Need of Corporate Governance

Corporate governance is needed for the following reasons:

1. Separation of Ownership from Management:

A company is run by its managers. Corporate governance ensures that managers work in the best interests of corporate owners (shareholders).

2. Global Capital:

In today’s global world, global capital flows in markets which are well regulated and have high standards of efficiency and transparency. Good corporate governance gains credibility and trust of global market players.

3. Investor Protection:

Investors are educated and enlightened of their rights. They want their rights to be protected by companies in which they have invested money. Corporate governance is an important tool that protects investors’ interests by improving efficiency of corporate enterprises.

4. Foreign Investments:

Significant foreign institutional investment is taking place in India. These investors expect companies to adopt globally acceptable practices of corporate governance and well-developed capital markets. Demanding International Standards of corporate governance and greater professionalism in management of Indian corporates substantiates the need for good corporate governance.

5. Financial Reporting and Accountability:

Good corporate governance ensures sound, transparent and credible financial reporting and accountability to investors and lenders so that funds can be raised from capital markets.

6. Banks and Financial Institutions:

Banks and financial institutions give financial assistance to companies. They are interested in financial soundness of companies financed by them. This can be done through good corporate governance.

7. Globalization of Economy:

The economy today is globalized. Integration of India with the world economy demands that Indian industries should conform to the standards of international rules. Corporate governance helps in doing this.

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