Corporate Governance is a set of processes, customs, policies, laws and institutions affecting the way a company is directed, administered or controlled. Governance also relationships between multiple stakeholders and the objectives of the corporation governed. The main stakeholders are the shareholders, management and the Board of Directors. Other stakeholders include employees, customers, creditors, suppliers, regulators and society at large.
governance has emerged as important both in India and globally. Expectations of stakeholders are very high and scrutiny regulators and investors incredibly stringent. As a result, Indian companies are proactively implementing measures for the same. Going forward, one of the most important challenges for the Board is to build a foundation of confidence in the management, the investment community, regulatory agencies and the public. The stakes are high and the margin for error is small and while new standards are emerging, one thing remains clear :. The responsibility to adopt good corporate governance has been placed squarely on corporate directors and officers
My favorite is the one from Harvard Business School. In light of “ethics-based” business net income increased 756 percent – versus only 1 percent for companies that put profits first. My message today is that principled behavior is a long-term economic security of nations. The world can not afford economic misconduct. Now multinational companies everywhere to lead the world to the next frontier of globalization is – through principled protocol to strengthen the rule of law. Not just the letter of the law – not just minimum compliance with some of the early code. But instead, something that will really make a difference! Principled protocol answer first to the moral priorities that support all law. Principled protocol set objective, measurable criteria. Principled protocol using self-control – and have transparent communication with the public
essential principles of governance :.
o Discipline in operation
o transparency in communication and information
o Responsibility to shareholders
o responsibility of the company
o social responsibility
o Promotion Team building and harnessing individual talents
o Enhancing early warning system for critical risks
o Reduce exposure to liability
o build credibility and trust with stakeholders
o Embedding sustainability as a corporate value
What is Satyam fiasco all about?
For me, the issue Satyam is a typical example of fraud that are very difficult to detect and prevent. Chairman of Satyam diligently hatched a plan to deceive its stakeholders and to gain advantage for himself.
There is enough laws to deal with this type of economic offenses and corporate governance. In a global environment, the rules are important because rules can not cover all circumstances, however, there are the following observations which encourages non-compliance in India
Non compliance is never taken seriously by companies that there is a minimum the penalty for non-compliance.
The minimum penalty of a few hundred rupees
Most violations of non-compliance can be compounded by paying a fine.
government department have the appropriate knowledge or manpower to detect non-compliance
Prosecution Authority also do not have professionals who specialize in this type of knowledge, where most of the offender can not be prosecuted.
Lack of political will
Typical Indian attitude of “Chalta Hai”
Strong punishment ie life time for offenders
There should be specialized investigating the organization and should be allowed to employ the best professionals.
More power to independent directors and they should be allowed to participate in experts to explain the Record / Group accounts.
Effective & ongoing training to all employees
Whistle blowing policy compulsory for all companies
The principled implementation of multinational companies is absolutely essential in planting the seeds of stability and prosperity for all. Multinational companies account for one third of the GDP of the world, and two-thirds of world trade. Multinationals can be a powerful influence for good – especially in countries where the government lacks a strong tradition of democracy and the rule of law. Therefore, it is no longer enough for a multinational company to do just what is legal. In all cases, multinational companies must do what is right – works, not just their words
In a speech titled “Globalization Next Frontier: principled codes of conduct that strengthen the rule of law,” Parrett said. Global ethics and business leaders, and representatives of non-governmental organizations (NGOs) and academic institutions that globalization and world security itself could be jeopardized unless multinational corporations develop ethical behavior attached values and principles rather than just the written law.
Law makers in India, feel the need to make sure least encourage rule-based approach (as in the case of a combined code in the UK) to go – where nature, size and complexity of business apply go and information – instead hefbundið based approach for comprehensive compliance (like the US). Companies in India will have the flexibility to determine the factors that are useful to treat and others where they can provide appropriate and logical explanations are not respected. This will enable them to demonstrate their true will go, wherever, and make transparent information in other cases.
In India, guidelines on corporate governance in clause 49 of listing agreement and also in various sections of the Companies Act. Industry experts hold the view that once appointed, the performance and contribution of those members must be monitored and evaluated objectively with peer reviews serve as a way of such an assessment. A stronger governance framework needs to prevent Satyam-like financial frauds. There is a need to strengthen the regulators and law firms to improve corporate governance of corporations. A new Bill, which is pending in Parliament, would make regulation more stringent for auditors. The new bill seeks to revamp archaic laws to help the growing corporate India adopt international best practices, and make boards and senior managers responsible.
What to keep in mind is that in India adequate safeguards are provided for in the form of various laws the punishment defined for the relatively meager and the wrong doers have no fear of punishment. Only if the punishment applying stricter and it acts as a deterrent to be expected that such frauds can be controlled in the future. More so, there is no expertise on the implementation of the authorities to identify and cure the economic offenses. There is a need to make a body to look into the issues and implement regulations to reduce such violations. There is also a lack of political will power to curb such offenses, politicians take a more lenient view and let research and other vital steps in the hands of the Central Bank, which is not a party made to specifically deal with such white collar crimes. Unless it reason enough for miscreants to be afraid of criminal penalties provisions that send a shiver down their spine. Such breaches will continue to happen and we will keep thinking of ways to deal with them.