Good corporate governance will enhance the efficiency of the capital market. The market will effectively allot more capital to the well-managed businesses, a joint report on ?Corporate governance: Value for whom and how?? prepared by Ernst & Young and CII said. The report released at a global conference on the corporate governance said that the corporate governance is built on the board?s oversight on the performance of management and the businesses that they run. ?Effective governance is achieved when boards truly represent the interest of their company?s owners – their shareholders – and when in exercising that responsibility they thoroughly review, challenge and oversee company’s business strategies,? the report said.
With regard to family business, the report said that the family owners driving the business should implement a process where the board and independent directors are encouraged to communicate their dissent with family decisions in a healthy and constructive manner.
The family owned companies should appoint independent director on the basis of merit and his role should be clarified. They should encourage healthy and constructive dissent. ?The family owners driving the business should sufficiently empower the board to keep in check the influence of the extended family and ensure that the family influence does not frustrate the efforts of the non-family managers,? the report said.
The report said that the institutional investors should take more active role in improving the corporate governance. ?If a problem does arise, it is important for investors to identify it in its early stages to minimise any loss of value.?
The report said that there were several challenges faced by the institutional investors. Inadequate transparency inhibits institutional investors from helping companies despite their willingness to contribute their efforts, skills and time for improving corporate governance.
On the private equity firms, the report said that contrary to outside investors in stock markets, the private equity investors are insiders in the companies in which they invest.