Corporate Governance and Ethical Business Strategy
- 1. Corporate Governance and Ethical Business Strategy Presented by Bimisha karattil
- 2. History of corporate governance The topic of corporate governance is a vast subject that enjoys a long and rich history. It’s a topic that incorporates managerial accountability, board structure and shareholder rights. The issue of governance began with the beginning of corporations, dating back to the East India Company, the Hudson’s Bay Company, the Levant Company and other major chartered companies during the 16th and 17th centuries. While the concept of corporate governance has existed for centuries, the name didn’t come into vogue until the 1970s. It was a term that was only used in the United States. The balance of power and decision-making between board directors, executives and shareholders has been evolving for centuries. The issue has been a hot topic among academic experts, regulators, executives and investors.
- 3. Concept of corporate governance Corporate refers to the most common form of business organisation, one which is chartered by a state and given legal rights as an entity separate from its owners. This form of business is characterised by the limited liability of its owners. The process of becoming a corporation, called incorporation gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued.
- 4. Corporate governance Corporate governance in the business context refers to the systems of rules, practices, and processes by which companies are governed. In this way, the corporate governance model followed by a specific company is the distribution of rights and responsibilities by all participants in the organization. Governance ensures everyone in an organization follows appropriate and transparent decision-making processes and that the interests of all stakeholders (shareholders, managers, employees, suppliers, customers, among others) are protected. The purpose of corporate governance is to help build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies.
- 5. Objective of corporate governance The fundamental objective of corporate governance is to boost and maximize shareholder value and protect the interest of other stake holders. Corporate governance has various objectives to strengthen investor's confidence and intern leads to fast growth and profits of companies. A properly structured Board proficient of taking independent and objective decisions is in place at the helm of affairs. The Board is balanced as regards the representation of suitable number of non- executive and independent directors who will take care of the interests and well- being of all the stakeholders. The Board accepts transparent procedures and practices and arrives at decisions on the strength of adequate information.
- 6. Objectives of corporate governance The Board has an effective mechanism to understand the concerns of stakeholders. The Board keeps the shareholders informed of relevant developments impacting the company. The Board effectively and regularly monitors the functioning of the management team. The Board remains in effective control of the affairs of the company at all times.
- 7. Importance of corporate governance The Organisation for Economic Cooperation and Development (OECD) highlights the significance of good corporate governance in the global and domestic economic environment. According to OECD, if countries are to reap the full benefits of the global capital market, and if they are to attract long-term “patient” capital, corporate governance arrangements must be credible and well understood across borders. Even if companies do not rely primarily on foreign sources of capital, adherence to good corporate governance practices will help to improve the confidence of domestic investors, may reduce the cost of capital, and ultimately induce more stable sources of financing (Principles of Corporate Governance, 1990).
- 8. Corporate governance in India Corporate Governance in India is a set on internal controls, policy and procedures which form the framework of a company’s operations and its dealings with various stakeholders such as customers, management, employees, government and industry bodies. The framework of such policies should be such as to uphold the principles of transparency, integrity, ethics and honesty. Corporate Governance is the soul of an organisation and must be adhered to while indulging in any business practises. The Indian corporates are governed by the Company’s Act of 1956 that follows more or less the UK model. The pattern of private companies is mostly that of closely held or dominated by a founder, his family and associates. The organizational framework for corporate governance initiatives in India consists of the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI).
- 9. Corporate governance in India SEBI monitors and regulates corporate governance of listed companies in India through Clause 49. This clause is incorporated in the listing agreement of stock exchanges with companies and it is compulsory for listed companies to comply with its provisions. MCA through its various appointed committees and forums such as National Foundation for Corporate Governance (NFCG), a not-for-profit trust, facilitates exchange of experiences and ideas amongst corporate leaders, policy makers, regulators, law enforcing agencies and non- government organizations. The Companies Act, 2013 provides a formal structure for corporate governance by enhancing disclosures, reporting and transparency through enhanced as well as new compliance norms.
- 10. Corporate governance in India In addition to various acts and guidelines by various regulators, non-regulatory bodies have also published codes and guidelines on Corporate Governance from time to time. fter enactment of the Companies Act, 2013, SEBI has amended Clause 49 in 2013 to bring it in line with the new Act.
- 11. Business ethics comprises the principles and standards that guide behaviour in the conduct of business. Business Ethics
- 12. Business Ethics Ethics means the set of rules or principles that the organization should follow. While in business ethics refers to a code of conduct that businesses are expected to follow while doing business. Through ethics, a standard is set for the organization to regulate their behavior. This helps them in distinguishing between the wrong and the right part of the businesses. The ethics that are formed in the organization are not rocket science. They are based on the creation of a human mind. That is why ethics depend on the influence of the place, time, and the situation. Business ethics compromises of all values and principles and helps in guiding the behavior in the organizations. Businesses should have a balance between the needs of the stakeholders and their desire to make profits. While maintaining these balances, many times businesses require to do tradeoffs. To combat such scenarios, rules and principles are formed in the organization.