Definition of Corporate Governance
According to Catherwood, the concept of corporate governance entails that a company conducts its business in a manner that is both accountable and responsible to its shareholders. However, it goes beyond shareholder accountability and extends to other stakeholders, including employees, suppliers, customers, and the local community. Corporate governance involves ensuring that the Board of Directors and management fulfil their responsibilities effectively. This includes carrying out their duties in a manner that builds trust and confidence among stakeholders. By doing so, corporate governance plays a crucial role in establishing and maintaining the confidence of all those who have a vested interest in the company’s success.
According to the Institute of Company Secretaries of India (ICSI), corporate governance can be defined as the application of management practices that ensure compliance with laws, ethical standards, and the responsible and effective management and distribution of wealth. It encompasses the commitment to social responsibility and the pursuit of sustainable development for the benefit of all stakeholders involved. In essence, corporate governance seeks to establish a framework that promotes transparency, accountability, and ethical conduct within an organization to ensure the holistic well-being of its stakeholders.
The ICSI presents the annual National Award for Excellence in Corporate Governance, evaluating companies based on key criteria:
- Board independence, systems, and procedures: Assessing the effectiveness of the board’s independence and the robustness of systems and procedures.
- Transparency and disclosure compliances: Evaluating the company’s transparency in operations and adherence to disclosure requirements.
- Consistent value enhancement for stakeholders: Recognizing the company’s track record in consistently enhancing value for stakeholders.
- Corporate social responsibility: Considering the company’s commitment to social and environmental causes.
- Creative and contributive capabilities of top management: Acknowledging the innovative and contributive abilities of the company’s top management.
- Sustainable relationship building with stakeholders: Assessing efforts in fostering sustainable relationships with stakeholders.