CORPORATE GOVERNANCE

By:-
D. Santhosh Reddy
L. Megha Shyam

VIGNAN INSTITUTE OF TECHNOLOGY & SCIENCE

 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.