Shareholder and Good Governance: The Importance of Balancing Interests
INTRODUCTION
Corporations are legal entities that exist to make a profit for their shareholders, but they also have a responsibility to society as a whole whereas the Good governance practices help to balance the interests of shareholders with those of other stakeholders, such as employees, customers, and the community. One of the key components of good governance is transparency. Shareholders have the right to know how the company is being run and how their money is being used. This includes access to financial information, as well as information about the company’s operations, policies, and strategies. Shareholders should also have the ability to vote on important issues, such as the election of directors and major corporate transactions.
Another important aspect of good governance is accountability. The board of directors is responsible for overseeing the management of the company, and they should be held accountable for their actions. This includes ensuring that the company is operating in an ethical and legal manner, and that it is meeting its obligations to shareholders and other stakeholders.
Effective communication is also essential for good governance. Shareholders should be kept informed about the company’s performance and any potential risks or opportunities. This can be done through regular reports, such as annual reports and earnings releases, as well as through other forms of communication, such as webcasts and conference calls.
Good governance also involves a commitment to ethical behavior. This means that the company should act with integrity and in the best interests of all stakeholders. It also means that the company should be environmentally and socially responsible, and should not engage in any activities that could harm society or the planet, good governance is essential for balancing the interests of shareholders with those of other stakeholders. It is achieved through transparency, accountability, effective communication and ethical behavior. Companies with good governance practices are more likely to be successful in the long-term, as they are better able to navigate the complex and ever-changing business environment. Shareholders should also be aware of good governance practices and hold the companies they invest in to high standards.
In India, the Companies Act of 2013 lays out the legal framework for corporate governance. The Act requires companies to have an independent director on their board, and it also establishes the National Financial Reporting Authority (NFRA) to oversee the auditing of companies. The Securities and Exchange Board of India (SEBI) also has regulations in place for corporate governance, including requirements for disclosures, independent directors, and the appointment of a chief compliance officer.
One of the most notable cases in India related to corporate governance was the Satyam Scandal, also known as the “Indian Enron.” In 2009, the founder of the company admitted to inflating the company’s revenue and profits for several years. This led to the resignation of the board of directors, and the company was eventually sold to Tech Mahindra. The incident brought to light the need for better corporate governance practices in India and the enforcement of laws and regulations.
Another notable case is the case of Kingfisher Airlines, where the company and its promoter Vijay Mallya were accused of various financial irregularities and also defaulted on bank loans. This case is still ongoing and it highlights the need for better financial regulations and corporate governance in India.
These cases demonstrate the importance of corporate governance in protecting the interests of shareholders and other stakeholders. They also illustrate the need for effective enforcement of laws and regulations to ensure that companies are held accountable for their actions.
Balancing the interests of shareholders and good governance can be a challenging task, but it is essential for the long-term success of a company. Here are a few ways to achieve this balance:
1.Clear communication: Shareholders should be kept informed about the company’s performance and any potential risks or opportunities. This can be done through regular reports, such as annual reports and earnings releases, as well as through other forms of communication, such as webcasts and conference calls.
2.Transparency: Shareholders have the right to know how the company is being run and how their money is being used. This includes access to financial information, as well as information about the company’s operations, policies, and strategies. Shareholders should also have the ability to vote on important issues, such as the election of directors and major corporate transactions.
3.Board oversight: The board of directors is responsible for overseeing the management of the company, and they should be held accountable for their actions. This includes ensuring that the company is operating in an ethical and legal manner, and that it is meeting its obligations to shareholders and other stakeholders. Good governance is important in the corporate world for several reasons:
4.Enhancing shareholder value: Good governance practices help to ensure that a company’s management is acting in the best interests of shareholders, which can lead to increased profitability and long-term growth.
5.Building trust: Companies with good governance practices are more likely to be transparent and accountable, which can help to build trust among stakeholders, including shareholders, employees, customers, and the community.
Achieving a balance between good governance and shareholder interests is crucial for the success and sustainability of a company. Good governance refers to the ethical and responsible management of a company, with a focus on creating long-term value for all stakeholders. This includes ensuring transparency, accountability, and fairness in decision-making, as well as effective risk management. Shareholder interests, on the other hand, refer to the financial returns and investments of the shareholders in the company.
While the interests of shareholders are important, they should not be the only consideration in corporate governance. A company that prioritizes short-term gains at the expense of good governance practices may ultimately harm the interests of shareholders in the long run. A balance must be struck between the interests of shareholders and those of other stakeholders, such as employees, customers, and the wider community.
Author: NIDHI SINGH,
LLOYD LAW COLLEGE/4TH YEAR B.A.LL.B/STUDENT