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Discuss how effective corporate governance can ensure the equitable treatment of all stakeholders

Corporate governance is the framework of rules, processes and practices which guides, directs, control and manage a company. It aims at achieving goals and objectives in a manner that adds

value to the company and is also beneficial for all stakeholders in the long term. Therefore, it is an act of balancing the interests of a company’s internal and external stakeholders.:

Stakeholders and their interests

Internal Stakeholders External Stakeholders

• Shareholders – increasing the value and wealth of shareholders
• Top management – growth and recognition
• Employees – creating a healthy work environment, equal pay for equal work etc.
• Customers – increasing customer satisfaction through timely delivery of quality services
• Suppliers – timely payments for the delivery of goods and services
• Financiers – the safety of principle amount and interest payments
• The government – ensure legal compliance
• The community – job creation and least impact on the environment

All parties to corporate governance have an interest, whether direct or indirect, in the

performance of the company. Effective corporate governance can ensure the equitable treatment of all stakeholders as it ensures fairness in dealing with various stakeholders, which promote and protect the right of all the parties without compromising their interest in the following ways:

• Adequate representation to various stakeholders in the decision making, promoting inclusivity in the company.
• Appointment of independent directors preventing conflict of interest and bringing impartiality in the functioning of a company.
• Promoting accountability by holding top management answerable for their actions and conduct, therefore, restricting arbitrariness in decision making.
• Increasing transparency in the functioning of the company and informing stakeholders about the company’s activities.
• Proactive disclosure of issues in accounting and auditing practices to protect the interest of financiers and shareholders.
• Voluntary compliance with government rules and regulations to develop good business practices. It also ensures fulfilling corporate social responsibility. Fundamentally, the stakeholder shows a high level of confidence in a company that is known to have good corporate governance. It attracts stakeholders’, especially foreign institutional investors and also has a positive influence on the value of the company.

On the contrary, when these rules are not followed by way of circumventing the internal controls,

making misrepresentations to auditors etc., it can have disastrous consequences for all stakeholders. In past, several organizations such as Enron, Satyam, Cadbury were severely impacted, which resulted in loss of shareholder’s wealth, poor legal compliance, exploitation of

workers, loan default and bad debts. In view of such risks, adoption of digital solutions can help firms implement a robust corporate governance mechanism for ensuring equitable treatment of all stakeholders.