f

Submitted to:

THE ROLE OF GOVERNMENT IN

CORPORATE GOVERNANCE

MaaM EESHA TARIQ

Submitted by:
Sidra Shaukat

L1f11mbam2135

Umama Manzoor

L1f11mbam2017

Zainab Azmat

L1s12mbam2014

Faiza Tanveer

L1f11mbam2119

Aleem SHEIKH

L1f11mbam

Date of submission:
13th Feburary, 2015

ACKNOWLEDGEMENT:
By starting with the name of Allah Almighty who is most beneficial and merciful, First of all we would like
to say thanks to ALLAH for his blessing and guideness throughout this period. We could never have
skilled of this without the faith we have on ALLAH Almighty
Secondly its a

great pleasure in expressing thankfulness to all my group members who helped and

supported us, during our project on the role of Government Corporate Governance. We are highly
indebted to Mr? For their guidance as well as for providing all the necessary information regarding the
project and also for his support in completing the project. At the last but not we would like to convey our
sincere gratefulness gratitude towards our advisor Maam Eeshaa Tariq for her continuous giving us the
opportunity to study all concepts of corporate governance in the real corporate world which also helped us
in completion of our project, and us support in our project guideline, motivation, & immense knowledge.
Her supervision helped us in all the moment of understanding and working on project

Declaration
Dedicated to our Loving Parents, Brothers,
respected teachers and Supporting Friends
who always helped out
In times of woe and Distress
&
Taught us to
follow the Path of Truth,
Justice, Honesty and Sincerity.

Contents
ACKNOWLEDGEMENT:................................................................................................. 2
Executive Summary:...................................................................................................... 5
INTRODUCTION:.......................................................................................................... 7
Definition of Corporate Governance:................................................................................. 7
Government role in Corporate Governance:.......................................................................8
Overarching role......................................................................................................... 8
Participatory role........................................................................................................ 8
Facilitative role........................................................................................................... 8
Legislative and regulatory role...................................................................................... 8
Corruption Controlling Role.......................................................................................... 9
Government should play a role in instilling values and ethics................................................9
Different roles of government in the economy:..................................................................10
Regulatory Role....................................................................................................... 10
The Promotional Role................................................................................................ 10
The Entrepreneurial Role........................................................................................... 10
The planning role:..................................................................................................... 10
Rationalism:......................................................................................................... 11
Socialism:............................................................................................................ 11
Nationalism:......................................................................................................... 11
State intervention in developing countries:.......................................................................11
Maximizing Social Welfare.................................................................................. 12
Macro-Economic Factors........................................................................................ 12
Socio-Economic Factors......................................................................................... 12
Reasons for the interference in market economy:.................................................12
Governance in Different Countries:.................................................................................13
Public governance and Corporate Governance:...............................................................13
Constraints on Government Powers:.............................................................................. 14
Sub factors:............................................................................................................. 14
Forms of Government Regulation:.................................................................................. 14
Advertising.............................................................................................................. 14

Employment and Labor............................................................................................. 15

Environmental.......................................................................................................... 15
Privacy.................................................................................................................... 15
Safety and Health..................................................................................................... 15
Limitations for corporate powers.............................................................................. 16
Corporations as voluntary Associations:..........................................................................17
Examples:............................................................................................................... 17
Functions of voluntary services:..................................................................................17
Role of Judiciary in Corporate Governance:.....................................................................17
Scope of Governments Relation with Business:...............................................................18
Role of Government in Business:................................................................................... 19
Contract Enforcement............................................................................................... 19
Permission.............................................................................................................. 19
Consumer Protection................................................................................................ 19
Employee Protection................................................................................................. 19
Environmental Protection........................................................................................... 20
Taxation.................................................................................................................. 20
Investor Protection.................................................................................................... 20
Ensure the stakeholder interest..................................................................................20
Laws for govern companies........................................................................................ 20
Appointment of regulators.......................................................................................... 20
Punishment on disobeying of laws.............................................................................. 20
RECOMMENDATIONS:................................................................................................ 20
Conclusion:................................................................................................................. 21
REFERENCES:........................................................................................................... 21

