1
CORPORATE GOVERNACE PROJECT ON: ROLE OF GOVERNMENT IN ENSURING CORPORATE GOVERNANCE
SUBMITTED TO PROF. KALPANA BHUSE SUBMITTED BY STELLA SEBASTIAN ROLL NO: 12 CLASS: BBA LLB 2 ND YEAR
2
INDEX Sr No
PARTICULARS
Page No.
1
Introduction
3
2
Different Roles Of Government In The Economy
4
3
Different Roles Of Government In Corporate Governance
8
4
Public Governance And Corporate Governance
10
5
Forms Of Government Regulation
11
6
Role Of Government In Limiting Corporate Power
11
7
Corporate Governance Requires The Freedom To Create And
12
Execute
8
Of Governance And Government
13
9
Government Have To Be Proactive In The Following Areas
14
10
Role Of Judiciary
15
11
Enactment Of Laws
17
12
Examples Of Corporate Scandals
18
13
Recommendations
21
14
Conclusion
22
15
Role Of Government In Corporate Governance In India
23
3
ROLE OF GOVERNMENT IN ENSURING CORPORATE GOVERNANCE
INTRODUCTION
Taking the cue from the classical economists, die-hard admirers of capitalism often aver that “the government should get out of the way and let the market function”. Of course,
that idea is a myth. Government is absolutely essential in setting up of a market economy. Without rules and structures of a binding nature, anarchy will be the outcome. “Under such conditions business becomes nothing but ‘casino capitalism’ where
investments are simply bets: bets that people will keep their word, bets that the firms are telling the truth, bets that employees will be paid, and bets that debts will be honoured. What corporate governance is all about in i n larger terms is how a structure can be set up that allows for a considerable amount of freedom within the rule of law. Ultimately these arrangements provide for the establishment of trust, one of the most important ingredients in business.” There is empirical evidence that shows that there is
positive correlation between economic development and good corporate governance. Corporate governance is now considered as a key ke y element, among others, that improves economic efficiency, growth and stability as well as encouraging investments in the economy. Countries with a reputation of maintaining good corporate governance practices in both their public and private sectors have higher chances of attracting both domestic and foreign direct investment needed for driving economic growth and development. The recent global recession was triggered by the collapse of banks and other financial institutions, which had been left to operate by themselves with minimum regulation in the United States and Europe. There was a push for self-regulation and little regulation.
4
DIFFERENT ROLES OF GOVERNMENT IN THE ECONOMY
There are four important roles played by the government in an economy, namely: 1. The regulatory role 2. The promotional role 3. The entrepreneurial role 4. The planning role Regulatory Role A large part of the economy of even most of non-centrally planned countries is regulated by the government, as discussed below: 1. Government may determine the conditions under which persons or corporations may enter certain lines of business as in the granting of a charter, a franchise, a licence, or permitting any “person” to use public
facilities or resources. 2. Government may regulate or assist the conduct of economic ventures of various types once they are under way. 3. Public control may extend to the results of business operations as in the limitation of public utility profits, ceiling on dividends and imposition of excess-profit taxes on business, etc. 4. Government may control the relationship between various segments of the economy, the purpose being to settle conflicts of interests or of legal rights and to prevent concentration of economic power in the hands of few monopolies or in a few localities that may cause regional imbalances. 5. Government may put in place legally constituted regulatory bodies to protect investors, consumers and the general public by ensuring best corporate practices.
5
Government regulation of an economy may be broadly divided into 1. Direct controls 2. Indirect controls Direct controls: Direct administrative or physical ph ysical controls are more drastic in their overall effect and impact. For instance, many developing countries have instituted a variety of direct controls over their economies including industrial licensing and price and distribution controls. The use of industrial licensing is, therefore, justified as the mechanism by which the state can control industrial investment and allocate resources to conform to pre-determined priorities and plan targets. Indirect controls: Indirect controls are usually exercised through various fiscal and monetary incentives and disincentives or penalties. For instance, a high import duty may discourage imports and fiscal and monetary incentives may encourage development of export oriented industries. Promotional Role The promotional role played by government is very important in developed as well as developing countries. Thus, considering the whole of its activities, a government does more to assist and to help develop industrial, labour, agricultural and consumer interests than it does to regulate them. In developing countries, where the infrastructural facilities for development are inadequate and entrepreneurial activities scarce, the promotional role of the government assumes special significance. The state will have to assume direct responsibilit y to build up and strengthen the necessary development of infrastructure such as power, transport, finance, marketing, institutions — for for training and guidance and other promotional activities. The promotional role of the state also encompasses the provision of various fiscal, monetary and other incentives, including measures to cover certain risks for the development of certain priority sectors and activities.
