Contents • Meaning • Why corporate governance ? • Impact of corporate governance • Problems • Challenges • Solutions Meaning • 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. • An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. Why Corporate Governance?
a) The liberalization and de-regulation world over
gave greater freedom in management. This would imply greater responsibilities. b) The players in the field are many. Competition brings in its wake weakness in standards of reporting and accountability. c) Market conditions are increasingly becoming complex in the light of global developments like WTO, removal of barriers/reduction in duties. d) The failure of corporates due to lack of transparency and disclosures and instances of falsification of accounts/embezzlement and the effect of such undesirable practices in other companies. Impact of Corporate Governance The positive effect of corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio- economic development. Problems • Structures are laid over corporate business but are failed to organize business. • No one consistent way to report all that is produced in the business and all costs incurred. • No consistent manner to relate performance costs incurred to the value of results produced. • Accounting accounts for only part of the business cycle and against the wrong entities. • Actual business is not governed by the rules and regulations. Challenges • Failure by the board of directors to understand the risks their firm is taking. • Weak or non-existent internal controls, or controls which appear to be adequate on paper, but which were not implemented in practice. • Different and insufficient monitoring regimes by shareholders. • A lack of commitment and leadership change at political, regulatory and board, and executive levels. • Not appointing suitably qualified or independent thinking directors with relevant business skills. Solutions • Rethink approach to corporate governance. • Address the problem from the corporate side to enable those responsible to understand the substance of what is happening in the corporation. • Give managers, boards, and committees the tools to govern the actual corporate business. Sources • VIGNAN DHARA (our college library). • Various internet sources. • Business and Corporate Law issued by ICAI.