Corporate
Governance
VS
Corporate Performance
Corporate Governance is an admixture of voluntary
and legally mandatory codes. Philosophical traditions
in the west and the east need to be reviewed to
know the bedrock of ethical standards. For example,
Rig Vedas concluding group of mantras indicate
original path to prosperity by stating, “A
business should benefit from the business like
a honey bee which suckles honey from the flower
without affecting its charm and beauty”.
It
would be erroneous to applaud the discovery of
corporate governance as a revolutionary deal for
investors, much less to the employees, customers
and the general community. The idea is as old
as hills. Some of the core principles of corporate
governance are: honesty, transparency and corporate
decision making in the best interest of the shareholders.
It is ironic that at a time when corporate governance
has become a buzzword globally, some of the so-called
citadels of corporate governance are falling apart.
In the US and developed markets, investors trust
in the corporate system has all but evaporated
in the wake of numerous highly visible shenanigans.
Clearly for us in India there are many more lessons
to be learnt from the corporate debacle in America
and especially the way in which it has caused
havoc in financial markets everywhere. That the
Indian stock markets have been looking to the
lead of US stock exchanges, especially the NASDAQ
is a fact.
A
recent well-published survey by McKinsey &
Co. in this regard is illuminating. In the survey,
around one-fifth of institutional investors in
the sample expressed preference towards corporate
governance over financials while deciding their
emerging market portfolios. In fact the respondents
to the survey were ready to pay a premium of 28%
for well-governed companies in emerging markets.
The survey established the link between market
evaluation and corporate governance that the companies
with better corporate governance command a higher
price-to-book ratio.
In the years to come companies should be less
concerned about the vehicle of disclosure and
more concerned with substance of information made
available to public. The improvements in transparency
are necessary response to the recent corporate
scandals and will definitely help strengthen corporate
governance. Thus corporate governance has clearly
become an international issue.
Prof. I. Sridhar
H.O.D. (MBA)
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