Executive Summary:
Corporate governance is the way a corporation polices itself. In short, it is a method of governing
the company like a sovereign state, instating its own customs, policies and laws to its employees from the
highest to the lowest levels. Corporate governance is intended to increase the accountability of your
company and to avoid massive disasters before they occur. Corporate governance isnt just one
structure though, but instead it consists of the various duties, obligations, and rights that control and
direct a corporation. The point of this governance is to properly distribute the responsibilities that those
who participate in the corporation have, such as the managers, stakeholders, creditors, regulators, and
of course those in the board of directors. In addition to informing these people of their responsibilities,
the corporate governance also informs people of their rights within the company. A part from all these
points government also play vital role in corporate governance.
In this Project basically we came to know how about all the roles and responsibilities of the government in
corporate governance. It includes the basic concept of corporate governance along with role of
government in economy. It also considered compassion of developing and developed economies in the
context with corporate governance along with laws implemented in those countries.

INTRODUCTION:
The concept of corporate governance is gaining momentum because of various factors as well as the
changing business environment. The EEC, GATT and WTO regulations have also contributed to the rising
awareness and are compelling us to think in terms of adhering to the good governance practices.
The following definition should help us to understand the concept better. Corporate governance is not
just corporate management; it is something much broader to include a fair, efficient and transparent
administration to meet certain well-defined objectives. It is a system of structuring, operating and
controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors,
employees, customers and suppliers, and complying with the legal and regulatory requirements, apart
from meeting environmental and local community needs. When it is practised under a well-laid out
system, it leads to the building of a legal, commercial and institutional framework and demarcates the
boundaries within which these functions are performed.Corporate governance is a relatively recent
concept (Cadbury 1992; OECD 1999, 2004), over the past decade; the concept has evolved to address
the rise of corporate social responsibility.
Corporate governance became a pressing issue following the 2002 introduction of the Sarbanes-Oxley
Act in the U.S., which was ushered in to restore public confidence in companies and markets after
accounting fraud bankrupted high-profile companies such as Enron and WorldCom.
Most companies strive to have a high level of corporate governance. These days, it is not enough for a
company to merely be profitable; it also needs to demonstrate good corporate citizenship through
environmental awareness, ethical behaviour and sound corporate governance practices.

Definition of Corporate Governance:

The system of rules, practices and processes by which a company is directed and controlled. Corporate
governance essentially involves balancing the interests of the many stakeholders in a company. These
include its shareholders, management, customers, suppliers, financiers, government and the community.
Since corporate governance also provides the framework for attaining a company's objectives, it
encompasses practically every sphere of management, from action plans and internal controls to
performance measurement and corporate disclosure.
The systems by which companies are directed and controlled (Cadbury Committee, 1992). More
specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC

states, "the relationships among the management, Board of Directors, controlling shareholders, minority
shareholders and other stakeholders".

Government role in Corporate Governance:

Overarching role
The role of government is to provide an enabling environment within which the private sector can thrive.
Government plays both administrative and coordinative roles. It is responsible for the maintenance of
basic security, public law and order, and protection of property. It has an obligation to protect the
vulnerable members of society.

Participatory role
Government plays a participatory role on economic development through parastatals state -ownedenterprises. It is the fundamental role of government as the biggest employer in the economy to
implement corporate governance within its various ministries, parastatals and state owned enterprises.

Facilitative role
Government plays a facilitative role in the economy by creating a sound infrastructure.
Government provides relevant infrastructure and basic service enablers such as electricity, water,
communication, infrastructure etc. This enables companies, individuals and government itself to function
or perform efficiently towards wealth creation and economic Development of the country

Monitoring Role
Government ensures that there is fair play in business through monitoring. Government oversees and
monitors organizations such as the Securities Exchange Commission, the Stock Exchange etc.

Legislative and regulatory role

Government, through Parliament makes public policy, legislation and statutory instruments.

