Corporate Governance and International Best Practices Essay
According to the institute for Corporate Governance, Dubai, CG is ‘the system by which business corporations are directed and controlled. CG has received special attention from all over the world after scandals at Enron Corporation (USA), The BCCI Bank (UK), the Harshad Mehta Share Scam (India), and Satyam Computer Services Limited (India).
Furthermore, After the global financial meltdown (2007-10) it is evident that lack of stringent CG norms in counties has had made a severe impact on the economies, and it has become essential to understand and implement good governance as it offers to corporations a framework, which is established on basis of certain values, morals and ethics. Countries like India and China are the future attractions for investments and thus have to guard themselves for many further fraudulent incidents so that FII’S and other global corporations see these economies as safe zones to venture into businesses.As we are in the nascent stage of CG development and implementation, we must learn from the international players and implement better and calculative CG norms. Corporate Governance in USA: In the US, Sarbanes –Oxley Act 2002, provides the basic framework for the corporations and guides on important issues like, see through financial reporting, efficient internal controls and CG. They give more importance to transparent CG, based on effective boards, strong rights of shareholders, disclosures etc.The Public Company Accounting Oversight Board has been established, which monitors annually the standards and procedures of auditing of public companies falling under the securities law. It also aims at gurading investors’ and as well as public interest. Whistle-Blowing is promoted by SOX, 2002 and employees are encouraged to file a complaint against any fraud or wrong practice.
Corporate Governance in UK: CG framework is guided by the Turnbull Combined Code and Companies Act.They follow a ‘Comply or explain’ method. The CG environment is more of voluntary in nature. The role of the chairman and the CEO is split as the Combined code believes that there would be ineffective monitoring if the roles are combined. The roles of institutional investors are significant.
Whistle blowing is encouraged by the combined code to facilitate early detections of frauds. It is also important for UK corporations to ensure that remunerations paid to identified directors are disclosed in the annual reports.Corporate governance in India: The Cg frame work in India is the CG code given by SEBI and the voluntary code given by the CII. And it is in its nascent stage. Protection of shareholders rights is observed and the structure of the Board is Unitary and the BOD is responsible for ensuring managements practices. The firm’s promoters are in complete control which causes lack of equal treatment for the minority shareholders.
The role of institutional investors is not so significant and the CG is not strengthened by the capital market. We now know where India stands in its CG reforms and norms. Corporate governance frameworks are different in different jurisdictions, but in the backdrop of globalization it is essential for us to understand the various CG frameworks of developed nations so as to amalgamate best practices to address the challenges faced by developing economies like ours.