The Corporate governance is the system in which the entire organization's functional aspects are run.In many cases management runs the firm/industry but it is also the responsibility of the Board of Directors to GOVERN the industry by way of managing and representing the interests and wishes of the firm's shareholders.So, the corporate governance implementation is a Strategic Management tool in the organisation's functionality.
As per norms of law,every corporation ,whether small or large size,should have a Board of Directors who are directly elected by the shareholders of the corporation. The directors of the corporation should have a FIDUCIARY duty towards the shareholders, as they are the industry's owners. A inactive board can get into trouble by depending on an influential/ dominating CEO.
CORPORATE GOVERNANCE AS A STRATEGY:
The public and the Investors are particularly very much interested in the financial reports which the company releases for public, and the boards of directors of these companies should have a legal obligation and responsibility to ensure that these reports are accurate and fair . Otherwise if anycase there is a false reports,statements etc. then it would cause a great issue in the society.The media spreads the related news in the society and it would lead to negative word of mouth in the public which reduces the confidence and trust in the public.
The recent business failures, material deficiencies in the financial disclosures,and auditor malfeasance have caused a lot of serious erosion of public confidence in company's financial reporting.
Common law has traditionally says that corporate directors should have a primary duty towards the corporation and a secondary duty towards the shareholders.
Best Corporate Governance Practice
Thers are Five Golden Rules in best corporate governance practices - key concepts in improving the best practices in business and the good corporate governance. Also these principles means that the company's public image will be highlighted as an example of an open,and fairly run Industry.
The public picture of an corporation will be accurately reflect the culture of that organisation. It follows, that good corporate governance should be like the bones and bloodstream of the corporation because this in turn reflects the culture of that corporation. so an firm's internal functions seems healthy,as mentioned, would naturally look so from an external perspective. So the best corporate governance practice's Golden Rules are like an health manual for any organisation also come with a practical diagnosis and treatment programme which sets out in good corporate governance implementation.
Five Golden Rules
As it is mentioned above,these rules lays out and explains how the holistic approachand the best corporate governance practice can ensure that a state of good corporate governance exists. It also considers that there is an over-riding moral dimension in running a business functions Therefore, the approach and the standards developed are entirely based on the belief that:
The morality of the business and the ethic should passthrough the entire organisation's operation from top to bottom and satisfy all stakeholders .
The Five Golden Rules are:
Align business goals
a clearly ethical basis to the businessÂ
through the creation of a su itable stakeholder decision making modelÂ
an effective strategy process which incorporates stakeholder valueÂ
an organisation suitably structured to influence good corporate governanceÂ
reporting the systems structure in order to provide accountability ,transparency
This approach of corporate governance recognizes the fact that the different stakeholders interests carry different weight, and suggests to those with a major interest matter . On the other hand, best corporate governance practice conveys that all stakeholders of the corporation should be treated with equal respect . For some reasons, although the methodology proposed above involves the concept of considering major stakeholders into greater account ,while formulating organisation's strategy,it is designed to improve all round support.This is because of the fact that every stakeholder of the corporation, is given the opportunity to express his/her view. It is key approach that corporations truly respect the minority interests of the stakeholder.
Corporate cultures and vision
In this regard I would consider an example:
The founder of the management consultancy Personnel Administration in 1943, Ernest Butten, issued a document ,which is called as the P.A. Charter. The aim behind this document was to drive the business forward by creating trust and confidence for its staff and well through his retirement twenty five years later. "Ernest Butten's" presence allowed the corporation and guided its behaviour for a generation.
This ability and the intention to create a vision and turn this vision into a way of life for the firm may be regarded as nothing unusual.But this was true till one compares, Robert Maxwell, a supposed entrepreneur and builder of multinational corporations, whose empire collapsed after his dealth. Also, Thomas J atson ,an entrepreneur and business builder, who created,( International Business Machines)IBM, is still a universal force to be bestowed with over eighty years since its inception.
What are the Principles of good corporate governance:
From the above examples, we can come to some conclusions and formulate some principles regarding best corporate governance practice.
Roles of key players
Equality treatment of stakeholders
Accountability and Transparency
culture, society; organisational paradigmÂ
congruence of goals of all interested partiesÂ
which is based on a model giving due respect to all stakeholdersÂ
albeit some have greater weight than others
to all stakeholders
And the best corporate governance practice in an Industry is not simply about a tug-of-war between disloyal institutional shareholders and greedy directors but also about the ethos of the organisation.
