Corporate governance involves a system of principles, policies, procedures and responsibilities which are being defined in a clear way and it is being used by stakeholders for ensuring that, there is reduction in the level of conflict of interest to a certain extent. Corporate governance involves the way in which the organisation is being governed at a particular point of time.
It is a way used by organisation regarding the manner in which these are being directed. It is regarding balancing the individual and societal objectives along with social goals. Corporate governance is going to help in ensuring that, transparency is being identified along with balanced economic growth at a particular point of time (Calder, 2008). This ensures that the interest of the people is being protected to the highest possible extent to avoid any kinds of issues which could arise at a particular point.
Corporate governance has gained importance after the occurrence of various scandals such as Enron, and it has also involved various organizations such as WorldCom, and others. This has resulted in creation of certain regulations in the name of Sarbanes and Oxley Act of 2001. This has helped in ensuring that, a strong system is being developed in the country and with the help of this system, it is being ensured that, proper areas of working is being identified without any trouble or issue arising at a particular point of time.
Objectives of Corporate Governance
- Elimination of conflict of interest
- Efficient and effective use of resources of the organization
- Creation of an appropriately designed board so that, the board is being performing the tasks well without any kind of trouble or issue arising at a particular point in the area of doing the working.
Importance of Corporate Governance
- Ensuring corporate success and economic growth is being generated by the organization.
- Maintenance confidence of investors in a positive way.
- Reduction in capital cost
- Minimization of corruption, risk and mismanagement
- Help in enhancing reputation of the organization
Principles of Corporate Governance
- Defining rights of stakeholders
- Defining responsibilities of managers towards stakeholders
- Identification and measurement of accountabilities for performance of responsibility
- Equal treatment of managers, directors and shareholders in a proper and appropriate way
- Transparency and accuracy in disclosures being made regarding operations, performance, risk and financial positions
Issues in Corporate Governance
- No distinction in role of management and board. The board should not influence the management in the course of doing the tasks which are being assigned at a particular point of time.
- Various issues arise at the point of composition of board. There has to be a combination of executive and non-executive directors along with not 50% of the board of directors to be considered in the category of non-executive directors. Level of independent directors would be dependent upon the fact that whether chairman is executive or not.
- There is no separation in role of CEO and chairperson within the organization. Combination of both these roles is going to influence the way in which decision making is being carried out. The chairman of the board should be independent to ensure that; counterbalance is being checked in a proper and appropriate way.
- Directors and executive remuneration: This is one of the sensitive issues in the course of corporate governance to be carried out. The organization should give importance to such issues in a proper way so that, there is avoidance of these issues and the tasks are being carried out appropriately so that, better working is being identified without any trouble or issue arising.
Anti Trust Laws
Anti trust laws are the laws which are being framed for ensuring that, full and fair competition is being carried out in the workplace at a particular point of time. It helps in protection of interest of the customers to a greater extent for ensuring that, better results are being identified. One of the antitrust laws is Sherman Act (Monks, 2011). This act helps in ensuring that, formation of cartels in the United States of America is being stopped to a certain extent and there is avoidance of these kinds of issues at a particular point of time. These areas are to be taken into consideration in a proper way so that, best results are being generated in the course of achievement of the tasks which have arisen at a particular point of time.
Code of Ethics
It involves standards of working of individuals within the organisation. It works in a particular way wherein, the organisation is being involved in identification of proper tasks and accordingly key areas are being carried out in the course of achievement of positive results at a particular point of time. The mission and vision of the organisation is being documented by way of code of ethics.
Corporate Social Responsibility
This involves commitment of the organisation to work in a particular way wherein, the organisation is in the position to ensure that, it provides quality products to customers and works towards welfare of the people so that, best area of working is being carried out without any kind of trouble arising. This is going to help the organisation a great deal towards achievement of best tasks at a particular point of time. It is an extension of corporate governance wherein, the organisation not only works towards welfare of the employees but also ensures that, economic development is being carried out at the place where the organisation is being doing its activities at a point of time.
Benefits of Corporate Social Responsibility
- Helps in winning new business
- Enhances influence on the industry
- Helps in retention of customers
- Differentiating organization from its customers
- Building up good reputation
- Enhancement in relationship with stakeholders of the organization.
This is another crucial concept to be taken into consideration by the organisation. In the course of this concept, it is being identified that the organisation should always consider reporting of its financial statements in a way that, fair position of the organisation is being identified. The financial report should include clear information for the stakeholders. The stakeholders of the organisation would include customers, employees, business associates, investors, suppliers, and unions. The financial statements of the organisation would include balance sheet, income statement, cash flow statement and statement of retained earnings in a proper way. Along with this, management discussion and analysis report is also included in the area of financial report of the organisation.
Objectives of Financial Reporting
- The organization is able to ensure that, it gets involved in the area of ensuring that, its financial decision making is being carried out in a proper way. With the help of appropriate decision making, the organization can ensure that, it achieves the targets well and avoids occurrence of issues arising to it. This is going to help the organization to have comparison with its competitors in a proper way.
- Financial reporting also provides proper information about financial health of the organization. With the help of proper financial health, it becomes easier for the organization to ensure that, it is being doing well and achieving better results in the area of doing the activities being assigned to it at a particular point of time.
Ethics involves principles which govern the way in which an individual is being working. In the area of ethics, it is being identified that whether a particular person is being doing the tasks in a positive way or not. The unethical decisions should not be taken as these kinds of decisions would result in the fact that the organisation is being involved in carrying out various kinds of positive practices at a particular point of time.
- Friedman Doctrine: In the course of Friedman Doctrine, there is being discussion in the course of social duties as against business ethics. One of the social duties to business is to ensure that, the assets of the organization are being utilized to the fullest. Friedman states that, business organizations should ensure that they are being behaving in an ethical way and should not get involved in deception or fraud at a particular point of time in the area of doing the working.
- Utilitarianism and Kantian Ethics: It is being focused on maximization of good things and reduction in base things. This approach has its focus on the needs to ensure that, requirements are being measured precisely and all social responsibilities are being taken into consideration. The best decision is to ensure that, greatest good for greatest people is being identified.
- Rights theory: This theory states that, decision making within the organization should be on the basis of fundamental human rights of the individuals. As noted earlier, stakeholders have basic rights and these rights should be respected. There should not be issues arising at a particular point wherein, there is violation of these rights of the people.
- Justice Theory: This theory has focus on attainment of just distribution of economic goods and services. It is being considered as fair and equitable.
Non-Executive Board of Director
A non executive board of director is an individual who is not being considered as a part of executive team. He does not take part in day to day affairs of the organizational management and is not involved in decision making in the workplace. These individuals are generally being held liable as executive board of directors under certain requirements of statutory laws being created.
This is a concept which involves enhancement in the wealth of the shareholders. It involves increase in the current value of shares being held by the shareholders within the organisation at a particular point of time. It is a broad concept in comparison to maximisation of profits just as the case of wealth maximisation. Here, the company looks forward to enhance returns to shareholders in comparison to measurement of capital gains and dividends in a proper and appropriate way. It should work towards minimisation of the level of risks at a given point to ensure that, overall results are being generated in the best way so that, proper areas of working are being carried out. The objectives of wealth maximisation would include the following:
- Maximization of market value of shares of the organization
- Maximization of net present value of the shares
- Accounting for timing and risks of expected benefits
- Measurement of benefits in terms of cash flows generated.
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