Monday, 20 June 2022

Corporate Governance


Corporate Governance is the art of directing and controlling the organization by balancing the needs of the various stakeholders. This often involves resolving conflicts of interest between the various stakeholders and ensuring that the organization is managed well meaning that the processes, procedures and policies are implemented according to the principles of transparency and accountability. One of the main principles of Corporate Governance is Accountability. There is no established method or procedure to ascertain the accountability. But, the accountability of a company means the credibility of a company. Accountability refers to a situation where an individual or company is responsible for the outcomes of a particular activity. Accountability on checks and balances guarantees the integrity of capital market investment activities. Agencies with structured accountability can realize legitimacy and a high level of governance, as well as better financial positioning.

Broad consensus exists in the company law oriented literature about good corporate governance. In order to present a comprehensive analysis on good governance, the author has attempted to synthesize findings from various articles, journals, scams and research articles.

The purpose of this project is to present a systematic review of the available evidence-based literature concerning good corporate governance. This project deals with the importance of corporate governance for a company, its principles most importantly the principle of accountability, legislations relating to corporate governance, the need for regulations on corporate governance and various cases where corporate governance has failed, etc.

It is hoped that this project will inform the students, researchers and all its readers about the good corporate governance and its principle of accountability, which are essential for the proper functioning of a company.

All committees on corporate governance constituted in India had the same restricted meaning of triangular relational as the corporate governance. Shareholders, directors and management were the three players in the corporate governance to govern the affairs within legal and ethical standards. The first committee on corporate governance in India was Kumar Mangalam Committee. Most of the committees however defined ‘corporate governance’ having its essential parts as follows: (i) distribution of power so that management would be separated out of governance factors/Responsibility, (ii) accountability of the management, (iii) transparency in all actions.

The concept of corporate governance was widely discussed due to the emergence and the appointment of the Sachhar Committee in 1978. This committee emphasized upon adequate disclosure requirements on the part of companies. The committee emphasized so because it felt that openness in corporate affairs is of prime significance in order to secure responsible behavior.

This committee advised that each and every company should prepare a social report along with the director's report. The committee recommended that these reports must be prepared with the object of stipulating and quantifying different activities pertaining to the social responsibility of the company which was carried out in the previous year. The Companies Act, 2013 incorporates a number of provisions in order to promote adequate corporate governance.

A pivotal part of Corporate Governance is the need to impose governance regulations through stock exchanges, supervisory authorities etc. Now, there are a few reasons as to why such regulations need to be imposed. Legally mandated rules are required to check excessive interference. Over-regulation of corporate bodies may lead to disruption of the functioning of such organizations and it will run counter to the principle of corporate governance. Another pertinent reason is that the owner and founder of the company may invoke inefficient rules owing to his inability to address the issues of the shareholders of the company. Such a situation calls for mandatory rules. In the absence of the aforementioned regulations, the stakeholders in the company, be it the shareholders or the owners, will be at a peril to incur losses. The need for regulations to ensure better corporate governance was felt strongly in the wake of numerous corporate scandals all over the world. Scams like Enron and WorldCom eroded the shareholders’ trust in the entire corporate sector and affected the overall economy as well. India's markets are also weakly informative. Regulations will also check the management's attempts to alter rules to their own advantage which usually happens when the shareholding is dispersed widely in a company.

Corporate Governance by Velanati Jyothirmai @ Lex Cliq

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