Role of the regulators and the board towards further improvements in
India’s corporate governance practices:
Good corporate governance is perceived to be one of the essentials pillars for building efficient and sustainable corporations. The recent global financial crisis and its impact on global economic confidence and growth prospects have highlighted the great relevance of corporate governance and its key contribution to stability. It would be unfair to claim that financial crisis was triggered by bad corporate governance. But some of negative effects could be probably have been avoided by better corporate governance.
REGULATORS:It will be right to say that “Regulation remained the second casual factors to blame after failure of the system to send warning single that could have prevent twist to that situation since it’s a duty increased the transparency of regulation promotes performance and reduce risk of the failure.
Again the finance regulators like SEBI and RBI together with the finance ministry are working on the plan that will focus on closure supervision of rating agencies, greater accountability of raters, and disclosure of rating methodologies. Instead, not only they fail to voice their apprehension but they want overboard to ensure them.
But expert still feel that concentration on the following few points may help the corporate governance practice in India improve further:
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Encourage better compliance with listing requirements by substantially increasing the cost of non compliance
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Streamline the regulatory structure to reduce dilution of surveillance responsibility
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Introduce sector specific corporate governance practices
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Increase the shareholders activitism in the country by creating a class of institutional investors who can take up corporate governance related causes as significant shareholders.
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Pursue the legal reforms to provide investors with mechanism by which they can redress grievances in a timely and cost effective manner.
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Corporate governance rating should be made mandatory for listed companies.
BOARD: whenever we are going to talk about best practices of governance the first thought that immediately comes to one’s mind is the Board of Directors. Since board is the accounting authority presumably, their action and decision are based on accurate calculations and sound
Judgment. In keeping with good corporate governance practices, the Board’s pragmatic role could briefly be identified as follows;
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Provide strategic direction and leadership.
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Determining the goals and objectives of the company.
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Approving key practices, including investment and risk management.
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Reviewing the company’s goals and strategies for achieving the company’s objectives.
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Reviewing and approving the company’s financial objectives, plans and expenditure.
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Approving and monitoring compliance with corporate plans, financial plans and budgets.
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Considering and approving the annual financial statements, interim statements and notice to the share holder.
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Ensuring good corporate governance and ethics.
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Monitoring and reviewing performance and effectiveness of controls.
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Monitoring and directing triple bottom- line performance.
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Ensuring appropriate succession planning.
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Guiding the restructuring and transformation process.
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Ensuring effective communication with relevant stakeholders.
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Liaising with and reporting to the share holders.
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Guidelines key initiative, for example, capacity expansion plan, new build programme, strategies on climate change, human rights and HIV?AIDS.
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Approving transactions above the authority level of management.
In short there are four critical roles of the BOARD:
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Monitoring: The monitoring role comprises the aspect such as how CEO are chosen and rewarded; evaluation of CEOs and companies’ performance and how the shareholders wealth can be maximized.
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Service: The board service role pertains to directors giving advice to top managers. Based on accounts from directors and managers, directors do devote a considerable proportion of the time and support to advising the CEO.
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Strategy : the board’s role in strategy ranges from articulation of strategy mission to review of strategy implementation. These can be taken in four ways-
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Setting and actively reviewing the corporate definition the “what business are we in”
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The gate keeping function –actively assessing and reviewing strategic proposals
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Confidence building encouraging managers with good track records in their strategic aims
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The selection of directors – the outcome of which send a strong signals to the rest of organization concerning the type of person who succeeds and set the standards other have to attain.
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Resource provision: the resource provision role refers to the ability of board in bringing resources to the company. These benefits includes providing legitimacy, providing experience, linking the firm to the important stakeholders and facilitating access to resources such as capital.
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