Is Corporate Governance Always the Cause of Failure?

“Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.”

– Sir Adrian Cadbury, UK, Commission Report: Corporate Governance 1992

This balance is missing in some companies. Not only the small ones but the big companies where employees, customers, shareholders and indirectly many people who are dependent on these companies are ruined only because there is no balance between the individual and communal goals.

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There is a huge competition between competitors. They can be only recognized when there is cooperation from stakeholders who believe in the sustained growth of organization. To all this process to continue there should be good corporate governance practices implemented. We have codes like Sir Adrian Cadbury Committee, OECD Principles Of Corporate Governance and Sarbanes- Oxley Act. A comprehensive set of principles are adopted widely and also Sarbanes-Oxley Act serves as the basis of similar laws in other countries. When we are all educated and can understand these laws, what is pulling our legs towards the bad governance? Are these business ethics vague to the CEOs of the companies?

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Money has become superior to ethics. There have been many causes that show the decreasing level of ethical thinking. We are aware of the rankings in all best things happening in this world, from the Seven wonders to the Richest people. In the same way we have the rankings for the Frauds that took place around the world. We are in this situation where there is even a small fraud in the least expected company. The urge to earn money is a reason for the frauds in the big companies. It clearly shows that there is balance missing of the individual goals and company aims. How and why do the shareholders and investors trust the companies? They can only when there is transparency in business transactions, Commitment to values and ethical conduct of businesses.

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Recently, Deccan Chronicle Chairman T Venkatram Reddy was arrested over charges of banking fraud. According to NDTV, the case is related to the alleged fraud of Rs. 357 crores suffered by Canara Bank; it was registered under Sections 120-B r/w 420, 468 and 471 of the Indian Penal Code. Not only in India, this is happening across many countries in this world. Many big international units are also witnessing biggest of the scams like BCCI, Worldcom, Enron etc. After seeing these frauds, the companies should India should be really careful about their transactions but even that did not happen. Satyam fraud in India is known Enron case of India. Instead they are taking these frauds as the base and developing their companies in a wrong way cheating many shareholders and employees. The BCCI fraud revealed that it funded many terrorist groups those days which is now a big headache to the world. Even after 10 years after the fraud is revealed. The accounts are not settled even till now and same is the case. These frauds have been found to have spirally affected the incomes and savings of common man. Losses of billions is the outcome of such fraudulent corporate sector.

W1However, there are many companies who follow different belief and follow their ethics and they are great example of good governance which is very important in today’s scenario. For example- Johnson and Johnson who claims as the best product of baby products is always the best in governance also, because when they had a chance to develop a less quality product and gain more profits, they did chose to go that way. Instead they maintained the same quality and achieved the best position. Tata Steel and Wipro have been named among the world’s most ethical companies by the American Think Tank. These are the only two Indian companies to have featured in the 2012 lists of World’s most ethical companies prepared by US based Ethisphere Institute.

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There should be transparency of the transactions of the companies. India has appointed Naresh Chandra Committee on Corporate Governance and Audit. This Committee report tells that there should be individual auditing and board oversight of management. However, it is all about the ethics of a person not to link the personal and business accounts in order to decrease these frauds to take place. Is that the good part in corporate governance faded or is it covered in the clouds of bad governance.

“Governance and leadership are the yin and the yang of successful organisations. If you have leadership without governance you risk tyranny, fraud and personal fiefdoms. If you have governance without leadership you risk atrophy, bureaucracy and indifference.” – Mark Goyder (Director of Tomorrow’s Company).

There should be leadership in organization with proper business ethics and governance. All the employees and the management should be motivated in a way that they should be very loyal to the company and its customers. When there is a way to best, why choose a wrong path?

 

 

By Pavani Chennamasetti

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