Corporate Governance and Stewardship
The first decode of the new millennium has already witnessed some extraordinary upheavals in
Corporate Governance such as the failures or serious financial distress of corporation like Euron
worldcom, peramalot, lehman brothers AIG and others.
In 1990s a number of company failures are due to non-performance and non-compliance with
legal requirements. A scan of severe magnitude rocked the India stock markets in 1992-93. The
much admired IT major say computers shook the country with what is probably the largest
corporate fraud in India. The Governance mechanism itself becomes the subject of critical
security and evaluation.
Need of Corporate Governance to a country
A corporate is a congregation of various stakeholders namely customers, employees investors
vendor partners, government and society. A Corporate should be fair & transparent, to its
stakeholders in all its transactions. Corporate Governance is about ethical conduct in business,
ethics is concerned with the code of conduct, values & principles that enable a person o choose
between right and wrong, select from alternative courses of action in decision making process.
Corporate Governance cannot be regulated by law alone. It stems from the culture and mindset
of management it is about openness, integrity and accountability legislation can only lays down
standard but substance is linked to the mindset and ethical standard of management.
Another important reason for ensuring good Corporate Governance is the inevitability of
involvement of other people, monies in financing their operations. When such large proportions
of money are infused into the corporate sector by people a great deal of trust and public
confidence is automatically brought into play. The absence of this confidence on the part of
corporate body can lead to disastrous consequences eventual failure of banking function,
financial institutions and capital markets.
Corporate need to recognize that their growth requires the cooperation of all the stakeholders.
Such cooperation must be based on best Corporate Governance practices.
Corporate Governance is a key element in improving the economic efficiency of a corporate.
Good Corporate Governance ensures that corporate take into account the interests of a wide
range of constituencies as well as the communities within which they operate. Broadly speaking,
corporate operate for the benefit of society as a whole.
Good Corporate Governance in a nation is justified by large corporate failures and its impact on
the economy as a whole. The failure to implement good Corporate Governance can have a heavy
cost beyond regulatory problems; evidence suggests that companies that do not employ
meaningful governance procedures can pay a significant risk premium when competing for
scarce capital in the public market.
Research suggests that overseas investor’s stay away from poorly governed companies in
countries in with relatively weak shareholders protection and related legal institutions. Similarly
the countries with weak laws or their poor implementation refrains overseas investors to invest.
Likewise domestic investors may prefer to invest overseas in countries where Corporate
Governance standards and the legal protection framework are perceived as more favorable.
The credibility offered by good Corporate Governance procedures helps maintain the confidence
of investors – both foreign and domestic to attract more long term capital and will reduce the
cost of capital.
Increased attention on Corporate Governance is the result of financial crisis. For instance the
Asian financial crisis brought the subject of Corporate Governance to the surface in Asia.
Further recent scandals of American companies Enron world com & others distributed the
corporate world and spawned a new set of initiatives in Corporate Governance.
Corporate Governance is a concept rather than an individual instrument. It includes the rules
relating to the power relations between owners, the board of directors, management and last but
least, the stakeholders.
Corporate Governance integrates all the participants involved in a process which is economic
and as the same time social.