Corporate Governance Challenges

Topics: Corporate governance, Corporation, Governance Pages: 9 (2261 words) Published: June 25, 2013
By: Abhay Tulsian (Student Registration No: SRO 0350545) Audit Executive P. N. Raghavendra Rao & Co., Coimbatore Phone: 7305802475 Email:

The paper is an earnest effort to uncover the issue of Challenges in Corporate Governance and recommendation to overcome the challenges there off, its legal framework, its current status and how accounting may be practiced to protect corporate from corruption by establishing governance. With recent high-profile corporate governance failures in developed countries have brought the subject to media attention, the issue has always been central to finance and economics. Recent research has established that financial development is largely dependent on investor protection in a country – de jure and de facto. Good corporate governance (GCG) is a mandatory requirement in today‘s corporate world. The objective of any corporate governance system is to simultaneously improve corporate performance and accountability as a means of attracting financial and human resources on the best possible terms and of preventing corporate failure. In short Corporate Governance is about promoting corporate fairness, transparency and accountability. Failure of giant corporate groups in last two-three decade strengthens the demand further. India has one of the best corporate governance laws but poor implementation together with socialistic policies of the pre-reform era has affected corporate governance.

Keywords: Corporate governance, Compliance, Challenges, Corporations, Stakeholders, Investors. Corporate Governance Challenges _ Page 1 of 13

Corporate Governance in its most simplified iteration refers to the manner in which corporate bodies are managed and operated. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporates and specifies the rules and procedures for making decisions in corporate affairs. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. “Trusteeship obligations inherent in company operations, where assets and resources are pooled and entrusted to the managers for optimal utilization in the stakeholders’ interests.” – Gandhian Definition

Corporate Governance Challenges _ Page 2 of 13


The principles advocated in Corporate Governance codes are essentially non-binding. It is a moral responsibility of the Corporate to run business in ethical manner keeping the interest of stakeholders unaffected.

The principles of corporate governance cover the following areas:

The rights of shareholders, Interest of other stakeholders, The equitable treatment of stakeholders, Ethical Behaviour and Integrity, Disclosure and transparency, Roles and Responsibilities of the Board.

All persons in a position to influence a corporate body should endeavour to encourage compliance with corporate governance practices. Ensuring proper corporate governance practices is collective responsibility cast upon all persons involved in the operations of a corporate body.

Corporate Governance Challenges _ Page 3 of 13

A. THE BOARD OF DIRECTORS The board is required to fulfil certain key functions with regards to Corporate Governance:

Setting Corporate Strategy, overall mission & vision

Hiring & Firing the CEO and Top Management

Caring for Shareholders Interests

Curtailing the misuse of corporate assets

Ensuring the credibility of the independent audit

B. INDEPENDENCE FROM MANAGEMENT In order for boards to effectively fulfil their responsibilities they must have some degree of independence from management. Board...
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