The Essentials of Good Governance

According to McKinsey Investor opinion study, most investors say that board practices are at least as important as financial performance of the industry. Investors are more attracted towards a well governed company. It has been estimated that more than 80% of investors would be willing to pay and invest a significant contribution for the shares of a well governed company. A study by Credit Lyonnais Securities has indicated that there is a close correlation between corporate governance and average share price performance. A good governed company would have a good policy on corporate governance which leads to increase of average share price performance of the company.


According to OECD, only companies with credible and well understood corporate governance and cultural practices would be able to lure long term capital. OECD is known as an organization for economic co-operation and development. Long term capital would boost financial strength of the company. It regains its power for financial independence and structural decision making processes. Other studies have also shown that investors trust the financial reports and other disclosures of well governed companies and they believe that corporate performance in the long run is correlated with corporate governance rating.


According to ICRA, corporate governance will have a key role to play in value creation, irrespective of business risk that a firm is exposed to. A good corporate model runs with parallel streams of decision making which begins from expectation of employees which could be classified in two segments such as mandatory expectations and desirable expectations. Corporate governance, chooses some good benefits from desirable expectations. Apart from expectations other four parallel models of corporate governance are structured, enabling mechanisms, review systems and penal provisions.

You might like:  E-learning websites


Practical issues:


Entire focus on corporate governance is mostly on the board and its efficiency in implementing different policies. Good corporate governance has wide spread ramifications for the entire organization. It provides greater focus on critical issues by the board. Corporate governance deals with proper distribution of greater delegate powers for effective implementation of goals of corporate and to apply effective regulation with less control. Ultimately, consequential actions for better governed corporate governance lead to proper modifications in systems, procedures and processes of hierarchy.


Large-scale improvement in work flow and information flow is vital for a good governed company. It would lead to complete development and retention of intellectual capital which is vital for inherent growth of the company. Proper of knowledge is essential for sustainable growth mechanisms for organization. Organization or companies is like society and it has cultures to deal with. Cultural aspects of functioning would be possible through strengthening of the value system. Value system of organization comes from different operational aspects and proper and distribution of the work force within contained framework of organization.


Instance of good governance:


A good governed company sets up committees like the COCC, which includes only full-time directors. It is unfair to include part-time directors in various committees as they mostly present current situations but ignore inherent culture that is invisible within perimeters of organizations. Investment committee could provide continuous monitoring of different investment proposals arising out of different environmental situations. Speedy resolution of various complaints of shareholders and investors through proper institutionalized grievance redress mechanisms. A well maintained and properly managed helpline for customers, investors and shareholder. This would ensure twenty four seven connectivity of the company with its stakeholders.

You might like:  Careers and appointments


The unpleasant experiences of banking industry of :


In the previous decades banking industries of India had been facing some unpleasant experiences arising out of stock scam, rapidly rising non performing assets (NPA), instances of insider trading and gold scams. Rise of NPA shows the increase of bad loans arising out of welfare schemes announced by the government through various . It leads to serious shortage of funds which could affect the . There are some invariably understandable mandatory issues related to banking industries which were facing some really unpleasant issues in good governance.


In the past, there were some restrictive provisions regarding the of board members of banks such as completely ignoring integrity, criminal records and past disqualification of board of directors while the . There should be complete independence and autonomy for the board. The board would have full freedom to take decisions on corporate strategy. There should be more independent directors within the board of the company. An independent director is one who does not have any family relationships with any of executive directors, promoters during last five years of operations of the company.


Such members of the board should not have any such material and financial dealing with the company. There should be proper hierarchy of decision making body which would reduce in items going to the board. There should be proper demarcation of the line of duty between the board and top management. The board of the company should not to be an additional tier of sanctioning authority.

You might like:  Scholarly article for Harvard framework HRM model


However, high value of sanctions should be put up on the board for review and validating adherence to policy. There would be a clear cut define guidelines for do and don’ts of company. Each member of the board must sign an undertaking to take care of oversights that they have properly understood their role and function within the organization.


Desirable issues:


Independent committee experts could appoint 50% of board members. It would show signs of neutrality and advent of more proficient persons from within the board of directors. Composition of the board is important. Tenure of board members and the chief executive officer are important. There would be the overall impact on pure governance which would be visible through reduction of fraudulent practices, complaints and absence of regulatory defaults.
Proper against all possible insider trading practices would give solid direction to good governance of companies.


There should be an independent audit committee which would be from outside of the company. There should be a properly managed shareholder’s investor’s grievance committee to solve rising issues among various stakeholders. Remuneration committee to look into various salary and perks packages of employees. Board should be empowered across the board in powers for supervision, audit and follow up. Entire system of administration must be diluted in the form of creation of zonal boards in between local boards and central boards.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *