Article Published In Vol.2,No.3

Corporate Governance and Business Ethics: Essential for Socio–Economic Growth of the Country!

Author : Savita Gupta, PPIMT Hisar

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Corporate Governance and Business Ethics are the set of processes, customs, policies, laws and institutions affecting the way of corporation is directed, administrated and controlled. It also includes relationship among many stakeholders such as shareholders, management, Board of Director etc. other that these it includes labour, customer, creditors, suppliers, regulators and the country at large. Effective corporate governance is an important element for functioning of socio-economic growth of the country. Post Liberalization and globalization economic reforms have made a drastic change in Indian corporate world. Key elements of good corporate governance principles include honesty, trust, integrity, openness, performance orientation, responsibility, accountability, mutual respect and commitment to the organisation. Matter of fact is that how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. Investors primarily consider two variables before making investment decisions–the rate of return on invested capital and the risk associated with the investment. In recent years, the “attractiveness of developing nations” as a destination for foreign capital has increased, partly because of the high likelihood of obtaining robust returns and partly because of the decreasing “attractiveness of developed nations.” Good corporate-governance practices reduce this risk by ensuring transparency, accountability, and enforceability in the marketplace. While strong corporate-governance systems help to ensure a country’s long-term success, weak systems often lead to serious problems. For example, weak institutions caused, at least in part, the debilitating 1997 East Asian economic crisis. The crisis was characterized by plummeting stock and real-estate prices, as well as a severe erosion of investor confidence. The total indebtedness of the countries affected by the crisis exceeded one-hundred billion dollars. While the presence of a good corporate-governance framework ensures neither stability nor success, it is widely believed that corporate governance can “raise efficiency and growth,” especially for countries that rely heavily on stock markets to raise capital. In fact, some contend that the “Asian financial crisis gave developing countries … a lesson on the importance of a sound corporate governance system.” While corporate governance may not dictate the economic prospects of developing countries, it certainly plays an integral role in shaping them. This paper has a brief overview of various steps taken by the regulatory authority i.e. Security and Exchange Board of India (SEBI) to protect the investor’s interest in securities and promotion & development of security market. Most notably, India must reform how its boards of directors function, improve its enforcement mechanisms, redefine its corporate laws, and embrace corporate governance as a philosophy.