Corporate Governance in Higher Education

Kavita Baraiya

Abstract Management education is truly at crossroads especially after scandals like Enron, which have put in their legal and ethical responsibilities to society? Can teaching Corporate Governance (CG) to business students help to develop a CG culture in business organizations. Taking up this issue, the study investigates the perception of future managers towards CG and explores its scope in the courses of business schools. The study develops an estimate of the levels of CG in the management education of both countries, generalizing it over the population of developing countries. Through a primary study the extent of percolation of CG in the overall management education is analyzed. Issues pertaining not only to management, stockholders, customers, personal and corporate governance per se are taken up for analysis but the broader role of business in environment, local cultures and society as a whole is examined. The study reveals a gap between the training of business graduates and the requirements of the modern, globalized, complex corporate sector in the area of CG. This research may help the management institutions to rethink and redesign their institutional priorities and courses on corporate governance to fill this gap.

1. Introduction
The emerging global business environment has undergone unprecedented changes and raised challenges for existing business models to accommodate these changes. While globalization has been a boon in business operations, it has also made corporations vulnerable to greater risk, abuse and fraud on a global scale. This emerging scenario has given birth to the serious issue of the inadequacies of governance and demands for new reforms, bringing new models of operation and re-evaluation of systems. Scandals in Enron, WorldCom, Tyco, Adelphia and the latest Satyam Computers are adequate evidence of this rising phenomenon, which has raised the importance of concepts like, corporate governance, corporate responsibility, corporate citizenship and social responsibility. Corporate governance is defined as the formal system of accountability and control for legal, ethical and socially responsible decisions and use of resources in business organizations. It is based on certain institutions like; laws, contracts, norms and regulations that create self-governing system in the organization. A corporation has various stakeholders, internal

MPhil Student- Institute of Management Raipur C.G.

Corporate Governance in Higher Education

Kavita Baraiya

and external groups whose support is essential for the survival and growth of any corporation (Freeman 1984; Lozano 2000; Mitroff 1983). A business organization frequently interacts with commonly acknowledged stakeholders who include employees, customers, shareholders, suppliers, government agencies, managers, creditors and community groups. Business students could also be treated as stakeholders, who collectively constitute the future leadership of corporations and will eventually become members of all stakeholder groups (R.A. Peterson and G. Albaum, 2005). Therefore, the concept of corporate governance has direct implications for both businesses and business education. This increasing need for corporate governance in business sector has actually trigged out minds of business schools deans to get academia involved in the practices of this recommended model. After a year of high-profile corporate scandals and Bankruptcies, including big names, professors at business schools have reinvigorated their ethics instruction by turning headlines into lecture fodder and paper topics (J.K. Wall 2002). Business institutions have to play their role more actively by nurturing the codes of good governance in the minds of business graduates resulting in turning them from preconventional and conventional phases to a post-conventional stage in moral development and enabling them to respect the rights of other stakeholders (Kohlberg 1976). Therefore, business schools are one of the best places to encourage this type of value development culture (White 1980). It is in this context that the study aims to investigate the current situation of business graduates in India and Pakistan in terms of their perception towards issues of corporate governance. It assumes that business schools as supplier of business managers can produce welltrained and ethically responsible managers, who can act as change agents and ensure best practices of corporate governance in their organizations. The study proceeds with introduction in the first section followed by literature review in section 2. Section 3 analyses the issues related to corporate governance in India and Pakistan. Section 4 takes up the research issues and methodology being followed. Section 5 consists of an analysis using some statistical tools and interpretation of the results. Section 6 develops conclusions and suggests implications for business schools.

2. Definition of Corporate Governance

Corporate Governance is defined as a system through which the performance of institutions is guided and supervised so as to achieve the required objectives.

MPhil Student- Institute of Management Raipur C.G.

Corporate Governance in Higher Education

Kavita Baraiya

Purpose: protect different stakeholders via 1) Accountability 2) Credibility 3) Transparency 4) Integrity of data and information

3. Literature Review
The issues of corporate governance and role of institutions in the development of corporate governance is widely discussed in the literature. The academicians have paid their attention to the variety of issues regarding corporate governance such as ethics, management practices, owners role, regulatory mechanism and policies of state centered for good governance. The ethical strength in a society plays a supporting role in practicing the code of good governance. As Junichi Mizuo (1998) in an empirical research on business ethics and corporate governance in Japanese corporations, urged for a fresh look at corporate values and attitude of conformance to business ethics on the parts of both organizations and individuals. Corporate governance is also driven from matured mindsets of corporate executives towards corporate social responsibly (CSR). The literature broadly discusses two approaches of CSR as; one related to ethical soundness of the firm and second highlights its ability to rescue from risk and secure good reputation (Melsa Ararat, 2008).

4. The Background of Modern Governance

The phenomenon of corporate governance has been practiced long ago without the term being used. Plato Adam Smith (1776) Berle and Means (1932) The term of corporate governance emerged in the literature in the nineteen eighties and became a well established field of literature in the nineteen nineties. Major financial scandals in corporation (e.g. Enron and WorldCom). Managers misused their authorities and lead to the bankruptcy of the enterprise with thousands of employees losing their jobs and shareholders losing millions in investments. Numerous definition of corporate governance all of which referring to the existence of conflicts of interest between insiders (mainly management) and outsiders (shareholders/owners).

MPhil Student- Institute of Management Raipur C.G.

Corporate Governance in Higher Education

Kavita Baraiya

Shareholders/owners and managers have two main conflicts: 1) Different horizons 2) Different risk preferences.

