As early as in 1776 Adam Smith observed that Directors of companies, being the managers of other people's money rather than their own, cannot be expected to watch over it with the same anxious vigilance (as owners).. Negligence and profusion, therefore, must always prevail, in the management of the affairs of such a company. After 156 years, similar sentiments were aired by Berle and Means: Control will tend to be in the hands of those who select the proxy committee and by whom the election of directors for ensuring period will be made. Since the proxy committee is appointed by the existing management, the latter can virtually dictate their own successors. Since then, the concern for governance has intensified, leading to the concept of "Corporate Governance.
Corporate governance is essentially concerned with matters arising out of the separation of `ownership' and `control'. It is today actively emerging as an umbrella term encompassing the economic, legal and institutional effort that allows corporates to diversify, grow, restructure, and do everything that is necessary to maximize `shareholder value'. According to Shliefer and Vishny (1997) corporate governance deals with the ways that suppliers of finance to corporations adopt to ensure a return on their investment.
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