Corporate Governance is Much Talked About,
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Transcript of Corporate Governance is Much Talked About,
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Corporate Governance may be defined as a set of systems,
processes and principles which ensure that a company is
governed in the best interest of all stakeholders.
It ensures:
Adequate disclosures and effective decision making to achieve
corporate objectives;
Transparency in business transactions;
Statutory and legal compliances;
Protection of shareholder interests;
Commitment to values and ethical conduct of business.
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Enactment
A committee on Corporate Governance under the chairman of Mr. Kumarmangalam
Birla, on the lines of Cadbury Committee of UK was constituted by SEBI.
The Birla Committee submitted its recommendations on Corporate Governance to
SEBI.
All the Stock Exchanges have accordingly inserted clause 49 in their Listing Agreement,
which contains the recommendations on Corporate Governance.
Mr N R Narayanmurthy, recommended number of amendments in Clause 49 of the
Listing Agreement. Presently, Clause 49 of the Listing Agreement contains the
provisions of Corporate Governance, based on the Narayanmurthy Committee Report.
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Narayanmurthy Committee Report.
The key mandatory recommendations focused on:
strengthening the responsibilities of audit committees;
improving the quality of financial disclosures, including those related to related party
transactions and proceeds from initial public offerings;
requiring corporate executive boards to assess and disclose business risks in the
annual reports of companies;
introducing responsibilities on boards to adopt formal codes of conduct; the position
of nominee directors; and
stock holder approval and improved disclosures relating to compensation paid to non-
executive directors.
.
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Non-mandatory recommendations included:
moving to a regime where corporate financial statements are not qualified;
instituting a system of training of board members; and
evaluation of performance of board members
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Why Is It Important?
A level of confidence is associated with a company that is known to have good
corporate governance.
Corporate governance is known to be one of the criteria that foreign institutional
investors are increasingly depending on when deciding on which companies to invest.
Creates a positive influence on the share price of the company.
Make it easier for companies to source capital at more reasonable costs.
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Current Scenario
Corporate governance becomes the centre of discussion only after theexposure of a large scam.
2001 Enron scandal in the US.
The collapse of Lehman Brothers.
Followed with Satyam Scandal. Satyam's fabricated balance
sheets fiasco went like an eye opener and it is only then that we raise
the question on the role of corporate governance.
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India ranks 134, out of 183 countries on the World Bank's index of 'Ease of
Doing Business'.
It clearly shows the level of confidence of foreign investors worldwide.
Lack of transparency coupled with series of scams without a strong response from
the regulators to address the fundamental issues can be pointed out some of the
reasons to it.
Some hope could be revived if the proposed Companies' Bill is cleared by Parliament,
since it has provisions that would strengthen the role and increase the responsibility of
independent directors on the companies' board.
"The proposed bill is defining the role of independent directors and auditors more
clearly. Also, this proposed bill has a whistle blower policy which gives enough
security to person who reveals any such corporate governance related irregularities.
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Future Prospects
As the global environment is changing continuously, there is a greater need of adopting and
sustaining good corporate governance practices for value creation and building corporations
of the future.
There is still lack of awareness about its various issues, like, quality and frequency of
financial and managerial disclosure, compliance with the code of best practice, roles and
responsibilities of Board of Directories, shareholders rights, etc.
But, with the integration of Indian economy with global markets, industrialists and
corporate in the country are being increasingly asked to adopt better and transparent
corporate practices.
If companies are to reap the full benefits of the global capital market, capture efficiency
gains, benefit by economies of scale and attract long term capital, adoption of corporate
governance standards must be credible, consistent, coherent and inspiring.
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Quality of corporate governance primarily depends on
following factors:
Integrity of the management;
Ability of the board;
Adequacy of the processes;
Commitment level of individual board members;
Quality of corporate reporting;
Participation of stakeholders in the management;
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Conclusion
In the last few years the thinking on the topic in India has gradually crystallized into the
development of norms for listed companies.
Development of norms and guidelines are an important first step in a serious effort to
improve corporate governance.
The bigger challenge in India, however, lies in the proper implementation of those rules at the
ground level.
More needs to be done to ensure adequate corporate governance in the average Indian
company.
As we have seen the topic is raised only after a debacle the issue needs to be addressed more
seriously at a larger level, With less saying and more enactment.