The concept of corporate governance has gained importance in India with the advent of the companies Act, 2013, which along with other relevant laws, has put in place strict provisions on governance and penal consequences for non-compliance with these provisions. In modern environment, people are vigilant towards their rights which has given the birth to corporate governance. It is the set of rules, structure, processes and practices that gives the direction to corporation for its operation. The main work of corporate governance is to protect the interest of stakeholders, shareholders, clients, internal and external members etc.
It is very essential for the company’s value in long term. When the company achieve its goals and objectives while following the corporate governance, it builds the image of the company before the society. It works as two edge swords since it can develop the brand image of company on the other hand, it could be the way that rupture the whole company. In accordance with the corporate governance, the company has to disclose all the information related to company and requires to conduct its operations in fair and transparent manner. Compliance with law as per law of land, accountability and responsibility towards the stakeholders etc. is mandatory.
The corporate governance is essential for the companies because of the following reasons-
· Every investor want to secure their investment but due to lack of sufficient transparency and accountability, every shareholder always afraid while making investment. Generally, in order to raise capital from the public, it has been noticed that the companies show a wrong picture of their profitability and performance so that public could get attracted and invest in the company. It builds confidence among those who invest or want to invest in the company. According to company law, it is necessary for board of directors to ensure the interest of shareholders.
· Ambiguous management of company may brought reverse repercussion for instance Satyam computer scandal after which the importance of ethics and its relevance came into picture in the corporate world. It was the largest fraud made in corporate sector. The fraud was made in the books of accounts of company. After this fraud, in 2014, the SEBI has made amendment in clause 49 of listing guidelines to improve corporate governance. According to SEBI, the corporate governance is in need for the purpose to distinguish between the personal and corporate funds while operating a company. If a company follows corporate governance in discipline way, the law enforcement authorities could lenient while approving their loans and other applications.
· Lack of corporate governance can lead to huge loss or even its dissolution. Bad regulation and management of company can lead to corruption, and a tarnished image before the whole society and it will even lead to adverse effect world at large.
· This can also be used as reformative and preventive measures. Company can improve its image while being guided through corporate governance. It prevents the risk that company could have while doing any transaction.
· Corporate governance upholds the independence of the board of directors who can make independent decisions for the good of the company as well as the investors. At the same time, it hooded them responsible/ accountable to its investors.
· Many minority shareholders who cannot control or observe the management of company, there is possibility that the interest of those shareholders may undermine. Therefore, the corporate governance direct to the board of directors of company for the good management and maintenance of transparency. So that, the investments of foreign and remote minority shareholders can be protected. Corporate governance also motivate the mergers and acquisitions including FDI. And increase in FDI can benefits to the whole economy.
· Now a days it has become indispensable part for healthy and vibrant stock market. Since the stock market is required to be healthy and fair which assures the protection of investors. It has been seen that through insider trading, the corporate company take undue advantage at the expense of investors in general. And insider trading is a kind of fraud. The corporate governance plays an important role to prevent such frauds.
Therefore, after having seen the benefits, it can be concluded that corporate governance is necessary in the world of globalisation. The guidelines of corporate governance must be Implemented in effective manner by self-regulating and voluntarily adoption of ethical code of conduct. These must be enforced by the law enforcement authorities whenever necessary.
Author Details: Madhavi Bohra
The views of the author are personal only. (if any)