Corporate Governance In The Indian Public Sector Economy
In the world economy market the term ‘corporate governance’ has taken its roots worldwide and has grown rapidly since last few years. It has been the fundamental tool for each and every business organisations in relation to the public sector economy. Corporate governance is the system through which many organisations in the sectors of public economy are focussed and controlled. At the tip of the organisation it relates to all the systems, processes, controls and the decision making of the economy. Corporate governance is always associated with corporate social responsibility and also relates with the ethical standards of the business organisation.
The Corporate Governance principles are not innovative as they are applied fairly and equally to each and every organisation. In everyday part of the business organisation corporate governance has played a major role and is the integral part of the business. In relation to the public sector economy it relates to the potentiality of the business organisation and also relates to the accountability in which the business organisation carries out its work. Looking at all the basic factors of the business, corporate governance always deals with board of directors, shareholders of the company and the internal and the external auditors of the company. The research has been primarily been focused on the corporate sector particularly listed companies.
In the public sector economies corporate governance has always been highlighted as the main and the primary issue. It relates to the integration of the developments in defining the hypothesis and the impact of the firm. The whole motive of the corporate governance has always been related to the features and the systems directing the operations of the companies. The findings will be productive in understanding the behaviour of the good corporate governance in the economies of the public sector companies.
3. Research Rationale:
The research on corporate governance is carried out on the basis of interest among stakeholders in the public sector economies. In such economies there have been wide variety of outlines, configuration, etc. and corporate governance is the only primary and basic tool to carry out all the working matters of the organisations. The main essence of this research is how corporate governance plays an economical role in benefiting the stakeholders from their investments in the public sector economies. Prime focus is given on good corporate governance as it relates to management and control of the public sector companies.
Research is also being carried out on the corporate governance as it signifies the decentralisation and deregulation and collusion of the financial markets and on basis of this factors how does the public sector enterprises benefit from it. In the public environment stakeholders and management play a crucial role regarding the working matters of the organisation. According to Edwards and Hubbard, 2005, corporate governance relates to the secrecy in the decision making and also evades the influence and inefficiency in the public expenditure. The primary goal of corporate governance is to safeguard the business objectives.
Being a student from the industry of business it would be very helpful for me to contribute the importance of corporate governance and also illustrating its importance to the company itself. The academics and the professionals have explored a lot in the field of corporate governance and have recommended range of models and academic framework. My basic and the primary purpose of this research will be to identify the improvement and the efficiency of the corporate governance in the public sector economy.
4. Research Aim:
The main centre point and the aim of this research is to understand how corporate governance reveals fair rate of return to its stakeholders and how does it relate to the systematic work of the public sector enterprises. The main aim of this research is also to identify how corporate governance proves beneficial to the stakeholders from good internal control.
5. Research Objectives:
Corporate governance in the economy of public sector has been related to many objectives and some of the objectives of research are cited below:
a) To bring out the efficiency and the effectiveness in the working affairs of the particular company,
b) To satisfy all the investors and the stakeholders of the company by depicting good governance in the organisation, etc.
6. Research Purpose:
By carrying out the research on Corporate Governance in the public sector economy my idea and the main aim is to understand the efficiency and the improvement of the corporate governance in the working affairs of the business organisations. The purpose of my research in corporate governance is to look how the personal behaviour of the organisation gets affected by implifying the corporate governance in the public sector. Once the implification is being carried out it would then investigate the working matters of the organisation.
The purpose of carrying out this research is to analyse the concentration of power in the public sector economies and also reporting to the stakeholders about the frame work of the organisation. The basic purpose of this research is to explore corporate governance in India and on the basis of this exploration how is the organisation much effective in its working matters. The purpose of this research would be very simple but specific. Thus on the basis of all the above factors conclusions will be drawn according to the findings of this topic.
7. Research Question:
The standard direction for my research would be as follows:
“How Corporate Governance in Indian public sector economy can lead to the improvement in the service delivery and efficiency?”
To support the above question following matters will also be looked into:
1) How does corporate governance affect the personal behaviour?
2) What are the effects of corporate governance in organisation structure?
3) What are the standards that are necessary to be covered?
4) How does it identify the impacts on the internal control of the organisation?
