Corporate

Governance in
International
Business

Corporate Governance
Corporate Governance deals with laws, procedures
and practices that are designed to ensure that a
company is managed in the best interest of all
stakeholders.

Concerned with identifying ways to ensure that

strategic decisions are made effectively to protect
and promote the interest of all stakeholder groups.
Used in corporations to establish order between the
firms owners and its top-level managers

 It is about commitment to values, ethical business

conduct and making a distinction between

personal & corporate funds in the management of
a company.

Features of Corporate Governance

It is concerned with how companies run.

It involves appropriate supervision and control

over the top management

It involves fair, transparent and efficient
administration.
It is to serve the interest of all the stakeholders in
a company
It requires in addition to effective legal and
regulatory system, a high level of business ethics
and corporate social responsibility.

Principles of corporate Governance

Trans
-parency

Accountability

Indepen-dence

Reporting

Transparency: It means accurate, adequate and

timely disclosure of relevant information to the
stakeholders.
2. Accountability: CG has to be a top down approach.
Chairman, board of directors and CEO must fulfill their
responsibilities to make CG a reality for industry.
3. Independence: A strong Board of directors is
necessary to lead and support merit based
management. The board has to be independent, strong
and non partisan body.
4. Reporting: adequate, frequent and accurate report to
shareholders and other stakeholders is essential for
good corporate governance.
1.

Need of Corporate Governance in

International Business
The right to information requires companies to disclose

more than they ever did.

To make a reliable and less riskier environment for
international business
To have trust of the investors from the foreign country by
providing more transparency
Foreign investors demand globally sound corporate
practices
In highly complex and dynamic environment good
governance can provide some sense of security

 Efficient functioning of financial market requires proper

governance.
Decrease the "likelihood of a domestic financial crisis"
and the severity if such a crisis does occur.
Creates more efficient corporate management."
Play a role in reducing corruption, and decreased
corruption significantly enhances a country's
developmental prospect

Corporate Governance Failures

Company Country

What went wrong

Satyam
Enron
SPEs
Parmalat
Tyco

India
USA

Earnings overstated hide debt

inflated earnings, hid debt in

Italy
USA

WorldCom

USA

Xerox

USA

false transactions recorded

looting by CEO, improper share
deals, evidence of falsifying
business records
expenses booked as capital
expenditure
accelerated revenue recognition

Ethical issues for TNCs

Corruption: it refers to illegal practices to further ones
business interest. Some TNCs bribe Govt. officials in host
country to get undue favour.
2. Sweatshops: business operations that employ workers at
very low wages for long hours and in poor working
conditions are called sweatshops. TNCs face criticism and
are accountable for any sweatshops activities.
3. Child labour: It means employment of children below
the age of fourteen. TNCs also face criticism and are
accountable for any child labor activities.
1.

4. Sustainable Development: it means

development that meets the need of the present
without compromising the ability of future
generation to meet their own needs.
5. ISO 14000: It offers a set of certification
standards for responsible environmental policies.

Disclosure of Information By TNCs

TNCs should disclose to the public in the countries in

which they operate, by appropriate means of

communication, clear, and complete.
The financial information to be disclosed annually
should be provided with suitable explanatory notes.
TNCs shall supply to competent authorities in each
of the countries in which they operate in accordance
with national legislation.
TNCs should be responsive to request from Govt. of
countries in which they operate and be prepared to
co-operate with international organisation.

 TNCs shall respect the right of each state to regulate

& monitor accordingly the activities of their entities

operating within its territory.
TNCs should conform to the transfer of technology
laws and regulation of the countries in which they
operate.
TNCs should perform their activities with due regard
to relevant international standard, so that they dont
cause injury to the health or endanger the safety of
consumers.