While Corporate Governance can be simply defined as “the way a particular company is managed”, a drill-down opens up a plethora of do’s and don’ts that business leaders must be aware of at all times. To avoid human errors that can severely damage the reputation, corporations implement system by which they are directed and controlled. But still, mistakes happen – deliberate, or sometimes due to ignorance. In either case, the consequences can be grave. Hence, it is becoming increasing critical for every corporate leader to place values, ethics, systems & processes, and transparency above everything else. Governance involves the alignment of interests among the stakeholders.
A series of large-scale corporate frauds around the world have led to several legislations on corporate governance. For instance –
- CLERP 9 in Australia (Corporate Law Economic Reform Program)
- Sarbanes–Oxley Act in the US
- OECD‘s internationally agreed benchmark consists of more than fifty distinct disclosure items across these five broad categories.
- Board and management structure and process
- Corporate responsibility and compliance
- Financial transparency and information disclosure
- Ownership structure and exercise of control rights
- In India, SEBI has defined Corporate Governance as the “acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.”
Voluntary Guidelines for Companies in India (having paid-up capital of 10 crores or more than 100 members)
A functional website is required to disclose the following – to promote good corporate governance and to enhance investors’ awareness (source: http://www.nfcgindia.org).
- General information about business, industry scenario, risks and concerns
- Board of Directors, code of conduct, remuneration etc
- Information on Audit Committee
- Financials – turnover, profit after tax, ratios, PE, EPS, amount spent on CSR etc.
- Information on subsidiaries – name, shareholding, total capital, turnover, profit after tax etc
- Shares issued during last five years, share price (if listed), shareholding pattern, Registrar, dividend payment, compliance officer, IPO/FPO including withdrawn, if any.
- Shareholders Committee, Investors Grievances Committee, shareholder’s complaints, press release for investors/shareholders, auditor’s qualification if any, penalty imposed by any Govt. agency / court, complaints about insider trading transaction – during last three years.
- Shares of the company acquired/sold by the Directors and their relatives during last three years.
- Investor’s complaint mechanism, facility for lodging online investor complaint & its follow up till resolution.
- Details of related parties and transactions with them for the last three years
- Initiatives towards CSR and environment protection (details and expenditure incurred during the last three years).
- Important pending litigations likely to affect the financial position and the working results of the company.
As someone rightly said, “Be on the side of the truth—If you tell the truth, it becomes a part of your past. If you lie, it becomes a part of your future.” It applies to both human beings and corporates.