6
Entrepreneurial Role The growing importance of the entrepreneurial or participative role of the state has been evident from the fast expansion of the public sector in most developing countries. However, in post-1990s there has been a significant reversal in this policy as governments having experienced inefficient functioning of public sector industries and the huge losses incurred by them which are made good by budgetary allocations affecting tax-payers, have given up their policy of promoting them. Public ownership in free societies and their growth in recent times are justified for the following reasons: 1. In a democracy, the national emergency of war inevitably causes an expansion of state activities, including public ownership, because modern requirements of total war cause people to forsake their convictions concerning private responsibilities and to concentrate on massed power in the state apparatus. 2. Major economic dislocations, such as the great depression of the 1930s, also tend to stimulate state activities, again leaving a residue of public ownership that takes time and efforts to dissipate, if it is ever finally accomplished. 3. In economic dislocations, as in the early history of the United States and in the economic development of developing nations today, government is called on to act as banker, helper or owner of infant industries and generally to expand its central concern for the economy, thus creating considerable degree of public ownership at the outset. 4. When private undertakings become unprofitable but the need for their services continues, government may be prevailed upon to acquire and manage such non-profitable business concerns even at a loss. 5. Governments are also required to extend the owner-manager relationship when there is a pronounced wastage of national resources, or when the threat to them is great, thus diminishing the nation’s ability to defend itself or to preserve the bases of a sound economy.
7
6. Government ownership may also be extended by the failure of private management to consider itself a trustee of the public good and abuse its power, especially in cases where monopoly or semi-monopoly, is the condition.
Planning Role In its role as a planner, the government tries to manage the economy and its business activities through the exercise of planning. Planning is the most important activity in a modern mixed economy. The idea of economic planning can be traced to three different sources: Rationalism, Socialism and Nationalism. Rationalism: A planned economy on the ground that it can be a rational economy which can utilize the available resources in an optimal manner. In other o ther words, the planned economy is a rational economy which attempts to secure the maximum return with minimum wastage of productive resources. Socialism: The socialists advocate a planned economy because it helps to achieve some desirable social ends like economic equality. An unplanned economy, left to it, is incapable of attaining the social ends. Nationalism: The nationalists advocate a planned economy because a planned economy is a powerful economy. The nationalists want to use planning as a weapon to strengthen the military power of the country. Hitler Hitl er in Germany and Mussolini in i n Italy resorted to planning to achieve political motive. Planning operation involves a number of steps: The first stage in planning is the formulation of socio-economic objectives of the plan and their definition in quantitative terms.
8
Such objectives include growth, justice, eradication of poverty, price stability etc. In the second stage, the plan lays down the physical and financial targets.
The third stage is concerned with execution. The Planning Commission is only an advisory body and it has no power to execute the plan. Planning by business is good but planning by government for the whole society is, in the eyes of most businessmen, ‘bad’ (perhaps because government planning has come
to be identified with communist countries). DIFFERENT ROLES OF GOVERNMENT IN CORPORATE GOVERNANCE
Overarching role The role of government is to provide an enabling environment environ ment within which the private sector can thrive. Government plays both administrative and coordinative roles. It is responsible for the maintenance of basic security, public law and order, and protection of property. It has an obligation to protect the vulnerable members of society. Participatory role Government plays a participatory role on economic development through parastatals state -owned-enterprises. It is the fundamental role of government as the biggest employer in the economy to implement corporate governance within its various ministries, parastatals and state owned enterprises.
Facilitative role Government plays a facilitative role in the economy by creating a sound infrastructure. Government provides relevant infrastructure and basic service enablers such as electricity, water, communication, infrastructure etc. This enables companies, individuals and government itself to function or perform efficiently towards wealth creation and economic Development of the country
Monitoring Role
9
Government ensures that there is fair play in business through monitoring. Government oversees and monitors organizations such as the Securities Exchange Commission, the Stock Exchange etc.
