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What Is Corporate Governance & Example
What Is Corporate Governance & Example
Hello readers! Today we are back with another intriguing topic from the core world of finance –
Corporate Governance! Put your reading glasses on and stay glued!
In this era of globalization where information is just a tap away, we all are pretty much familiar
with the names of top-notch companies like Coca-Cola, Starbucks, Asian Paints, ITC, Unilever,
and etcetera! Over the years, they have continued to grow in manifolds in spite of the emergence
of various substitutes. Have you ever wondered what could be the secrets behind the success and
sustainability of these companies apart from their brand value and consistent sales? Well, let’s
dive in without further delay!
In order to flag off the session on a lighter note, we will put forward an example on a micro-
level.
In schools and colleges, the fests are held annually with pomp and glory! The responsibilities and
tasks are carried out in a chained way. Preparations begin prior to one to two months and require
proper governance! The absence of a good governing committee would have led them to a path
of big failure. Similarly, every company require sound corporate governance to grow and
augment in the long run.
Table of Contents
— Shareholders:
Shareholders invest in a public company by purchasing its stock from the exchange via brokers
and earn capital gains with a rise in the price of the stocks. However, Shareholders are not
embroiled in the day-to-day management of business affairs but enjoy the right to elect
representatives i.e. Directors. They also receive a Quarterly/Annual Report which consists of
information regarding investments and voting decisions.
Competent Corporate Governance needs crystal clear generosity and interaction between Board Of
Directors, Management and Shareholders in accelerating a company’s performance. Efficient corporate
governance shapes up a transparent bunch of rules and regulations in which directors, management and
shareholders have aligned ambitions. The framework allows the board of directors to affirm fairness,
accountability, and transparency in a company’s relationship with all stakeholders (management,
financiers, customers employees, government, and the community).
— Fairness
Fairness touches on the points of uniform and equal treatment of all the shareholders in reference
to receival of considerations regarding shareholdings. The fairer the company appears to
stakeholders, the more likely it is that it can endure in the league.
— Accountability
Corporate accountability is an act of responsibility and obligation to provide an explanation for
the company’s actions and activities. Corporate Accountability includes the followings:
Presentation of a balanced and simple analysis of the company’s orientation and prospects.
Responsibility for determining the character and extent of the adopted risks by the company.
Maintenance of adequate risk management and internal control structure.
Setting up formal and unclouded arrangements for corporate reports and a suitable relationship
with the company’s auditor.
Proper communication with shareholders regarding diversification, progress and financial reports
at frequent
— Responsibility:
The CEO and Board of Directors are accountable to the shareholders on behalf of the company
regarding the execution of responsibilities. Thus, they should exercise their authority with full
responsibility. The Board of Directors is responsible for conducting the management of the
business, appointing the suitable CEO, overseeing the affairs of the company and keeping an eye
on the performance of the company.
— Transparency:
Transparency means a company should reveal an informative piece of data about their activities
to shareholders and other stakeholders. It also includes the open-mindedness and willingness to
divulge financial figures which are genuine and correct in reality. The unveiling of reports
regarding the organization’s accomplishments and activities should be on time and strive for
accuracy. Such steps ensure the investors’ access to transparent and factual data which finely
mirrors the financial, environmental and social position of the organization.
— HDFC Bank
(Industry – Private Banking and Financial Services)
HDFC Bank identifies the significance of good corporate governance, which takes care of the
long-term interests of shareowners and helps to win the public trust in the Company. Therefore,
the Corporate Governance scheme is introduced to proffer a course and structure for managing
and regulating the bank in accordance with the principles of superlative corporate governance
policies.
HDFC Bank was amongst the first four companies which earned a Corporate Governance and
Value Creation (GVC) rating by The Credit Rating Information Services of India Limited
(CRISIL). The bank has been successful in achieving a ‘CRISIL GVC Level 1’ rating for the last
two consecutive years. This symbolizes that the bank has the potential to create wealth for all its
stakeholders while preaching the highest degree of corporate governance practices. The Bank
truly believes in transparent disclosures and the empowerment of shareholders for weaving
value.
The chart shows the past 17 years of data from the year 2000. Going by the chart, HDFC bank
has generated huge wealth over the years and is known for its laurel worthy Corporate
Governance.
On the contrary, in recent times, there are several specimens that have grabbed headlines
regarding massive failures of corporate governance. One such is the Punjab National Bank
( PNB) Scandal.
Summary
Let us quickly summarize what we discussed in this article. Corporate Governance is the
procedure by means of which a corporation guidelines itself. In a nutshell, it is a process of
administering a company like a monarchial state which installs its own customs, laws, and
policies from the highest to the lowest levels.
In financial terms, Corporate Governance is the collaboration of well -defined rules, processes
and laws by which functions and regulations of business take place. Most companies leave no
stone unturned to achieve a high degree of corporate governance. The structure and frame of the
Corporate Governance comprise of the Board Of Directors, Management and Shareholders!
A company that follows the hardcore core fundamentals of good corporate governance will
generally surpass other companies in terms of financial The core principles of sound corporate
governance include Fairness, Accountability Responsibility, and Transparency. There is a
multitude of benefits arising out of good governance which helps a company to ride on the waves
of growth.