Introduction to Corporate Governance: Corporate Governance ISSUES:
Governance, the root of the word Governance is from ‘gubernate’, which means to steer.
Corporate governance would mean to steer an organization in the desired direction. The
responsibility to steer lies with the board of directors/ governing board.
Corporate or a Corporation is derived from Latin term “corpus” which means a “body”.
Governance means administering the processes and systems placed for satisfying stakeholder
expectation.
When combined, Corporate Governance means a set of systems procedures, policies, and
practices, standards put in place by a corporate to ensure that relationship with various
stakeholders is maintained in transparent and honest manner.
Corporate Governance is concerned with the intrinsic nature, purpose, integrity and identity
of an organization with primary focus on the entity’s relevance, continuity and fiduciary
aspects.
What is corporate governance?
Corporate Governance is concerned with holding the balance between economic and social
goals and between individual and communal goals.
The corporate governance framework is there to encourage the efficient use of resources and
equally to require accountability for the stewardship of those resources.
Need for Corporate Governance:
The need for corporate governance is highlighted by the following factors:
(i) Wide Spread of Shareholders:
Today a company has a very large number of shareholders spread all over the nation and even the
world; and a majority of shareholders being unorganised and having an indifferent attitude towards
corporate affairs. The idea of shareholders’ democracy remains confined only to the law and the
Articles of Association; which requires a practical implementation through a code of conduct of
corporate governance.
(ii) Changing Ownership Structure:
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, The pattern of corporate ownership has changed considerably, in the present-day-times; with
institutional investors (foreign as well Indian) and mutual funds becoming largest shareholders in
large corporate private sector. These investors have become the greatest challenge to corporate
managements, forcing the latter to abide by some established code of corporate governance to build
up its image in society.
1. Growing Number of Scams
Misuse and misappropriation of public money are happening everywhere i.e stock market, banks,
financial institutions, companies, and government offices. In order to avoid these financial
irregularities, companies need to start using corporate governance.
2. Takeovers and Mergers
There are many takeovers and mergers are going on in the business world. The need of corporate
governance is to protect the interest of all the parties during takeovers and mergers.
3. Comply with SEBI Requirement
SEBI has made corporate governance compulsory for certain companies i.e for listed companies to
comply with its provisions. This SEBI requirement protects the interest of the investors and other
stakeholders. If any company doesn’t comply with SEBI rules, it can bring a high penalty.
(iv) Greater Expectations of Society of the Corporate Sector:
Society of today holds greater expectations of the corporate sector in terms of reasonable price,
better quality, pollution control, best utilisation of resources etc. To meet social expectations, there
is a need for a code of corporate governance, for the best management of company in economic and
social terms.
(vi) Huge Increase in Top Management Compensation:
It has been observed in both developing and developed economies that there has been a great
increase in the monetary payments (compensation) packages of top level corporate executives.
There is no justification for exorbitant payments to top ranking managers, out of corporate funds,
which are a property of shareholders and society.
This factor necessitates corporate governance to contain the ill-practices of top managements of
companies.
(vii) Globalisation:
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Governance, the root of the word Governance is from ‘gubernate’, which means to steer.
Corporate governance would mean to steer an organization in the desired direction. The
responsibility to steer lies with the board of directors/ governing board.
Corporate or a Corporation is derived from Latin term “corpus” which means a “body”.
Governance means administering the processes and systems placed for satisfying stakeholder
expectation.
When combined, Corporate Governance means a set of systems procedures, policies, and
practices, standards put in place by a corporate to ensure that relationship with various
stakeholders is maintained in transparent and honest manner.
Corporate Governance is concerned with the intrinsic nature, purpose, integrity and identity
of an organization with primary focus on the entity’s relevance, continuity and fiduciary
aspects.
What is corporate governance?
Corporate Governance is concerned with holding the balance between economic and social
goals and between individual and communal goals.
The corporate governance framework is there to encourage the efficient use of resources and
equally to require accountability for the stewardship of those resources.
Need for Corporate Governance:
The need for corporate governance is highlighted by the following factors:
(i) Wide Spread of Shareholders:
Today a company has a very large number of shareholders spread all over the nation and even the
world; and a majority of shareholders being unorganised and having an indifferent attitude towards
corporate affairs. The idea of shareholders’ democracy remains confined only to the law and the
Articles of Association; which requires a practical implementation through a code of conduct of
corporate governance.
(ii) Changing Ownership Structure:
Page 1 of 9
, The pattern of corporate ownership has changed considerably, in the present-day-times; with
institutional investors (foreign as well Indian) and mutual funds becoming largest shareholders in
large corporate private sector. These investors have become the greatest challenge to corporate
managements, forcing the latter to abide by some established code of corporate governance to build
up its image in society.
1. Growing Number of Scams
Misuse and misappropriation of public money are happening everywhere i.e stock market, banks,
financial institutions, companies, and government offices. In order to avoid these financial
irregularities, companies need to start using corporate governance.
2. Takeovers and Mergers
There are many takeovers and mergers are going on in the business world. The need of corporate
governance is to protect the interest of all the parties during takeovers and mergers.
3. Comply with SEBI Requirement
SEBI has made corporate governance compulsory for certain companies i.e for listed companies to
comply with its provisions. This SEBI requirement protects the interest of the investors and other
stakeholders. If any company doesn’t comply with SEBI rules, it can bring a high penalty.
(iv) Greater Expectations of Society of the Corporate Sector:
Society of today holds greater expectations of the corporate sector in terms of reasonable price,
better quality, pollution control, best utilisation of resources etc. To meet social expectations, there
is a need for a code of corporate governance, for the best management of company in economic and
social terms.
(vi) Huge Increase in Top Management Compensation:
It has been observed in both developing and developed economies that there has been a great
increase in the monetary payments (compensation) packages of top level corporate executives.
There is no justification for exorbitant payments to top ranking managers, out of corporate funds,
which are a property of shareholders and society.
This factor necessitates corporate governance to contain the ill-practices of top managements of
companies.
(vii) Globalisation:
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