ISSN- 2394-5125 VOL 7, ISSUE 12, 2020

“CORPORATE GOVERNANCE”
IMPORTANCE, PILLARS AND PRINCIPLE
(Road to Corporate Transparency)

Dr. Ravi Gupta1, Dr. Satish Chand Sharma2, Dr. Priti Gupta3
1,2,3
Assistant Professor, Department of Commerce & Management, S.S Jain Subodh P.G (Autonomous) College,
Jaipur (Rajasthan) India
Email: 1ravi93141@gmail.com, 2drsatishsharma.jpr@gmail.com, 3priti3791@gmail.com

Received: 14 March 2020 Revised and Accepted: 8 July 2020

ABSTRACT: Corporate governance is a collection of policies to determine the success and course of a
corporation. This provides a summary of the laws and guidelines regulating the workers of a company. They
decide to assume responsibility for the shareholders. Corporate administration is a specific concept in the
corporate world of today. From the viewpoint of India, the paper will address corporate governance. We will
discuss the challenges facing a developing economy such as India. It will also explain why good Corporate
Governance practices are relevant for every country. In the next segment, researcher looks at what an
inseparable part of India's economy was corporate governance. Then it deals with the presence of India's auditor
and audit committee, internal governance and choice of auditor. The paper outlines, in conclusion, how the
actual economic condition of India is affected by corporate governance.

KEYWORDS: Corporate Governance, Corporate Governance Principles, Corporate Governance Importance

I. INTRODUCTION
Corporate governance has become relevant in the world in recent years. The convergence and globalization of
financial markets and a renewed number of company scandals, such as Enron, the World Com, and many other
factors have led to rapid developments in this field. In recent years, Brazil, Russia, India and China (BRIC)
countries have emerged as the world economy's main economic force. Studies estimate that India amongst the
BRIC economies has the potential to rise most rapidly for the next thirty-50 years (Wilson & Purushothaman
2003). It is expected that the BRIC countries will generate a higher combined GDP than the developed
countries. Phenomenal economic growth has shifted, including the foreign investment flows, the structure and
dynamics of the global economy (Khanna and Palepu, 2006). Foreign investment comes directly and through
secondary markets in India. The FDI to India until August 2010, was 137.960 million dollars (RBI Newsletter,
2010). Cross-border acquisitions have also increased considerably, and some firms have been included in
several bonds (Chemmanur and Fulghieri, 2006; Bell, Moore & Al-Shammari, 2008). For example, in
November 2010 alone, International institutional investors made significant capital market investments of
$4.78billion and total investment of $38billion until March 2011.
Developed-state investors expect Indian companies to pursue foreign best practices based on corporate
governance. A 2002 McKinsey report indicates that customers are willing to pay a premium for a well-regulated
business of up to 25 percent (Barton, Coombes, & Wong 2004). There have been several questions about
governance practices in India due to scandals related to the Indian economy (Goswami, 2002), the 2008 global
financial crisis and recent corporate fraud at Satyam. Therefore, attempts have gradually been made by both
regulators and businesses to deal with corporate governance systems and processes. Since there are considerable
variations in the institutional context of an economy, such as the combination of formal regulations, informal
constraints and compliance characteristics across the world, and that they have an effect on corporate financial
and management structures (Walsh & Seward, 1990; North, 1990). Corporate governance scholarship over the
last two decades has grown steadily. Over the period 1993-2007, the field of corporate governance research has
matured globally (Durisin & Puzone, 2009). Reports in the top corporate governance journals show increased
scientific rigor and are multidisciplinary. However, its dominant US focus seems to be the major weakness in
global corporate governance study. In a study of global Corporate Governance research, it has been found that
most studies have an analytical unit in the US institutional sense (Durisin & Puzone, 2009). However few cross-
border studies were found, and the evidence that generalizations were incorrect in other contexts in Europe was
unambiguous in the single country study. Against this backdrop, in view of its particular institutional contexts,

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the state of corporate governance research in the sense of a developing market is possibly different. This paper
seeks to see whether global research on corporate governance in leading international journals reflects India's
increasing interest and whether research from the top Indian journals reflects the gaps in global corporate
governance discourse.

