Objectives of corporate governance

The whole idea of corporate governance is better functioning of the corporations

and the companies for the betterment of society as a whole. Thus, few of the
objectives of corporate governance are:

1. A properly structured Board is capable of taking independent and

objective decisions and is in place at the helm of affairs.
2. The Board is balanced in terms of an adequate number of non-executive
and independent directors who will take care of the interests and well-
being of all the stakeholders.
3. The adoption of transparency procedures, practices which help in
arriving at decisions on the strength of adequate information.
4. Board has an effective machinery to subserve the concerns of the
stakeholders.
5. Through proper corporate governance, the shareholders are kept
properly informed of the relevant development which is impacting the
country.
6. Proper monitoring and functioning of the management team are also
being secured by corporate governance.
Therefore by the proper corporate governance, the board remains in effective
control of the affairs of corporate governance. Thus when the management,
accountability, and transparency improves it fulfills the investors’ expectations
and confidence in management and corporation, and in return increases the
valuation of the corporation.

What is the stakeholder theory of corporate governance?

The stakeholder theory of corporate governance focuses on the effect
of corporate activity on all identifiable stakeholders of the corporation.
This theory posits that corporate managers (officers and directors)
should take into consideration the interests of each stakeholder in its
governance process. This includes taking efforts to reduce or mitigate
the conflicts between stakeholder interests. It looks further than the
traditional members of the corporation (officers, directors, and
shareholders) and also focuses on the interests of any third party that
has some level of dependence upon the corporation. Stakeholders are
generally divided into internal and external stakeholders.
Internal Stakeholders – Are the corporate directors and employees,
who are actually involved in corporate governance process.
External Stakeholders – May include creditors, auditors, customers,
suppliers, government agencies, and the community at large.
These stakeholders exert influence but are not directly involved in the
process. Key to the stakeholder theory is the realization that all
stakeholders engage in some manner with the corporation with the
hope or expectation that the corporation will deliver the type of value
desired or expected. The benefits may include dividends, salary,
bonuses, additional orders, new jobs, tax revenue, etc.

Many stakeholders play an important role in corporate governance —

that is, the internal processes, practices, and rules used to control and
manage an organization. This includes the company strategy, planning,
values, ethics, risk management, compensation, and more.
But each stakeholder group has a distinct role to play, with different
interests and differing levels of impact and influence, which is
important to keep in mind when managing your stakeholders. So, let’s
take a look at stakeholder groups and their roles in corporate
governance.

1. The Board of Directors

Out of all the stakeholders, the Board of Directors holds the greatest
influence over corporate governance. The Chair leads the Board, and is
responsible for its overall management, agenda, effectiveness, and flow
of information. The CEO reports to the Chair and is accountable to the
Board, with all other members of the leadership team reporting to the
CEO.
A company’s Board of Directors’ main role is to ensure the company’s
long-term, sustainable success. They need to consider the impacts and
interests of all stakeholders while generating value for shareholders.
Boards typically meet regularly throughout the year (e.g. monthly or
quarterly) to review performance, establish/refine high level strategy,
purpose, culture, and values, establish governance frameworks, and
more.
Many larger organizations (like BP) will provide information on
corporate governance via their website, highlighting the roles,
governing laws/policies, reports, codes of ethics, and more.
2. CEO & Management

Corporate governance involves creating rules and controls for your

organization that help to guide your leadership team — while ensuring
stakeholder interests are in alignment.
This means that the role of the CEO and management team is to take
action based on the rules put in place by the Board when making
decisions and engage with other stakeholders as the organization’s
(and Board’s) key representative. They also consult with the Board on
any major decisions and report back to them.
3. Employees
Although most employee stakeholders may not have a direct say on
corporate governance issues, these stakeholders have an interest in
how the organization’s decisions might impact their salary, job security,
and work environment. Plus, employees are expected to carry out the
board and leadership team’s plans in line with their strategy, purpose,
culture, and values.
If employees aren’t happy with the direction of the company, it could
negatively impact their performance and they may start to look for
other jobs.
In order to attract and retain good employees, decision makers within
the company must understand and take into consideration the needs
and expectations of employees.

4. Shareholders

Primarily, good corporate governance should ensure that both minority and
majority shareholders are treated equitably and their rights safeguarded.
Shareholders should have the right to elect board members, request changes to
the company's internal documents, and approve any extraordinary transactions
that the company may need to undertake.13 Shareholder participation and
equitable treatment of all shareholders are two key elements of good corporate
governance and therefore shareholders must always be given full and timely
information on their right to approve or otherwise participate in decisions relating
to corporate changes or other actions undertaken within the company, including
for example changes to the memorandum and articles of association of a
company, increases in share capital, voting rights, and procedures during
shareholder meetings, nomination and election of members of the board of
directors and information as to their remuneration, transfer of company assets
and shares, profit distribution, and other extraordinary transactions that may take
place.

Additionally, shareholders should also be allowed to enquire and make proposals

with the board on certain aspects such as auditing, items to be placed on general
meeting agendas, resolutions, and other issues that may concern their
shareholder rights. Minority shareholders should also have a right to cooperate
with other shareholders to elect board members and propose items on the
agenda of board meetings. Naturally, such shareholder rights need to be
ascertained, subject to reasonable limitations for the smooth running of a
company. A company should maintain full transparency concerning arrangements
that allow certain shareholders to have control or influence that might be
disproportionate to their shareholding. To instil investor confidence, good
corporate governance practices should deter any abusive practices from board
members, corporate managers, or controlling shareholders, who try to use the
company to advance their interests. Timely redress, at reasonable costs, should
be ensured for shareholders to be able to seek remedial action when their rights
are infringed.

An important policy to be implemented for effective corporate governance is the

conflict of interest policy, addressing any conflict of interests that might arise
within a company and also determining how related-party transactions should be
monitored, regulated, and disclosed, and this to avoid and curtail any abusive
behaviour, insider trading, and market manipulation.

5. Vendors

Vendors sell goods and/or services to a business and rely on it for

revenue generation and on-going income. In many industries, suppliers
also have their health and safety on the line, as they may be directly
involved in the company’s operations.

6. Customers
Similar to employees, customers may not have a direct influence on
corporate governance, but because customers are the ones that pay
the bills, decision makers must consider how the strategy, actions, and
values of the company might impact customers. So, any decisions that
impact the reliability, safety, value, ethics, and quality of the products
or customer experience could lead to the company gaining or losing
customers, impacting the organization’s financial performance. As such,
it’s well worth regularly engaging and consulting with customers to
understand their interests and expectations, and manage the impacts
of any planned changes.
Suppliers and vendors sell goods and/or services to a business and rely
on it for revenue generation and on-going income. In many industries,
suppliers also have their health and safety on the line, as they may be
directly involved in the company’s operations.

CONCLUSION
Corporate Governance is useful for stake holders in knowing
about the disclosure level in corporate annual reports and to
academicians to know the current practices of corporate
governance followed by Indian companies. The study is also
useful for research scholars to build a proper disclosure model
which can be followed by the companies to fulfill the
corporate governance norm in India.
Corporate governance will be successful if everybody
contributes their share with responsibility as it represents the
value frame work, ethical frame work, and moral frame work
which forms the basis for business decisions.
Corporate governance has grown steadily over the years due to
public attraction and interest as public has realized the
importance for the economic health of corporation and society
in general and globalization of business due to the opening of
economies worldwide. The globalization of business is done to
enhance competitiveness for sustainable development in the
present environment of free and fair trade between countries
on the global platform.