corporate governance

Topics: Corporate governance, Board of directors, Governance Pages: 8 (2409 words) Published: February 17, 2014
CORPORATE GOVERNANCE

Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of interests among the stakeholders. PRINCIPLES OF CORPORATE GOVERNANCE

Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002).

RIGHTS AND EQUITABLE TREATMENT OF SHAREHOLDERS: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. INTERESTS OF OTHER STAKEHOLDERS: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. ROLE AND RESPONSIBILITIES OF THE BOARD: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment. INTEGRITY AND ETHICAL BEHAVIOUR: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. DISCLOSURE AND TRANSPARENCY: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. CORPORATE GOVERNANCE IN INDIA

Although India has been rather slow in establishing corporate governance principles over the last two decades, 2012 was a positive year for progression in the Indian corporate governance arena. The Companies Bill 2012, passed by Lok Sabha on 18 December 2012, includes a number of new provisions aimed at improving the governance of public companies. Interestingly, despite the structure of Indian businesses differing significantly from those in the UK, the foundations of the new Indian corporate governance model are drawn from the Anglo-Saxon governance model. The investor base in the Indian corporate market, for instance, largely consists of the company founders, their respective family members and the government. In contrast, shareholders in UK companies are less concentrated towards a certain group of people, are geographically dispersed and largely held by professional investors. However, despite significant differences in the corporate structure in the two markets, the corporate governance proposals recently published in India are similar to those adopted in the UK. The Indian market regulator, the Securities and Exchange Board of India (SEBI), recently issued a consultative paper on the "Review of Corporate Governance" encouraging a wider debate on governance. The paper calls for, inter alia, the splitting of the roles of chairman and chief executive, disclosure of the reasons for an independent director's resignation from office, a limit on...
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