PILLARS OF CORPORATE GOVERNANVCE

1. Fairness
• Fairness -Fairness refers to equal treatment, for example, all shareholders
should receive equal consideration for whatever shareholdings they hold.
• Fairness in shareholder rights should extend to include all minority and foreign
shareholders. Fairness requires corporations to provide an opportunity for
shareholders to vocalize their grievances and address any issues concerning a
violation of shareholder rights.
• Shareholders have the right to accurate and timely financial information and
information about those serving on the board of directors.
• In addition to shareholders, there should also be fairness in the treatment of all
stakeholders including employees, communities and public officials.
• The fairer the entity appears to stakeholders, the more likely it is that it can
survive the pressure of interested parties
2. Transparency
• Transparency, one of the key pillars of good governance, simply means not concealing or having
nothing to hide. An entity is said to be transparent when all relevant information and detail is
usually presented to the people who need it.
• Transparency means openness, a willingness by the company to provide clear information to
shareholders and other stakeholders. For example, transparency refers to the openness and
willingness to disclose financial performance figures which are truthful and accurate.
• Transparency in corporate governance is highly critical as it ensures an external party or examiner
can check and verify the organization’s actions and dealings at any given time. This not only helps to
detect and prevent the dangers of fraud and mismanagement but also bolsters the brand image and
reputation.
• For example, a company should disclose all the necessary information to its shareholders, board
directors, auditors, and the general public. Such information may include the financial position and
statement of the company, minutes and outcomes of board meetings, changes to normal
operations, and resignations and replacement of key managerial staff and board members.
• Eventually, when shareholders, creditors, and other stakeholders can see that a company has
transparency, they are more willing to invest in it, hence accelerating its growth and success.
2. Transparency (Contd.)
• There are two vitally important reasons for corporate boards to practice transparency as part of
good corporate governance. First, transparency holds board directors and managers accountable for
their decisions and mistakes. It prevents them from knowingly or willingly participating in fraud.
Second, transparency provides a platform where shareholders can build trust with a company and
make better decisions, which will result in a better return on their investment.
• Good investments ultimately improve the overall economy because it attracts domestic investors
and foreign capital inflows. These are the forerunners of positive long-term investment strategies
and sustained growth.
• Just as transparency promotes good corporate principles, the lack of transparency leads to scandals
and fraud. Hidden financial reports hamper a corporation's functionality and eventually adversely
affect the stock market. We've seen this happen in many major companies, such as Enron,
WorldCom, PNB Bank, Harshad Mehta Scam and many more.
3. Accountability
Accountability - Corporate accountability refers to the obligation and responsibility to give an explanation
or reason for the company’s actions and conduct.
Generally, accountability means the willingness and readiness to take the blame or shoulder the
ramifications of your actions.
This pillar ensures the governing body (usually the board of directors) is accountable to shareholders as
well as external stakeholders like the government.
• When accountability is practiced throughout the company, everyone from the top brass to the
employees will take due care since they’re responsible for their actions. In other words, the
company will own up to its actions whether the results are good or bad.
• As one of the major pillars of good governance, accountability aims to ensure that no one in the
company, including the managers, can use the company’s resources for personal gain or to their
own benefit, but instead, for the benefit of the company and its stakeholders. When shareholders
and other stakeholders know that someone will be held liable or accountable for any mishaps, it
increases their confidence and desire to invest in your company.
4. Responsibility
• Responsibility - The Board of Directors are given authority to act on behalf of the company. The
Board of Directors are responsible for overseeing the management of the business, affairs of the
company, appointing the chief executive and monitoring the performance of the company. In doing
so, it is required to act in the best interests of the company.
• Accountability goes hand in hand with responsibility. The Board of Directors should be made
accountable to the shareholders for the way in which the company has carried out its
responsibilities.
• There are certain duties that are cast on the directors of a company which impose responsibility on
the directors. Any contravention of such responsibilities would lead to the penalization of the
directors involved. Section 166 of the Companies Act, 2013 prescribes the duties of a director as-
1. To act as per the Articles of Association of the company;
2. To act in good faith;
3. To work for the benefit of the company;
4. To not make any undue gains or benefits;
• Furthermore, there are certain provisions under the Companies Act, 2013 which impose the
personal liability of a director, especially in cases of fraud under Section 447.
Security (Another Pillar of CG)
• One of the reasons why corporate governance is important in a company is to protect against risks,
whether internal or external. Think of how much confidential data there is at the hands of those
who run the company, especially the leadership. While a company may have transparency and
accountability in its operations, there is no compromise in maintaining high-security standards.
• From corporate data to trade secrets and clients’ information, every company should look into
protecting its essentials from the menace of security breach. Without standard measures for
security, you risk security breaches, which have serious repercussions. For instance, if a third party
hacks a client’s information, it will not only affect your stock market performance, but you will also
lose the public/shareholder trust.
• Develop stringent security measures and standards that everyone in the organization must observe.
Also, make sure there is no unauthorized access to the company’s processes and activities, such as
board meetings. Ensure your systems are also not vulnerable.