OBJECTIVE OF CORPORATE GOVERNANCE

INTRODUCTION: -
Corporate Governance refers to the way in which companies are
governed and to what purpose. It identifies who has power and accountability,
and who makes decisions. It is, in essence, a toolkit that enables management
and the board to deal more effectively with the challenges of running a
company.
Corporate Governance is making with two words first Corporate which means
business, generally large businesses. Secondly Governance is a decision-
making process and implementing those those decisions. so, corporate
governance is the mechanism, process and relation by which corporations are
controlled.
Corporate Governance means a system of rules, practices, and processes by
which a firm is directed and controlled.

CORPORATE GOVERNANCE
Corporate Governance is the set of standards and processes that
describe how an organization will be managed. The principles and practices
involved with corporate governance are intended to balance the interests of
the stakeholders of the organization including shareholders, board of directors,
executives and customers. 1
According to OECD Principles “corporate governance involves a set of
relationships between a company’s management, it’s board, its shareholder
and its other stakeholders. Corporate governance also provides the structure
through which the objectives of the company are set, and the means of
attaining those objectives and monitoring performances are determined”. 2

Advantages: -
 Good corporate governance ensures market performance and economic
development.
 Investor trust is maintained by sound corporate governance, enabling a
business to raise capital efficiently and effectively.
 It reduces the cost of energy.
 The share price has a positive effect.
 This provides the owners and managers with an adequate opportunity
to meet goals in the interests of shareholders and the business.

1
Corporate Governance, https://gartner.com, visited on 25.12.2023
2
Corporate Governance, from The Organization for Economic Cooperation and Development’s Principles.
  Good corporate governance also reduces waste, corruption, risk and
maladministration.
 It helps to build and develop brands.
 It ensures that the organization is run in a way that fits the best interests
of all.

Disadvantages of corporate governance: -

1. Separation of ownership and management

The officials and executives who oversee a company’s internal affairs
and make the bulk of its policies are not necessarily shareholders. For can,
publicly traded corporations, this may become a problem. In the absence of a
controlling shareholder, and the majority of shareholders vote by a proxy, the
company’s assets shall be managed by the board of directors and the officials.
The ownership-management distinction will lead to a conflict of interest
between management’s obligation to maximize shareholder value and
increase its revenue.

2. Illegal Insiders’ Trading

The word “corporate insiders” applies to corporate executives,
managers and employees as they may have access to sensitive, non-public
information about the company that could impact their share value. Company
insiders are not explicitly forbidden from trading in corporate securities but
must notify the Securities and Exchange Board of India of these transactions.
Illegal insider trading occurs when a shareholder sells a stock without access to
the information and in possession of sensitive information relating to the
potential value of his shares. An actioner not directly associated with the
company such as an external auditor, a government regulator or a relative of a
corporate insider may also participate in unlawful insider trading. Since access
to confidential corporate information is widely distributed, it can be difficult to
enforce legislation against insider trading.

3. Misleading Reports
There are many ways of presenting factually, accurate financial
statements in a way that misleads investors.

4. Regulation Costs
The misuse of corporate governance has led to the adoption of a
broader range of federal and state laws to discourage such abuses from
repeating. Compliance with this legislation can be burdensome and costly for
companies.3

SUGGESTIONS: -
 Develop Board, board members and specialized committees.
 Take new steps for cybercrimes in digital market.
 Improve competition in market for public welfare.
 Increase corporate social responsibilities.
 Look after the public interests.

PRINCIPLES OF CORPORATE GOVERNANCE: -

The principles of Corporate Governance are given below one by one:

Accountability
Accountability means to be answerable and be obligated to take responsibility for
one’s actions. By doing so, two things can be ensured-

1. That the management is accountable to the Board of Directors.

2. That the Board of Directors is accountable to the shareholders of the company.

This principle gives confidence to shareholders in the business of the company that
in case of any unfavourable situation, the persons responsible will be held in charge.

