Concept Of Corporate Governance

1. Introduction: Corporate Governance is a broad term defines the methods, structure and the processes of a company in which the business and affairs of the company managed and directed. Corporate governance also enhances the long term shareholder value by the process of accountability of managers and by enhances the firm’s performance. Corporate Governance defined by OECD to “Procedures and processes according to which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organisation – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making”

Concept of corporate governance: While the Cadbury Report’s (1992, p2) definition of corporate governance as ‘the system by which companies are directed and controlled’ is frequently cited, other authors have also attempted to characterise and define governance. The OECD’s Principles of Corporate Governance (OECD, 2004, p11) suggests: Corporate governance involves a set of relationships between company’s management, its boards, its shareholders and other stakeholders. According to O’Donovan (2003), he found that corporate governance is an internal system that includes processes, policies and people that serve the requirements of shareholders as well as other stakeholders by controlling and directing activities by the firm’s management with good business objectivity and Goal of firm , savvy and integrity. Sound corporate governance is related to external marketplace legislation and to a commitment to adding a healthy board culture that protects processes and policies. In other words, corporate governance is defined as the moral, ethical and legal corporation values that safeguard stakeholders’ interests. Zingales (1998) expresses the view that “allocation of ownership, capital structure, managerial incentive schemes, takeovers, board of directors, pressure from institutional investors, product market competition, labour market competition, organisational structure, etc., can all be thought of as institutions that affect the process through which quasi-rents

Also technological advances reduce transaction costs and the costs of information research, rendering global capital markets more accessible to investors. This has fueled global competition between capital markets and the evolution of corporate governance around the world. Becht et al. (2002) identify several reasons for this. There are the world-wide wave of privatization of the past two decades, the pension fund reform and the growth of private savings, the takeover wave of the 1980s, the deregulation and integration of capital markets, the 1997 East Asia Crisis, and the series of recent corporate scandals in the U.S. and elsewhere. In Asia, the prevalence of family ownership, government interference, relationship-based transactions and generally weak legal systems and law enforcement result in agency problems such as large deviations between control and cash flow rights and low degree of minority rights protection. Conventional corporate governance mechanisms such as takeovers and boards of directors are not strong enough to relieve agency