Corporate governance (CG) is an age-old issue but becomes fresh whenever cases of corporate looting, mismanagement and frauds get into limelight. Separation of ownership and management is the crux of the problem of corporate governance. No nation can rely to develop itself on sole proprietorships or partnerships, when a project needs huge capital and other resources to be managed by non-owners or a couple of owners.
The concept of CG has been defined by Indian corporate sector leaders in very many ways, some talking of the end result, others talking of philosophy, a few others talking of principles, and a very few feel it safe to quote the definition given by the OECD. “Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.”
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According to Sir Adrian Cadbury (2003), “In its broadest sense, corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.”
The four principles articulated by the OECD to governance make it very clear:
i. Accountability – to shareholders
ii. Responsibility – to stakeholders
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iii. Transparency – in all actions
iv. Fairness – in treatment of shareholders.
During the last 15 years, a number of corporate scandals and frauds came into light, which included world.com, Enron, Lehman Brothers, Satyam, et. al. Similarly, corruption has become an issue of great importance as many corporates are alleged to have been involved into this unethical practice.
Along with CG one more term has been coined – Corporate terrorism, which refers to crimes committed to create more consumers, such as fraud, the spread of misleading propaganda and bribing politicians to pass bills that force people into becoming consumers.