CORPORATE GOVERNANCE !

Any idea!  What I am going to talk about today?  What basically does it mean?         OK! So lets begin.

Corporate Governance(CG) means that a company manages its business in such a manner that it is accountable and responsible to the shareholders. Governance involves tye derivation, use and limitation of such powers. CG is a way of life and not a set of rules. It helps in knowing the accountability of the Board of directors of a company and their constituent responsibilities.

There are some THEORIES of CG —

1. Stewardship Theory – this theory assumes that the top managers will act on their own as responsible stewards of the assets under their control. They work diligently to achieve high levels of profits which yield good returns. Under this theory ______                                                     the interests of the company and its owners are aligned with managers.,           the interests of shareholders are served when the company’s performance is maximised.,                                                      board and chief executives should be given adequate authority and discretion,  it has an assumption that board will always work for corporate performance and in the interests of shareholders., And, a proper governance structure is required.

2. Agency Theory – According to agency theory there exists agency relationship between the shareholders and management. Shareholders of a corporation delegate the decision making authority to the board. There can be divergence of interests between shareholders and mangers. Effective governance system is needed, to safeguard the interests of shareholders. This theory doesn’t consider the interests and rights of other stakeholders.

3. Stakeholders Theory – under this a company must be run in the interests of all the stakeholders. A harmony or compromise is required between them. A board consisting of the representatives of various stakeholders groups could be entrusted with this job.

CG goes beyond the law as it involves an interplay among companies, their shareholders, creditors, capital markets and the company law.

India is one of the most legislated countries. Despite the plemora of laws, the way companies are directed and controlled in India leaves much to be desired. No law can improvce CG till the mind-set to adhere to the law is created. Our banks and financial institutions failed to have a governance system, leading to treated securities scam and a multitude of scams in the non-banking finance sector apart from burgeoning non-performing assets.

Hope I made my points clear to you.

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