Professional Documents
Culture Documents
ISSN – 163
Year: February 2009 Volume 3, Issue 1/4
Abstract: While corporate governance may not state the economic prospects of developing countries, it
certainly takes part in shaping them. Good corporate governance is vital because of its role in attracting investors to
invest both in the domestic and in the international capital markets.
Investors primarily consider two variables before making investment decisions in the companies – the rate of return
on invested capital and the risk associated with the investment. Good corporate governance practices reduce this risk
by ensuring transparency, accountability, and enforceability in the capital marketplace. As a result, the investors
expect the Board and the Management in the companies to act in their best interests at all times so as to earn a risk
adjusted rate of return that is higher than the cost of capital.
Practices that the Board of Directors of a listed entity follows to fulfill the expectations of all stakeholders (i. e.
Shareholders, employees, creditors, customers, government, regulatory authorities and society at large) is called
corporate governance practices. While sound corporate governance practices ensure a company’s long-term success,
weak practices often lead to serious problems.
Key Words: Corporate, Good, Governance, Board, Management, Director, Stakeholder, Practices, Framework
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CONSTITUENTS OF CORPORATE GOVERNANCE
(17) The three key constituents of corporate governance are the Board of Directors or Board, the
Shareholders and the Management. These can further be detailed as:
To highlight the frauds and irregularities in (44) Good corporate governance may not
the corporate sector (41) the issues of be the engine of economic growth, but it is
governance, accountability and essential for the proper functioning of the
transparency in the affairs of the company, engine. (45) The investors both National
as well as about the rights of shareholders and International would be loyal to invest
and role of Board of Directors have never in the Indian companies if they follow all
been as prominent as it is today. With the the standards of corporate governance
integration of Indian economy with global practices. (46) Further, to nurture and
markets, industrialists and corporations in strengthen this loyalty, our companies need
the country are being increasingly asked to to give clear-cut signal that the words “your
adopt better and transparent corporate company” have real meaning. That requires
practices. The degree to which corporations well functioning Board, greater disclosure,
observe basic principles of good corporate better management practices, and a more
governance is an increasingly important open, interactive and dynamic corporate
factor for taking key investment decisions. governance environment. Quite simply,
If companies are to reap the full benefits of share holders’ and creditors’ support are
the global capital market, capture efficiency vital for the survival, growth and
gains, benefit by economies of scale and competitiveness of India’s companies.
attract long term capital, adoption of
corporate governance standards must be (47) Effectiveness of corporate governance
credible, consistent, coherent and inspiring. system cannot merely be legislated by law
neither can any system of corporate
(42) Hence, in the years to come, corporate governance be static. As competition
governance will become more relevant and a increases, the environment in which
more acceptable practice worldwide. This is companies operate also changes and in such
easily evident from the various activities a dynamic environment the systems of
undertaken by many companies in framing corporate governance also need to evolve.
and enforcing codes of conduct and honest Failure to implement good governance
business practices; following more stringent procedures has a cost in terms of a
norms for financial and non-financial significant risk premium when competing
disclosures, as mandated by law; accepting for scarce capital in today's public markets.
higher and appropriate accounting standards; Thus, the essence of corporate governance
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is in promoting and maintaining integrity, the effectiveness and the utility of good
transparency and accountability in the corporate governance practices rest on its
management of the company as well as in enforceability. Ultimately, good corporate
manifestation of the values, principles and governance practices in India will be
policies of a corporation. In order to make shaped by our administrative and regulatory
an honest and objective assessment on authorities like SEBI, MCA, etc. by
corporate governance practices we do need implementing transparent and effective
more laws but better enforcement because corporate governance laws.
Annexure
FRAMEWORK OF CORPORATE GOVERNANCE
Corporate Governance Framework
Bibliography
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• Bhat & Varun, publication of Iowa Law Review, University of Iowa dated 1st May,
2007.
• Desirable Code for Corporate Governance recommended by the Confederation of
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• Press Release published on IndiaPRwire.com by IndiaPRwire Pvt. Ltd. dtd. 19-01-09.
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capitalization and corporate Governance’, www.oup.com
• OECD: ORGANISATION FOR ECONOMIC CO-OPERATION AND
DEVELOPMENT, WHITE PAPER ON CORPORATE GOVERNANCE IN ASIA 5
(2003), http://www.oecd.org/dataoecd
• Ravi M. Kishore, Taxmann’s Advanced Accounting, 2nd edition 2007.
• FAQs on corporate governance, National Stock Exchange of India Ltd.,
www.nseindia.com
• India_Murthy CTee_Febo3, Report of the SEBI Committee on Corporate
Governance, Feb 08, 2008
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