8. Literature Review:
8.1 Identifying the Applicable Literature:
The following literature review identifies the concepts of the corporate governance in relation to the public sector economy and also views the application of the same in the working affairs of the organisation. The most significant and basic part of this literature is that it identifies the framework of corporate governance in relation to the board of directors and committees, legal and regulatory framework, business practices and the ethics, disclosure and the transparency, risks and performance management, monitoring and the communication. The diagram below describes the ground of the literature and also identifies the literature review in relation to the research question.
Fig. 1: The Corporate Governance Framework.
8.2 The Literature Review:
The market economies of India are well developed especially in the public sector enterprises and corporate governance is only the backbone tool to implify the better framework in the working matters of such public enterprises. There has been a growing demand for corporate governance, as the public sector economies look for domestic and global equities in quantity. The role of corporate governance in such enterprise being very important plays a very crucial factor in attracting long term investment holders rather then shot term investment holders in the public sector economies. For the fields of corporate finance and corporate control the demand and the supply of the public capital are on rise and also being broadened in the terms of investment.
According to National Association of Corporate Directors, 2006, “Corporate governance is referred to how corporations are governed”. Many countries in the world have also realized that corporate governance in the public sector economies has been a path of competitive advantage and also is very crucial for economic and social progress of the enterprise. According to Copeland, 1994 and Jensen, 2000 corporate governance has achieved a tremendous interest in the value of stakeholders but on the other hand critically evaluating the above statement, according to Carroll, 1999 corporate governance has achieved tremendous interest in terms of corporate social responsibility.
Fig.2: Role of Corporate governance in relation to Corporate Social Responsibility.
In the public sector enterprises corporate governance relates to the promotion of the organisation and also ensures the power of the accountability and support in the working affairs of the organisation. According to Murphy et al., 1999 the primary aim for all the public sector enterprises is to provide the incentives to all the existing stakeholders in the company and on the basis of such factor should reduce the discrepancy between the social and the private returns and safeguard the stakeholders interest. The literature review in relation to corporate governance reveals that fair rate of return is received to the stakeholders of the company particularly in the public sector economy.
In relation to the above factors, according to Carter and Lorsch, 2004 good corporate governance is not a good configuration but it is a good process for the organisation. According to Claessens, 2003 the review of corporate governance and its development has a tremendous significance on the public sector enterprises. Corporate governance in relation to the company structure plays a significant and crucial role in terms of finance, law and economic growth of the particular enterprise. For good governance in the economy, the Organisation for Economic Co-operation and Development (OECD) has set core principles for the organisations to carry on their effectiveness in the working matters.
Kar, 2001 describes, “How foreign portfolio investment was permitted in the public sector economies and on the basis of this factors how foreign institutional investors began to play an important role in the institutionalisation of the market”. The framework of the literature also states how corporate governance affects the performance of public sector companies in terms of alertness, competence and also profitability. The primary concern of this literature review in relation to corporate governance is to identify how legal and regulatory obligations play a manifesting role in competing the companies to abide by their standards.
Implementation of the corporate governance in the public sector economies is not only technical but it also relates to the political issues of the organisation. The companies that have raised their capital by public listing, the framework of regulations are mainly directed towards them. According to Hansmann, 1996 “Corporate governance relates to the systematic work of many business academics and the practitioners and their information and research needs present challenges not only for them but also for the professionals who assist them”. Monks and Minnow, 2004 state that public can value the companies on the basis of the effectiveness of the organisation. Newell and Wilson, 2002 undertaking the research for corporate governance states that the capital markets with good governance had higher price to book ratios and on such basis investors to pay premium for a well organised company.
The corporation being well governed needs to identify the three groups known shareholders, board of directors and managers and on the basis of these factors the working of corporate governance is being identified out. Gompers et al., 2001 identifies a positive relationship between the index of governance and company value. Considering corporate governance as backbone tool for public sector economies Webley and More, 2003 identifies the correlation between the companies following the code of ethics and the financial performance.
MacAvoy and Millstein’s, 2003 represents the independency and the professionalism approach that the company corresponds for the better economic value. They identify that the board is professiona,l if one of the following factors are met:
1) There being an independent board leadership (Separate chair and the CEO).
2) Meeting of Directors without Management.
3) Establishment of rules and the regulations and the guidelines for conducting the corporation and relationship between the board and the management.
