factors influencing corporate governance

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Factors influencing corporate governance

1. The ownership structure

The term-lending institutions

Institutional investors, comprising government-owned mutual funds,

Unit Trust of India and the government owned insurance

corporations

Corporate bodies Directors and their relatives and

Foreign investors. Apart from these block holdings, there is a sizable

equity holding by small investors

2. The structure of company boards

Establishment of corporate objectives

Broad policies

Selection of top-level executives



Cont’d

3. The financial structure Proportion between debt and equity

4. The institutional environment

For example, the extent to which shareholders can control the

management depends on their voting right as defined in theCompany Law, the extent to which creditors will be able to exercise

financial claims on a bankrupt unit will depend on bankruptcy laws

and procedures etc.



Mechanisms of corporate governance

In our country, their are six mechanisms to ensure corporate

governance.

1. Companies Act

the Act confers legal rights to shareholders to

(1) Vote on every resolution placed before an annual general

meeting;(2) To elect directors who are responsible for specifying objectives

and laying down policies;

(3) Determine remuneration of directors and the CEO;

(4) Removal of directors and

(5) Take active part in the annual general meetings.

2) Securities law

SEBI Act.



CONT’D

3. Discipline of the capital market

Capital market itself has considerable impact on corporate governance.

Here in lies the role the minority shareholders can play effectively.

They can refuse to subscribe to the capital of a company in the

primary market and in the secondary market; they can sell their

shares, thus depressing the share prices

4. Nominees on company boards

Development banks hold large blocks of shares in companies. These

are equally big debt holders too. Being equity holders, theseinvestors have their nominees in the boards of companies. These

nominees can effectively block resolutions, which may be

detrimental to their interests



CONT’D

5. Statutory auditAuditing enhances the credibility of financial reports prepared by

any enterprise. The auditing process ensures that financial statements

are accurate and complete, thereby enhancing their reliability and

usefulness for making investment decisions

6. Codes of conduct

The mechanisms are mandated by law and violation of any provision

invite penal action.

factors influencing corporate governance

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