Page 25 - Life Insurance Today July - December 2020

structured stages that are designed to focus the Regulator's "Corporate Governance (CG) is defined as the systems and
attention on the risks that matter and then to help them frameworks by which organizations are directed and
devise a risk mitigation programme to address those risks. controlled. CG is concerned with standards, systems,
processes, controls, accountabilities and decision-making at
Corporate Governance has become an important issue in the heart of, and at the highest levels of, an organization".
recent years following a number of very public company Good CG, and the guidance that comes with it, provides
failures due to the abuse of position by senior officers and an organization with clear accountabilities. Individual
the lack of adequate internal controls. These failures have officers will have the confidence to carry out their jobs
resulted in a number of government initiatives for reports efficiently and know what standards are expected of them.
and recommendations for codes of best practice. It has This in turn leads to increased confidence in, and respect
been recognized that insurance is an activity that needs to for the work.
be regulated by the state. The reasons for this are to
protect policyholders from exposure to insolvent insurers "CG is the system by which business corporations are
and to ensure the desired transfer of risk occurs. To avoid directed and controlled. CG structure specifies the
such failures, regulation was introduced with IRDA Act, distribution of rights and responsibilities among different
2000. participants in the corporation, such as, the board,
managers, shareholders and other stakeholders and spells
Corporate Governance is concerned with the formulation out the rules and procedures for making decisions on
of long-term objectives and plans and the proper corporate affairs. By doing this, it also provides the
management structure (organization, systems and people) structure through which the company objectives are set
to achieve them. At the same time, it entails making sure and the means of attaining those objectives and monitoring
that the structure functions to maintain the corporation's performance. CG is the sum of those activities, which make
integration and responsibility to its various constituencies. up the internal regulations of the business in compliance
with the obligations placed on the firm by legislation,
Corporate Governance relates primarily to the selection ownership and control" - defined by Organization for
and conduct of senior officers of an organization and their Economic Co-operation and Development (OECD) /Cannon.
relationship with the owners (Shareholders), employees and Behind the formal systems of corporate governance lie the
others who have an interest in the organization, often core values of an insurer.
known as stakeholders. It encompasses the means by
which members of the Board and senior management are Factors that Contributed to the
held accountable and responsible for their actions. It
includes corporate discipline, transparency, independence, evolution of Corporate Governance:
accountability, responsibility, fairness and social In the beginning (a few decades ago), the government was
responsibility. expected to ensure good CG and conduct. Most
shareholders believed that stringent government controls
It also includes compliance with legal and regulatory would prevent malpractices of the corporations for fear of
requirements. It establishes standards of business conduct punishment. However, there was soon a growing realization
and ethical behavior of Directors and senior management. that Govt. was not always the best guardian of public
The board is the Focal Point of the Corporate Governance interest. Shareholders began to feel the need for market
System. The significant owners, board members, senior driven CG that would be more democratic and flexible.
management, auditors and actuaries of an insurer are fit
and proper their roles. They should possess the appropriate This led to the birth of self-imposed CG within the corporate
Integrity, Competency, Exposure and Qualifications and system. The active participation of various stake holders like
there is a requirement of an on-site inspection by the shareholders, FIs, etc. have strengthened the CG
supervisory Authority. mechanism and helped to evolve beyond a set of static

"Some breakups are the breakthroughs you've been praying for."

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