Corporate governance relates to the analysis of the research and principles of the organisation and on the basis of this analysis good governance comes into the scenario and relates to the effectiveness in the working matters and the affairs of the organisation. Thus looking at all the above factors the literature review based on corporate governance relates to the openness of the public sector economy and based on this factors positive as well as the negative results can be generated out depending on the efficiency on the working matters and the efficiency of the organisation.
9. Role of Theory:
Effectiveness and Efficiency is the main tool for public sector economies to carry out their work and the importance of these tools has been carried out in the literature review. The part of this literature review identifies the relation of the investors with the public sector economies and also relates to the effectiveness of the corporate governance in such enterprises. The final part of literature review reveals how a particular organisation can follow a professionalism approach and on basis of this approach how that organisation benefits from it.
From the review of literature provided above it is very sure that good governance in the public sector economy relates to the systematic approach of the organisation and also identifies the role of corporate governance in the performance of the public sector enterprises. There has also been a wide range of literature available on corporate governance in relation to corporate social responsibility and performance of CSR in the public sector company.
‘Stakeholder’s theory and Agency theory’ will be the theories used in this research and the main reason for adopting these theories is that it highlights the efficiency in the working affairs of the organisation and also relates to the relation between investors, stakeholders and the corporate governance. My research will use the theory that will particularly identify the relation of stakeholders and the company management in relation to corporate governance. Looking at all the terms my research findings will be limited to Reliance Industries an Indian Company, but it will cover all the aspects of the corporate governance in relation to the public sector economy and also the performance of all such companies relating to the public sector.
10. Methodology and Methods:
The approach of ‘Interpretivism’ will be cited in the research based on corporate governance in public sector economies. The research identifies the deep study of corporate governance in the Indian public sector companies but the study will be focusing on the particular organisation in India. The interviews will be conducted in India and the participants of these interviews will be the investors and the stakeholders of the particular organisation. Within the period of 6 months time my research is ought to be completed and the research will be particularly based on the research question based on an Indian Company.
10.2 Level of Analysis:
The main focus of my research would be on determining how the application of corporate governance is being carried out in public sector economy and on the basis of this determination my main area of the research would be the systematization, efficiency and effectiveness in the working affairs of the organisation.
In gathering the primary data for my research I will be using the qualitative approach and on the basis of this approach I will be conducting the interview with those individuals who are related to public sector economies and especially in the field of the corporate governance. The questions of the research will be prepared accordingly and in relevance to the person who is being interviewed. In gathering my secondary data in relation to corporate governance, research from past articles and statistics of the public sector company will be used.
The research on the corporate governance will be adopting the statistical analysis as the core and the main aim of this research is to learn about the improvement in efficiency and effectiveness in the organisation in relation to corporate governance, which can be identified quantitatively. The interviews will allow the individual to contribute a little bit about research and helps in finding out ways for all the research questions.
The structure of my interviews in the research will be developed only after identifying them from my research supervisor. The time for questioning and interviewing the participants will be modified and fixed after receiving their permission and hence on the basis of this factor maximum amount of knowledge can be gathered from them regarding the particular topic. The primary data gathered by me will be from the stakeholders and the investors investing in that particular company which will allow me to gather a perfect set of data collection.
The research will also be carried out on the basis of secondary data and this collection of data will be done from the reviewed articles and the journals and also the facilities of the internet will be taken into consideration. Thus on the basis of all the above factors the research will be done in a very simple but in a specific and accurate manner.
10.5 Ethical Issue:
The research done by me will be very specific and the references provided will be according to the system of Harvard referencing. The kind of research done will assure secrecy to the investors and the stakeholders if they wish to do so. The research will bear in mind that there will be less interference in the investors and the participants day to day work affairs. On the basis of this I will try to provide them schedule of interview before some time. This research will also be informing the investors and the stakeholders the amount of information I will be revealing in my subject matter.
To a public sector organisation good corporate governance is very much beneficial. The research is based on the concept of Corporate Governance and its economical role in the public sector enterprises. The aim of the research is to understand the working affairs of the organisation specifically in relation to the investors, stakeholders and the management of the company.
The research findings can be useful to those kind of enterprises where the role of corporate governance is at the lower level and needs to be pushed up for the efficiency in the working affairs of the company.
12. Work Schedule:
The Gantt chart below will explain my schedule of work: