Corporate governance is concerned with a set of principles, ethics, values, morals, rules and regulations, etc based on which a company is governed. For effective corporate governance, the policies need to be such that the the directors of the company do not abuse their power and instead understand their responsibilities towards the company. A company with good corporate governance policies is likely to prosper more.
Emergence of Corporate Governance in India
The term ‘Corporate Governance’ was first introduced in India’s corporate sector by Industry Association on Confederation of Indian Institute in the late 1990s. It was the first initiative in India as a measure adopted by the Indian companies. It has recommended a series of practices to bring transparency, fairness, accountability and responsibility in managing a company. The second major initiative was taken by SEBI as Clause 49 of the Listing Agreement. Corporate governance guidelines have evolved greatly ever since its inception owing to the efforts put by several committees appointed by Ministry of Corporate Affairs (MCA) and SEBI. However the major change in the corporate governance was felt with the introduction of 2009 Mandatory Corporate Governance Voluntary Guidelines which has to be complied by companies listed on stock exchange by Clause 49 of listing agreement.
The dire need of corporate governance arises due to the separation of management from ownership. For a success of a business, it ought to be fair with everyone including the shareholders, customers, etc while keeping its responsibilities towards employees and communities at the forefront.
Importance of a good corporate governance
To mitigate the risks – More disciplined a company is, better is its chances of tackling against any risks. If a company is run on the basis of sound principles, it is most likely to work efficiently. Being at par with the policies and corporate governance law ensures that the company is well prepared for any uncertainty.
Maintaining credibility of the company – A company with good corporate governance enhances the satisfaction of shareholders. It plays a key role in maintaining the valuation of a company and increase the interest of all shareholders.
Remaining at the best interest of public – Society has great expectation from the corporate sector be it in the form of quality, pricing, sustainability, etc. And this can be fulfilled through a proper code of corporate governance.
Globalisation – Most companies wish to get enlisted in the international stock exchange. However, this is highly determined by whether the company meets the standard codes of corporate governance or not.
Corporate Governance in India will continue to remain crucial. The framework must be holistic and be at par with the interests of various parties.