Corporate Governance: An Alternate Approach

Abstract

The modern public corporation command huge societal resources at their disposal. They need to be accountable for its use to society. Apparently, since shareholders provide the risk capital (and hence own the company), it should be accountable to them. However, can a company legitimize its existence by confining its accountability towards specific section of stakeholders? Can a company abuse its market position by indulging in undesirable trade practices to avoid competition for serving the interests of shareholders? Thus, a matter of debate is, in whose interests the company should be governed and in what manner a balance may be maintained among the interests of the various stakeholders? Shareholders' wealth maximisation argument is based on a number of restrictive assumptions may not be valid, at least, in emerging economies like India. Also, there have been evidences where companies have done well despite maximising interests of stakeholders (other than shareholders) wealth. For lasting success of the business, its top priority need not be its shareholders. In fact, precedence of shareholders' interests over other stakeholders may adversely affect the long term survival and success of the business. It requires optimisation of interests of various stakeholders over lop-sided maximisation of one class of stakeholders.