Legislative and regulatory role Government, through Parliament makes public policy, legislation and statutory instruments. Government creates a conducive environment for business to operate under through making regulatory and statutory frameworks. The interpretation and enforcement of legislation is done through the courts or judiciary and other national enforcement agencies. The regulatory environment enables the private sector to play its direct role in increasing employment and thereby alleviating poverty. Poverty reduction is one of the obligations of government to its poorer constituencies. It is one of the millennium development goals that all governments must address and legislation that helps private sector revitalize the economy is one of the strategies of alleviating poverty. Legislation ensures fairness and transparency transparenc y in business dealings and these are some of the tenets of good corporate governance.
Corruption Controlling Role Government has a major role to play in reducing the level of corruption in the country. Corruption ultimately robs the wealth of a nation making the poor people poorer while increasing the wealth of the rich. It decelerates the millennium development goal of reducing poverty. So governments should play a pivotal role in combating corruption. There must be will-power from the top leadership of a country which should cascade down the leadership ladder.
Enforcement Mechanism Role Government should consider the most effective options opt ions in terms of enforcing corporate governance. Enforcement could be on a statutory basis (that is legislated) or as a Code of Principles and practices (on a voluntary or self-regulatory basis) or a combination of both legislation and voluntary. Some governments apply the statutory basis and this
10
implies that companies should “comply or else”. In this sense there would be legal
consequences in the event of non-compliance. Other governments use the voluntary regime (comply or explain) which requires companies to comply with the principles and practices contained in the code and in the event of failure to do so, corporations would be required to explain why they had failed to comply.
PUBLIC GOVERNANCE AND CORPORATE GOVERNANCE
Good governance is supposed to exist if the following three objectives are achieved:
The first is there should be equality of law and effective implementation of laws.
Second there should be opportunity for every individual to realise his full human potential.
Third, there should be effective productivity and no waste in any sector.
Link Between the Two Systems Corporate governance depends upon two factors, namely, the attitude and the values cherished by the management of the business enterprise and the external environment in which the business operates. The external environment in which the business busi ness operates would include the legislation relating to the functioning of business enterprises, covering the entire spectrum from registration of companies, their structure, and settlement of disputes, to laws relating to the capital market and punishment for unethical practices such as insider trading. Public governance, on the other hand, is broadly connected with the running of the government of a country and ensuring that the rule of law prevails. There has to be fairness and transparency in the system of justice. If the public governance is not conducted on healthy lines and there is corruption, then there is no fairness. Corruption, as the World Bank defines, “is the use of public office for private gain”. If the public servants are going to exploit their position for private gain, then the quality of public
11
governance suffers. If the quality of public governance suffers, corporate governance then is more difficult to practise. It can definitely be said that the management of an enterprise can still be ethical and try to maintain its internal corporate governance. If the environment in which it operates is not clean, then it may not be successful s uccessful or even if successful, it will find it very difficult to operate. FORMS OF GOVERNMENT REGULATION
The object of government regulation, as has been pointed out earlier, is to steer the wheel of the economy in the direction of0 maximum social good without replacing it. This can be achieved through regulatory action at all-important points in the economic system. However, the regulatory system and the context of regulation may vary from country to country, the degree of maturity of political governance and the degree of economic growth. The more important forms of regulation of private enterprises by the government especially in developing countries like India are as follows:
Regulation of monopolies and unfair trade practices or restrictive practices through legislation.
Regulation of wages and bonus for employees in private sector to minimise exploitation, ensure reasonable standards of living and maintain peace and harmony in industry.
Regulation of corporate management.
Regulation of specific norms of business activity activit y such as speculation in shares and commodities or imports/exports, etc.
