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Corporate GOVERNANCE has evolved into an umbrella term that encompasses the economic, legal and institutional effort that allows companies to diversify, grow, restructure and exit all in order to maximize the shareholders value. Corporate GOVERNANCE doesn't appear to have yet taken roots in the Indian insurance companies.
Corporate GOVERNANCE has evolved into an umbrella term that encompasses the economic, legal and institutional effort that allows companies to diversify, grow, restructure and exit all in order to maximize the shareholders value. Corporate GOVERNANCE doesn't appear to have yet taken roots in the Indian insurance companies.
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Corporate GOVERNANCE has evolved into an umbrella term that encompasses the economic, legal and institutional effort that allows companies to diversify, grow, restructure and exit all in order to maximize the shareholders value. Corporate GOVERNANCE doesn't appear to have yet taken roots in the Indian insurance companies.
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Attribution Non-Commercial (BY-NC)
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Скачайте в формате DOC, PDF, TXT или читайте онлайн в Scribd
Today virtually every industrialized nation is seriously
engaged in defining the kind of “corporate governance” that should be put in place to manage the economic activities. Corporate governance has evolved in to an umbrella term that encompasses the economic, legal & institutional effort that allows companies to diversify, grow, restructure & exit all in order to maximize the shareholders value. It deals with the ways through which suppliers of finance to corporation can assure themselves of getting a return on their investment. As the Nobel laureate Milton Friedman observed, corporate governance has today become much more than the conduct of business in accordance with shareholders desires. However, corporate governance doesn’t appear to have yet taken roots in the Indian insurance companies.
Defining corporate as “a complex web of contractual
relationship among the various claimants to the cash flows of the enterprise”, one school of thought argues that the fiduciary duties of managers & directors of companies should not only confine to maximization of the firm value for shareholders but also extend to ensure safety & soundness of the enterprises. This argument obviously expects corporate to become powerful economic entities & important social institutions that use its economic power to add value to society in general & peoples lives in particular. This new moral contract between the corporate individuals & the society is essentially aimed at transforming the corporate as value-creating institutions. WHY CORPORATE GOVERNANCE?
No better reasoning could be advocated for corporate
governance than what Adam Smith so aptly put it almost 250 years back. Directors of companies, however being the managers rather of other people’s money than their own, it can’t well be expected, that they should watch over it with the same anxious vigilance. Negligence & profusion therefore must always prevail, more or less, in the management of the affairs of such company. Exactly after 150 years, Berle & Means (1932) have echoed similar feelings: control will tend to be in the hands of those who select the proxy committee is appointed by the existing management, the later can virtually dictate their own successors. Modern economists, too are forthright in their assertion that managers don’t always act in the best interest of shareholders. Against this backdrop corporate governance has emerged as a tool to handle agency problems & their by ensure that managers will act in the interests of the shareholders. This intellectual debate has in the recent past raised a question: whether corporate governance should focus exclusively on protecting the interests of equity claimants in the corporation or whether corporate governance should instead expand its focus to deal with the problems of other groups called non shareholders constituencies. CORPORATE GOVRNANCE: CURRENT STATUS.
A greater chunk of insurance business in India being
public owned, the CEOs are often found accountable to political institutions, but not to economic institutions, the board of directors. This dichotomy is resulting in sub optimality in corporate governance
Indeed as Prasanna Chandra, the corporate
governance in Indian in public sector undertaking is a ‘transient system’ with the key players, viz., politicians, bureaucrats & managers taking a myopic view of things for which anyone of the following could be a reason:
• The boards of public sector undertakings, appointed for
all practical purposes by the controlling administrative ministry, brings with it a good deal of political & bureaucratic influence on the management. As a result the autonomy of the management is often found substantially eroded.
• Public sector undertakings are subjected to the CAG
audit & are accountable to parliament. This leads to an excessive emphasis on observing rules, regulations, & guidelines & thus efficiency & performance are often sacrificed at the alter of propriety.
• Chief executives of public sector undertakings have
short tenure, coupled with limited freedom, leads to a myopic outlook. It is a rare to find a visionary leader guiding the destiny of a public sector undertaking with a long planning horizon. • The performance standards in general are soft, compensation levels are low, incentives for performance are poor & ‘real’ accountability is truly weak.
Over & above this, insurance companies in India
are the most regulated businesses as is the case all over the globe. In fact, the IRDA regulates most of the financial activities of these companies, including kinds of investments that a company can make from its premium income & exposure norms. They are also required to constitute investment committees comprising two non executive directors, the principal officer, chiefs of finance & investment divisions & the appointed actuary. The committees decisions should be properly recorded & made available for inspection by the officers of the IRDA. HOW TO ACHIVE A GOOD CORPORATE GOVERNANCE.
The board of directors leads & controls a corporation &
hence it must be constituted with members possessing competencies to govern it. Competencies shall include strategic perception & decision making, ability to plan, delegate, appraise & develop others, focus on achievement via risk taking, commitment to fiduciary duty & being bold enough to blow the whistle when strategies go wrong. The board should take responsibility for:
• Approving a core philosophy & mission.
• Monitoring & evaluating corporate performance. • Monitoring & evaluating corporate strategy. • Reviewing & approving material transactions not in the course of ordinary business. • Determining executive compensation. • Evaluating senior management performance. • Managing executive director/ CEO succession. • Maintaining legal & ethical practices. • Communicating with shareholders. • Maintaining transparency. • Evaluating board performance.
The board should also be able to place top
management endowed with such qualities as: ‘Thought- man’; ‘action-man’; ‘people-man; ‘front-man; an all-in-one package.
The Chairman of the Board is the public face fo the
company. He should assume responsibility for the agenda and ensure that nothing important is missed, and nothing trivial included. He should be able to foster effective decisions and reverse failed decisions. He should also aim at creating an exciting and invigorating work climate, in addition to ensuring transparency in investments/disinvestments, important appointments etc.