The Indian banking sector is moving away from government ownership to private ownership. This shift increases the need for implementation of Corporate Governance mechanisms.
Corporate
Governance has become an all-pervasive term in the
recent decade. The term, which was rarely encountered
before the 1990s has become one of the most crucial
and important concepts in the management of companies
in today's scenario. The roots of corporate governance
dates back to Adam Smith but its popularity is of
recent origin. The concept of corporate governance can
be understood as "the mechanism through which
shareholders are assured that managers will act in
their interests" while dealt with narrowly. The
broader concept of corporate governance would however
comprise of "the methods by which suppliers of
finance control managers in order to ensure that their
capital cannot be expropriated and that they earn a
return on their investment."
The
increasing significance of corporate governance owes
to the more fundamental change in the ways companies
are organized. Today, ownership and management of the
company (control) are separated and hence the need for
a mechanism, which ensures owners that their intent is
being carried on in the company, becomes necessary. In
a scenario where ownership is vested with large number
of atomized shareholders, it becomes all the more
important that good corporate governance practices are
in place to provide the necessary information to all
the stakeholders. Managers could either undertake
riskier projects than those initially promised or
undermine the preferences of stakeholders. |