Fairness
Fairness gives shareholders an opportunity to voice their grievances and address
any issues relating to the violation of shareholder’s rights. This principle deals with
the protection of shareholders’ rights, treating all shareholders equally without any
personal favouritism, and granting redressal for any violations of rights.

Transparency
Providing clear information about a company’s policies and practices and the
decisions that affect the rights of the shareholders represents transparency. This
helps to build trust and a sense of togetherness between the top management and
the stakeholders. It ensures accurate and full disclosure timely on material matters
like financial condition, performance, ownership.

Independence
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Advantages and disadvantages, https://www.legalwiz.in/blog, visited on 26.12.2023
Independence means the ability to make decisions freely without being unduly
influenced. Decisions should be made freely without having any personal interest in
the company. It ensures the reduction in conflict of interest. Corporate governance
suggests the appointment of independent directors and advisors so that decisions
are taken responsibly without influence.

Social Responsibility
Apart from the 4 main principles, there is an additional principle of corporate
governance. Company social responsibility obligates the company to be aware of
social issues and take action to address them. In this way, the company creates a
positive image in the industry. The first step towards Corporate Social Responsibility
is to practice good Corporate Governance.4

OBJECTIVES OF CORPORATE GOVERNANCE :-

The different types of objectives are discussed below :

 To create social responsibility
 To create a transparent working system
 To create a management accountable for corporate functioning
 To protect and promote the interest of shareholders
 To develop an efficient organization culture
 To aid in achieving social and economic goal
 To improve social cohesion
 To minimise wastages, corruption, red- tapism etc

CORPORATE GOVERNANCE MODEL: -

Different corporate governance models may be found throughout the world. Here are
a few of them.

The Anglo-American Model –

This model can take various forms, such as the Shareholder, Stewardship,
and Political Models. The Shareholder Model is the principal model at present. The
Shareholder Model is designed so that the board of directors and shareholders are in
control. Stakeholders such as vendors and employees, though acknowledged, lack
control. Management is tasked with running the company in a way that maximizes

4
Principles of corporate governance, https://byjus.com, visited on 26.12.2024
shareholder interest. Importantly, proper incentives should be made available to
align management behaviour with the goals of shareholders/owners.

The model accounts for the fact that shareholders provide the company with funds
and may withdraw that support if dissatisfied. This is supposed to keep management
working effectively. The board will usually consist of both insiders and independent
members. Although traditionally, the board chairperson and the CEO can be the
same, this model seeks to have two different people hold those roles.

The success of this corporate governance model depends on ongoing

communications among the board, company management, and the shareholders.
Important issues are brought to shareholders' attention. Important decisions that
need to be made are put to shareholders for a vote. U.S. regulatory authorities tend
to support shareholders over boards and executive management.

The Continental Model

Two groups represent the controlling authority under the Continental Model.
They are the supervisory board and the management board. In this two-tiered
system, the management board is composed of company insiders, such as its
executives. The supervisory board is made up of outsiders, such as shareholders
and union representatives. Banks with stakes in a company also could have
representatives on the supervisory board.

The two boards remain entirely separate. The size of the supervisory board is
determined by a country's laws and can't be changed by shareholders. National
interests have a strong influence on corporations with this model of corporate
governance. Companies can be expected to align with government objectives. This
model also greatly values the engagement of stakeholders, as they can support and
strengthen a company's continued operations.

The Japanese Model

The key players in the Japanese Model of corporate governance are banks,
affiliated entities, major shareholders called Keiretsu (who may be invested in
common companies or have trading relationships), management, and the
government. Smaller, independent, individual shareholders have no role or voice.
Together, these key players establish and control corporate governance. The board
of directors is usually made up of insiders, including company executives. Keiretsu
may remove directors from the board if profits wane. The government affects the
activities of corporate management via its regulations and policies. In this model,
corporate transparency is less likely because of the concentration of power and the
focus on the interests of those with that power.5

CASE STUDIES:

Facebook

When Facebook went public in 2012, it was the largest tech IPO in history. The
social media giant raised $16 billion, valuating the company at over $100 billion.
But just a few years later, Facebook was embroiled in a major scandal involving
data privacy and manipulation of user information. In the wake of the scandal,
Facebook faced intense scrutiny from regulators, lawmakers, and the public.