II. REVIEW OF LITERATURE

Many studies have explored the relation between corporate and corporate governance. Strong connection was
indicated in most studies. But, although good governance leads to good performance by companies, this linkage
has failed to be conclusively proven and the findings are mixed (Pande, 2011).
Brown and Caylor (2004) have found that Board structure is the key component of the Corporate Governance
Quotient (CGQ) core factors. They also showed a positive relationship between CGQ scores and financial
performance indicators modified by industry – shareholder returns, productivity and the payouts and dividend
yields. (2005) Van de Velde et al.Evaluated and found optimistic, but not major, associations between corporate
governance and financial performance scores. This conclusion is in line with Gompers et al. (2003) findings
who further described companies with good governance and shareholders ' rights as having higher firm
profitability, income and growth in revenue. Financial and Byun Governance Indicators (2006)
In a research paper, companies ranked in top 10% of GMI’s global data base achieved greater ROE, ROA and
return on capital (ROC) than those rated in bottom 10%. The report also found the link between corporate
governance ratings and financial performance. Selvaggi & Upton (2008) (2008) find more risk-adjusted returns
for better regulated businesses. They stressed strongly that better corporate governance leads to improved
results and not the other way around. In Eisenhofer's (2010) view, "strong corporate governance encourages
long-term sustainability and actually pays for it." Core et al. (2006); and Statman and Gluskhov (2009) did not,
however. Azim (2012) used structural equation (SEM) modeling and found the positive covariance of some
governance structures, with some having negative covariance. Therefore, no clear and substantive relationship
between the governance and financial performance mechanisms (as provided for by ROE , ROA, book value
ratio markets, prices – earnings ratio and divisend yields) was developed.
We therefore see a positive and important relationship in some of the current studies; some of them suggest a
positive but insignificant relationship, while some studies do not indicate a significant correlation between
corporate governance and corporate financial efficiency. Therefore, current literature provides mixed and
incomplete findings and, in this context, further empirical analysis is required to obtain definitive results.

Importance of Corporate Governance:

The implementation of Corporate Governance in an organization offers structure and decision-making processes
and sets out who will be accountable. This is the intent and classification of the position. The business
concentrates its goal, vision and does not cater to a few top officers. The benefits of corporate governance in the
short term are difficult to achieve.
Juggling and showing benefit are short-term gains to a corporation, but they are not financial reputation
strategies for the long term. An investor's confidence is supported with true financial results, transparency and
governance policies.
CEO or director of an organization may reveal the unethical practices or mismanagement through respect for
corporate governance standards. The unfair compensation given to the managers or CEO by corporate
governance would be illustrated. It increases trust and relationships for investors.
Fraud and maladministration can be identified early for corrective steps. Therefore, it is accepted that no
program will fully eradicate fraudulent activities. Free political structure is corporate governance. It may seem
windy or time-consuming, or it may impede decision-making. There is a much higher risk of fraud and a
company's loss.
Corporate management is promoted with marketing and snobbish pictures, where investors and the general
public are perceived as wealthy and forward-looking corporations with corporate governance. Corporate
management supports institutional investors. Top brass bans autocratic operating practices. Corporate
governance in the enterprise produces a new open community.
Corporate governance confidence can boost the organization's participatory efficiency. Increasingly, financial
resources will be provided, goods supplied, products and services will be purchased and entered. When a
company is perceived to pursue non-ethical policies, the market capitalization of a business dramatically falls.

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It has been seen in the recent past in the cases of Satyam and Sun. The corporation invests its money in a
product, and it would of course be the company's responsibility to give an accurate and transparent account for
its stakeholders. To order to do this, corporate governance and efficient oversight must be implemented.
The strategies and practices of corporate governance differ globally and are the same in the basic concepts.
Apart from written laws and codes on proper management, the businesses should have voluntary codes that
conform to their mission and objectives.
The importance of proper corporate governance is in the area detailed I to XXVI below:
These principles are given below
I. Comply with existing laws
II. Comply with a company's moral responsibilities
III. Superior opportunities for the company
IV. Corporate governance can optimize contributions from economic value added and market value added
V. Friendly atmosphere.
VI. System, efficiency and measurement equal program
VII. Emphasize and minimize the responsibility of the CEO and the Management Board.
VIII. Unethical governance approaches and work in a business
IX. The promoters' reputation will be growing
X. Increased market capitalization and asset transfer growth
XI. Global recognition makes an organization rising by fusions and acquisitions
XII. Maximizing shareholder interest to all shareholders and fair treatment
XIII. Comply with world market business logic
XIV. Open culture of work should be dedicated to staff
XV. Preservation of minority shareholders ' rights
XVI. Reduces managers' opportunities to exploit and produce more sales
XVII. Eliminate shortcomings in policy and legislation
XVIII. Enlisting confidentiality tradition. Allow the practices and work of a organization more available.
XIX. Additional security withdrawn for a particular group of investors or managers
XX. removing policies that assist the managers in the collection of power and resources
XXI. respect for rights and democratic working methods, particularly with all stakeholders and shareholders
XXII. The corporate governance checks and balances have a significant positive influence to adhere to client
expectations without having to deal with personal preferences and dislikes.
XXIII. This creates a picture of culture and politics.
XXIV. The company's established ethical principles provide a long-term legacy, brand identity and profit
XXV. While legal owners should exercise power over every corporation, those who manage the affairs of
only a few firms are located and insider knowledge lenders through their financial leverage and managing party.
The management of companies helps to remove excessive restrictions by private interests
XXVI. Establishing value for all business stakeholders

