In today's globalized economy, corporate play a major role in shaping quality of life of the society as a whole. According to Nobel Laureate, Amartya Sen, "Market forces alone are not sufficient for equitable distribution and some sort of intervention is required, be it political or from business houses, towards society."
Companies should be responsible to the society for their activities and owe to the environment in which they operate. Consequently, environmental protection, transparency among stake-holders, education, health, employee welfare activities and compliance with the legal requirements, has gained importance for corporate world-wide.
A company should take a balanced view of the components of corporate social responsibility and implement the strategies in coherence with the vision, mission and values of the company.
Corporate Governance is the method by which a corporation is directed, administered, or controlled.
Corporate governance includes the laws and customs affecting that direction, as well as the goals for which the corporation is governed. The principal participants are the share-holders, management and the board of directors. Other participants include regulators, employees, suppliers, partners, customers, constituents (for elected bodies) and the general community.
As a result of the separation of stake-holder influence from control in modern organizations, a system of corporate governance controls is implemented on behalf of stake-holders to reduce agency costs and information asymmetry. Corporate governance is used to monitor whether outcomes are in accordance with plans; and to motivate the organization to be more fully informed in order to maintain or alter organizational activity. Primarily, though, corporate governance is the mechanism via which individuals are motivated to align their actual behaviors with the overall corporate good (i.e., maximum aggregate value generated by the organization and shared fairly amongst all participants).
Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.
Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.
Prem Paritosh
PGDM-2nd sem
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