The scandal put a spotlight on the company's corporate governance practices.

Facebook has a dual-class stock structure, which gives founder and CEO Mark
Zuckerberg complete control over the company. Zuckerberg owns over 60% of
Facebook's voting shares, giving him significant power to make decisions without
input from other shareholders. This structure has come under fire in recent years,
with some investors arguing that its concentration of power is not in the best
interests of shareholders.

Facebook has also been criticized for its lack of diversity. The company's board of
directors is majority white and male, and there are few women or people of colour
in senior leadership positions. Critics have argued that this lack of diversity makes
it difficult for Facebook to understand and address the needs of its diverse user
base. They argue that more needs to be done to improve Facebook's governance
practices and protect user data.

Uber

Uber is a ride-hailing company that allows users to request and pay for rides
through its app. Uber has been embroiled in a number of scandals in recent years,
ranging from allegations of sexual harassment and discrimination to questions
about its business practices. These scandals have put a spotlight on the company's
corporate governance practices.

Uber has a dual-class stock structure, which gives founder and CEO Travis
Kalanick significant control over the company. Kalanick owns over 20% of Uber's
voting shares, giving him the power to make decisions without input from other
shareholders. This structure has come under fire in recent years, with some
investors arguing that it gives Kalanick too much control and puts Uber at risk of
being mismanaged.

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Models, https://www.investopedia.com, visited on 29.12.2024
 Uber's board of directors is also majority white and male. This lack of diversity
has been criticized by investors and analysts, who argue that it makes it difficult
for Uber to understand and address the needs of its diverse user base.

Wells Fargo

Wells Fargo is a large financial institution that has been embroiled in a number of
scandals in recent years. These scandals have put a spotlight on the company's
corporate governance practices. Wells Fargo has a dual-class stock structure, which
gives CEO Timothy Sloan significant control over the company. Sloan owns over
10% of Wells Fargo's voting shares, giving him the power to make decisions
without input from other shareholders. This structure has come under fire in recent
years, with some investors arguing that it gives Sloan too much control and puts
Wells Fargo at risk of being mismanaged.

Wells Fargo's board of directors is also majority white and male. This lack of
diversity has been criticized by investors and analysts, who argue that it makes it
difficult for Wells Fargo to understand and address the needs of its diverse
customer base.

Key Takeaways: -

 Corporate governance is the system of rules, practices, and processes by

which a company is managed and controlled.
 Good corporate governance helps to ensure that a company is run ethically
and responsibly, which can protect investors and other stakeholders from
harm.
 Poor corporate governance can lead to unethical or irresponsible behaviour,
which can harm investors and other stakeholders.
 Scandals at companies like Wells Fargo, Alphabet, and Facebook have put a
spotlight on the importance of good corporate governance.
 Investors and analysts argue that more needs to be done to improve
corporate governance practices at large companies. They argue that better
governance can help to protect investors and other stakeholders from harm.6

CONCLUSION: -

In the above discussion, concluded that Corporate Governance is a key of

developmental source of our country. All the objectives and principles of corporate
governance helps us to know more about this. There are some case studies basis of
corporate governance.

In my point of view of that we should take more inventive steps to develop our
level of corporate governance. Without proper corporate governance, survival in

6
Case studies, https://www.linkedin.com, visited on 02.01.2024
Market or business is not possible. It is the key function of increasing modern
value in the society.

BIBLIOGRAPHY

1. Corporate Governance, from The Organization for Economic Cooperation and

Development’s Principles
2. https://gartner.com
3. https://www.legalwiz.in/blog
4. https://byjus.com
5. https://www.investopedia.com
6. https://www.linkedin.com