II. PRINCIPLES OF CORPORATE GOVERNANCE

The style of governance can vary as much as the design of companies. Therefore the Cadbury Committee and
the Rahul Bajaj Committee have also claimed that in the developed world there is no special corporate
governance framework. There is no 'one size fits all' corporate governance system. Each organization should
have its own style of governance. Given the diversity of models, corporate governance has certain basic values.
1.1 The ethical method
Ethical principles must be upheld by a corporation. Deviation from ethical values compromises the corporate
culture and the interest of stakeholders.
1.2 Transparency
This needs the clarification of strategies and actions of the company for those to whom it is accountable.
Transparency leads to sufficient reporting without undermining the interest of the client. For Enron, the value of
the shareholder was destroyed because of the shareholders' loss.
1.3 Responsibility
It means that the Management Board is liable to shareholders and the Management Board and shareholders are
liable to the Management Board. Responsibility gives success impetus.

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1.4 Trusteeship
In the board of directors there is a trusteeship concept, which needs to work to protect and enhance the interests
of shareholders and other stakeholders. This idea was endorsed by Mahatma Gandhi.
1.5 Empowerment:
This actually confers decision-making powers at the most important organizational level to stimulate creativity
and innovation within the company.
1.6 Fairness to all Stakeholders:
All parties involved in the governance process are handled equally and fairly.
1.7 Oversight:
This means that a checks and balances program exists. It will avoid abuse of power and make the management
of change and risks timelier.
1.8 External Audit:
It must be independent and penetrating.

1.8.1 Regulatory Regime

There must be an appropriate regulatory regime to back these obligations.

1.8.2 Whistle Blower Policy

Companies should adopt a policy for Whistle blowers. This was specifically recommended by Narayan Murthy
Committee.

Source: https://www.yourarticlelibrary.com

2 4Ps of Corporate Governance:

Instead of the company's saved money, the companies will now have to provide thorough and accurate account
of their progress. The CEO, the Management Board and the Executive Director may, whether they are fully
aware of their experience and decisions, have to be responsible for the performance and shortcomings of an
organization.
This dimension effectively helps to direct the company's business governance and the product. Corporate
administration does not rely on income or good cash flows, it does not pursue its staff's long-term objectives
and commitment. Corporate governance is either individuals, intention, processes and achievement with the
integrated system works of 4Ps. In channeling the resources of any organization, the 4Ps play a significant role.

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Source:https://www.yourarticlelibrary.com

2.1 People
They are people who run every company. People including investors, consumers, staff, lenders, companies,
government and society as a whole are their stakeholders. The internal stakeholders of an organization must be
willing to work, employee-oriented and ethical in their approach.
The administration should be fair, fair and result-oriented. The management of the company needs to
incorporate ethical principles like honesty and integrity in the business. Cordial partnerships and their
involvement in decision-making minimize conflict areas between various stakeholders.
2.2 Purpose
In the intent of a company, the management of a business should be transparent. Everyone should be notified
and aware of the intent. As time and circumstances change, the aim should be changed. The function specified
should be tangible and operational. The concept of intent contributes to a company's vision and mission. The
direction is then taken to identify a company's strategy and comprehensive action plans.
2.3 Process
Defining and recording process management in a business. Management of processes covers resource control,
management of companies, supply chain management, energy management, marketing management, data
management, risk management, and mantra. Project management.
The management of processes involves how they organize and generate the predetermined results. The control
parameters and mechanisms should show the areas in which these processes are deficient. The plants and
processes are regulated by different rules and laws that require enforcement in the country.
2.4 Performance:
The standards of output should be set and communicated to ensure that everyone knows what is expected in the
chain. What is and is not appropriate. The effects should be measurable. Standard measures contribute to
operational efficiencies and vulnerabilities at different stages. The metrics of success may be made on the
monetary transactions in a organization such as the productivity of assets or the supply chains.

