its subsidiaries as Toyotas common charter of conduct, and develop and maintain a sound environment of internal controls for Toyota. TMC will also promote the Guiding Principles at Toyota and the Toyota Code of Conduct through personnel exchanges.

TMC will manage its subsidiaries in a comprehensive manner appropriate to their positioning by clarifying the roles of the division responsible for the subsidiaries financing and management and the roles of the division responsible for the subsidiaries business activities. Those divisions will confirm the appropriateness and legality of the operations of the subsidiaries by exchanging information with those subsidiaries, periodically and as needed.

6. System concerning employees who assist the Audit & Supervisory Board Members when required TMC has established the Audit & Supervisory Board Office and has assigned a number of full-time staff to support this function.

Independence of the employees described in the preceding item (7) from Directors

Any changes in personnel in the Audit & Supervisory Board Office will require prior consent of the Audit & Supervisory Board or a full-time Audit & Supervisory Board Member selected by the Audit & Supervisory Board.

7. System for Directors and employees to report to Audit & Supervisory Board Members, and other related systems

Directors, from time to time, will properly report to the Audit & Supervisory Board Members any major business operations through the divisions in charge. If any fact that may cause significant damage to the Company is discovered, they will report the matter to the Audit & Supervisory Board Members immediately.

Directors, Senior Managing Officers, Managing Officers, and employees will report to Audit & Supervisory Board Members on the business upon requests by the Audit & Supervisory Board Members periodically and as needed.

8. Other systems to ensure that the Audit & Supervisory Board Members conducted audits effectively.

TMC will ensure that the Audit & Supervisory Board Members attend major Executives Meetings, inspect important Company documents, and make opportunities to exchange information between the Audit & Supervisory Board Members and Accounting Auditor periodically.

Key observations Corporate governance issues are not unique in the Indian context, but as Indian companies acquire or establish operations outside India or access the international financial markets, corporate governance issues are becoming increasingly relevant for Indian companies. Even domestic Indian companies need to focus on corporate governance, to gain confidence of capital market investors or while engaging in commercial transactions with multinational companies.

Legislations such as the Sarbanes Oxley Act, 2002, the Foreign Corrupt Practices Act, 1977 in the United States and the recent Bribery Act, 2010 in the UK, have extra-territorial application. As Indian companies become global in their approach and operations they must be sensitive to the global consequences of their conduct that may fall foul of anti-corruption. Companies need to consider the corporate governance norms that apply to them in different jurisdictions and adopt a standard that can meet the differing requirements of each jurisdiction, even if that means voluntarily adopting higher standards in certain jurisdictions. Failure to adequately comply with the applicable norms can have enormous cost, time and reputational consequences. Further, a vigilant approach to corporate governance is warranted as bribery and corruption issues are an area of investigation in the due diligence process relating to M&A transactions, joint ventures or other commercial contracts and representations and warranties are sought in contractual documents on compliance with legislations like the FCPA and Sarbanes Oxley Act. As the Bribery Act comes into force from April 2011, similar approaches for compliance with the Act are expected to the adopted. Within India we can expect that corporate governance norms will evolve with the growth in Indian financial markets, increase in public shareholding (recent amendments require public float of traded Indian companies to increase to 25% of a companys capital) and as institutional shareholders take a proactive role in their dealings with investee companies. The voluntary corporate governance guidelines issued by the Ministry of Corporate Affairs and SEBIs recent instructions to asset management companies and mutual funds requiring them to make disclosures concerning exercise of their voting rights in investee companies are relevant examples. Indian corporate governance norms have come a long way since the preliberalisation era of the Indian economy. While the development of these norms is an evolutionary process, expansion by Indian companies outside India can provide impetus for implementation of norms that result in good governance and transparency, ultimately leading to the successful growth of corporate India.

Corporate governance models around the world

There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. The AngloAmerican "model" tends to emphasize the interests of shareholders. The coordinated or Multi stakeholder Model associated with Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. A related distinction is between market-orientated and networkorientated models of corporate governance.

Continental Europe Some continental European countries, including Germany and the Netherlands, require a two-tiered Board of Directors as a means of improving corporate governance. In the two-tiered board, the Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation, and reviews major business decisions.

India India's SEBI Committee on Corporate Governance defines corporate governance as the "acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company." It has been suggested that the Indian approach is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution, but this conceptualization of corporate objectives is also prevalent in Anglo-American and most other jurisdictions.

United States, United Kingdom The so-called "Anglo-American model" of corporate governance emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Because of this, it is also known as "the unitary system". Within this system, many boards include some executives from the company (who are ex officio members of the board). Non-executive directors are expected to outnumber executive directors and hold key posts, including audit and compensation committees. The United States and the United Kingdom differ in one critical respect with regard to corporate governance: In the United Kingdom, the CEO generally does not also serve as Chairman of the Board, whereas in the US having the dual role is the norm, despite major misgivings regarding the impact on corporate governance.

In the United States, corporations are directly governed by state laws, while the exchange (offering and trading) of securities in corporations (including shares) is governed by federal legislation. Many US states have adopted the Model Business Corporation Act, but the dominant state law for publicly traded corporations is Delaware, which continues to be the place of incorporation for the majority of publicly traded corporations. Individual rules for corporations are based upon the corporate charter and, less authoritatively, the corporate bylaws. Shareholders cannot initiate changes in the corporate charter although they can initiate changes to the corporate by laws.

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