Today’s business is a highly complex phenomenon. A business has to face competition in the country itself and also from outside. It has to face competition in respect of price and quality as well as non-price competition in respect of advertisement, packaging and design of the product. Each company has to comply with many legal parameters before launching production. A healthy company follows the rules of ethics and norms of corporate governance. The corporate governance means “the ways in which suppliers of finance to corporations, i.e., debt holders and equity holders, exercise control and ensure accountability of company so as to assure themselves best possible return on investments.” There are 5 channels through which corporate governance exerts its influence.
The legal and regulatory framework provides the institutional aspects of business environment. The quality of corporate governance depends upon this legal and political environment. It may be mentioned here the shareholder’s rights will depend upon strength of Company Law. How debtors will be able to protect their rights depends on Bankruptcy Laws. Corporate Governance has to identify itself with the tradition and cultural heritage of the society and country. It is strategy, culture and tradition oriented, has a term implications and is externally focused. Thus Corporate Governance is a matter largely determined by the business environment. In India, first organized steps were taken in this regard by CII. CII formed a committee under the chairmanship of Shri Rahul Bajaj. In spite of so many recommendations and platitudes, true Corporate Governance principles has been violated worldwide. The cases of WorldCom and Enron, Tata Finance, the effort of Tata Tele Services to use reserves of VSNL are pointers to the breach of Corporate Governance principles. It is a matter of social awareness, and not just a set of rules and regulations. In the era of globalisation, the sound corporate governance principle is necessary, more transparency in the corporate behavior is sincerely needed to avoid disputes and repositioning of shareholders’ and stockholders’ trust. STRUCTURE OF FINANCIERS Equity Holders 1. Large shareholders 2. Identity of shareholders Debt Holders 1. Large debt holders 2. Identity of debt holders CHANNELS OF CONTROL Board of Directors Managerial Incentives Commitment & Trust Disciplining (i) Market for shares (ii) Takeover mechanism OBJECTIVES Shareholder’s Value Maximization (i) Profit (ii) Growth (iii) Stabilit y Disclosure Rules Auditing Rules Debt Covenants Bankruptcy Rules Legal and Regulatory Framework
REFERENCES 1. Economic Environment of Business – V.K. Puri, S.K. Mishra 2. Changing Business Environment in India – Saroj Upadhyay 3. 4. 5. 6. 7. 8. %20Bapat.pdf
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- Winter '17
- Prof Natwar Lal