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The Need for Corporate Governance

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Corporate Governance has been in place for ages and still in modern day corporate world
we see fiascos like Satyam taking place in modern India, which really raises doubt about
our financial and commercial ethics, and make us look bad in front of the world. For a
nonprofessional corporate governance is almost an alien concept but even they
understand something called corporate social responsibility (CSR) and they expect the
corporations to be honest and maintain very high level of integrity. Today large number
of retail investors are entering in stock market in order to search for better returns or
some even invest to earn their bread & butter or may be even for getting future security
and in this scenario a big IT and outsourcing player like Satyam gets involved in creative
accounting practices or in other words cooking their financial statements, which hurts
the financial position of millions of small time investors who not only loose their hard
earned money, savings but even their faith in corporate houses and their hope for better
future. I term this failure as failure of Corporate Social Responsibility and this happened
due to not following corporate governance code. We simply cannot over look the
importance of governance of the company and say that it is the governance of country
which is more important neither we can term failure of Satyam as failure of central or
state government failure the company is more responsible for this fiasco as they were
responsible for using public resources and they had the economic responsibility to
enhance economic wealth in addition to generate stockholder value, this quote puts the
situation more accurately 'The governance of companies is more important for world
economic growth than the government of countries.'
The discussion seemed to be only about stock market, investments and to revolve
around financial statements plus money and to a layman corporate governance may
seem as a measure only related to protect their money in addition to financial future but
it is not so The Corporate Governance is a wider concept and its coverage and scope
touches almost all working socio-economic facets of a business. I consider corporate
governance to be more of social relevance than economic aspects as well as it is a much
wider concept than realised so before we dwell into relevance of corporate governance
for modern day business houses especially for corporations let us try to understand what
exactly is the concept of social governance and how it is a tool to bring in socio-
economic discipline to corporate houses.
Introduction to the concept of Corporate Governance
The concept of corporate governance is poorly defined because it potentially covers a
large number of distinct economic phenomenons. As a result, different people have come
up with different definitions that reflect their special interest in the field. We will start
with widely accepted explanation and will try to develop one of comprehensive
explanation of the term. Internationally corporate governance is considered as an -
• International term for responsible corporate management and supervision
oriented toward creating long-term added value.
• "Corporate governance deals with the ways in which suppliers of finance to
corporations assure themselves of getting a return on their investment", The
Journal of Finance, Shleifer and Vishny.
• In simple terms, it includes the practices, principles and values that guide a
company and its business every day, at all levels of the organization, it is the
framework of rules, relationships, systems, and processes within and by which
authority is exercised and controlled in corporations. To be more precise it
involves series of principles and recommendations to be followed by the
management of listed companies.

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In this sense, it encompasses the mechanisms by which companies and those in control
are held to account. This highlights one fact that in wider sense corporate governance at
least covers set of relationships between a company's management, its board, its
shareholders and other stakeholders. Based upon this we can easily draw the reference
that it is a control measure that can result into overall economic growth and
development of an economy plus will generate social justice, if implemented and
executed correctly.
Corporate governance provides a firm foundation for the development of economies. A
good corporate governance mechanism improves the health of the corporate sector, thus
enhancing national competitiveness. The self-regulatory organizations of various
countries have extensive experience in promoting corporate governance and creating a
positive corporate governance culture but unfortunately, in India it is not the case.
Features of Corporate Governance
Started as economic or financial concept
Involves lot of parties
Involves organisational & social objective
Guiding practices, process & principles
Used to motivate management to perform better
Universal approach (world wide acceptance)
framework of rules, relationships, systems, and processes
Implemented at all levels in an organisation
Tool for benchmarking & controlling performance
Focuses on long term value addition (profitability, goodwill, brand recognition
etc.)
Objectives of corporate governance - As discussed the concept of corporate
governance is multi faceted and involves lot of dimensions therefore it covers several
objectives rather a wide range of objectives ranging from managing & maintaining
Operational transparency to something as simple as following legal mandatory disclosure
norms. Next diagram gives us an overview of corporate governance objectives.
Parties to corporate governance Parties to corporate governance covers various
stakeholders and many more as it has wider coverage and influences society up to a
very great extent plus we should not forget that business has greater social obligation as
these business houses uses the resources of the society and common men to generate
wealth and to earn riches for their shareholders, lastly it should not be forgotten that
only those who are directly involved with the business are not the parties whose life is
being impacted by decisions of business there are lot of others who may not hold any
direct interest in the business but their lives indirectly get influenced and the simple

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Corporate Governance has been in place for ages and still in modern day corporate world we see fiascos like Satyam taking place in modern India, which really raises doubt about our financial and commercial ethics, and make us look bad in front of the world. For a nonprofessional corporate governance is almost an alien concept but even they understand something called corporate social responsibility (CSR) and they expect the corporations to be honest and maintain very high level of integrity. Today large number of retail investors are entering in stock market in order to search for better returns or some even invest to earn their bread & butter or may be even for getting future security and in this scenario a big IT and outsourcing player like Satyam gets involved in creative accounting practices or in other words cooking their financial statements, which hurts the financial position of millions of small time investors who not only loose their hard earned money, savings but even their faith in corporate houses and their hope for better future. I term this failure as failure of Corporate Social Responsibility and this happened due to not following corporate governance code. We simply cannot over look the importance of governance of the company and say that it is the governance of country which is more important neither we can term failure of Satyam as failure of central or state government failure the company is more responsible for this fiasco as they were responsible for u ...
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