Question

list and explain most important principles and recommendation about corporate goverance.

Answer 1

Corporate Governance is based on following 4 pillars:

1. Fairness: It is essentially related to ethical behaviour of the companies. In order to achieve higher returns in short term, many companies indulge in unethical trade practices like tax evasion, etc. So to avoid these unfair practices Board should develop a code of conduct that promotes ethical and responsible decision-making.
2. Accountability: Accountability means those, who are taking decisions and actions, are answerable for their decisions and actions. A well governed company respects the rights of its stakeholders and helps them to exercise their rights.
3. Transparency: It means accurate, adequate and timely disclosure of information to the stakeholders. Transparency and disclosure provide all the stakeholders with the information necessary to judge whether their interests are being taken care of.
4. Responsibilty: The board of directors are ultimately accountable and responsible for the affairs and performance of the company and should act fairly and independently to ensure that all relevant informations are available to the stakeholders as neede. Involvement of stakeholders in the decision making process of the company is also essential.

Recommendations for a company to achieve a good corporate governance:

1. Communication and interaction of the company with its investors and other stakeholders: There are various stakeholders who hold joint interest in company's growth. Openness and transparency are essential requirements for the company’s investors and other stakeholders to have regular check in order to evaluate and relate to the company and its future, and thus it involves a constructive dialogue between stakeholders and company. This help in building confidence amongst stakeholders and further attract more long-term capital.
2. Responsibilities of Board of Directors: The board of directors is responsible for the overall strategic management and workinf of the company. With properly following its' duties BOD can perform following:

• improving strategic thinking at the top
• rationalising the management and constant monitoring of risk that a firm faces
• reducing cost of capital
• assuring the integrity of financial reports
• avoiding excess wastage of company resources

      3. Board committees: Board committees may increase efficiency and improve the quality of the work         performed by the board of directors. A board committee should be setup to facilitate effective monitoring of companies by focusing on corporate issue in detail. There are various committees which can be setup in order to look after various different matters relating to company such as, Audit committee, Remuneration, Nomination, Compliance, Risk management, Investment, Investor relations, Shareholders' Grievance committees.

      4. Financial reporting, risk management and audits: The members of BOD and executive board must prepare financial reports which should be supplemented by various other financial and non-financial information, which is relevant in needs of the recepients. The presentation of reports must be easy to understand by various parties.There must be proper risk managemnet systems for internal control, which helps in increasing efficiency. Required audits must be performed on a regular basis in order to achieve Company's proper growth and increase its goodwill.