Corporate Governance Ratings & Their Implications to the Stakeholders of a Company.

Abstract

Enron and WorldCom [USA], Ahold, Parmalat and Skandia [Europe], UTI and Satyam [IndiaJ-these companies have many things in common. They were once glorious companies with a proud record; they were the darling of the stock markets. They have however another feature in common- they were also ravaged by scandals and scams and are now only a shadow of their former selves, if at all they survived in the first place. And the greatest sufferers in all this have been the small shareholders, the common man on the street who invested money in them with the only intention being perhaps to secure their future or to get some extra money. The primary reason for such corporate collapses is improper corporate governance or lack of corporate governance or perhaps a mixture of both. So shareholders and the other investors now demand to know if the company follows the principles of corporate governance and to what extent they follow it. Although, to satisfy this ever-increasing demand, a new tool was devised called the CORPORATE GOVERNANCE RATINGS nevertheless, it is very important to study how these ratings affect the stakeholders in the company and whether they influence the stakeholders to make a decision as to whether they should or should not be associated with the company. It is with this intention that this article has been taken up by the authors. The article before analyzing the implication of Corporate Governance Rating on the different stakeholders provides the basis for the further understanding of their importance to the different stakeholders like shareholders, creditors companies etc. of a company. Also, along with the implications on the respective stakeholders, it describes the disadvantages which are attached with the present Corporate Governance Ratings.