WHAT IS CORPORATE GOVERNANCECorporate Governance is the system of rules, practices and processes by which a company is directed and controlled. • Corporate Governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.

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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 is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. In other words, 'good corporate governance' is simply 'good business'. 

OBJECTIVES OF CORPORATE GOVERNANCE

Corporate Governance is very essential for any company because 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.

NEED FOR CORPORATE GOVERNANCE • The need for corporate governance has arisen because of the increasing concern about the non-compliance of standards of financial reporting and accountability by boards of directors and management of corporate inflicting heavy losses on investors.

• The collapse of international giants likes enron, world com of the us and Xerox of japan are said to be due to the absence of good corporate governance and corrupt practices adopted by management of these companies and their financial consulting firms.

1. CHANGING OWNERSHIP STRUCTURE

• In recent years, the ownership structure of companies has changed a lot. public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc. They also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance.

2. IMPORTANCE OF SOCIAL RESPONSIBILITY

• Today, social responsibility is given a lot of importance. the board of directors have to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance.

3. GROWING NUMBER OF SCAMS

• In recent years, many scams, frauds and corrupt practices have taken place. misuse and misappropriation of public money are happening everyday in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. in order to avoid these scams and financial irregularities, many companies have started corporate governance.

4. INDIFFERENCE ON THE PART OF SHAREHOLDRS

• In general, shareholders are inactive in the management of their companies. they only attend the annual general meeting. Postal ballot is still absent in India. Poxies are not allowed to speak in the meetings. shareholders associations are not strong. therefore, directors misuse their power for their own benefits. so, there is a need for corporate governance to protect all the stakeholders of the company.

5. GLOBLISATIONToday most big companies are selling their goods in the global market. so, they have to attract foreign investor and foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. without corporate governance, it is impossible to enter, survive and succeed the global market.

6. TAKEOVERS AND MERGERSToday, there are many takeovers and mergers in the business world. Corporate governance is required to protect the interest of all the parties during takeovers and mergers.

7. SEBISEBI has made corporate governance compulsory for certain companies. this is done ,to protect the interest of the investors and other stakeholders.

MERITS OF CORPORATE GOVERNANCE

• IMPROVED REPUTATION

• A Corporate Governance program can boost a company's reputation. If a company publicize its corporate governance policies and detail how they work, more stakeholders will be willing to work with them. This can include lenders who see them have strong fiscal policies and internal controls, charities they might partner with to promote their business, government agencies, employees, the media, vendors and suppliers. The practice of sharing internal information with key stakeholders is known as transparency, which allows people to feel more confident and they have little or nothing to hide.

• FEWER FINES, PENALTIES, LAWSUITSCorporate Governance includes instituting policies that require the company to take specific steps to stay compliant with local, state and federal rules, regulations and laws. For example, as part of corporate governance, an executive management team or board of directors might conduct a review of the company’s hiring practices if it falls under the guidelines of the equal opportunity employment commission. Company might require that its accounting department undergo an external audit by an independent auditor every quarter or year.

EXAMPLE OF CORPORATE GOVERNANCE - COCA-COLA• The Coca-Cola Company is committed to good corporate governance, which promotes the long-term interests of shareowners, strengthens Board and management accountability and helps build public trust in the Company.

• The Board is elected by the shareowners to oversee their interest in the long-term health and the overall success of the business and its financial strength. The Board serves as the ultimate decision making body of the Company, except for those matters reserved to or shared with the shareowners. The Board selects and oversees the members of senior management, who are charged by the Board with conducting the business of the Company.

CNTD…..

• The company’s corporate governance materials, including the corporate governance guidelines, the company’s certificate of incorporation and bylaws, the charters for each board committee, the company’s codes of business conduct, information about how to report concerns about the company and the company’s public policy engagement and political contributions policy.

CONCLUSION

• It is evident from above that it is essential that good governance practices must be effectively implemented and enforced preferably by self-regulation and voluntary adoption of ethical code of business conduct and if necessary through relevant regulatory laws and rules framed by govern ment or its agencies such as SEBI, RBI.

• The effective implementation of good governance practices would ensure investors confidence in the corporate companies which will lead to greater investment in them ensuring their sustained growth. thus good corporate governance would greatly benefit the companies enabling them to thrive and prosper.