5. Main Theories
Two main theoretical views govern the discussion of modern corporate governance. 1) The Agency Theory that views the corporation as a private property of its shareholders 2) The second known as the Stakeholder Theory that considers the corporation as a social entity that is open to new diverse influences. 1. The Agency Theory Corporation = a contract in which a principle party (external owner) makes use of a second party (an agent/manager or entrepreneur) for the purpose of using his skills or knowledge. The agency theory addresses two problems. 1) When the goals of the principle and that of the agent divert. 2) The difficulty with monitoring the agent. 2. The Stakeholders Theory It emerged in the nineteen eighties to challenge the Agency Theory. It introduced a group of stakeholders besides the shareholders who have a stake in the objectives of the company such as employees, clients, and the public interest.

6. Corporate Governance in Higher Education

Adopting the Agency Theory is not valid for educational institutions since many stakeholders are involved in this sector namely: Students Staff Faculty members Job market Moreover, A new player besides the principle and the agent is added: the REGULATOR in the form of the State.

MPhil Student- Institute of Management Raipur C.G.

Corporate Governance in Higher Education

Kavita Baraiya

The concept of governance in higher education refers to the internal structure, organization and management of autonomous institutions. The organization of internal governance is generally composed of 1) A governing board (board of trustees, board of directors) 2) The university president (executive head, CEO) 3) A team of administrative staff, faculty members, academic deans, department chairs 4) Some form of organization for students representation.

7. Corporate Governance in India

In India, corporate governance had not been well-understood right up to the early 1990s. The financial institutions, which were mostly government owned and controlled, never monitored the loans or came in the way of any management and virtually never divested their ownership stake in any firm. There were also constraints on monitoring by external capital markets. With the liberalization of the economy, several positive developments occurred on the corporate governance front. First, The Securities and Exchange Board of India (SEBI) Act of 1992 created a regulatory body with the explicit mandate to improve the functioning of Indian financial markets. Second, the state-run financial institutions were given incentives for better performance and a freer hand to monitor their loans. Competition among the financial institutions increased with the deregulation of interest rates and the gradual elimination of consortium requirements. Private sector mutual funds were allowed to compete with the state monopoly. Third, a takeover code was introduced in late 1994. Fourth, restrictions on the entry of foreign investors were eliminated and regulations on their investments were substantially clarified. All these developments threw the domestic corporations open to external competition. The pressure to compete globally in turn put pressure to follow internationally accepted norms of corporate governance. Implementation of corporate governance in India has depended upon laying down explicit codes, which enterprises and the organizations are supposed to observe. India has Kumaramangalam Birla code as a result of the committee headed by him at the behest of the SEBI. The CII codes of corporate governance also provide fundamental guidelines. The Indian corporate governance scenario is still found to be deficient for various reasons, some of which are: (i) SEBI do not have all-pervading powers to police all violations of regulations.

MPhil Student- Institute of Management Raipur C.G.

Corporate Governance in Higher Education

Kavita Baraiya

(ii)

Takeovers continued to be difficult given the paucity of timely information and high transactions costs in the equity markets (A detailed account can be found in SEBI, 1994)

(iii) (iv)

Competition among financial intermediaries, many of them state-run is limited. Disclosure norms under the Companies Act are not very stringent. The need for corporate governance has been highlighted because of the scams which

are happening at regular intervals. India had the Harshad Mehta, Ketan Parikh, UTI and the most recent Satyam Scam. Of course there are companies, like Infosys, etc. which are following ethical practices. Creating proper public governance and making changes in the various regulations impinging on the working of an enterprise or a body like the capital market, is the need of the hour to establish better corporate governance in the country.

8. Globalization and Governance

Governance is one of the most serious challenges facing higher education institutions working within the new WTO framework. The country will see a overflow of foreign institutions entering the market; local ones will face fierce competition from foreign counterparts. They have to improve their decision-making system and enhanced internal-control and pay key attention to training and human-resource management.

9. Research Issues
Corporate governance aims to minimize chances of corruption, malpractices, financial frauds and misconduct of management. Ethically trained and morally strong business graduates can ensure implementation of corporate governance in business organization by supplying well-trained and ethically responsible managers, which ensure the best practices of corporate governance in their organizations. Training graduates and teaching corporate governance in their courses can help to develop corporate governance culture in the organizations. The study collects the perceptions of business graduate about the different issues related to corporate governance. The issues taken into study include: management issues, shareholder issues, customer issues, social issues, corporate governance and personal preparation. The study investigates the level of understanding and learning experiences related to corporate governance issues in business education. It highlights the role of business schools in promoting the culture of corporate governance while training the future executives to apply good governance. The study develops an estimate of the

MPhil Student- Institute of Management Raipur C.G.

Corporate Governance in Higher Education

Kavita Baraiya

perception of corporate governance in India and generalizes its findings over the population of developing countries. The study tries to address the following questions: 1. What is the understanding level of business graduates about corporate governance? 2. What are the sources of learning corporate governance for business graduates? 3. What are the overall perceptions of business graduates about corporate governances? 4. Do business schools play any role to promote corporate culture? 5. Are business graduates ethically competent to apply corporate governance in real business world?

10. Conclusion
Formulating good governance guidelines for higher education in a country like Lebanon where higher education is a vital sector of the economy is recommended. sssssenables higher education institutions to better compete once Lebanon becomes a member of the WTO.

MPhil Student- Institute of Management Raipur C.G.