Corporate Governance

Satheesh Kumar

Oxford University Press 2010. All rights reserved.

Chapter 1:Governance On The Move

A Brief History
Bob Tricker was the first to use the term in the 80s. This was the new thrust which came up and brought changes and new standards in the form of external laws and regulations since the corporate scandals of the early 2000s. Some of the laws like SOX (2002) helped in strengthening the process but were not found to be very effective as governance Failures continue to occur in US.
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Contd.
The first major corporation to come out with a guideline in US was General Motors The first major investor to enforce corporate governance practices in US was CalPERS The first major initiative in UK was the Cadbury Committee Report Failure in Satyam Computers Ltd. brought the deficiencies in corporate governance in India to the forefront. The first initiative in India was by CII
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Managing Vs Governing
Governance is different from management. Management tries to achieve the operational and financial objectives while governance ensures that the enterprise is guided in the right direction. A definition of CG can further help in distinguishing the difference: CG deals with appropriate board structures , processes and values to cope with the rapidly changing demands of both shareholders and stakeholders in and around their enterprises.
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Why Corporate Governance?

Corporate governance has been made necessary by the very corporate forms of organizations. While modern corporation has emerged as the poster boy of capitalism, it also has a lot of inbuilt discrepancies. While managers as agents are expected to take care of the owners who may not be involved in the management of affairs, but managers being self-interested individuals, this may not happen. Hence, the modern corporation brought the idea of a board who has fiduciary responsibility to the investors.

Oxford University Press 2010. All rights reserved.

Directors and Regulators Role

Directors duties are normally defined by company laws prevailing in any country, whereas regulators roles are assigned by capital market regulations in the country. A regulator indulges in governance basically from an investor protection angle. Opinions vary about the way the regulator should oversee governance.

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The Governance Conundrum

While the corporate form is the most advantageous and common for businesses and firms to grow, the governance of the same has become a contentious issue for firms, managers, shareholders, regulators, academics and the public.

Oxford University Press 2010. All rights reserved.