Recipe for good corporate governance

by Satvik Varma, for The Financial Express, December 21, 2009.

As the corporate affairs ministry celebrates India Corporate Week, one’s attention is again drawn to corporate governance. Broadly defined, this is the standard adopted by corporations to regulate and manage internal processes. Although not a new function of society, corporate governance, as a measure of corporate functioning, has gained significant importance over the past decade. Corporations have become complex beings as have their systems of governance.

Simultaneously, academics and lawmakers have undertaken substantial research to develop ways to quantify and devise objective criterion for evaluating corporate governance. The objective of all research has been to identify ways of achieving a system of ‘better’ governance.

Historically, two models of corporate governance exist: the shareholders model and the stakeholders model. The first caters only to shareholders’ needs and individual interests. This is often critiqued when there exists a shareholder that directs decision-making in its own favour. By contrast, the stakeholder model is broader. It’s structured to protect interests of employees, creditors, customers and all other persons that have a stake in a corporation, aside from just the shareholders…(continue reading)

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