Need and Benefits of Corporate Governance

Good corporate governance matters for a range of practical reasons that extend well beyond compliance for its own sake:

1. Protects shareholder interests: By holding the Board and management accountable, corporate governance reduces the risk that a company's resources are used for management's private benefit rather than shareholders' collective interest.

2. Builds investor confidence: Companies with a strong governance reputation find it easier and cheaper to raise capital, since investors demand a lower risk premium when they trust that their investment will be managed honestly and transparently.

3. Improves decision-making: An independent, well-informed Board that genuinely scrutinises management's proposals tends to make better, more carefully considered strategic and risk decisions.

4. Prevents corporate scandals and fraud: Strong internal controls, independent audit committees and Board oversight reduce the likelihood of the kind of large-scale corporate fraud and financial misstatement that has, in India and elsewhere, caused serious harm to shareholders, employees and the wider economy when governance has failed.

5. Protects minority shareholders: Governance norms — such as related-party-transaction disclosure and rules on Board composition — specifically guard against a controlling shareholder group using its position to disadvantage minority shareholders. …