The importance of Corporate Governance in India

Corporate Governance provides guidance, principles and processes through which a company controls and operates. It refers to the mechanism through which a company directs and manages its affairs. Corporate governance essentially involves balancing the interests of the different stakeholders like shareholders, management, customers, suppliers, financiers, government and the community at large.

Corporate governance has been a part of Indian corporate sector since the beginning but the governance failure and frauds that happened in case of corporate giants like Satyam Computer Services Limited increased the concerns about corporate governance in India.

• Transparency: To provide relevant and accurate information about a company to its stakeholders

• Accountability: To ensure the liability and accountability of key personnel in a company – chairman, directors, managerial personnel and other officers

• Independence: To ensure the board of directors work without any interference from any interested party in the corporate

• Responsibility: To ensure that the board of directors act in the best interests of the company by overseeing the business and affairs of the company, appointment of executives and monitoring company performance

• Disclosure of material matters: To ensure that all investors have access to clear and factual information which accurately reflects the financial, social and environmental position of the organization 

• Corporate governance helps in building the confidence of investors and other stakeholders in the company

• Corporate governance code helps in protecting the shareholders’ democracy

• Corporate governance code helps in meeting societal expectations in terms of environmental care, pollution, quality of goods and services, sustainable development etc.

• Independent and active directors as part of a good corporate governance, contribute towards a positive outlook for the company in the financial market

• Helps in protecting valuations of a company in order to maximize the interest of all stakeholders

How can a company ensure good corporate governance?

• Defining the roles and responsibilities of the board of directors in terms of strategy, compliance and risk management

• Appointing competent board members and selecting appropriate board members for various committees

• Developing policies and guidelines in line with the applicable corporate governance code and other relevant laws and regulations

• Maintaining appropriate documentation of governance processes and procedures

• Providing accurate information in the reports to board, enabling them to make well-informed decisions

• Providing adequate board trainings and performing periodic board evaluations

A company with a weak corporate governance framework will increase the risk and opportunities for manipulation of financial statements or other fraudulent activities. A good corporate governance system defines accountability and responsibility within an organization and thereby also provides for a better financial and internal controls system.