How to Improve Corporate Governance

Quality of corporate governance primarily depends on the following factors:

·      Integrity if the management

·      Ability of the Board

·      Adequacy of the processes

·      Commitment level of individual Board members

·      Quality of corporate reporting

·      Participation of Stakeholders in the management

This element affect the long-term financial health of companies, good governance framework
also calls for effective legal and institutional environment, business ethics
and awareness of the environmental and societal interests. The main
constituents of good corporate governance listed below have to be incorporated
by each company to improve its credibility in the market.

·      Divorce of Management and Ownership: Ownership refers to the legal
custodian of the business. Management of the business requires professional
skills and a degree of autonomy to the managers, agreed upon consensually
between the owners and managers.

·      Role and Powers of the Board: The foremost requirement of good
corporate governance is the clear identification of powers, roles,
responsibilities and accountability of the Board, CEO and the chairman of the
Board.

·      Legislation: Understanding the legislative and
regulatory framework is fundamental to effective corporate governance.

·      Code of Conduct: It is essential that an
organization’s explicitly prescribed code of conduct is communicated to all stakeholders
and is clearly understood by them. There should be some system in place to
periodically measure and evaluate the adherence to such code of conduct by each
member of the organization.

·      Board Independence: An independent board is essential
for sound corporate governance. It means that the board is capable of assessing
the performance of managers with an objective perspective. Hence, the majority
of board members should be independent of both the management team and any
commercial dealings with the company.

·      Board Skills: In order to be able to undertake its
functions effectively, the board must possess the necessary blend of qualities,
skills, knowledge and experience so as to make quality contribution.

·      Management Environment: This include setting up of clear
objectives and appropriate ethical framework, establishing due processes,
providing for transparency and clear enunciation of responsibility and
accountability, implementing sound business planning, encouraging business risk
assessment, having right people and right skill for jobs, establishing
performance evaluation measures and evaluating performance and sufficiently
recognizing individual and group contribution.

·      Board Appointment: To ensure that the most competent
people are appointed in the board, the board positions must be filled through
the process of extensive search. A well-defined and open procedure must be in
place for reappointments as well as for appointment for new directors.

·      Board Induction and Training: It is essential to ensure that
directors remain abreast of all development, which impact or may impact
corporate governance and other related issues.

·      Board Meetings: These are the forums for board
decision making. Such meetings enable directors to discharge their
responsibilities. The effectiveness of board meetings is dependent on carefully
planned agendas and provision of relevant papers and materials to directors
sufficiently prior to board meetings.

·      Strategy Setting: The objective of the company must be
clearly documented with a long term corporate strategy including an annual
business plan together with achievable and measureable performance targets and
milestones.

·      Business and Community Obligations: Though the basic activity of a
business entity is inherently commercial, yet it must also take care of the
community’s obligations. The stakeholders must be informed about the approval
by the proposed and ongoing initiatives taken to meet the community
obligations.

·     Financial and Operational Reporting: The board requires comprehensive,
regular, reliable, timely, correct and relevant information in a proper format
and if a quality that is appropriate to discharge its function of monitoring
corporate performance.

·      Monitoring the Board Performance: The board must monitor and evaluate
its combined performance and also that of individual directors at periodic
intervals, using key performance indicators besides peer review.

·      Audit Committee: It is inter alia responsible for
liaison with management, internal and statutory auditors, reviewing the
adequacy of internal control and compliance with significant policies and
procedures, reporting to the board on key issues.

     Risk Management: The board had the ultimate
responsibilities for identifying major risks to the organization, setting
acceptable levels of risks and ensuring that senior management takes steps to
detect, monitor and control these risks.