Financing of a Project

CORPORATE GOVERNANCEAND STRATEGIC ANAGEMENT

Corporate governance, refers to how an organization isgoverned.

It ensures effective interaction among the differentstakeholders, that is the shareholders, the management,and the board of directors.

Corporate governance helps in formulating strategicdecisions and defining the future direction of theorganization.

Corporate governance also deals with looking aftercomplete governance of various organizations withrespect to financial disclosures, transparency, legalpractices, organizational structure, and social welfare.

CONCEPT OF CORPORATE GOVERNANCE

THEORETICAL BASIS OF CORPORATEGOVERNANCE

There are four basic corporate governance theories, which are:

Agency Theory

The agency theory is built upon the presumption that theinterests of managers often clash or are divergent from that ofshareholders.

Stewardship Theory

The stewardship theory supports the view that the managers areconsiderate about their personal reputation and value theirintegrity.

Stakeholder Theory

The stakeholder theory supports the view that an organizationshould maximize stakeholders’ benefits and follow an ethicalcode of conduct.

Sociological Theory

The sociological theory mainly focuses on the distribution ofwealth and power in the society.

Rights of Shareholders: Means shareholders have a right toapprove and voice their opinion when major organizationalchanges take place.

Equitable Treatment of Shareholders: Means that allshareholders must be considered as equal by an organization.

Stakeholder Benefits: Refers to the significant relationship ofstakeholders with the director of an organization.

Disclosure and Transparency: Refers to the degree to whichinformation is freely available to employees.

Responsibilities of the Board of Directors: Refers to theobligations that the board of directors has towards anorganization.

GUIDELINES OF CORPORATEGOVERNANCE

The need for good corporate governance is feltbecause of the following reasons:

Creating Competitive Advantage: Refers to building a corecompetency that works as an edge over the rivals of a particularorganization.

Preventing Fraud and Malpractices: Refers to precluding misconductsand fraudulent practices so as to ensure sound and trustworthycorporate environment.

Bringing in Transparency: Refers to meeting investor’s expectationsby creating an open system that aims at providing accountability andtransparency in all organizational operations.

Legal Compliance: Refers to adhering to the laws and regulations asper the legal machinery of a country.

ROLES OF CORPORATE GOVERNANCE

Indian organizations became aware about corporategovernance around the year 1983.

The effective implementation of corporategovernance started in India in year 1997. It startedwith a voluntary code that was designed byConfederation of Indian Industries (CII).

A tremendous amount of change was brought aboutin the corporate environment due to increasedcompetition in the Indian market in 1990s.

A few renowned organizations, such as Infosys andWipro, have developed sound governance policies.

CORPORATE GOVERNANCE IN INDIA

International Corporate Governance Network (ICGN),established in 1995, aims at creating a supportiveorganizational environment for investors, organizations, andother parties that are in favor of corporate governancepractices.

ICGN has recommended that the main objective of corporategovernance practice should be the timely payment of returnsto investors.

ICGN has also recommended that the strategic decisionscannot be taken without the approval of shareholders in anorganization.

CORPORATE GOVERNANCE: A GLOBALSCENARIO

BOARDS OF DIRECTORS

Board of Directors (BOD) refers to a body of elected membersor directors in an organization. They are responsible foroverseeing the management activities and taking long-termdecisions in an organization.

The Companies Act states that the directors of anorganization together are called BODs or board.

The BODs play a very crucial role in the strategic managementprocess of an organization. They control, monitor, andsupervise the process of strategic management. The BODsalso reassess the mission, goals, and strategies of theorganization with respect to the competitors.

Lead Director: Refers to an individual who performs the rolesand responsibilities of both a chairperson and CEO.

Managing Director: Refers to the senior most director of anorganization who manages the routine operations of anorganization, its employees, and various resources.

Nominee Director: Refers to a director who is appointed byshareholders, creditors, and other interest groups of anorganization.

Nonexecutive Director: Refers to the director who is appointedby the shareholders to govern the organization on theirbehalf.

Shadow Director: Refers to a director who is not appointedformally but whose functions are strictly supervised by theboard of directors.

TYPES OF DIRECTORS (CONTD.)

Alternate Director: Refers to a kind of director who is selectedby one of the directors of the board. He/she has to fulfill theduties of a regular director and attend the meetings on behalfof the director who appoints him/ her.

Chairperson: Refers to a director who is selected by the boardto play a lead role in the board’s meetings.

De Facto Director: Refers to an individual who performs theduties of a director but is not formally appointed as a director.

Executive Director: Refers to an individual who has dualresponsibilities of a director as well as of a senior executiveof an organization.

Independent Director: Refers to the kind of director who isfree from organizational restrictions and acts independently.

TYPES OF DIRECTORS

Personal Liability: Refers to the conditions in which thedirectors may be held responsible for personal liability.

Liability towards the Organization: Refers to a situation orcondition when the director is liable to the organization

Liability towards Legal Duties: Refers to the liability of adirector in case he/she fails to maintain the accounts andother legal formalities in a proper manner.

Liability towards Co-directors: Refers to the accountability ofa director when he/she is responsible for fraudulent activities.

LIABILITIES OF A DIRECTOR

The following are some of the responsibilities of BODs:

Determining the vision, mission, and purpose of the organization.

Selecting the executives of the organization.

Supporting the executives and reviewing their performance.

Ensuring the effective planning of the organization.

Ensuring the adequacy of financial resources that are available tocarry out routine operations.

Ensuring the effective use of resources.

Monitoring the organizational activities.

Enhancing the public image of the organization.

Assessing the overall performance of the organization.

RESPONSIBILITIES OF A DIRECTOR