For the last few years, a lot of efforts are being made to implement corporate governance in various banks and companies. The Reserve Bank of India has also issued detailed guidelines in this regard and efforts are being made to implement them in cooperative sector banks.
After the end of the Second World War, due to the capitalist policies implemented in America, the companies were given the freedom by the American government to do business at the international level so that the number of billionaire citizens in America could be increased rapidly so that America could be included in the category of a developed nation. With the aim of encouraging trade between America and other countries, huge relaxations were given in the economic rules in America. Taking advantage of this relaxation, many American companies expanded their business in other countries as well and established many of their companies in these countries and later they were called multinational companies. The companies established in America could not look after their subsidiaries established in other countries while sitting in America, so they appointed their representatives as directors in the boards of companies established in other countries. Along with running this board, rules were made in this regard with the aim of expanding the business by these companies in these countries, which were later named corporate governance. Around the year 1970, a lot of research work was done in America and other European countries regarding corporate governance and many models and theories of corporate governance were developed, which are being tried to be implemented in India as well.
However, in India, governance rules have been followed in the economic sector since ancient times. In Sanatan culture, karma and wealth have been linked to religion. Therefore, in ancient India, economic activities have been carried out by following religion. Thus, governance in the economic sector has always been used in business. According to research conducted by the famous British economist and historian Mr. Angus Maddison, from 1 BC to 1750 AD, India's share in global trade has been between 32 percent and 48 percent and India was called the golden bird. In such a large scale trade at the international level, governance policies must definitely be followed. But, western countries are calling corporate governance a new discovery. In ancient times, the level of compliance of governance in the economic sector in India was very high. This can also be proved through an incident. A farmer bought a piece of land from another farmer. When that farmer started digging the land, he found a pot full of gold coins in that land. Taking this pot, the farmer went to the land seller and said that I have found this pot full of gold coins in the piece of land that I had bought from you, since I have only bought the land from you, you have the right over this pot. The seller farmer refused to take that pot because now I have sold that land to you, so now whatever thing or material is obtained from this land, the buyer of the land i.e. only you have the right over it. When no kind of reconciliation could be reached between the two farmers, then both the farmers reached the king's palace to find a solution to their problem. When the solution to this problem could not be found there also, then both the farmers requested the king to deposit this pot full of gold coins in the state treasury. The king also refused to deposit that pot in the state treasury because the money received in compliance with the rules of governance can be deposited in the state treasury only and the rules of governance do not mention depositing the money received in this manner in the treasury. This high level governance system was applicable in ancient India.
Governance is defined as the way in which institutions are governed. It is a system of rules, practices and procedures according to which a business is run, regulated and controlled. Through this, it is ensured that the decision-making process is clean (fair) and ethical. Through this, an attempt is made to know, balance and protect the interests of stakeholders in the long term. Stakeholders include – depositors in the context of banks, and customers, shareholders, employees, management, government, Reserve Bank of India, etc. in the context of other companies. The board members are considered responsible for compliance with the rules related to corporate governance.
Regarding the qualities of good corporate governance, it is said that there should be fairness and transparency in the decisions taken by the board. Accountability and responsibility should be fixed at every level in the organization. There should be transparency in the election of board members and the board members should be professionals. If we talk about the board of a bank, then the board members should work as trustees of the depositors. There should be transparency in providing loans and decisions should be merit based. Compliance of rules issued by the Central Government, Reserve Bank of India and Head Office should be ensured. The audit system, vigilance system, fraud detection mechanism should be strong. Also, high technology should be used in the institution.
Regarding the role of the board under corporate governance, it is also said that the board members should have professional skills. The board members should explain the system and process established in the organization. The internal control system should be explained. The internal audit system should be checked from time to time. Compliance with all business related rules should be ensured. The system and process should be reviewed at appropriate intervals. Some board level committees should also be formed under corporate governance. Such as, audit committee, committee related to checking compliance of rules, committee to investigate frauds of large amounts, committee to decide the remuneration of board members, risk management committee, etc.
The rules made by the Reserve Bank of India regarding corporate governance should be implemented in companies and banks. However, in ancient India, there was a high level of governance, especially in the economic sector, because in that period, the work of karma and artha were done by connecting it with dharma. But, today's circumstances are different, so in the present time, the rules of corporate governance must be implemented in various institutions amidst different circumstances.
– Prahlad Sabnani
Retired Deputy General Manager,
state Bank of India
K-8, Chetakpuri Colony,
Jhansi Road, Lashkar,
Gwalior – 474 009
