Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way in which a company is directed, administered or controlled. Corporate governance also includes the relationships amongst the various stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large.
Corporate governance has emerged as a vital each in India and globally. Expectations of stakeholders are extremely high and the scrutiny by regulators and investors incredibly stringent. As a consequence, Indian corporations are proactively implementing measures for a similar. Going forward, one of the crucial essential challenges for Board members is to construct a foundation of trust with management, the investment community, regulatory agencies and the general public. The stakes are high and the margin for error is low and while recent standards are emerging, one thing stays clear: the responsibility to adopt sound governance practices has been placed squarely on corporate Directors and officers.
My favorite is one from the Harvard Business School. It found that “ethics-based” corporations increased their net income 756 percent – versus just 1 percent for corporations who put profit first. My message today is that principled economic behavior is a long-term investment in the safety of countries. The world cannot afford economic misconduct. Now multinational corporations all over the place to guide the world to globalization’s next frontier – through principled codes of conduct that bolster the rule of law. Not only the letter of the law – not only minimum compliance with some baseline code. But, as an alternative, something that can really make a difference! Principled codes of conduct that answer first to the moral underpinnings that support all law. Principled codes of conduct that set objective, quantifiable standards. Principled codes of conduct that use independent monitoring – and require transparent communication with the general public.
Indispensable Principles of Corporate Governance:
o Discipline in operations
o Transparency in dealings and disclosures
o Accountability to shareholders
o Responsibility of company’s motion
o Social Responsibility
o Improving group dynamics and harnessing individual talents
o Enhancing early-warning mechanisms for critical risks
o Mitigating exposure to liability
o Constructing credibility and trust with stakeholders
o Embedding sustainability as a company value
What’s the Satyam fiasco all about?
For me, Satyam’s case is a typical example of fraud which are extremely difficult to detect and stop. The chairman of Satyam diligently hatched a plan to defraud its stakeholders and to achieve advantage to itself.
There may be a sufficient law to take care of this type of economic offences and company governance. In a world environment, principles are essential because rules cannot cover all situations, nevertheless there are following observations that encourages the non compliance in India:
Non compliance is rarely taken seriously by the businesses as there may be minimum penalty for non compliance.
Minimum penalty of few tons of rupees
A lot of the offences for non compliance might be compounded by paying the positive.
The federal government department do have the suitable expertise or manpower to detect the non compliance
The prosecution agency also don’t have the expert who specialize in this type of expertise, hence probably the most of the offender cannot be prosecuted.
Lack of political will
Typical Indian attitude that’s “chalta hai”
Strong punishment i.e. life term for offenders
There needs to be specialised investigating agency and that needs to be allowed to rent the perfect professionals.
More power to independent directors they usually needs to be allowed to have interaction the skilled to clarify the corporate’s record/ accounts.
Effective & ongoing training to all the staff
Whistle blowing policy be made compulsory to all corporations
The principled conduct of multinational corporations is completely essential in planting the seeds of stability and prosperity for all. Multinational corporations account for one-third of the world’s Gross Domestic Product, and two-thirds of world trade. Multinationals generally is a powerful influence for good – especially in countries whose governments lack a powerful tradition of democracy and the rule of law. Subsequently, it is not any longer sufficient for multinational corporations to do merely what’s legal. In every instance, multinational corporations must do what is true – through their conduct, not only their words.
In a speech titled “Globalization’s Next Frontier: Principled Codes of Conduct that Bolster the Rule of Law,” Parrett told global ethics and business leaders, and representatives from non-governmental organizations (NGOs) and academic institutions that globalization and world security itself could possibly be jeopardized unless multinational corporations develop ethical conduct that adheres to values and principles slightly than simply written law.
Law makers in India, feel the necessity to establish the merits of encouraging a principle-based approach (like within the case of the combined code within the UK) to compliance – where the character, size and complexities of a business govern compliance and disclosures – as an alternative of an ordinary rules based approach for universal compliance (like within the US). Firms in India should have the flexibleness to establish those facets that are practical to comply with and others where they’ll provide suitable and logical explanations for non compliance. This can enable them exhibit their true intend to comply, where practical, and make to transparent disclosures in other cases.
In India, guidelines for corporate governance are provided in clause 49 of the listing agreement and likewise in various sections of the Firms Act. Industry experts hold view that when appointed, the performance and contributions of those directors needs to be monitored and evaluated objectively with peer reviews serving as a method of such evaluations. A stronger corporate governance framework is required to stop Satyam-like financial frauds. There may be a have to strengthen regulators and company laws to enhance corporate governance, by the company ministry. A recent Firms Bill, which is pending in Parliament, would make regulation more stringent for auditors. The brand new bill seeks to revamp archaic laws to assist India’s growing corporate sector adopt international best practice, and make boards and senior management of corporations more accountable.
What’s to be kept in mind is that in India adequate safeguards are provided for in the shape of varied laws however the penalty stipulated for is relatively meagre and thus the unsuitable doers haven’t any fear of punishment. Provided that the punishments to be imposed are made stringent and it acts as a deterrent can or not it’s expected that such frauds might be controlled in future. More so, there is no such thing as a expertise of the implementing authorities for detecting and curing the Economic Offences. There may be a have to make a separate body to look into the affairs and implement the laws and other provisions to curtail such offences. There may be also a scarcity of political will power to curb such offences, the politicians take a lenient view and leave the investigation and other vital steps into the hands of CBI which isn’t a body made to specifically take care of such white collar crimes. Unless there reason enough for the miscreants to be petrified of penal provisions that send a shiver down their spine. Such offences will proceed to occur and we are going to keep considering of devising ways to tackle with them.