Government creates a conducive environment for business to operate under through making regulatory
and statutory frameworks. The interpretation and enforcement of legislation is done through the courts or
judiciary and other national enforcement agencies. The regulatory environment enables the private
sector to play its direct role in increasing employment and thereby alleviating poverty. Poverty reduction is
one of the obligations of government to its poorer constituencies. It is one of the millennium development
goals that all governments must address and legislation that helps private sector revitalize the economy is
one of the strategies of alleviating poverty. Legislation ensures fairness and transparency in business
dealings and these are some of the tenets of good corporate governance.

Corruption Controlling Role

Government has a major role to play in reducing the level of corruption in the country.
Corruption ultimately robs the wealth of a nation making the poor people poorer while increasing the
wealth of the rich. It decelerates the millennium development goal of reducing poverty. So governments
should play a pivotal role in combating corruption. There must be will-power from the top leadership of a
country

which

should

cascade

down

the

leadership

ladder.

Enforcement Mechanism Role

Government should consider the most effective options in terms of enforcing corporate governance.
Enforcement could be on a statutory basis (that is legislated) or as a Code of Principles and practices (on
a voluntary or self-regulatory basis) or a combination of both legislation and voluntary. Some governments
apply the statutory basis and this implies that companies should comply or else. In this sense there
would be legal consequences in the event of non-compliance. Other governments use the voluntary
regime (comply or explain) which requires companies to comply with the principles and practices
contained in the code and in the event of failure to do so, corporations would be required to explain why
they

had

failed

to

comply.

Government should play a role in instilling values and ethics

Government should play an active role in instilling ethics in its citizens Best Practice
With a society or citizens with good moral values, it is easy for the government to use the comply or
explain, apply or explain, and adopt or explain bases in corporate governance and thus obviate the need
of legislation.

The voluntary basis works well where the moral fibre of society is strong.

Government should conscientise its citizens on moral values by making it a requirement that moral

and ethical values be taught in schools from an early age and continue to be reinforced at tertiary levels.

The voluntary basis is less costly to implement as opposed to the compulsory compliance approach

which invokes penalties when not complied with.

Different roles of government in the economy:

There are four basic roles played by government in the economy

The regulatory role

The promotional role
The entrepreneurial role
The planning role

Regulatory Role
The entire regulatory legislations and policies stand covered under this segment
On the one hand, there is a very large indirect area of government control over the functioning of private
sector business through budgetary and monetary policies .Governments regulatory functions with regard
to trade, business and industry aim at laying down the limits for the private enterprise. The regulatory
functions of the Government include restraints on private activities, control of monopoly and big business,
development of public enterprises as an alternative to private enterprises to ensure competitive dualism,
maintenance of a proper socioeconomic infrastructure

The Promotional Role

Promotional role is a very important role and positive role played by the Government in the developed
countries as well as the developing countries. Promotional role includes the following activities: To build
up the necessary development infrastructure e.g. finance, transport, power, marketing and other
promotional activities revival of sick units encouragement to small scale units removal or regional
imbalances provision of incentives and subsidies and export promotion

The Entrepreneurial Role

In many countries, the government also plays the role of an entrepreneur. It means that the business
houses are established and operated by the government and the risk is also born by the government.
The reasons for the growth of state owned Enterprises are as follows: Absence or dearth of private
entrepreneurship Neglect of certain non-profitable sectors by the private entrepreneurs
Monopolies in certain sectors and the resultant exploitation of consumers Social political ideologies
The true entrepreneurial role of the government is when the government decides to take a lead in starting
a major new industry in the absence of private entrepreneur.

10

The planning role:

In its role as a planner, the government tries to manage the economy and its business activities through
the exercise of planning. Planning is the most important activity in a modern mixed economy. The idea of
economic planning can be traced to three different sources: Rationalism, Socialism and Nationalism.

Rationalism:
A planned economy on the ground that it can be a rational economy which can utilize the available
resources in an optimal manner. In other words, the planned economy is a rational economy which
attempts to secure the maximum return with minimum wastage of productive resources.

Socialism:
The socialists advocate a planned economy because it helps to achieve some desirable social ends like
economic equality. An unplanned economy, left to it, is incapable of attaining the social ends.