ROLE OF GOVERNMENT IN LIMITING CORPORATE POWER
The economic government (giant corporations) is largely unaccountable to its constituencies - shareholders, workers, consumers, local communities, tax payers, small businesses, future generations, etc. This view, which would have sounded extreme, strident and partisan when it was expressed with the major scams of mega corporations still to emerge from the womb of
12
time, did reflect the most fundamental public concerns with large corporations. “However expressed, there appears to be a widespread fear that corporate managers
have significant unrestrained discretion discretion to make critical choices regarding a myriad of economic, social and political issues touching the lives of every citizen — including including to name a few: what products and services to offer; what prices to charge; whether to invest in existing lines of business, to build new lines or buy out existing companies; where to locate corporate headquarters and new facilities; what plants to open op en and close; whether to adopt measures to protect the environment and conserve energy; whether to adopt worker benefit, safety and health programmes; which philanthropic endeavours to favour; and so on.” CORPORATE GOVERNANCE REQUIRES THE FREEDOM TO CREATE AND TO EXECUTE
In government, executive power is feared and thus checked — in in the corporation it is desired and, therefore, fostered. Since a corporation is not a political community, checks and balances are not appropriate to it. In a corporation, corporation , the whole idea is to accomplish certain goals and to create something new. In government, the point is to keep leaders from doing anything beyond their stated powers. In corporations, we value swift action. Contrariwise, in government we desire judiciousness and deliberation. The growth of mutual funds and pension plans means broader stock ownership and stronger pressure on behalf of stockholders to keep managers in line. We are in an era of “fiduciary capitalism” in which there is a concentration of ownership in the hands of
a relatively small number of decision makers. For example, the Biblical Parable of the Talents clearly illustrates the idea that separating control from ownership does not strip the owner of his rights. Today, we have simply si mply added the idea id ea of the fiduciary responsibility of the mutual fund or pension plan manager as a middleman, between the owners and the managers of a corporation.
13
OF GOVERNANCE AND GOVERNMENT
Governance is as much a political process as it is economic, econo mic, unlike management, which is only economic. Governance is about managing interests. While the need to move towards desirable governance practices by Indian companies is essential, it may be useful to define these practices in wider terms within a broader perspective. Measuring such a rich and broad concept in terms of simple instrumentalities such as audit committees or accounting compliance may lead to trivialising the concept. As a consequence, companies may just present their accounts better and continue to ignore more critical and substantial governance practices. The entities at the level of the state and corporate have to recognise that governance is not merely about being compliant but about understanding the importance of compliance and accountability to stakeholders. Corporate India and the Government of India have to work hard towards this understanding.
The Scope of Government’s Relations with Business
The scope of government relations with business in the context of developing developi ng countries is indeed wide and deep. The role of government in few areas are mentioned below:
It prescribes the rules of the game.
It is the major purchaser of the output of business.
It uses its contracting power to get business do things it wants.
It promotes and subsidises business.
It is an architect of economic growth.
It protects interests of society against business exploitation.
It directly manages large areas of private business.
It is a national security protector.
14
Governments Have to be Proactive in the Following Areas
Government should ensure that stakeholders’ interests are protected by
continuous monitoring of companies, to see that they do not cheat their stakeholders.
Government should make laws to govern companies, to undertake all the activities within the rules of the game. It should also make sure that all companies adhere to rules, as for example — MRTP MRTP (Monopolies and Restrictive Trade Practices) Act. This Act enables the government g overnment to regulate industries wherein none of the private companies becomes a monopoly by indulging in practices that would adversely affect consumer interests.
If companies do not adhere to rules and regulations the government should penalise such companies and make sure that they do not repeat it again.
Government has appointed regulators to regulate several sectors, to monitor the activities of companies, to allow them to a have fair competition in the market and also to save them from disputes when problems arise. aris e. For example, we have the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), Telecom Regulatory Authority of India (TRAI), and Insurance Regulatory and Development Authority (IRDA). Responsibilities could be fixed easily for actions taken or not taken. Each activity in the company should be made known to all the stakeholders. A company has to be very fair to its stakeholders and inform them as to how the funds are being utilised. Regulators can also avoid insider trading through preventive measures. Regulators allow fair competion in the market. They also prevent emergence of monopolies in their sector.
