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Corporate Governance And Its Possibility For Business Practices

Essay by 24  •  January 4, 2011  •  2,167 Words (9 Pages)  •  920 Views

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Prologue:

Corporate Governance (CG) has emerged as one of the key elements of public policy reforms individuals. It is still in its infancy; it has been around only for the last three to four years. It is however not a foolproof concept as it relies heavily on data available from insiders. But it has specific and special role to play to enhance the strength of a particular unit and of the entire corporate sector. Corporate Governance is to be maintained or observed as effective tool to assure the stakeholders of their long-term interests without prejudice to public interest.

Corporate Governance is the term given to the management practices followed by the business organization. At flour, we believe that good business practices, transparency in corporate financial reporting and the highest levels of corporate governance must be maintained. This section includes documents regarding flour's corporate governance practices that keep flour accountable to its shareholders. These channels in turn are activated through several structural and institutional factors pertaining to the corporation. They are as follows:

[1] The ownership structure of the organization.

[2] The financial structure of the corporation.

[3] The structure and functioning of the company boards and the associated internal control systems

[4] The legal, political and regulatory environment within which the Corporate functions

Thus Corporate Governance (CG) is the way the firm ought to be run, managed and controlled. It is related with supervision and holding the responsibility of those who direct and control the management. It also includes framing rules and procedures to run the unit. It directly refers to the induction of checks and balances in the system to prevent abuse of authority. Corporate Governance also hints at ethical and integrated behavior to maintain the financial results.

Corporate Governance at Universal Level:

Traditionally the matters with corporate sector were involved with esoteric branch of commercial law. Limited generally to a narrow view of how to ensure the managers follow the interests of shareholders. Basic standards of Corporate Governance structure and processes have been slowly evolving over last two decades. Traditionally it was observed only in respect of the operation of market pressure.

Looking beyond India the scenario in general is different. In the country like U.S. and U.K. there is an active market for corporate control to discipline managers, if they fail to maximize shareholders wealth. They largely adopted three main instruments they are- "Proxy Contests". Friendly mergers and Hostile take over. The first among the above said there is considered more effective Friendly mergers have hardly succeeded to solve the "agency problem". While take over is not appealing strongly on the ground of heavy cost incurred in it and also for want of political will conducive to the policy. In Germany and Japan the system that prevails in U.K. and U.S. is absent. Unlike that system there is "Banking Supervision". The main bank financing the corporate unit acts as an external control mechanism. In such case very least intervention is found and that only when financial problem arises. It is in light of these experiences that innovative approach to the concept is formed. Several credit rating agencies have stepped in the market and they are offering services of the kind, which meets with the Quality of Governance in corporate entities.

Indispensable Principles of CG:

There are certain indispensable Principles envisaged in the concept. These mainly include the following;

(a) Discipline in operations:

Operational discipline refers to healthy manufacturing practices; Full utilization of installed capacity in accordance with financial viability and demand pressures must be practiced. Operational discipline asks for quality approval at every stage of predictor services. It refers to the effective and optimum application of the technology available at times. Integration and coordination in the entire system is but the prime requirement for the operational efficiency.

(b) Transparency in dealings and disclosures:

Transparency here means "perfection" with "holistic approach". It means that dealings with clients, customers, suppliers, distributors to whomsoever, must be fair and healthy. Legitimate grounds for differentiation should be can be maintained in consideration of the relationship. Transparency includes fairness with purchasers and sellers. Disclosure pertaining to the balance sheet must be perfect in tune with the standardized accounting practices. Besides observance of legal norms, commitment to the moral standards must be reflected in accounting procedures. "Hidden charging ", "Secrecy" which violate the fundamentals of accounting in theory and practice be not allowed. Disclosures through the balance sheet must be in tune with prevailing taxation norms.

(c) Accountability to shareholders:

Let the company perform in a manner through which shareholders long term economic interest may remain intact. Accountability includes taking shareholders into confidence. This is legal binding also. Let there be healthy democratic practices to be followed by the company, convening anneal general meeting, minimum time in advance notice to be saved comprising all technical adequacies, free and fair election of board of directors. Chartered Accountant, these are the prime requirements. Dividend, bonus all other legitimate interests to be performed in adequate manner. Shareholders are virtual partners; hence their trust in the company and their goodwill for the company does work as an asset. This must be considered as part of accountability.

(d) Responsibility of company's action:

Company's all actions must be well planned and thoughtful. Any action of haste may prove boomerang. In event of any failure or poor performance company must done to share the responsibilities. Strategic actions may some time not sound well. Human resource practices adopted may at times affect to the growth of the company. All such results must be treated positively and corrections over period of time be made without any kind of bias or prejudices. What may apparently seem too little as action or result may sometimes turn into too big impacts.

(e) Social Responsibility:

To think strictly

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