CHAPTER 26

Corporate Governance

26.1 CORPORATE GOVERNANCE CONCEPT

Corporate governance refers to the rules, practices, and procedures that are established in pursuance of legal and regulatory requirements to run a business on sound lines to protect the interests of shareholders and other stakeholders. It refers to a governing system in which the board of directors and the senior management are expected to scrupulously follow established rules and procedures and run the organization efficiently without breaching laws and regulations. The senior executives are required to play a proactive role in managing the organization. The rules and regulations are part of the legal system, and the practices and procedures are internal processes established by the management to ensure compliance with the laws.

The corporate governance process is based on good principles, ethics, and values, and therefore its emphasis is on the sincerity of the management in establishing sound business practices and procedures and adhering to them to achieve the corporate goals. Transparency of business deals and administration, application of staff administration rules without discrimination, and compliance with good governance codes are the crucial factors that are evaluated to judge the quality of corporate governance practices. Corporate governance implies a minimum standard of governance. Bad corporate governance essentially means bad management practices, which are devoid of ethics and principles and which ...

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