Despite the many developments on the subject and codes of governance written in many parts of the world, many corporates even today resort to merely formalizing corporate governance practices without the right state of mind in implementing the principles of governance in its true spirit. If businesses truly believe in the benefits of good governance, then why should the requirements be made mandatory for them to follow? If the market incentives are attractive then corporates would voluntarily implement good governance principles, to run their businesses.
Therefore, cost of capital can have a transforming impact on corporate governance. The influence of foreign institutional investors would improve governance practices, voluntarily. These funds impose higher standards of accountability, transparency, independence and other policies. The larger the businesses become they need larger volumes of capital and the capital markets that provide such capital should appropriately recognize the well governed corporates and incentivize them attractively.
Such behaviour will drive corporates towards higher levels of governance standards and influence management to use this as a means to lower its cost of capital.
Until such time, where good governance becomes the state of mind…..
“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon.”— Winston Churchill