Corporate Governance

Corporate Governance refers to the way a corporation is governed. It is the technique by

which companies are directed and managed. It means carrying the business as per the
stakeholders’ desires. It is actually conducted by the board of Directors and the concerned
committees for the company’s stakeholder’s benefit. It is all about balancing individual
and societal goals, as well as, economic and social goals.

Corporate Governance is the interaction between various participants (shareholders,

board of directors, and company’s management) in shaping corporation’s performance
and the way it is proceeding towards. The relationship between the owners and the
managers in an organization must be healthy and there should be no conflict between the
two. The owners must see that individual’s actual performance is according to the
standard performance. These dimensions of corporate governance should not be
overlooked.

Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding
authority. In modern corporations, the functions/ tasks of owners and managers should be
clearly defined, rather harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions.
It gives ultimate authority and complete responsibility to the Board of Directors. In
today’s market- oriented economy, the need for corporate governance arises. Also,
efficiency as well as globalization are significant factors urging corporate governance.
Corporate Governance is essential to develop added value to the stakeholders.

Corporate Governance ensures transparency which ensures strong and balanced

economic development. This also ensures that the interests of all shareholders (majority
as well as minority shareholders) are safeguarded. It ensures that all shareholders fully
exercise their rights and that the organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.
Benefits of Corporate Governance

Good corporate governance ensures corporate success and economic growth.

Strong corporate governance maintains investors’ confidence, as a result of which,
company can raise capital efficiently and effectively.
It lowers the capital cost.
There is a positive impact on the share price.
It provides proper inducement to the owners as well as managers to achieve objectives
that are in interests of the shareholders and the organization.
Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
 It helps in brand formation and development.
It ensures organization in managed in a manner that fits the best interests of all.

Corporate Governance Guidelines are laid down by the Ministry of Corporate

Affairs, Government of India. The guidelines are as follows:

Board of Directors

The responsibility of the board of directors is great as it is the highest authority of any
company between shareholders´ meetings. The main role of the board according to law
and the nature of its mission can be summed up in the following way:

• The board is responsible for promoting the success of the company by

directing and supervising the company’s affairs and manager(s).
• The board and the manager(s) are responsible for setting the company’s values and
standards, as well as short and long term objectives.
• The board is responsible for ensuring that the company’s obligations to all its
shareholders are understood and met. The members of the board may not look
specifically after the interests of the shareholders that voted for them as
directors.

Duties

In order to be able to fulfill the duties of a director any individual chosen to sit on a board
should have the relevant and necessary knowledge and experience in relation to the
requirements of the company and have the possibility of devoting sufficient time to the
work. It is important that every director is fully aware of all the duties and responsibilities
his membership on the board entails.
Successful board work requires knowledge of the operations of the company. The prime
requisite for a board’s effective work is that its members complement each others
knowledge, experience, qualifications and skills. Every director must have the time
required to attend to his duties for the company.
Each director should:

• Be familiar with the relevant laws and regulations pertaining to the company’s
operations.
• Be familiar with the company’s goals, basic values and strategies, as well as
understanding how best to conduct his/her work to help reach these goals.
• Fully understand the function of the board and have good judgment and
intuition.
• Make independent decisions in each instance.
• Ensure that internal control is functioning satisfactorily and that the board
receives reliable, timely and accurate information necessary for the performing
of its supervisory work, and that all decisions by the board are adhered to.
• Make certain that all Acts of law, rules and regulations are followed to the
 letter at all times.
• Endeavour to inspire good and positive morale amongst the staff.

Working rules

The board of directors shall adopt written working rules where the role, procedures
and working methods of the board are defined.

These working rules need to deal with how the work of the board is divided between
directors and how responsibilities are divided between the directors, the chairman and the
managing director. The information contained in the board’s working rules will enable
shareholders to evaluate operations of the board.

The working rules of the board should include the following factors:
• Division of responsibilities between the members of the board.
• Division of responsibilities between the board and its chairman.
• Division of responsibilities between the chairman and the managing director.
• Sub-committees of the board.
• The calling of meetings, their frequency, attendees and form.
• Information submitted to the board.
• Minutes of meetings.
• Decisions and voting.
• Non-disclosure and confidentiality.
• Disqualification.
• Connections to other rules of the company.

Information submitted to the board

In order for the directors to be able to discharge their supervisory duties it is important
that they revive relevant information on a regular basis from the managing director. It is
necessary to specify how and in which form this information is to be submitted.
In order to discharge their duties the directors need information on financial matters and
development and operations of the company on a regular basis. Furthermore a newly
elected director needs to be comprehensively and formally introduced to the structure of
the company and its operations.
Information submitted to the board by the managing director needs to be submitted in
time, in a form, of a relevance and of a quality that helps the board discharge its duties in
a satisfactory way.

Evaluation of performance

It is desirable that the board evaluates regularly its performance, practices,

procedures and working methods, as well as the development of the company,
with the assistance of outside specialists, if deemed desirable by the board.
Such evaluation entails amongst other that the board takes a realistic look at its strengths
and weaknesses in discharging its duties and identifies how its working procedures might
be bettered.