2_Principles of Corporate Governance

Principles of Corporate Governance
(Unit – I)
Dr. Parveen Kumar

School of Business
Principles of Corporate
Governance
Fairness
• Fairness refers to equal treatment, for example, all shareholders
should receive equal consideration for whatever shareholdings they
hold.
• In India this is protected by the Companies Act 2013. However, some
companies prefer to have a shareholder agreement which can include
more extensive and effective minority protection.
• The board of directors must treat shareholders, employees, vendors,
and communities fairly and with equal consideration.
• The fairer the entity appears to stakeholders, the more likely it can
survive the pressure of interested parties
Accountability
Corporate accountability refers to obligation and responsibility to give an explanation for
the company’s actions and conduct:
• The board should present a balanced and understandable assessment of the company’s
position and prospects.
• The board is responsible for determining the nature and extent of significant risks it is
willing to take.
• The board should maintain sound risk management and internal control systems.
• The board should establish formal and transparent arrangements for corporate reporting
and risk management and for maintaining an appropriate relationship with the company’s
auditor, and
• The board should communicate with stakeholders at regular intervals, a fair, balanced
and understandable assessment of how the company is achieving its business purpose
Responsibility
• The Board of Directors are given authority to act on behalf of the company. They
should therefore accept full responsibility for the powers that it is given and the
authority that it exercises.
• The Board of Directors are responsible for overseeing the management of the
business, affairs of the company, appointing the chief executive and monitoring
the performance of the company. In doing so, it is required to act in the best
interests of the company.
• Accountability goes hand in hand with responsibility. The Board of Directors

should be made accountable to the shareholders for the way in which the
company has carried out its responsibilities.
Transparency
• A principle of good governance is that stakeholders should be informed about the
company’s activities, what it plans to do in the future and any risks involved in its business
strategies.
• Transparency means openness, a willingness by the company to provide clear information
about such things as financial performance, conflicts of interest, and risks to shareholders
and other stakeholders.
• Disclosure of material matters concerning the organisation’s performance and activities
should be timely and accurate to ensure that all investors have access to clear, factual
information which accurately reflects the financial, social and environmental position of the
organisation.
• Organisations should clarify and make publicly known the roles and responsibilities of the
board and management to provide shareholders with a level of accountability.
• Transparency ensures that stakeholders can have confidence in the decision making and
management processes of a company.
Social Responsibility
• Apart from the 4 main principles, there is an additional

principle of corporate governance. Company social
responsibility obligates the company to be aware of
social issues and take action to address them.
• In this way, the company creates a positive image in the

industry. The first step towards Corporate Social
Responsibility is to practice good Corporate
Governance.
Corporate Governance Framework
Four Ps of Corporate Governance
• People
• Purpose
• Processes
• Practices
• People: This 'P' emphasizes the importance of the individuals
involved in corporate governance, including the board of
directors, executives, and employees. The composition of the
board, their skills, independence, and diversity are crucial
factors.
• Purpose: Purpose refers to the overarching mission and

goals of the company. Corporate governance ensures that the
company's purpose aligns with ethical standards and is
focused on creating long-term value for shareholders and
stakeholders.
• Processes: This 'P' involves the systems and procedures
established to oversee and manage the company.
Governance processes include how decisions are made, how
risk is assessed and managed, and how accountability is
maintained.
• Practices: Performance in corporate governance relates to

the company's overall success in achieving its goals while
adhering to ethical standards. The governance framework
monitors and evaluates the performance of the company against
established benchmarks.

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Principles of Corporate Governance

Dr. Parveen Kumar

• Accountability goes hand in hand with responsibility. The Board of Directors

• Apart from the 4 main principles, there is an additional

• In this way, the company creates a positive image in the

• Purpose: Purpose refers to the overarching mission and

• Practices: Performance in corporate governance relates to

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