CORPORATE GOVERNANCE: CHALLENGES & ISSUES

N. Santosh Ranganath * D. Naga Mani **

Corporate governance refers to the manner in which corporation is directed, and laws and customs affecting that direction. It includes the laws governing the formation of firms; the bylaws established by the firm itself, and the structure of the firm. The corporate governance structure specifies the relations, and the distribution of rights and responsibilities, among primarily three groups of participants: the board of directors, managers, and shareholders. This system spells out the rules and procedures for making decisions on corporate affairs; it also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives. The fundamental concern of corporate governance is directors and managers act in the interests of the firm and its shareholders, and to ensure the means by which managers are held accountable to capital providers for the use of assets. Issues of fiduciary duty and accountability are often discussed within the framework of corporate governance. In the United States, a corporation is governed by a board of directors, which has the power to choose an executive officer, usually known as the chief executive officer. The CEO has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision-making, monitoring management's performance, or corporate control. The board of directors is nominally selected by and responsible to the shareholders, but perverse incentives have pervaded many corporate boards in the developed world, with board members beholden to the chief executive whose actions they are intended to oversee. Most often members of the boards of directors are CEO's of other corporations, which some see as a conflict of interest. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for Corporate Governance reforms. * N. Santosh Ranganath, Assistant Professor, Dept. of Management, Pydah College of Engineering and Technology, Gambheeram, Visakhapatnam. * * D. Naga Mani, Assistant Professor, Dept. of Management, Pydah College of Engineering and Technology, Gambheeram, Visakhapatnam.

Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect. Corporate Governance is the relationship among various participants in determining the direction and performance of companies. The primary participants are Shareholders Management The Board of Directors.

Other participants include the employees, customers, suppliers, creditors and community. The concept of corporate governance has gained tremendous importance in the recent past, especially after the second half of 1996.

Main Activities of the Board and Top management:

Create vision, mission values Devise group level strategy Build corporate identity Maintain cost of capital Government on behalf of shareholders Manage external environment Evaluate and reward business level performance Select and energize people Manage sharing and transfer of common resources Collect embed and disseminate knowledge Decide about strategic decisions of an enterprise Decide about organization structure design and key process

Corporate Governance- Competition, Emerging Markets: 1. Corporate governance and a poor competitive environment in the affected Countries. 2. Ownership is by far the exception in developing countries. 3. Fast long-term growth with different governance systems, in developed countries. 4. Corporate financing patterns in emerging markets in the 1990s were broadly similar to those observed in the 1980s. Unlike their counterparts in advanced Countries, large developing countries firms continued to rely overwhelmingly on external sources to finance their growth of total assets.

5. Conglomerates are inefficient, financially precarious and necessarily create moral hazard. It also indicates that contrary to widely held beliefs, product market competition in emerging countries is no less intense than in advanced economies. Main reasons for the upsurge of corporate governance: The recent interest about corporate Government is primarily a product of four factors. Assertion of Rights by the shareholders, a) b) c) d) e) f) Significant presence of Foreign Institutional Investors, Awareness on the part pf lending institution Integration of India into the World Economy, Strong Media presence. Participants involvement in Corporate Governance Shareholders have not been able to fulfill the historic role effectively for the reasons that they are widely spread and many of them find it difficult to travel to the meeting place. But in the context of complex nature of modern business, the scope of areas requiring shareholders approval has enlarged. g) The significant presence of foreign institutional investors who demand greater professionalism in the management of Indian corporate has also led to the keen interest in the corporate Governance. h) There is awareness on the part of lending institutions which are now being subjected to rigorous accounting norms, particularly with regard to income rendition and provisions against non-performance loans so they are giving much more emphasis to good and efficient corporate governance. i) There is the integration of India into the world economy which depends that Indian industry should pay the game by a standard set of international rules rather than continue their anachronistic practices. Corporate Governance Structure: The analysis of corporate governance structures in developing countries has long been hindered by a lack of detailed information. One benefit to arise from the Asian crisis and the focus of the international financial institutions on governance structures has been the assembling of a large body of evidence on corporate governance structures in developing countries at the World Bank. This has included information on the structure of share ownership and corporate governance laws. Thus, we are now in a position to construct a more informed picture of the governance structures in a wide range of developing countries. Corporate governance and corporate finance: Governance is most conducive to growth under certain historical circumstances, but not in others. Good corporate governance practices include the corporations business

behaviour in its operational environment. Investors are therefore guided as much by the financial statements as they are by the enterprises business behaviour.

