Corporate Governance in India: Concept, Course of Action and Compliance

Abstract

While corporate governance may not state the economic prospects of developing countries, it certainly takes part in shaping them. Good corporate governance is vital because of its role in attracting investors to invest both in the domestic and in the international capital markets. Investors primarily consider two variables before making investment decisions in the companies – the rate of return on invested capital and the risk associated with the investment. Good corporate governance practices reduce this risk by ensuring transparency, accountability, and enforceability in the capital marketplace. As a result, the investors expect the Board and the Management in the companies to act in their best interests at all times so as to earn a risk adjusted rate of return that is higher than the cost of capital. Practices that the Board of Directors of a listed entity follows to fulfill the expectations of all stakeholders (i. e. Shareholders, employees, creditors, customers, government, regulatory authorities and society at large) is called corporate governance practices. While sound corporate governance practices ensure a company's long-term success, weak practices often lead to serious problems.