15
ROLE OF JUDICIARY
The judicial system has an important role to play in ensuring better public governance and corporate governance. There may be so many regulations, regulati ons, rules and procedures; but ultimately when disputes arise, they have to be settled in a court of law. la w. There could be, of course, alternative dispute resolution mechanism such as conciliation or arbitration, but in countries count ries like India, In dia, it is the judiciary that has to step in and ensure that healthy practices prevail. The role of courts in good governance is gaining importance today, particularly with regard to the reformation of society and the evolution of an independent judiciary in the country. Judiciary is usually considered a pillar of state and meant to dispense justice and resolve conflicts and disputes. To achieve all these goals, stakeholders should try to make it independent of the other institutions and authorities. The Constitutions, which guaranteed the rights of workers, shareholders and employees, had assigned the task of enforcing the laws to the judiciary. Judiciary is a pillar of state and mostly meant to dispense justice and resolve conflicts and disputes. To achieve all these goals, all stakeholders should try to make it independent of the other institutions and authorities. Role of judiciary is vital in promoting a culture of tolerance. It also considers the important issue of terrorism and money laundering to determine emerging money laundering and terrorist financing trends within and between jurisdictions and review existing legislations to make them more effective. It also consider environmental law and public interest litigation’ to enhance and review the scope of pub lic interest
litigation to check the environmental violations. It also play its role in minimizing the gender bias and issues of judicial empathy to adopt effective mechanism for women empowerment. In the cycle of any governance the role of the judiciary is of paramount importance. The role of the judiciary is not just j ust to enforce the law but to protect the interests of the human society which cannot be achieved without a robust and independent judiciary. The
16
judiciary plays the dual role of acting as a counter check mechanism to monitor the actions of the legislature as well as a decisive role in the administration of the country. For the role of the judiciary, as a monitoring mechanism for the actions of the legislature, the appointments to the judiciary should be free from legislative control or minimal legislative control. It is true that the legislature has the power to make the laws, but this doesn`t mean that the legislature should have absolute control. In India, keeping with the spirit of the independence of the Judiciary, the collegium of the corresponding Court plays the decisive role in judicial appointments.
The
differences that exist between the federalisms of US and India are unique. These differences have been wantonly created by the architects of the Indian constitut ion. The US federalism is very strong and more rigid as envisaged in their constitution by its leaders and contains few pages in which the amendment is done very rare. It is more federal than unitary.in character. Whereas, India is more unitary than federal system and the constitution of India is very voluminous containing as many as XXII parts, 395 articles and ten schedules and so far been India’s constitution been amended 94 times.
Therefore, it is easy to amend the Indian constitution, since it involves four different types of procedures which are comparatively easy than the amending procedure of the US constitution.US has an advanced judicial system, India has a rapidly developing judicial system. All these points basically help in building better corporate government in any country and that’s why US is better than India in their business procedures.
The basic framework of the Constitution in India depends on the three main pillars, namely, judiciary, executive and the legislature. It is axiomatic that the basic structure of the Constitution is not to be tampered with. One of the areas in which the judiciary has been very active is in pointing out whether in terms of any legislation that is passed or practised, principles and laws are enacted to test whether they are in tune with the basic structure of the Constitution. This is an important provision and to that extent the judiciary is found to be clean and effective. It can be a guarantee not only for better public governance but also for better corporate governance.
17
ENACTMENT OF LAWS
Different laws have been enacted by the government to fulfil the needs of different people in society like employees, employers, customers and the society at large. To protect employees, government has brought in legislations such as Factory Acts, Minimum Wages Act, Labour Laws and Trade Union Act to make sure that they are well protected and their problems are solved. Through these Acts, employees are able s. Employees’ grievances are addressed by to negotiate or bargain with their employer s. these Acts so that employees’ welfare can be taken t aken care of by the government.
There are laws for employer protection also to save them from illegal strikes and lockouts that cause production losses and the like. Human Rights are protected by ensuring good quality products at reasonable prices. Pollution standards are maintained by making all companies adhere to some ecological standards. Government makes investments in capital goods industries in which most private companies cannot invest because of some constraints const raints such as huge investments and long gestation period peri od as in the power sector, oil sector, telecom and airlines industries and so on. In the above mentioned industries, Indian government had invested huge sums of money and developed them over a long period of time. Government can also play a major role in developing and building corporate culture by taking measures to diversify investments, protect investors and boosting their confidence in times of financial crises.