Nationalism:
The nationalists advocate a planned economy because a planned economy is a powerful economy. The
nationalists want to use planning as a weapon to strengthen the military power of the country. Hitler in
Germany and Mussolini in Italy resorted to planning to achieve political motive.

Planning operation involves a number of steps:

The first stage in planning is the formulation of socio-economic objectives of the plan and their definition
in quantitative terms.
Such objectives include growth, justice, eradication of poverty, price stability etc. In the second stage, the
plan lays down the physical and financial targets.
The third stage is concerned with execution. The Planning Commission is only an advisory body and it
has no power to execute the plan.
Planning by business is good but planning by government for the whole society is, in the eyes of most
businessmen, bad (perhaps because government planning has come to be identified with communist
countries).

State intervention in developing countries:

One of the main issues in economics is the extent to which the government should interfere in the
economy. Free market economists argue that government intervention should be strictly limited as
government intervention tends to cause an inefficient allocation of resources. Governments intervene in
markets to address inefficiency. In an optimally efficient market, resources are perfectly allocated to those
that need them in the amounts they need. In inefficient markets that is not the case; some may have too

11

much of a resource while others do not have enough. Inefficiency can take many different forms. The
government tries to struggle these inequities through regulation, taxation, and subsidies. Most
governments have any combination of four different objectives when they intervene in the market. The
purpose is to discuss how market and government failures influence the design of institutions supporting
corporate finance in emerging market economies. Weaknesses in these institutions are an important part
of the explanation for why more capital is not flowing from the capital-rich to the capital-poor economies.
Even in countries that now enjoy large inflows of direct investment may find weak corporate governance
and poorly functioning bankruptcy procedures to be critical if these flows were to cease for exogenous
reasons. Moreover, while well-functioning corporate governance and bankruptcy laws are generally
believed to be critical to investment and growth, they are particularly important in emerging market
economies where corporations often are hugely influential in the economy-at-large and in politics. We
propose a general framework for thinking about the challenges of designing these institutions in emerging
market economies and draw some policy implications
Most governments have any combination of four different objectives when they intervene in the market.

Maximizing Social Welfare

In an unregulated inefficient market, cartels and other types of organizations can wield monopolistic
power, raising entry costs and limiting the development of infrastructure. Without regulation, businesses
can produce negative externalities without consequence. This all leads to diminished resources, stifled
innovation, and minimized trade and its corresponding benefits. Government intervention through
regulation can directly address these issues.
Another example of intervention to promote social welfare involves public goods. Certain depletable
goods, like public parks, aren't owned by an individual. This means that no price is assigned to the use of
that good and everyone can use it. As a result, it is very easy for these assets to be depleted.
Governments intervene to ensure those resources are not depleted.

Macro-Economic Factors
Governments also intervene to minimize the damage caused by naturally occurring economic
events. Recessions and inflation are part of the natural business cycle but can have a devastating effect
on citizens. In these cases, governments intervene through subsidies and manipulation of the money
supply to minimize the harsh impact of economic forces on its constituents.

Socio-Economic Factors
Governments may also intervene in markets to promote general economic fairness . Government often
try, through taxation and welfare programs, to reallocate financial resources from the wealthy to those that
are most in need. Other examples of market intervention for socio-economic reasons include employment
laws to protect certain segments of the population and the regulation of the manufacture of certain
products to ensure the health and well-being of consumers.
Governments can sometimes intervene in markets to promote other goals, such as national unity and
advancement. Most people agree that governments should provide a military for the protection of its
citizens, and this can be seen as a type of intervention. Growing a large and impressive military not only
increases a country's security, but may also be a source of pride. Intervening in a way that promotes
national unity and pride can be an extremely valuable goal for government officials.

12

Reasons for the interference in market economy:

1

Greater Equality redistribute income and wealth to improve equality of opportunity and equality
of outcome

Market Failure Markets fail to take into account externalities and are likely to under-produce
public / merit goods. For example, governments can subsidise or provide goods with positive
externalities.

Macroeconomic intervention. intervention to overcome prolonged recessions and reduce

unemployment.

Governments liable to make the wrong decisions influence by political pressure groups, they
spend on inefficient projects which lead to inefficient outcome.

