What is Corporate Governance: Understanding the Process
Jaya SharmaAssistant Manager - Content
Corporate governance is the collection of processes, rules and laws for operating and managing businesses. Its principles help in the identifying responsibilities of different members of the corporation. It also ensures delegating responsibilities to the right candidate. Since this is an important part of the corporate structure, you can opt for online corporate governance courses.
It is important for any organisation to resolve conflict of interest. Within corporate governance, actions are monitored. It is a method for aligning the interests of stakeholders. Corporate governance becomes effective when it is well-defined and ensures that the organisation functions ethically.
Principles of Corporate Governance
The following points highlight the principles of corporate governance:
- Each shareholder should be treated equally and fairly. They should know about their rights and how they should exercise them.
- Important information must be conveyed to investors and members of the community. Any legal and social obligation towards non-stakeholders must be upheld.
- The board of directors should be accountable within corporate governance. They should maintain transparency and should appropriately review management practices.
- There should be a defined code of conduct for executives and board of members.
- Policies and procedures should be only disclosed to relevant stakeholders.
Acts and Standards in Corporate Governance
Corporate governance has become significant to bring in equality in the corporate sector against abusing authority. Following acts and standards have been passed in order to make the corporate sector secure and fair for all:
- Sarbanes-Oxley Act is a 2002 US federal law that works against those who commit fraud by leveraging power. This was introduced to improve corporate governance in the United States.
- The Gramm-Leach-Bliley Act monitors the use of private information by financial institutions. These organisations should explain how they are safeguarding and sharing customer’s personal information.
- Basel II is a standard for minimising the financial impact of risk-prone operational decisions. This standard considers the rights of shareholders.
Purpose of Corporate Governance
One of the primary purposes of the corporate governance is to manage conflict of interest. This conflict is often between higher management and shareholders. This is known as the principal-agent problem where both parties have different interests and opinions. On one hand, shareholders may seek positive returns on their investments. On the other hand, higher management might put profits behind other business interests.
Corporate Governance Practises in India
The organisation framework of initiatives related to corporate governance in India includes two entities. These are the Securities and Exchange Board of India (SEBI) and Ministry of Corporate Affairs (MCA). Listed companies are regulated under Clause 49 which has been incorporated in the listing agreement of stock exchanges. Listed companies must comply with the provision of clause.
Clause 49 of Corporate Governance
Initially, clause 49 introduced the fundamental corporate governance practices in Indian companies. This brought in changes in governance and disclosures. The clause specified the minimum number of the independent directors in the board of a company. It was mandatory to set up audit committees as well as shareholders’ grievance committees. It put a limit on the number of committees that one director could serve in.
2002
In 2002, the SEBI constituted a committee to assess the effectiveness of corporate governance practices. This committee had to suggest improvements in these practices. Based on the recommendations, SEBI released a modified Clause 49 that came into effect in January 2006.
- The revised clause focused on the protection of the interests of investors through improved governance practice.
- It also clarified the independence criteria for directors as well as the responsibilities of the board.
- There was a visible improvement in the quality and quantity of disclosures.
- Responsibilities of the audit committee were consolidated in matters relating to financial reporting and internal controls.
- It stressed on the accountability of the highest level of management.
2008
In April 2008, SEBI amended the clause to extend the rule about 50% independent directors to each Board of Directors wherein the non-executive Chairman is the promoter or is related to promoters of the company.
In December 2009, at the first India Corporate Week, the Ministry of Corporate Affairs released new Corporate Governance Voluntary and Corporate Social Responsibility Voluntary guidelines.
- Why Learn Corporate Governance?
- Syllabus of Corporate Governance
- Popular Corporate Governance Colleges in India
- Popular Private Corporate Governance Colleges in India
- Popular Corporate Governance Specializations
Why Learn Corporate Governance?
One should plan to learn Corporate Governance for the following reasons:
Syllabus of Corporate Governance
The following topics are covered within the Corporate Governance course:
|
Section |
Topic Area |
Exemplification |
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A: Corporate Governance – Principles and Issues |
Definitions and Issues in Corporate Governance |
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History of Corporate Governance in Canada |
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Governance in other countries and other sectors |
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Role of the Company Secretary/ Governance Professional in Corporate Governance |
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B: The Board of Directors and Leadership |
Directors’ Duties and Powers |
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Role and Membership of the Board |
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Board Composition and Succession Planning |
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Board Effectiveness |
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C: Disclosure |
Financial Reporting to Shareholders and the External Audit |
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Corporate Social Responsibility, Sustainability and Business Ethics |
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CSR and Sustainability Reporting on non-financial issues |
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D: Risk Management and Internal Control |
Risk Management and Internal Control Systems |
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Risk structures, policies, procedures and compliance |
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E: Corporate Governance Systems, Controls and Issues |
Shareholders’ and Members’ Rights and Engagement |
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Board Engagement with Shareholders and other Stakeholders |
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Compensation of Directors and Senior Executives |
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Popular Corporate Governance Colleges in India
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Popular Private Corporate Governance Colleges in India
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Popular Corporate Governance Specializations
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