Corporate Governance and International Best Practices: The Case of Satyam

Article excerpt

Corporate Governance (CG) scandals saw the light of dawn in the UK in late 1980's and later, in the USA in the late 1990's (Martin, 2009). India too witnessed a corporate fiasco at Satyam Computer Services Limited (SCSL), a leading player in the IT and BPO industry. This paper, hence, highlights the role of efficient and ethical corporate governance practices, in safeguarding investors' interests. The paper is based on qualitative research and introduces the best practices of corporate governance in the UK, USA and India, under three criteria-Corporate governance and ownership functions; Accounting and Financial Reporting and Other Regulations. SCSL is used as a focal point to bring forth weaknesses of existing CG systems in India. Innovative CG principles have to be developed, by individual corporations, in India and other emerging economies, by national as well as International benchmarking of CG norms. The paper has implications for business managers and strategy developers as it offers implementable CG strategies.

INTRODUCTION

Corporate Governance (CG), all over the world, is aimed at making activities of corporations visible and honest, (Martin, 2009) and the practices around corporate governance are designed such that they facilitate consistent monitoring of "top manager's strategic decisions" (Hitt et al, 2001). The ?Institute for Corporate Governance', Dubai describes CG as "the system by which business corporations are directed and controlled". The institute also highlights that CG norms offer a guideline for responsibilities and rights, to all stakeholders, including Board of Directors, Shareholders, Business Managers and all stakeholders. This helps an organization in achieving the dual purpose of setting ethical goals and monitoring their implementation, on a regular basis( Smith, 2009). Clearly defined corporate governance policies help the organizations in identifying appropriate management institutions that shall govern the corporation (Nakano, 2007). This eases the execution of stringent practices within the organization and empowers various stakeholder groups for the purpose of whistle-blowing (the process of reporting fraudulent and unethical practices within a corporation). When CG practices are consistently adhered to, within a corporation, it leads to enhanced trust, of investors, in an organization, thereby leading to higher economic growth (Millsttein, 2005), not only at the organizational level but also at the national level.

Corporate Governance has received special attention from all over the world after scandals at Enron Corporation (USA), Adelphia Communication Corporation (USA), The BCCI Bank (UK), Robert Maxwell Pension Funds (UK), the Harshad Mehta Share Scam( India) and Satyam Computer Services Limited( India). Furthermore, after the global financial meltdown (2007-2010) and turmoil at Lehman Brothers, Morgan Stanley, Goldman Sachs etc, it is evident that lack of stringent CG norms has had implications on economies as strong as US and UK. It hence, becomes essential to understand the importance of corporate governance because it offers, to corporations, a framework, which is established on ethical conduct, morals and values (Kumar, 2008). Countries like India and China, that are global attractions for future investments (Keffer, 2007), must guard themselves from any further fraudulent incidents so that foreign institutional investors and other global corporations see these economies as a safe zone to initiate their businesses. Organizations must learn from International players and implement correct and calculated CG initiatives, which would lead them towards a strong spot on the global map.

In the discussed backdrop, the aim of this papers is to highlight the Corporate Governance mandates (and their adherence) in many developed economies of the world, highlighting the position and compliance, of the developing economies, to the CG codes and practices. The paper futher propeses, recommendations to increase efficiency of the countries' regulatory oversight. …