Personal Freedom. Government intervention is taking away individuals decision on how to spend
and act. Economic intervention, takes some personal freedom away.

Governance in Different Countries:

Corporate Governance varies around the World, largely due to different history and cultures.
In the UK and US, the model is aimed primarily at the rights of shareholders.
In Germany and much of continental Europe, and also in Japan, banks play a more prominent role, often
holding shares and having Board members. Such governance models tend to be more inclusive, ensuring
that the rights of workers, customers and suppliers (and maybe the community) are represented at Board
level.
In Japan, many major company structures were traditionally based around banks. Large groups of
companies from many industries would all be financed, and part-owned by a major bank, which would
create a strong financial alliance. Cross-shareholdings between companies were common, and in many
cases the companies in the group would all supply each other.
In South America, Italy, Spain, and large parts of East Asia (e.g. Indonesia) the focus is more on
family ownership, with a large % of the biggest companies owned and controlled by a small number of the
most powerful families in the country.

Public governance and Corporate Governance:

Governance is the exercise of authority which involves not solely the right to direct but also to lead and
control within an organization. Commercial activity conducted by corporation and by other forms of
business is fundamentally different from the types of activity conducted by coercive government.
The Public Sector Companies (Corporate Governance) Rules have been approved by the SECP
Policy Board. The rules are aimed at improving the governance framework of public sector

13

companies (PSCs) in order to bring about greater transparency and plugging the huge losses of
public sector enterprises, which are in the range of Rs400 billion per year.
Good governance is supposed to exist if three objectives are achieved. The first is equality of law and
effective implementation of laws. Secondly opportunity for every individual to realize his full

human

potential and thirdly there should be effective productivity and no waste in every sector.

Constraints on Government Powers:

In a society governed by the rule of law, the government and its officials and agents are subject to and
held accountable under the law. Modern societies have developed systems of checks and balances, both
constitutional and institutional, to limit the reach of excessive government power, and to subject the
government power, or ruler, to legal restraints. These checks and balances take many forms in various
countries around the world: they do not operate solely in systems marked by a formal separation of
powers, nor are they necessarily codified in law. What is essential, however, is that authority is distributed
in a manner that ensures that no single organ of government has the practical ability to exercise
unchecked power. It consists of 61 variables combined to form the following seven sub-factors are as
follows
Sub factors:
Government powers are defined in the fundamental law
Government powers are effectively limited by the legislature
Government powers are effectively limited by the judiciary
Government powers are effectively limited by independent auditing and review
Government officials are sanctioned for misconduct
Government powers are subject to non-governmental checks
Transition of power is subject to the law

Forms of Government Regulation:

The U.S. government has set many business regulations in place to protect employees' rights, protect the
environment and hold corporations accountable for the amount of power they have in this business-driven
society. Some of these regulations stand out more significantly than the others because of their relevance
to every U.S. employee and consumer.

14

Advertising
Laws pertaining to marketing and advertising set in motion by the Federal Trade Commission exist to
protect consumers and keep companies honest about their products, according to Business. Every
business in the country is required to comply with the truth-in-advertising laws and could face lawsuits for
violation.
Truth-in-advertising laws are made up of dozens of tidbits under three main requirements: advertising in
the United States must be truthful and non-misleading; businesses need to be able to back up claims
made in advertisements at any time; and advertisements must be fair to competitors and consumers.
Additionally, in compliance with the Fair Packaging and Labeling Act of 1966, all product labels must
include information about the product, such as nutrition, size, and distribution and manufacturing
information.

Employment and Labor

Among the ever-changing regulations in business are employment laws. These laws pertain to minimum
wages, benefits, safety and health compliance, work for non-U.S. citizens, working conditions, equal
opportunity employment, and privacy regulations--and cover the largest area of subjects of all the
business regulations. Several employment regulations stand out as the heavy hitters among the others.
The Fair Labor Standards Act, applied by the Wage and Hour Division, set the minimum wage for workers
in the United States. As of 2010, decisions made by the division affect more than 130 million workers,
according to the Department of Labor.
The Employee Retirement Income Security Act ensures that employees receive the retirement plan
options and health care benefits to which they are entitled as full-time employees. There are also several
required benefits, including unemployment insurance, Workers' Compensation Insurance and employee
Social Security assistance.
The Immigration and Nationality Act ensures that only U.S. citizens and individuals with work visas can be
hired, and every business must keep on file I-9 eligibility forms for applicable employees.

