ICFAI UNIVERSITY

ICFAI LAW SCHOOL

DEHRADUN

ASSIGNMENT -3

NAME- JAYA VATS

CLASS- 3RD YEAR

PROGRAM- BBALLB(HONS)

ENROLLMENT NO -18FLICDDN01049

SUBJECT- CGBE

SUBMITTED TO – ASSIT. PROFESSOR STUTI TIWARI

QUESTION-

DISCUSS SOME OF THE MOST PROMINENT ISSUES OF CORPORATE

GOVERNANCE. DISCUSS THE RELEVANCE OF THESE ISSUES WITH
PARTICULAR REFERENCE TO THE INDIAN CORPORATE SECTOR.

ANSWER -

1. Rights and equitable treatment of shareholders: Organizations should respect the

rights of shareholders and help shareholders to exercise those rights. They can help
shareholders exercise their rights by effectively communicating information that is
understandable and accessible and encouraging shareholders to participate in general
meetings
.
2. Interests of other stakeholders: Organizations should recognize that they have legal
and other obligations to all legitimate stakeholders.

3. Role and responsibilities of the board: The board needs a range of skills and
understanding to be able to deal with various business issues and have the ability to
review and challenge management performance. It needs to be of sufficient size and have
an appropriate level of commitment to fulfill its responsibilities and duties. There are
issues about the appropriate mix of executive and non-executive directors.

4. Integrity and ethical behavior: It is a necessary element in risk management and

avoiding lawsuits. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making. Because of this, many
organizations establish Compliance and Ethics Programs to minimize the risk that the
firm steps outside of ethical and legal boundaries.

Central issues in Indian Corporate Governance

The basic power structure of the joint-stock company forms of business, in

principle, is as follows. The numerous shareholders who contribute to the capital of the
company are the actual owners of business. They elect a Board of Directors to monitor
the running of the company on their behalf. The central issue is the nature of the contract
between shareholder representatives and managers telling the latter what to do with the
funds contributed by the former. The main challenge comes from the fact that such
contracts are necessarily “incomplete”. It is not possible for the Board to fully instruct
management on the desired course of action under every possible business situation.
The list of possible situations is infinitely long. Consequently, no contract can be written
between representatives of shareholders and the management that specifies the right
course of action in every situation, so that the management can be held for violation of
such a contract in the event it does something else under the circumstances. Because of
this “incomplete contracts” situation, some “residual powers” over the funds of the
company must be vested with either the financiers or the management. Clearly the former
does not have the expertise or the inclination to run the business in the situations
unspecified in the contract, so these residual powers must go to management. The
efficient limits to these powers constitute much of the subject of corporate governance.
The inefficacy of the Board of Directors in monitoring the activities of
management is particularly marked in the Anglo-Saxon corporate structure where real
monitoring is expected to come from financial markets. The underlying premise is that
shareholders dissatisfied with a particular management would simply dispose of them
shares in the company. As this would drive down the share price, the company would
become a takeover target. If and when the acquisition actually happens, the acquiring
company would get rid of the existing management. It is thus the fear of a takeover rather
than shareholder action that is supposed to keep the management honest and on its toes.

In the absence of profitable investment

opportunities, these funds are frequently squandered on questionable empire-building
investments and acquisitions when their best use is to be returned to the shareholders.
Keeping a professional management in line is only one, though perhaps the most
important, of the issues in corporate governance. Essentially corporate governance deals
with effective safeguarding of the investors’ and creditors’ rights and these rights can be
threatened in several other ways. For instance, family businesses and corporate groups
are common in many countries including India.