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Corporate Governance

Evolution of Corporate Governance in India and Abroad

Introduction

Corporate governance issues have attracted considerable attention, debate and research world wide in recent decades. Almost invariably, such efforts gain momentum in the wake of some major financial scam or corporate failure, as these tend to highlight the need for tighter surveillance over corporate behavior. Corporate governance has wide ramifications and extends beyond good corporate performance and financial propriety though these are no doubt essential. In India also, corporate governance has been under scrutiny and is an issue that has gained widespread importance.

No one can agree exactly how corporate governance should be incorporated in a company’s strategy. Different people have different definitions of corporate governance. The dictionary meaning of governance includes both ‘the action or manner of governing’ and ‘a mode of living, behavior, and demeanor’. Corporate governance is essentially concerned with the process by which companies are governed and managed. It is a set of standards, which aims to improve the company’s image, efficiency, effectiveness and social responsibility. The concept of corporate governance primarily hinges on complete transparency, integrity and accountability of the management, with an increasingly greater focus on investor protection and public interest. A key element of good governance is transparency projection through a code of good which incorporates a system of checks and balances between key players – board, management, auditors and shareholders.

In the debate concerning the impact of corporate governance on performance, there are basically two different models of the corporation, the shareholder model and the stakeholder model. In its narrowest sense (shareholder model), corporate governance describe the formal system of accountability of senior management to shareholders. According to the model the objective of the firm is to maximize...