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Corporate Governance-Business And Its Environment

   Posted On :  04.05.2018 03:13 am

Corporate failures and widespread dissatisfaction with the way many corporate functions have led to the global realization of the need of a proper system for corporate governance.

Corporate Governance


Corporate failures and widespread dissatisfaction with the way many corporate functions have led to the global realization of the need of a proper system for corporate governance.

Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.

The aim is to align as nearly as possible the interest of individuals, corporations, and society. The incentive to corporations and to those who own and manage them to adopt internationally accepted governance standards is that these standards will help them to achieve their corporate aims and to attract investment.

The incentive for their adoption by states is that these standards will strengthen the economy and discourage fraud and mismanagement.

Relevance



At least three reasons have trigger off concern in corporate governance in our country.

  • Since 1991, the country has moved into liberalized economy and one of the victims of the market-based economy is transparent fair business practice. Several instances of mismanagement have been alleged, with some well-known and senior executive being hauled up for non-performance and /or non-compliance with legal requirements.
  • Both domestic as well as foreign investors are becoming more demanding in their approach towards the companies in which they have invested their funds. They seek information and want to influence decisions.
  • Interests of non-promoter shareholder and those of small investors are increasingly being undermined. Several mncs have sought to set up 100 percent subsidiaries and transfer their businesses to them .In many cases, there was no thought of consultation with non-promoter shareholders.
  • In this context, some norms of behavior to ensure responsive behavior are of great help. Hence, corporate governance is relevant.


Focus



Corporate governance is concerned with the values, vision and visibility. It is about the value orientation of the organization, ethical norms for its performance, the direction of development and social accomplishment of the organization and the visibility of its performance and practices.

Corporate management is concerned with the efficiency of the resources used, value addition and wealth creation within the broad parameters of the corporate philosophy established by corporate governance.

Importance



  • Studies of firms in india and abroad have shown that markets and investors take notice of well-managed companies, respond positively to them, and reward such companies, with higher valuations. In other words they have a system of good corporate governance.
  • Strong corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection.
  • Corporate governance prevents insider trading.
  • Under corporate governance, corporates are expected to disseminate the material price sensitive information in a timely and proper manner and also ensures that till such information is made public, insiders abstain from transacting in the securities of the company.
  • The principle should be ‘disclose or desist’. Good corporate governance, besides protecting the interests of shareholders and all other stakeholders, contributes to the efficiency of a business enterprise, to the creation of wealth and to the country’s economy.
  • Good corporate governance is considered vital from medium and long- term perspectives to enable firms to compete internationally in a sustained way and make them, not only to improve standard of living materially but also to enhance social cohesion.

Pre-Requisites



A system of good corporate governance requires the following:

  • A proper system consisting of clearly defined and adequate structure of roles, authority and responsibility.

  • Vision, principles and norms, which indicate development path, normative considerations, and guidelines and norms for performance.

  • A proper system for guiding, monitoring, reporting and control.

  • The two issues - an organization’s social responsibility and responsiveness- ultimately depend on the ethical standards of managers.

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