Academic journal article Review of Management

Corporate Governance: Perception of Executives in India

Academic journal article Review of Management

Corporate Governance: Perception of Executives in India

Article excerpt


Corporate governance is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company. Corporate governance comprises the systems and processes which ensure the efficient functioning of the firm in a transparent manner for the benefit of all the stakeholders and accountable to them. The focus is on relationship between owners and board in directing and controlling companies as legal entities in perpetuity. A company's ability to create wealth for its owners however, depends on the role and freedom given to it by society.

Sir Adrian Cadbury in his preface to the World Bank publication, Corporate Governance: A Framework for Implementation: states that "Corporate governance is ... holding the balance between economic and social goals and between individual and community goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. The incentive to corporations is to achieve their corporate aims and to attract investment. The incentive for states is to strengthen their economies and discourage fraud and mismanagement.

The focus on corporate governance arises out of the large dependence of companies on financial markets as the preeminent source of capital. The quality of corporate governance shapes the future and the growth of the capital market. Strong Corporate governance is indispensable to resilient and vibrant capital market. But capital markets and financial markets in general can function properly if individuals nave access to accurate basic information about the companies they invest. The link between a company's management, board and its financial reporting system is crucial.

Modern business corporations share many of their features with democratically elected Governments. At the top of governance hierarchy, in the case of a business enterprise, is the Board of Directors. Boards of companies need not be uniform with respect to their composition, thinking styles and functioning methodologies. Their strength, in fact, lies in their diversity. Rigidities in thinking styles and composition are likely to reduce the Boards to mere ornamental organs. Such Boards fail to meet the multifaceted demands made on them by the emerging business - economic environment. As business enterprises extend their horizons to international sphere, it becomes imperative for them to attune their governing organs to the expectations of their international counterparts as well. Liberalization and Globalization initiatives have made it essential for Indian corporate to make appropriate changes in their Boards as well as their governance practices.

Many agencies in India have suggested ways and means to strengthen corporate governance, however, the recommendations of the Kumar Mangalam Birla Committee and N R Narayana Murthy Committee are extremely relevant in the context of the present framework.

Corporate governance therefore calls for three factors:

a) Transparency in decision-making

b) Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or not taken, and

c) The accountability is for the safeguarding the interests of the stakeholders and the investors in the organization.

Corporate governance aims at attaining highest standard of procedures and practices followed by the corporate world so as to have transparency in its functioning with an ultimate aim to maximize the value of various stakeholders.

Review of Literature

Vogel (1992) pointed out discrimination in the norms of ethical business behaviors across the different industrialized nations and urged for standardizing and globalizing business ethics.

The need of ethical commitment in corporate managers is primarily responded by management education. …

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