Milton Friedman, an economist and Nobel Laureate’s describes "Corporate Governance is to conduct the business in accordance with the owner’s or shareholders’ desires, which generally will be to make as much money as possible, while conforming to the basic rules of the society embodied in law and local customs."
Confederation of Indian Industries (CII) describes "Corporate governance as it deals with laws, procedures, practices and implicit rules that determine a company’s ability to take informed managerial decisions vis-a-vis its claimants – in particular, its shareholders, creditors, customers, the state and employees. There is global consensus about the objective of good corporate governance: maximizing long term shareholder value.
Every company wants to observe basic principles of good corporate governance for performing efficiently and to increase their valuation in the market. A good corporate can easily attract capital, foreign investment, investors’ trust and confidence and also takes advantages somewhere in vibrant stock market. Corporate governance are code of business conduct and ethics which would greatly benefit the companies enabling them to thrive and prosper.
Separation of Management from Owners: In most of the companies, promoters who are holding major shares are holding key positions in the management of the company. They have effective control of the management. Management should be separated from owners, so it can be impartial, independent and focus on creating stakeholders friendly policies and aims to protect their rights.
INTERNAL: Shareholders, Employees
EXTERNAL: Consumer, Supplier, Government, Community
Shareholders are the real owners of the company as they contribute towards creating and growing it with their money against number of shares.
Management’s responsibilities towards them
Most important assets of any organization. They led to a successful enterprise from average.
Management’s responsibilities towards them
Board of directors are appointed as trustees, to act in best interest on behalf of stakeholders and to run day to day operations of the company. Good governance requires that performance of board shall be evaluated at least once in a year. The evaluation process is constructive mechanism for improving board’s effectiveness, maximizing strengths and tackling weakness.
Financial Reporting & disclosures
These are generally influenced by the regulatory requirements prescribed by various statues.