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Corporate Governance

Good corporate governance as a system of governance is essential from all points of view — legal, social, ethical and economic. Sony and BMW (Germany)have established a strong network helping the society and the nation at large, which has introduced confidence amongst its share holders.

Auditors were following questionable accounting practices on behest of the management and often advising on how doubtful accounting choices might be made so as to remain on the right side of law and at the same time, escape detection by users of financial information. All these factors put strong pressure on many corporates to evolve a good governance practice.

Over a period of time companies have evolved sound principles of governance, intertwining corporate governance with social responsibility. These companies have become global and it is common to find global norms of accounting and disclosure being followed in these corporate houses. Rights of employees, stock options, independent directors, meeting quality norms, price warranty and guarantee – all these have made room for quality governance. Managers have become trustees of shareholders.

CORPORATE SOCIAL PERSPECTIVE TO THE OPERATION

The management of the company believes that corporate performance in the long run is co-related to corporate governance and that well governed companies mitigate non-business risks better. It is therefore, committed to further improve the corporate governance practices in the company by laying emphasis on substance of corporate governance over the form. The company endeavors to adopt the best practices in corporate governance and thereby aims to increase the value for all its stakeholders.

Governance Practices

The company had constituted a governance practice committee with the objective:

  1. a) To hold periodic discussions with the Statutory Auditors and Internal Auditors of the company concerning the accounts of the company, internal control systems, scope of audit and observations of the Auditors/Internal Auditors;
  2. b) To review compliance with internal control systems;
  3. c) To review the quarterly, half-yearly and annual financial results of the company before submission to the Board:
  4. d) To make recommendations to the Board on any matter relating to the financial management of the company, including the Audit Report;
  5. e) Recommending the appointment of statutory auditors and branch auditors and fixation of their remuneration.

Examples and Practices

The major players in the area of corporate governance, within the corporation are corporate board, shareholders and employees. Externally, the pace for corporate governance is set by the government as the regulator, customer, and lenders of finance and social ethos of our times. The scope and extent of corporate governance are set by the legal, financial and business framework. In essence, corporate governance is the system by which companies are directed and controlled. Board of Directors are responsible for the governance of their enterprises.

People at the helm of affairs of an enterprise are responsible for the good governance of the enterprise. The Board of Directors are responsible for the governance of their enterprises, in a given economic, political and social environment. The role of the board and the shareholder is interactive in nature and therefore the quality of governance depends upon the level of interface established by them.

The quality of the board also depends upon a number of other factors, such as its size, its composition in terms of number and proportion of whole-time and part lime directors, the chairman of the board, power and position of’ the CEO, the merit and qualification of the directors, etc. There are varied roles and responsibilities of the board and other executives for good governance but the majority view, however, is in favor of directors directing the affairs of the company and not managing them.

CORPORATE GOVERNANCE PERSPECTIVE TO THE OPERATION OF SONY and BMW

The board is the supreme authority in deciding the expected to act with due care. They must act with that degree of diligence, care, and skill which ordinarily prudent men would exercise under similar circumstances in like positions. If a director or the Board as a whole fails to act with due care and, as a result, the company in some way, is harmed, the careless director or directors may be held personally liable for the harm done. They may be held personally responsible not only for their own actions but also for the actions of the company as a whole.

The directors must make certain that the company is managed in accordance with the laws and regulations of the land. They must also be aware of the needs and demands of the constituent groups so that they can bring about a judicious balance between the interest of these diverse groups, while ensuring at the same time that the company continues to function.

CORPORATE GOVERNANCE STRUCTURE

The Board of Directors instating the corporate governance, in terms of strategic management, have three basic tasks.

  • To initiate and determine: A board can delineate an organization’s mission and specify strategic options to its management.
  • To evaluate and influence: A board can examine management proposals, decisions and actions; agree or disagree with them; give advice and offer suggestions: develop alternatives.
  • To monitor: By acting through its committees, a board can keep abreast of developments, both inside and outside the organization. It can thus bring new developments to the attention of the management, which it might have overlooked.

While the BoDs is not expected to involve itself in day-to-day operating decisions, they are nonetheless expected to consider and give their views on all such matters that have long term connotations.  These relate to issues such as introduction of new product, new technology, collaboration agreements, senior management appointments and major decisions regarding industrial relations.

EFFECTIVE BOARD

The function of a board is very comprehensive. In practice it could be said that the board is responsible for laying down matters of principle and of accounting, statistical and management procedures. It is also responsible for the decision of what product to make, which market to penetrate, determination of manufacturing capacity, investment decision, cash flow, liquidity etc. In totality, the directors are responsible for ensuring that the top management functions effectively and that through the information system, proper reports are generated and information is made available for both control and planning purposes.

Ideally the board of directors should be the heart and soul of a company. Whether a company grows or declines depends very much upon the sense of purpose and direction, the values, the will to generate customer satisfaction, and the desire to achieve ,develop and learn, that   emanates from the board and the extent to which it is visibly committed to them.

CONCLUSION

Codes of conduct or ethics statements goes beyond the realm of law. It comes from the culture, mindset of management and cannot be regulated by legislation. The watchwords are openness, integrity and accountability.

Companies need not be myopic with short-term goals, caring only about quarterly results or immediate stock prices in the bourses. Good governance maximizes long—term shareholder value, which in turn takes care of short— term goals too.

Directional competence and contribution depends upon the interaction of a particular combination of people and personalities in the boardroom. This sense of direction and purpose of the board will lead to good governance and that will determine the growth of the enterprise.

References

  1. Van Horne, James C. (2001),Towards Excellence in Board Performance, Prentice- Hall : New York
  2. Kenon, Arthur J. (1989), Corporate Governance: The New Paradigm, Macmillan Publishing House USA.
  3. Khan, M.Y. (1998).Governance Matters, McGraw-Hill: New York.
  4. Horngren Charles T, (2000),Corporate Governance: The Key Issues, Irwin McGraw Hill : New York
  5. McAlpine, T.S. (1996). The Basic Arts of Corporate Governance, Business Books, London

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