18
EXAMPLES OF CORPORATE SCANDALS :
SATYAM SCANDAL Genesis of the Satyam Scandal Ramalinga Raju, founder, and CEO of Satyam Computers announced on January 7, 2009, that his company had been falsifying its accounts for years, overstating revenues and inflating profits. Prior to that Raju made an attempt to have Satyam invest about Rs. 7000 Crore in Maytas Properties and Maytas Infrastructure, two firms promoted and controlled by his family members. On December 16, 2008, Satyam’s Board cleared the investment, but investors opposed
it. The Board of Satyam, later on, was reconvened the same day and called off the proposed investment. Thereafter resignations followed from Satyam’s non-executive Directors. Resigning as Satyam’s chairman and CEO, Raju said in a letter addressed to his Board, the stock
exchanges and the market regulator, Securities & Exchange Board of India (SEBI) that Satyam’s profits were inflated over several years to “unmanageable proportions” and
that it was forced to carry more assets and resources than its real operations justified. He took sole responsibility for those acts. He fu rther stated that “it was like riding a tiger, not knowing how to get off of f without being eaten,” “The aborted Maytas acquisition was the last attempt to fill the fictitious assets with real ones.” Raju acknowledged that Satyam’s Balance Sheet included Rs.7,136 crore in non-
existent cash and bank balances, accrued interest and misstatements. It had also inflated its 2008 second quarter revenues by Rs.588 crores to Rs.2,700 crores and actual operating margins were less than a tenth of the stated Rs.649 crore.
19
The company’s fixed deposits documents were forged, diverting Rs1,250 crore at the
rate of Rs 20 crore per month over a period of many years. It held more than 400 40 0 Benami land transactions of thousands of acres. The Company claimed that the strength of the company was 53,000 against actual employee strength of only 40,000. Corporate governance scandals in India pale in comparison to this one, even the $1.4 billion (Rs 7,000 crore) Satyam scandal, the biggest corporate fraud in India so far. Who's the guilty party we're talking about? None other than the government of India. The government was already coming under criticism from some quarters for planning some questionable 'money transfers' via state-owned entities; now it seems s eems it can't even be trusted on providing reliable economic data. While it's not exactly a fraud, the casual attitude displayed by the government when providing information to the public is certainly a scandal. Commerce Secretary Rahul Khullar announced that exports were overstated by about $9.4 billion during April-October this year because of a system crash in the commerce ministry and mistakes in data classification and entry. The most galling part is how casually the government is dismissing such a big goof-up as a "mistake". Would the government's govern ment's enforcement directorate or income tax officials let companies off the hook if they had said a computer error had caused them to overstate/understate revenues and therefore, not paid crores in duty as a result? "There is no reason why the government should shoul d not be held equally accountable for this lapse because this will have serious implications for believability of Indian economic data," it said. As it is, the Index of Industrial Production has also become somewhat so mewhat of a joke among economists, with most of them refusing to take the numbers too seriously because of the way it has streaked up and down over the past few months. (The government has now decided to end a contract with the Centre for Monitoring Indian Economy for collecting data used in calculating the IIP, according to Mint .) .)
20
These troubles come on top of earlier media reports that said the government might prod Life Insurance Corporation of India (a state-run entity) to to buy 5-10 percent of the government's stake in public-sector undertakings (also majority-owned by the government) as part of an exercise to raise Rs40,000 crore through disinvestment. Basically, that's like giving from the left hand and taking with the right hand. An even more interesting twist is that the government is considering asking PSUs to launch l aunch share buybacks, under which the government will sell some portion portio n of its shares back to the PSU. Another left hand-right hand exercise. Clearly, the government, as promoter of these companies, is trying to move money from one account to another to make its final balance sheet look good. It's not the only one trying to play dodgy financial games; in the past six months, at least five relatively well-known companies have hit the limelight repeatedly for poor governance practices. Fortis Healthcare: In September, the company co mpany announced that it was buying the
overseas healthcare business of its promoters, Malvinder and Shivinder Singh, for $665 million.
The
big
concern
here,
according
to
a report in The
Economic
Times today , revolves around whether the deal was overvalued and whether the deal
basically benefits the promoters, who fully own the international entity. Ketan Parekh: Parekh was involved in circular trading and stock manipulation
through 1999-2001 in a host of companies. He borrowed from banks like Global Trust Bank and Madhavpura Mercantile Co-operative bank, and manipulated a host of stocks popularly known as K-10 stocks. Ram Sumiran Pal, Speak Asia - Speak Asia was an online trading company founded
by Ram Sumiran Sumi ran Pal and his brother bro ther.. Pal and his associa ass ociates tes duped dupe d at least leas t 24 lakh lak h investors for Rs 2,200 crore in the scam extending to Singapore, Italy, and Brazil, among others.
