Objective and Need of Corporate Governance

06/05/2021 1 By indiafreenotes

The foremost objectives of corporate governance are to make efficient management as well as inspire and strengthen the trust and confidence of the people by ensuring business’s commitment to higher growth and development.

It seeks to achieve the objectives as stated here:

  1. To develop better and most efficient management of business organization.
  2. To develop more applicable criteria towards performing the task.
  3. Holding the balance between social and economic goals.
  4. To encourage the efficient use of scarce resources
  5. To ensure perspective work place management,
  6. To develop the business transactions to be based on values
  7. To develop the confidence and interest among the business men and society at large towards the social reforms.
  8. To develop a better working environment to get some patterns of democratic style.
  9. The managerial cadres are required to create wealth legally and ethically,
  10. To bring a high level of satisfaction to customers, employees, investors and the society at large,
  11. To determine the level and composition of accountabilities,
  12. To make balanced representation of adequate number of non-executives and independent executive in the board of directors who will take care of the interest and well-being of all the stakeholders,
  13. To adopt transparent procedures and practices and arrive at decisions on the strength of adequate information,
  14. To provide disclosures to all the relevant facts and information to stakeholders and other partners of the business,
  15. To make effectively and regularly monitor and control the affairs and functioning of the managerial group of the concern.

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).

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.