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EduPristine>Blog>Redefining corporate governance and its scope

Redefining corporate governance and its scope

June 16, 2018

What is Corporate Governance?

Of course, the Indian Economy is running on fast tracks and is shooting high. This makes it the fastest growing economy in the world in 2018. The Indian market among the foreign investors has not shown any clue of cutting down from the race and therefore it is supposed to reach good heights.  Also, with a commitment of growth in all the Indian business, the only reason which is causing a problem for the global investors is the corporate governance.

Corporate Governance

The standards of corporate governance have increased by a major help from the scrutiny boards of India. RBI (Reserve Bank of India) and (SEBI) Securities and Exchange Board of India have increased inspecting the businesses. These vigilance authorities have strengthened the corporate governance standards of Indian businesses in the global market.

There is a sense of responsibility of the Board of Directors towards the investors, employees, and customers. Need to present a clear picture of the company’s profits- losses and administration in total to the world. This makes the entire scenario fair and transparent.

The need of Corporate Governance

Worldwide as well as majorly in India, the need for corporate governance has gained importance. Increasing cases of misreporting and non-compliance by the board of directors of the companies are being reported. This causes huge losses on the investors’ money. Thus a proper management system is very much needed to make the picture clearer.

Enron, Xerox of Japan and World Com of USA were some of the corporate giants who lost the race due to the absence of a good corporate governance. Thus, corrupt practices kept piling up and the management (financial and administrative) continued to fool the stakeholders.

Moreover, failures of these multinational companies brought a deep concern to be addressed. Thus, the need for corporate governance was made very important. This gave the administration not only good freedom to manage the situations but also board of director’s to work freely on policy changes and give instructions suitably.

SEBI understood the need for good governance in India. And then, why would this be very important to make a prominent presence in the global market. They appointed many committees to control the governance which was Narayana Murthy Committee, Kumar Mangalam Birla Committee, and Naresh Chandra Committee. The Importance is well recognized and SEBI is taking care of the corporate governance framework.

The Role of corporate governance in India is crucial and is very much required to put our companies on the international stock market and contribute to the economic growth of our country.

Here are some factors which make the code of corporate governance justified:

(i) Big bunch of Shareholders:

Any company has a huge number of shareholders has a set of shareholders who keep an indifferent attitude towards the actions of the company. Most of them are unmanaged and disorganized. Therefore, equality for all the shareholders is defined by implementing a code of conduct for all of them. Then this code must lie under the law and is governed by the code of conduct of corporate governance.

(ii) Changing Structures of Ownership:

In Current scenario the mutual funds and institutional investors are becoming the most important shareholders in the private sector. Therefore, they are a major challenge in the investment game and a code of corporate governance is required to make them abide by some laws to construct an image in the society.

(iii) Scams and Scandals:

Huge corporate scams have shuddered the image of corporate management in the eyes of society. In addition, the Harshad Mehta scandal is one big scandal which despite being connected to stakeholders and well-educated shook people’s belief. Therefore, reviving the confidence of the investors must be done by a strong code of corporate governance.

(iv) Globalization:

The desire to get listed out in the International stock market has taken many Indian companies to focus and incorporate the corporate governance in their management system. Although the international stock market only recognizes only those companies which are functioning as per the standard codes of corporate governance.

Code of the corporate governance

SEBI Code of Corporate Governance:

Under the chairmanship of Kumar Mangalam Birla, SEBI (Securities and Exchange Board of India) has constructed a committee to promote good corporate governance for India. Accordingly, SEBI has issued guidelines which need to be incorporated in the agreements signed between the Indian companies or businesses and the stock exchange.

Principles of Corporate Governance

1. Accountability:

It is the liability of any organization to explain one’s actions before taking any decision for the interest of others is the called Accountability. In perspective of Board of Directors, Chairman or executives the resources of the company must be used for better the company and in benefit of the investors.

2. Transparency:

Transparency keeps the quality of anything and basically helps in revealing the truth of the work or process. In the context of corporate governance, role of any company can be trustable if they work transparently. This means timely disclosing the information, results, savings, plans, bigger investments, mergers, closures, profits and losses to their employees, investors and to the society.

Accordingly, keeping transparency is the prime importance of any company and when it involves money from international markets, global investors and high responsibility then confiding the deals, plans etc. to the public is important. The company must publish important and relevant information on websites, magazines, newspapers etc. on monthly, quarterly or an annual basis.

3. Independence:

A good corporate governance can function when the management is given full freedom to make wise decisions. The Board of Directors must be a set of non-biased people who work independently. They must be given the power to take all corporate decisions for the benefit of the company and the stakeholders.

Right corporate governance policies:

Here are Some Exemplary Corporate governance examples. Thus, must be followed to set up an unbiased and transparent management in the company.

The top essential examples of corporate governance are:

  • Construct a strong and well-qualified board of directors
  • Define some roles and responsibilities of authorities
  • Give emphasis to Honesty and ethics
  • Involve in Effective risk management
  • Evaluate performance and make compensation decisions
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