Corporate Governance is a way for structuring, operating, and governing a corporation in India to accomplish long-term objectives and satisfy stakeholders such as shareholders, creditors, employees, consumers, and suppliers. Corporate governance attempts to meet legal and regulatory requirements, as well as the company’s policies and procedures, to achieve the company’s goals with its shareholders, employees, customers, suppliers, regulatory authorities, and the public. It also establishes a code of conduct for all parties involved. The legal and voluntary regulatory norms that corporations must follow are referred to as corporate governance. As a result, the framework for effective stakeholder accountability has increased as a part of corporate governance. More than just competent management, good governance is a framework that ensures management’s effective accountability to its stakeholders. It’s a framework that provides a fair, efficient, accountable, and transparent administration to accomplish the organization’s well-defined goals.

Corporate governance in India refers to a set of internal controls and policy rules that constitute the backbone of a business. “Strong corporate governance is the most important factor for investment decisions,” according to the OECD Principles of Corporate Governance, “and governance, risk mitigation, and compliance are all linked.” If a company adheres to these essential principles, it will run smoothly and in compliance with all existing rules and regulations.” Corporate governance encompasses the organization, methods, relationships, functions, and activities of the board of directors. Businesses are being compelled to shift from a growth mindset to a survival one during the current covid-19 crisis.

WHY IS CORPORATE GOVERNANCE IMPORTANT?

Concerns regarding the board’s and management’s noncompliance with financial reporting and accountability rules have increased the importance and necessity of corporate governance. Companies, on the other hand, fall short of their fiduciary responsibilities and they are poorly governed. The process of executing a fiduciary obligation on behalf of a company while also ensuring the firm’s best interests as a commercial entity is known as governance. The need for corporate governance was felt because of the board of directors’ and management’s escalating non-compliance with financial reporting and accountability norms, which resulted in massive losses to the company’s investors. The failure of large corporations such as Enron, WorldCom, Cadbury, and Wal-Mart are said to have failed due to poor governance and unethical corporate practices. When we look at Satyam Computer Services, India’s largest IT company, we can see that unethical management practices were one of the main reasons for Satyam’s poor corporate governance. Other recent examples of corporate governance issues include Deewan Housing Finance Limited (DHFL), Yes Bank, Cafe Coffee Day, Jet Airways, and others.

Corporate governance is essential for a business’s capacity to compete in the marketplace. Stronger governance improves corporate performance and economic results. There is a plethora of corporate frauds, banking frauds, financial market activities, and accountability scams. Individuals frequently feel that all businesses and financial institutions are involved in fraud, which is not the truth. Every story has a moral to be learned, and every failure teaches a lesson. When businesses fail, they must learn from their mistakes.

For human beings or businesses to be adequately governed, law can only provide a minimal code of conduct. It cannot be the exclusive instrument of corporate governance regulation; rather, it defines a minimum standard of behavior for proper corporate governance. Good corporate governance fosters a moral culture and leads to a successful and long-term business. Good governance demonstrates to the market that a company is well-run, and that management’s interests are aligned with those of other stakeholders. As a result, it can provide a competitive advantage to businesses.

International investors and huge Indian financial institutions with global ambitions have taken large stakes in fast-growing countries like India. As a result, the standards of corporate governance in the investee companies have improved significantly. Many recent studies suggest that organizations with strong governance systems have earned high risk-adjusted returns for their investors. If a firm wants institutional investors to participate, it must demonstrate that its corporate governance practices are of high quality. As a result, Indian businesses must embrace best practices like the OECD Corporate Governance Principles, which serve as a global benchmark. In nations like India, where business ownership remains heavily concentrated, it’s critical that all shareholders, including domestic and international institutional investors, are treated fairly.

 

Infosys Limited, Wipro Limited, and HDFC Bank Limited, for example, have the best corporate governance practices in India. These practices include building a competent board, being accountable, having a high level of ethics and integrity, managing risk effectively, aligning strategies with goals, and complying with laws.

 

Dr. Rashmi K. S.
Associate Professor
Alliance School of Law