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Corporate Governance

Unit - V
• Corporate Governance refers to the rules, guidelines ,
laws by which business is regulated and controlled.
• It includes internal factors comprising of stake
holders, constitution of corporation and also the
external factors such as governmental regulations ,
clients and consumer groups – all combined together
to increase the effectiveness of the corporate
• In the current context of globalization, it is very
important as it ensures the smooth functioning of the
corporate and also the long term interest of stake
holders and society as whole.
• It extends a well defined structure to be followed by
the enterprise and also the ethical standards and
practices which are the prerequisite for running of an
• An effective Corporate Governance regime includes
all provision for reprimanding and prosecuting the
individuals who are found involved in unethical
,illegal or criminal acts.
• It helps to improve the capital efficiency of
companies and also appropriate deployment of their
wealth and resources is ensured.
Meaning of Corporate Governance
• Corporate governance it is a process in which people
in power direct, control, monitor and lead
corporations to create , modify , change and even
destroy the systems ,structures and frame works under
which they operate.
• It in a way ensures the effectiveness and efficiency of
the Management and the Board of Directors in
discharging their functions and also maintaining the
stakeholders confidence.
• It is a means through which the distribution of rights ,
responsibilities and accountabilities of the various
participants of the corporation such as Manager ,
Board of Directors , Shareholders or stake holders are
Objectives of Corporate Governance
The following are the objectives of Corporate Governance
1.To align the corporate goals with the goals of the
society and stakeholders.
2. To enhance judicious functioning of the Corporate
and also to have a check and control on the
3. To achieve the corporate goals by investing in
profitable ventures.
4. To define and specify the roles of the board of
directors , managers and ensure good corporate
Need of Corporate Governance
Corporate governance is needed because of the
following reasons.
1.Seperation of ownership from Management
This ensures that mangers, who run the company work
in the best interest of the shareholders or the company
2.Global Capital
To gain the trust of global market players and ensure
the consistencies of the global capital flows in the
market Corporate Governance is required. It helps to
regulate the capital flow and even ensures high
standards of efficiency and transparency.
3. Investor Protection
The investors have become more educated and
vigilant about their rights and therefore Corporate
governance helps in protecting the investors interest.
4. Foreign Investments
To attract the global and foreign institutional
investors, companies are expected to adopt the
globally acceptable practices of Corporate
5.Financial Reporting and Accountability
Good corporate governance ensures a sound ,
transparent and a credible financial reporting system.
6. Banks and Financial Institutions
In order to make the Banks and Financial Institutions
readily finance the companies, a good Corporate
Governance is a must.
7. Globalization of Economy
The world has become flat and the local and national
companies are expected to adhere to the International
rules and global standards.