Environmental
The carbon footprint of businesses on the environment is regulated by the Environmental Protection
Agency alongside state agencies. The EPA enforces environmental laws passed by the federal
government through educational resources, frequent inspections and local agency accountability.
The Environmental Compliance Assistance Guide exists to help businesses--small and large alike-achieve environmental compliance, and serves as an educational resource more than an enforcer.

Privacy
Sensitive information is usually collected from employees and customers during hiring and business
transactions and privacy laws prevent businesses from disclosing this information freely. Information
collected can include social security number, address, name, health conditions, credit card and bank
numbers and personal history. Not only do various laws exist to keep businesses from spreading this
information, but people can sue companies for disclosing sensitive information.

15

Safety and Health

The Safety and Health Act of 1970 ensures that employers provide safe and sanitary work environments
through frequent inspections and a grading scale. A company must meet specific standards in order to
stay in business. These regulations have changed frequently throughout the years alongside the
changing sanitary and workplace standards.
In accordance with the 1970 act, employers must provide hazard-free workplaces, avoiding employee
physical harm and death, through a number of procedures.

Limitations for corporate powers:

In a Communist system, the central authority dictates the means and quantity of production, and
places strict rules on businesses.

Since there is no competition amongst firms, each is given the same amount of money and each
worker is paid the same, with the same expectations of each.

All businesses are ultimately owned by the government.

Populations tend to be treated homogeneously, meaning that common goals or sets of rules will not
apply to different segments of the population and community.

Without a price mechanism, supply and demand are difficult to balance perfectly over time.

The government owns all the businesses and properties (the means of production).
There is no freedom of speech.
Large or geographically-broad populations tend to be diverse, making it difficult to maintain a
common goal or set of rules for shared effort and resources.
Central planning is difficult to achieve.
Consumers needs are not taken into consideration.
Productivity and efficiency are difficult to achieve without profit motive for the workers.
It is difficult to achieve internal balances between supply and demand without a price mechanism.

Parliament can pass laws that for example prohibit the sale of cigarettes to children, or ban smoking in
the workplace. The laws of competition policy act against examples of price-fixing cartels or other forms of
anti-competitive behaviour by firms within markets. Employment laws may offer some legal protection for
workers by setting maximum working hours or by providing a price-floor in the labour market through the
setting of a minimum wage.
The economy operates with a huge and growing amount of regulation. The government appointed
regulators who can impose price controls in most of the main utilities such as telecommunications,
electricity, gas and rail transport. Free market economists criticise the scale of regulation in the economy
arguing that it creates an unnecessary burden of costs for businesses with a huge amount of red tape
damaging the competitiveness of businesses
Regulation may be used to introduce fresh competition into a market for example breaking up the
existing monopoly power of a service provider. A good example of this is the attempt to introduce more
competition for British Telecom. This is known as market liberalisation.
Changes to taxation and welfare payments can be used to influence the overall distribution of income and

16

wealth for example higher direct tax rates on rich households or an increase in the value of welfare
benefits for the poor to make the tax and benefit system more progressive
An import quota is a limit on the quantity of a good that can be produced abroad and sold domestically. It
is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be
imported into a country in a given period of time. If a quota is put on a good, less of it is imported.
Quotas, like other trade restrictions, are used to benefit the producers of a good in a domestic economy at
the expense of all consumers of the good in that economy. The primary goal of import quotas is to reduce
imports and increase domestic production of a good, service, or activity, thus "protect" domestic
production by restricting foreign competition. As the quantity of importing the good is restricted, the price
of the imported good increases, thus encourages consumers to purchase more domestic products. In
general, a quota is simply a legal quantity restriction placed on a good imported that is imposed by the
domestic government.

