Part - I

The last few years have seen some major scams and corporate collapses across the globe, be it Enron, Arthur Anderson or WorldCom. All these events have made stakeholders realize the importance and urgency of good corporate governance. People are concerned how companies are being managed; after all it's the public money/investment which is at stake in most of these companies. International organizations like IMF, WTO and World Bank are also insisting on transparency. Efforts are being made to have a common set of disclosure policies and norms. All this has moved corporate governance and transparency up the public agenda.

New standards for corporate governance have now emerged and companies will have to change their behavior and values in accordance with these standards. The new standards include Independent directors, external auditors, rotation of auditors, proper succession planning among others. In this era of globalization and liberalization, market forces play a crucial role. Liberalization in emerging economies has made access to foreign funds easier. Availability of foreign funds will lower the cost of capital. All companies will like this to happen, but the international lenders will be careful that the companies they lend to follow international norms and good corporate governance. These lenders will demand transparency. Also, with the growth of MNCs, these companies, which operate in different parts of the globe will need to maintain and adopt international standards to develop and maintain an international reputation. These factors will force companies to modify their behavior and values to meet the norms of corporate governance.

Activist groups have become very active of late and have forced bigwigs like Shell CEO and Disney CEO to resign. They also have managed to halt pricey takeovers like that of Vodafone. Companies need to take steps to prevent harm to their reputation and also pacify these activist groups. The companies should take basic steps like meeting all corporate norms and regulations. They should operate in a transparent manner. Their actions and policies should be transparent so that the activist groups can be reasonably satisfied on how the company systems operate. There should be fee flow of information. The companies can also undertake some PR exercise to project a good image. They should also look into the possibility of accommodating some of the suggestions of activist groups in their policy framework. A member of a group can also be included in decision making to get the "other side's view". Eg: a chemical company can include a leading environmentalist. This will also pacify critical environmental groups.

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* Contributed by: -
Harshdeep Jolly,
PGP - 2,
IIM Bangalore.