3 Suggested Model of Corporate Governance

The best practice in corporate governance is to meet the interests of stakeholders and to meet ethical success. It
follows, therefore, that effective management needs to be applied holistically.

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We present an example below illustrating the burden on a larger company to demonstrate the extent and the
need for a holistic approach.

When we consider corporate governance a broad perspective is necessary because, as we cannot emphasize our
conviction that good management practice can produce good corporate governance. Compliance with regulatory
and code checklists does not offer good corporate governance if bad management is developed or a lack of
commitment to good management. A gradual implementation of more and more regulations that are being held
in declining regard and which yield less and less impact is the longer-term implications of this externally
implemented regulatory approach.

This is not helpful for companies or their customers, and has served only to create a growing industry of
specialist consultants in corporate management and lobby groups. More and more business failures were also
not avoided. There are, however, those who attempt – and succeed in – to hide from and change laws, while the
most common provisions of the various Codes of Conduct may definitely be seen as best practice in corporate
governance – or at least good corporate governance if they were enforced externally, not really acquired and
controlled by each part of the company and its stakeholders.

The big benefit of the shareholder model over the management model of stakeholders, as Prof Sir George Bain
once said to us, is the simple goal: optimize shareholder value. No such a basic goal attaches itself to the
stakeholder strategy and, even without a specific purpose, management is faced with the difficult task of
attempting to execute its mission properly.

From the representatives of some of the largest corporations in the world to the owners / managers of small
businesses, our knowledge of collaborating with and watching management over the last 30 years stands out as
a general rule. The management, the priorities and strategy of a business must be compatible and the aspirations
of the various stakeholders must be compatible. Clearly, this means that in describing the best practice in
corporate management, there is a popular understanding of the ethical actions of the corporation the opinions of
all parties concerned are considered when deciding the objective· these views are given an appropriate
weighting to determine how the best can be done.

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III. CONCLUSION

This work shows that since the implementation of recent reforms Indian companies have made significant
changes in corporate governance. Moreover, the key goal of the changes is to make the board more accountable
to all stakeholders. It is a significant development for Indian companies to have at least one female managing
director on board. In order to boost gender equality at the top management level, regulators should also increase
representation of women. The position of Independent Directors is crucial in the effective completion of these
reforms as Indian companies should appoint more independent directors. The required 2 percent CSR net profit
spending goal is still not fully met. Hopefully this Indian model will create miracles for the advancement of our
society in the near future, as businesses will recognize the core areas of social responsibility. This can
contribute to higher returns on social investment. Such philanthropic initiatives. The mandatory publishing of
assessments of corporate responsibility has enhanced economic and social responsibility transparency. In order
to increase environmental understanding and accountability, regulators would mandate disclosure of carbon
footprints. In addition, it will inspire businesses to obey the rules and to make a significant contribution to
society and the community if proper management incentives are implemented in various sectors.

IV. REFERENCES

[1] Corporate Governance Definition. (2020). Retrieved on June 21, 2020, from
https://www.investopedia.com/terms/c/corporategovernance.asp.
[2] Corporate Governance in India: Concept, Needs and Principles Retrieved on June 20, 2020,
https://www.yourarticlelibrary.com/essay/corporate-governance-essay/essay-on-corporate-governance/99370
[3] Importance of Corporate Governance and Its Basic Principles.... (2020). Retrieved on June 15, 2020,
from https://www.mondaq.com/corporate-governance/834114/importance-of-corporate-governance-and-its-
basic-principles.
[4] King IV Report – The Importance of Corporate Governance | RSM.... (2020). Retrieved on June 2,
2020, from https://www.rsm.global/southafrica/news/king-iv-report-importance-corporate-governance.
[5] Principles for enhancing corporate governance. (2020). Retrieved on June 10, 2020, from
https://www.bis.org/publ/bcbs176.htm.
[6] Principles of Corporate Governance. (2020). Retrieved on June 5, 2020, from
https://corpgov.law.harvard.edu/2016/09/08/principles-of-corporate-governance/.
[7] What is Corporate Governance? Examples and Issues | SCU Online. (2020). Retrieved on June 4, 2020,
from https://online.scu.edu.au/blog/what-is-corporate-governance/.

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