Corporate governance involves a set of relationships amongst the company’s management, its board of directors, its shareholders, its auditors and other stakeholders. These relationships, which involve various rules and incentives, provide the structure through which the objectives of the company are set, and the means of attaining these objectives as well as monitoring performance are determined. Thus, the key aspects of good corporate governance include transparency of corporate structures and operations; the accountability of managers and the boards to shareholders; and corporate responsibility towards stakeholders. The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labor (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. In a broader sense, however, good corporate governance- the extents to which companies are run in an open and honest manner- is important for overall market confidence, the efficiency of capital allocation, the growth and development of countries’ industrial bases, and ultimately the nations’ overall wealth and welfare. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs. Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.
Issues involving corporate governance principles include:
* Internal controls and internal auditors
* The independence of the entity's external auditors and the quality of their audits * Oversight of the preparation of the entity's financial statements * Review of the compensation arrangements for the chief executive officer and other senior executives The need for corporate governance is not something typical to our country or economy. Even in the countries where regulatory mechanisms are more demanding in their content and more vigilant in their implementation, flagrant violations under the veil of corporate impenetrability have generated a strident demand for better governance. The advent of the information age has created an awakened shareholder, vigilant public and an almost predatory journalistic fervor. Depending upon the model of corporate disclosure followed by different legal frameworks, the right to information has forced corporate to divulge more than they ever did. The following definition should help us to understand the concept better: “Corporate Governance is not just corporate management; it is something much broader to include a fair efficient and transparent administration to meet certain well defined objectives. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors employees customers and suppliers, and comply with the legal and regulatory requirements, apart from meeting environmental and local community needs. When it is practiced under a well laid out system, it leads to building of a legal, commercial and institutional framework and democrats the boundaries within which these functions are performed.
DEFINITION OF CORPORATE GOVERNANCE
There is no universal definition of Corporate...