Corporate Governance in Knowledge Economy - The Relevance of Intellectual Capital

Abstract

Traditionally Corporate Governance was associated with the size, composition, qualification and role of directors. The meaning and relevance of Corporate Governance is also changing with times. However Corporate Governance has emerged as an indispensable aspect of Management. In the past, the corporate value was mostly measured by the tangible assets reflected in the book value of the companies. In the knowledge-based economy numerous corporate organizations have utilized Intellectual Assets for their competitive advantage to create corporate value. The value created by Intellectual Assets is often not reflected in the financial statements of the companies. The growing difference between book value and market value of companies could perhaps explain the role of Intellectual Assets. The crash of the dot com companies and the debacle of Enron and World Com have refocused the discussion on Intellectual Assets and its indispensability in Financial Management, more so in Corporate Governance. As observed by World Council for Corporate Governance, the corner stone of the absolute minimum standards (for Corporate Governance), for the constantly gyrating new (knowledge) economy, will be a new form of scientific management based on performance reality and accuracy in reporting on corporate capabilities. Communicating at least the core strengths and opportunities of the company, in monetary terms would certainly win the investors' confidence. Though Corporate Governance requires admitting weaknesses and failures, many companies have not even disclosed their Intellectual Assets. The task is two fold, first the Board ought to be educated about the pride in disclosing its Intellectual Assets and admitting its failures; secondly the investors are to be apprised about the core strengths of the company, that are undisclosed. Transparency, therefore, is the key for corporate survival.