Challenges in Corporate Governance

By Sthitaprajnya Panigrahi Friday, 07 February 2020

The corporate sector is full of challenges and the leader of a company should excel proficiently in management skills to drive overall organizational growth. Maintaining an ultimate balance between every department, managers, the board of directors, investors, shareholders and stakeholders, the organization should move towards the company’s objective abided by corporate policies and procedures. This code of conduct in business administration which ultimately pilots to good management of the organizations is referred to as corporate governance.

Principles of Corporate Governance

Initially, corporate governance was brought in to act to prevent the board of directors from taking any prejudice to the company using the powers bestowed upon them. Later it became an integral part of management which helped the directors and CEOs of the company to stay abide to the principles of corporate governance and navigate towards the greater success of the company. As corporate governance directly reflects the company’s image, having poor governance policies can land the company in lawsuits and financial losses. Although most of the key governance issues differ according to the variations such as country, stock exchange, and management, most of them are common in terms of transparency, authenticity, independent leadership, fairness, and accountability.

Corporate Governance in India

There are many acts of corporate governance in India which include SEBI (Security Exchange Board of India), ICSI (Institutes of Company Secretaries in India), ICAI (Institute of Chartered Accountants of India), The Companies Act, 2013, and Standard Listing Agreement of Stock. The SEBI holds many guidelines and principles concerning corporate governance whose violations can cause heavy penalties for the company. As per ICSI, there are certain general meetings that the managers and directors are obliged to conduct. While ICAI deals with the accounts and finance-related issues for the company, the Companies Act regulates the board general meetings.

However, there might be some issues that can create major drawbacks in corporate governance. Some of them are mentioned below:

  1. Due to some inevitable reasons, a conflict of interest can arise between the shareholders and the board of directors. This can not only hinder the company’s growth by affecting directly to the vision and mission of the company but will also hamper the repute of the organization. No matter how major the disagreement is, it is vital to avoid the conflicts of interest, so that the company can progress forward along with the board of members and shareholders.
  2. Proper mentoring of the employees plays a key role while handling the daily functionality of an organization. Ignoring the mistakes of the board members and departmental employees can directly affect the shareholder’s interest in the company which directly affects the company’s financial condition and reputation. Apart from that, violation of regulation might lead the company to suffer fines and penalties.
  3. Keeping track of Profit and loss for the company is a crucial factor and detects its financial stability in the market. A company should never hide its losses or multiply its profits but should maintain transparency in the market.
  4. The company is accountable to work in favor of the shareholders. It is the ethical duty of the board of directors to be ethical while dealing with the business transactions and work coordinately for the greater good of the company.

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