Talks about Corporate Governance
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.
Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world.
Let’s have a look at the history of corporate governance [/b][/b]
When India attained independence from British rule in 1947, the country was poor, with an average per-capita annual income under thirty dollars. However, it still possessed sophisticated laws regarding "listing, trading, and settlements." It even had four fully operational stock exchanges. Subsequent laws, such as the 1956 Companies Act, further solidified the rights of investors.
In the decades following India's independence from Great Britain, the country turned away from its capitalist past and embraced socialism. The 1951 Industries Act was a step in this direction, requiring "that all industrial units obtain licenses from the central government." The 1956 Industrial Policy Resolution "stipulated that the public sector would dominate the economy." To put this plan into effect, the Indian government created enormous state-owned enterprises, and India steadily moved toward a culture of "corruption, nepotism and inefficiency." As the government took over floundering private enterprises and rejuvenated them, it essentially " private bankruptcy to high-cost public debt." One scholar referred to India's economic history as "the institutionalization of inefficiency."
The absence of a corporate-governance framework exacerbated the situation. Government accountability was minimal, and the few private companies that remained on India's business landscape enjoyed free reign with respect to most laws; the government rarely initiated punitive action, even for nonconformity with basic governance laws. Boards of directors invariably were staffed by friends or relatives of management, and abuses by dominant shareholders and management were commonplace. India's equity markets "were not liquid or sophisticated enough" to punish these abuses.
Scholars believe that "takeover threats act as disciplining mechanism to poorly performing companies” because as the stock price of poorly governed firms decreases (because disgruntled investors discard stock), the firms become susceptible to hostile-takeover attempts. Thus, "the fear of a takeover ... is supposed to keep the management honest." However, until recently, hostile takeovers were almost entirely non-existent in India, and therefore, the poorly governed Indian firms had little to worry about in terms of following corporate laws once they had raised capital through their initial public offering. Thus, corporate governance in India was in a dismal condition by the early 1990s.
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.
Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world.
Let’s have a look at the history of corporate governance [/b][/b]
When India attained independence from British rule in 1947, the country was poor, with an average per-capita annual income under thirty dollars. However, it still possessed sophisticated laws regarding "listing, trading, and settlements." It even had four fully operational stock exchanges. Subsequent laws, such as the 1956 Companies Act, further solidified the rights of investors.
In the decades following India's independence from Great Britain, the country turned away from its capitalist past and embraced socialism. The 1951 Industries Act was a step in this direction, requiring "that all industrial units obtain licenses from the central government." The 1956 Industrial Policy Resolution "stipulated that the public sector would dominate the economy." To put this plan into effect, the Indian government created enormous state-owned enterprises, and India steadily moved toward a culture of "corruption, nepotism and inefficiency." As the government took over floundering private enterprises and rejuvenated them, it essentially " private bankruptcy to high-cost public debt." One scholar referred to India's economic history as "the institutionalization of inefficiency."
The absence of a corporate-governance framework exacerbated the situation. Government accountability was minimal, and the few private companies that remained on India's business landscape enjoyed free reign with respect to most laws; the government rarely initiated punitive action, even for nonconformity with basic governance laws. Boards of directors invariably were staffed by friends or relatives of management, and abuses by dominant shareholders and management were commonplace. India's equity markets "were not liquid or sophisticated enough" to punish these abuses.
Scholars believe that "takeover threats act as disciplining mechanism to poorly performing companies” because as the stock price of poorly governed firms decreases (because disgruntled investors discard stock), the firms become susceptible to hostile-takeover attempts. Thus, "the fear of a takeover ... is supposed to keep the management honest." However, until recently, hostile takeovers were almost entirely non-existent in India, and therefore, the poorly governed Indian firms had little to worry about in terms of following corporate laws once they had raised capital through their initial public offering. Thus, corporate governance in India was in a dismal condition by the early 1990s.