Corporate Governance and Risk Management: An Indian Perspective

Abstract

Companies need funds to finance their activities and as a result, there has been a need for accountability to protect the interests of those providing the funding. Companies are also managed by directors who act as agents of the shareholders. Under pressure to maximize wealth they are prone to excessive risk, reckless conduct or in extreme cases, blatant manipulation of accounting figures. The call for increased accountability grows louder every time there is a crisis in public confidence. Whether this is the stock market crash of 1929, for example, or the more recent high-profile collapses of a number of large firms such as Barings Bank, Enron Corporation and WorldCom, the resulting uncertainty has led to renewed interest in corporate governance practices. It is not only as a means of directing and controlling corporations but as a means of mitigating corporate risk. This paper bases on over a decade’s research attempts to shed some light on this topic based on the Indian experience. Paper tries to bring out the fact that there is a significant relationship between corporate governance and the management of risk and that corporate governance is one of the main means by which a company can manage risk.