The construction industry has thus far escaped such scrutiny: however, many of its participants are being subjected to good corporate governance requirements. Governments and consumers too have due diligence expectations, much of which is being translated into statutory regulation. Regrettably, there has thus far not been a global holistic and proactive response from the construction industry as a whole. The development of globalisation with particular reference to the establishment of a common code of conduct, undertakes a review of the definition and evolution of good corporate governance and determines its current status, assesses construction industry practices against international good corporate governance standards, and proposes an enabling framework for the industry.

Good corporate governance practices extend beyond financial requirements to include the corporations business behaviour in its operational environment. As an extension to this requirement, the operational environment, in good corporate governance terms, includes the corporations social and environmental performance. Investors are therefore guided as much by the financial statements of an enterprise as they are by the enterprises business behaviour. Consumers too are increasingly supporting those products that can demonstrably show an appropriate response by the enterprise to its operational environment. Increasingly consumers are avoiding products produced by enterprises that fail in performing due diligence in the manufacturing and marketing of those products.

With the exception of listed construction enterprises, the construction industry has thus far escaped such scrutiny, for a variety of reasons. However, many of its participants, such as investors, the workforce and material manufacturers are being subjected to good corporate governance requirements. Governments and consumers too have due Corporate governance-Globalisation: Corporate governance and ethics and spirituality onto the global agenda. The second struggle determining a management model is playing out in global institutions such as the World Trade Organization, the United Nations, and the World Bank. Two of the major areas in which globalisation has a significant influence are economics and human rights.

Economics: The integration of world affairs has created a world economy that is interdependent and interconnected. A prime example is the attack on the World Trade Centre: this event in a single modern state wiped millions of dollars off global stock values and continues to impact upon thousands of air travelers around the world. Yet another example of the extent of economic integration is the ability companies have to undertake and locate their work in different countries, either in whole or in part. This is largely due to information and communication technologies facilitating a virtual 24-hour workday. Human rights: The development of human rights is one of the areas that support the anthropological view of globalisation: the history of the evolutionary process of human civilization is one in which the strengthening of individual rights, as opposed to group rights, is a definite trend. In more recent times, the ease and extent to which information is capable of being spread has increased awareness of global human behavioral patterns and quality of life. The global population is now more aware of what behaviour is acceptable and what is not, and who is enjoying what quality of life and where. As an example, internal resistance is increasing in countries and societies where women and childrens rights are abused or non-existent. Global characteristics of Corporate Governance: Fundamental paradigm shift by all participants in the construction industry to enterprise development and management, a shift based solidly on probity and respect. The paper argues that such a commitment by industry participants could lead to an enabling environment for effective delivery and for growth, improved performance and continuous development of the industry. Good corporate governance is after all, about the values supporting excellence as well as the creation of an ethical culture. Corporate governance is the process and structure used to direct and manage the business affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value, whilst taking into account the interest of other stakeholders. The compliance with codes of Relevance of Corporate Governance to Indian Context

There is a need to bring better corporate Government in India in the context of liberalisation, Privatisation and globalisation (LPG) of Indian economy. The following factors underline the relevance of corporate Government to Indian context. i) ii) iii) iv) v) vi) vii) viii) ix) Indian Boards are not in tune with times. Holders of limited stake determine the destiny of major shareholders. Family feuds result on stalemate and confusion. Changing business environment. Shift in Government attitude. Vision development Brand building Competitive edge Professional managers and independent auditors did not help much

Strategic management is the theme for survival for corporate in the present competitive environment. Strategic Management is depending on clear understanding regarding companys mission, objectives and strategic, proper environment analysis and corporate analysis. Important issues in Corporate Governance are: Sound Management Fiduciary relationship Responsibility Accountability Return on Integrity

Confederation of Indian Industry issued many recommendations for Board of directors for efficient and effective performance in Corporate Governance for the Indian Industrial Development. Conclusion: Corporate India needs to make giant steps in order to take the full advantage of globalisation and information technology. The leadership of the centre comprising of board of directors and top management would have to be truly processional and responsible. There should be code of corporate governance. The centre should focus more ion their core activities like giving direction, vision, empowering others.

Business Body like CII should form a consensus on arriving at a code of corporate governance and ethical practices. Financial Institutions should insist on professionalisation and sound corporate governance for providing financial support to any organization. The rating agencies should give specific attention on corporate governance. The movement for

better corporate governance is not just for the lending institutions or for investor protection, but, it is a movement for survival and growth of Corporates in the era of globalisation and liberalisation.