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Corporate Governance.
Overview:
In this research paper researcher’s attempts to present the concept of Corporate Governance Ratings
(CGR) and various aspects related to it such as the phases involved in CGR, issuers of CGR and
investigates if such ratings can surely improve the CG standards.
Introduction:
Corporate governance has become an important agenda around the globe, since last two decades for
policy makers because of corporate scandals and increasingly importance for CG around the world.
According to OECD (Organization for Economic Cooperation and Development) Principles of
CG states:
"Corporate governance involves a set of relationships between a company’s management, its board,
its shareholders and other stakeholders. Corporate governance also provides the structure through
which the objectives of the company are set, and the means of attaining those objectives and
monitoring performance are determined."
The Failure of corporate giants such as (Enron, Satyam, WorldCom, and Tyco) is the major
cause that shifted the attention of world towards governance of the corporation. The failure of ‘best
governed’ companies such as Satyam has shaken the trust of the investors. Ramanlinga Raju
shocked the world by confessing that Satyam’s accounts have been manipulated by US$ 1.47
billion.
After that many changes have been introduced in the system to avoid and detect such frauds and
several codes, standards, and laws have come into force which aims to improve the governance
standards of the corporation. One of the rising trend is corporate governance ratings (CGR).
Companies are themselves getting careful with their business practices. With growing level of
awareness among investors
Good governance practices and observing ethical behavior can help companies sustain a profitable
business in long run. High CGR helps the companies to assure the investors that company is
governed properly.
Corporate Governance Rating:
The Corporate Governance Ratings is a judgment on relative standing of an entity with regard to
adoption of corporate governance practices.
Corporate Governance Ratings (CGR) evaluates the governance practices of companies. Investors
and other stakeholders get benefited as they are able to differentiate companies based on degree of
corporate governance.
Companies can also use these ratings as reference and set benchmarks for further improvement.
The process of commercial (CGR) is consisted of five phases.
Collect Data regarding CG.
Aggregate the data collected.
Process the data and translate into rating.
The output of processed data is-Rating.
Update the rating pertaining to the previous four phases.
Organization
Executive Transparency & structure and Ownership
Compensation/ Shareholder rights. disclosure. Management Structure.
Remuneration. Information
System.
Audit related Executive Composition of Shareholder Shareholders’
practices. compensation. Board. relationship. Rights.
Conclusion:
Corporate governance is about commitment to values and ethical business conduct. Good corporate
governance is reflected in fair, transparent and responsible interactions between a company's
management, its board of directors, shareholders and other stakeholders
CGR ratings should be given by independent agencies and should reflect the reality of corporate
governance quality of the company.
There should be standard rating standards and symbols to make them understandable and
comparable.
CGR should be made mandatory to disclose which will ensure greater accountability and make
the ratings more valuable.
In order to get higher ratings, corporate governance standards should be increased.
Companies should move beyond the tick box approach and genuinely be involved good
governance practices.
This will surely help in improving the corporate climate and ensure greater accountability and
responsibility on the corporates.