Write a note on Corporate Governance

Meaning

Corporate Governance can be defined as a set of systems and processes which ensures that a company is managed in the best interest of all its stakeholders. When one talks of Stakeholders, it does not essentially mean a shareholder. A company typically has five stakeholders, namely, the employees, the shareholders, the customers, the creditors and the community. The Other actors who also play an important role in Corporate Governance are the CEO and the Board of Directors.

Business author Gabrielle O’Donovan defines Corporate Governance as “an internal system encompassing policies, processes, and people, which serve the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a health board culture which safeguards policies and processes”.

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 company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution.

Corporate Governance is viewed as business ethics and a moral duty. There has been renewed interest in the corporate governance practices of modem corporations since 2001, particularly due to the high profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002 the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance. After that, it is being largely adopted by companies across the globe as a differentiating strategy and to show its commitment to its social responsibilities.

According OECD definition “Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specified 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 is done”.

Scope of Corporate Governance

The scope of corporate governance extends:

1. To enhance the long term value and economic efficiency of the company. It encompasses all shareholders and integrates all the participants involved in the process.
2. To elevate the reputation of the corporation and the esteem of its management.
3. To attract the reputation of the corporation and the esteem of its management.
4. To attract, employ and retain talent and motivate employees to give their best.
5. A more open and participative style of management ensures free exchange of ideas and frank appreciation at all levels.
6. To create and adopt code of conduct with wholehearted commitment and improve the moral and ethical standards of performance to the utmost level.
7. To have a right balance, knowledge and compete to set strategies and lead the organization.
8. To use the resources entrusted to the management, in the most economic, efficient, productive and effective ways, for the benefit of shareholders as well as for the society at large.
9. To set the high standards of  business ethics based upon humanity, honesty and handwork.
10. To improve the standards of living and life of the society, industry, commerce and professional services.
11. To increase the market confidence of the firm.