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Unit 5: Corporate Governance and IT

desires. It is actually conducted by the Board of Directors and the concerned committees for the Notes
company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well
as, economic and social goals. Corporate Governance is the system by which organisations are
directed and controlled. The business dependency on information technology has resulted in
the fact that corporate governance issues can no longer be solved without considering information
technology. Corporate Governance should therefore drive and set IT governance. Information
technology, in its turn, can influence strategic opportunities as outlined by the enterprise and
can provide critical input to strategic plans. In this way, IT governance enables the enterprise to
take full advantage of its information, and can be seen as a driver for corporate governance. IT
governance and corporate governance can therefore not be considered as pure distinct disciplines
and IT governance needs to be integrated into the overall governance structure.

5.1 Corporate Governance

Corporate Governance is the interaction between various participants (shareholders, board of
directors, and company’s management) in shaping corporation’s performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organisation
must be healthy and there should be no conflict between the two. The owners must see that
individual’s actual performance is according to the standard performance. These dimensions of
corporate governance should not be overlooked.
Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between
the owners and the managers. The managers are the deciding authority. In modern corporations,
the functions/tasks of owners and managers should be clearly defined, rather, harmonising.

Corporate Governance deals with determining ways to take effective strategic decisions. It
gives ultimate authority and complete responsibility to the Board of Directors. In today’s market-
oriented economy, the need for corporate governance arises. Also, efficiency and globalisation
are significant factors urging corporate governance. Corporate Governance is essential to develop
added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as minority
shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that
the organisation fully recognises their rights.
Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

Example: Toyota Motor Corporation is an example of “Good” Corporate Governance.

5.1.1 Benefits of Corporate Governance

Various benefits of corporate governance include the following:
1. Good corporate governance ensures corporate success and economic growth.
2. Strong corporate governance maintains investors’ confidence, as a result of which, company
can raise capital efficiently and effectively.
3. It lowers the capital cost.

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