These goals and objectives may be set by the entrepreneur who starts the business, but they are taken into consideration by all parties as being high-minded and in every stakeholders interests.. So,there has to be a process of finding out the different needs and harmonising them. This is considered as the first step towards the smooth running of the Organisational business.
Note: "Best corporate governance practice = best management practice"
This regulatory approach towards the subject would consider governance which acts as a tool ensuring a balance between the various interested parties in a firm's affairs.
This indeed is what the Cadbury recommendations , reports and code are all about.
The essence of success in business is:
having a feasible strategy to achieve itÂ
having a clear and achievable goalÂ
creating an organisation appropriate to deliver
having in place a reporting system to guide progress.
So with regard to above we can say that , "Best corporate governance practice is all about satisfying the stakeholders' goal, and delivering success in an ethical way." Therefore, it follows that the corporation must entail a holistic application of good management in the company.
It is vital that a broad ideology is to be taken when considering corporate governance because we cannot analyse too strongly over our belief that "good management practices, will deliver good corporate governance."
The governance, the goals,objectives and the strategy of a business must be compatible, and there should be congruence between the various interested parties expectations.
KEY GOVERNANCE ISSUES
The Boards of directors of any corporation have a myriad of duties, which are mostly set by common law and the corporation's own by-laws. These duties often include:
approving major strategic decisions
making decisions about mergers and acquisitions;
nominating board candidates;
overseeing financial reporting and audits;
One of the most difficult corporate governance duties of the Board of directors lies in the removal of the firm's CEO. This can occur when the board disagrees with the strategic direction being followed by the CEO.
For example, when Carly Fiorino was appointed as the CEO of Hewlett-Packard (HP) in 2005, she was viewed as the hard-driving and fearless by many . The Hewlett Packard board of directors had grown increasingly uncomfortable with her inability to deliver the profits that she promised . Her refusal to make any changes which the board requested, caused her downfall during a period of low profits and falling stock prices.
Boards of Directors often administer their corporate governance responsibilities by way of establishing committees
Each committee of the organisation oversees a specific area of corporate governance and the same, reports to the full board members. The functions of audit committee is concerned with the company's financial condition, and the internal accounting controls. The nominating committee's area of functionality consists of issues related to management succession, including the CEO, and the board of directors. The unctionallity of compensation committee is in providing compensation of the firm's CEO and its officers.
In the past,the corporate boards have been described as either passive or active . Some corporate CEOs considered the Boards of Directors as "rubber stamp" who would approve virtually any actions they chose to pursue.But now the Corporate directors are much more independent, and their legal liability towards the shareholders has increased drastically and significantly.
One of the example where a traditionally "quiet" board of directors became more active happened with the Walt Disney Company.
For years, Michael Eisner ruled the Disney empire. After Roy E. Disney, Walt Disney's nephew,taken the lead of its shareholder revolt of sorts and complained that investor votes were being ignored , the Walt Disney Company board of directors finally decided to step in. In early 2004, the board of directors took the chairmanship away from Michael Eisner after more than 45% of votes cast at company's annual meeting opposed his board re-election. It was considered as the resounding vote of no confidence. But the board then chose Michael Eisner ally,Geoarge Mitchell(former U.S. Senator)as chairman, over the several larger shareholders objections. Ironically, a year later,michael Eisner was easily re-elected to the board of directors, with only 8.6 %of voters withholding their support for him.
So ,from the above paragraphs we can say that for the functioning of the Corporate Governance in the firm ,it is vital that the Boards of Directors must not act,merely, like a "rubber stamp" .But should make decisions keeping in the mind the interests of its stakeholders.
I would like to thank our professor Mr. D.M Sezhiyan, Department Of Management Studies, National Institute of Technology, Trichy for his encouragement and support throughout this work. He not only guided me but also helped me with the topic to understand, and communicate it to this paper.
I would also thank Dr. M. PUNNIYAMOORTHY (Head of the Department), National Institute of Technology, Trichy who has been a constant source of motivation and support all through the work.
Finally I would like to thank my family and well wishers for their boundless love and constant encouragement.