21
Everonn Education: The company hit the headlines late August after the Central
Bureau of Investigation arrested managing director P Kishore on charges of bribing an income-tax official to suppress unreported income. SKS Microfinance: From the shocking manner in which the CEO was fired just two
months after the company listed on the stock exchange (and nothing was communicated to shareholders) to the way the company changed its business model to a profit-making venture from being a non-governmental organisation, everything was a disaster. The ouster of founder Vikram Akula late last month was the culmination of seething invest or and management discontent
RECOMMENDATIONS
•
Government has a pivotal role to play in corporate governance. It should also
create a conducive environment and level the play-field so that businesses and individuals interests can thrive and create wealth for the nation. It should play this role by: •
Providing appropriate infrastructure and basic services such as water, electricity,
communication etc. •
Making regulatory and statutory laws. This should include the updating of the
Zimbabwe Companies Act. •
Enacting measures to combat corruption which include giving judicial powers to
the anti-corruption commission. •
Leading by example through implementing corporate governance in central
government itself and thus demonstrating will-power which would permeate down to its citizens. •
Introducing the teaching of ethics and and values at an early early age in schools through to
tertiary levels. This will help nurture and sustain the moral values of society and these values will guide its citizens in implementing corporate corporate governance. Morally upright citizens have no problems in upholding the principles of fairness, transparency and accountability which are some of the core tenets of good corporate
22
governance. Zimbabwe’s moral fibre has been eroded by the economic challenges the country has faced for the past decade. It is therefore necessary that ethics and values be instilled in the society by including them in the curriculum of schools and tertiary institutions. •
Adopting both the legislative (comply or else) and the voluntary (comply or
explain) regimes. Both regimes are are essential because of the economic and political history of our country, Zimbabwe. The Government, in its wisdom, would then decide what would be legislated depending on the prevailing corporate and society’s
cultural way of doing business. CONCLUSION
In conclusion, Government should portray itself corrupt-free so that companies can follow its worthy example. Removal of the license system for several industries, greater transparency in administration, granting of autonomy to public sector enterprises, will go a long way to reduce corruption. The government should ensure that the quality of audit, which is required for effective corporate governance, should be considerably improved. Government should ensure with assistance from industry, the accountability of the CEOs and CFOs. Government should set an example by transparently blameless conduct of its own affairs. It should legislate, regulate, and ensure proper conduct of organisations, and enable them to adopt effective voluntary codes of conduct without the heavy hand of legislation, and, wherever possible, stimulate national debate on moral aspects of governance and help create awareness among all sections of society on the importance of ensuring better governance practices both among corporates and in civil society. Role of Government in Corporate Governance in India Recent corporate scandals have led to public pressure to reform business practices and increase regulation. Of course, dishonesty, greed, and cover-ups are not new societal concerns. The public outcry over the recent scandals have made it clear that the status quo is no longer acceptable; the public is demanding accountability
23
and responsibility in corporate behaviour. It is widely believed that it will take more than just leadership by the corporate sector to restore public confidence in our capital markets and ensure their ongoing vitality. It will also take effective government action, in the form of reformed regulatory systems, improved auditing, and stepped up law enforcement. These responses make clear that the governance of corporations has become a central item on the public policy agenda. The recent scandals themselves demonstrate that lax regulatory institutions, standards, and enforcement can have huge implications for the economy and for the public. Of course, government responses to scandals should be well considered and effective. Regulatory reforms that overreact or that address symptoms while ignoring underlying causes can be costly and counterproductive. Government ‘s task is to restore corporate integrity and market confidence without stifling the dynamism that underlies a strong economy.
24
WEBLIOGRAPHY
Biggest Corporate Scammers In India https://www.indiatimes.com/news/india/6-of-the-biggest-corporate-scammers-inindia-251861.html The role of government in corporate governance http://www.academia.edu/12042059/Final_Project_The_role_of_government_in_corp orate_governance BIBLIOGRAPHY
A.C Fernando – Business Business Ethics And Corporate Governance