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Corporate Governance

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Principles of Corporate Governance

Earlier, we have discussed the basic aspects of corporate governance. However, there are rules, regulations, policies and practices adopted by different companies as part of their Corporate governance. So let us discuss some general principles of corporate governance. 

The Organization for Economic Co-operation & Development (OECD) Principles of Corporate Governance was originally adopted by the 30 member countries of the OECD in 1999. These have gained worldwide recognition as an international benchmark for sound corporate governance. The OECD principles are proactively used by governments, regulators, investors, corporations, and stakeholders across the globe. The article was revised in 2004 to take into account the experience of developing & emerging economies as well. The main areas of the OECD principles are as follows:

 I. Ensuring the basis for an effective corporate governance framework- The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law, and clearly articulate the division of 8 responsibilities among different supervisory, regulatory, and enforcement authorities.

 II. The rights of shareholders and key ownership functions- The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.

 III. The equitable treatment of shareholders- The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

 IV. The role of stakeholders in corporate governance- The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active cooperation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

 V. Disclosure and transparency- The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situations, performance, ownership, and governance of the company.

 VI. The responsibilities of the board- The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

 The Indian Corporate governance framework is in conformity with the principles of the OECD.

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