Factors influencing corporate governance

1. The ownership structure  The term-lending institutions  Institutional investors, comprising government-owned mutual funds, Unit Trust of India and the government owned insurance corporations  Corporate bodies  Directors and their relatives and Foreign investors. Apart from these block holdings, there is a sizable equity holding by small investors 2. The structure of company boards  Establishment of corporate objectives  Broad policies  Selection of top-level executives

. The financial structure  Proportion between debt and equity 4. The institutional environment  For example.Cont’d 3. the extent to which creditors will be able to exercise financial claims on a bankrupt unit will depend on bankruptcy laws and procedures etc. the extent to which shareholders can control the management depends on their voting right as defined in the Company Law.

2) Securities law SEBI Act. (2) To elect directors who are responsible for specifying objectives and laying down policies. (3) Determine remuneration of directors and the CEO. their are six mechanisms to ensure corporate governance. 1. (4) Removal of directors and (5) Take active part in the annual general meetings.Mechanisms of corporate governance In our country. Companies Act the Act confers legal rights to shareholders to (1) Vote on every resolution placed before an annual general meeting. .

CONT’D 3. Discipline of the capital market Capital market itself has considerable impact on corporate governance. These are equally big debt holders too. They can refuse to subscribe to the capital of a company in the primary market and in the secondary market. These nominees can effectively block resolutions. Nominees on company boards Development banks hold large blocks of shares in companies. these investors have their nominees in the boards of companies. Being equity holders. they can sell their shares. thus depressing the share prices 4. Here in lies the role the minority shareholders can play effectively. which may be detrimental to their interests .

The auditing process ensures that financial statements are accurate and complete. .CONT’D 5. Statutory audit Auditing enhances the credibility of financial reports prepared by any enterprise. thereby enhancing their reliability and usefulness for making investment decisions 6. Codes of conduct The mechanisms are mandated by law and violation of any provision invite penal action.

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