Corporations as voluntary Associations:

A voluntary association or union is a group of individuals who voluntarily enter into an agreement to form
a body (or organization) to work together for a purpose. In most of the cases no formalities are necessary
to start an association
or
a groups made up of volunteers who organize on the basis of some mutuall interest

Examples:

Political parties
Trade unions
Professional associations

Americans love voluntary associations, using them to express a wide variety of interests,
goals, opinions, and even dissatisfactions. Some groups are local, consisting of only

Functions of voluntary services:

Voluntary associations serve the following functions:

They advance particular interests

They offer people an identity (sense of purpose in life)
They help maintain social order
They provide training in organizational skills
Bring people into the political mainstream
Pave the way social change

17

Role of Judiciary in Corporate Governance:

The role of courts in good governance is gaining importance today, particularly with regard to the
reformation of society and the evolution of an independent judiciary in the country. Judiciary is usually
considered a pillar of state and meant to dispense justice and resolve conflicts and disputes. To achieve
all these goals, stakeholders should try to make it independent of the other institutions and authorities.
The Constitutions, which guaranteed the rights of workers, shareholders and employees, had assigned
the task of enforcing the laws to the judiciary. Judiciary is a pillar of state and mostly meant to dispense
justice and resolve conflicts and disputes. To achieve all these goals, all stakeholders should try to make
it independent of the other institutions and authorities.
Role of judiciary is vital in promoting a culture of tolerance. It also consider the important issue of
terrorism and money laundering to determine emerging money laundering and terrorist financing trends
within and between jurisdictions and review existing legislations to make them more effective. It also
consider environmental law and public interest litigation to enhance and review the scope of public
interest litigation to check the environmental violations. It also play its role in minimizing the gender bias
and issues of judicial empathy to adopt effective mechanism for women empowerment.
In the cycle of any governance the role of the judiciary is of paramount importance. The role of the
judiciary is not just to enforce the law but to protect the interests of the human society which cannot be
achieved without a robust and independent judiciary. The judiciary plays the dual role of acting as a
counter check mechanism to monitor the actions of the legislature as well as a decisive role in the
administration of the country. For the role of the judiciary, as a monitoring mechanism for the actions of
the legislature, the appointments to the judiciary should be free from legislative control or minimal
legislative control. It is true that the legislature has the power to make the laws, but this doesn`t mean that
the legislature should have absolute control.
In India, keeping with the spirit of the independence of the Judiciary, the collegium of the corresponding
Court plays the decisive role in judicial appointments. The differences that exist between the federalisms
of US and India are unique. These differences have been wantonly created by the architects of the Indian
constitution. The US federalism is very strong and more rigid as envisaged in their constitution by its
leaders and contains few pages in which the amendment is done very rare. It is more federal than
unitary.in character. Whereas, India is more unitary than federal system and the constitution of India is
very voluminous containing as many as XXII parts, 395 articles and ten schedules and so far been Indias
constitution been amended 94 times. Therefore, it is easy to amend the Indian constitution, since it
involves four different types of procedures which are comparatively easy than the amending procedure of
the US constitution.US has an advanced judicial system, India has a rapidly developing judicial system.

18

All these points basically help in building better corporate government in any country and thats why US is
better than India in their business procedures.

Scope of Governments Relation with Business:

The government good relation with the business is most important and necessary in developing countries.
The government should play its role in these areas which are as follow.
1
2
3
4
5

To elaborate and enforce business regulations.

To arrange a suitable consumers of the products.
To provide Subsidies for the promotion of business.
To watch the public interest against exploitation.
To provide a security for the business protection.

Role of Government in Business:

Contract Enforcement
Businesses contract with other businesses. These contracts may be complex, such as mergers, or they
may be as simple as a warranty on supplies purchased. The government enforces these contracts.
Companies bring one another to court just as individuals do. An oral agreement can constitute a contract,
but usually only a written agreement is provable. If one party fails or refuses to meet its obligation under a
contract, a company will turn to the legal system for enforcement.

Permission
Most businesses need to register with a state government to operate. Corporations need a charter, and
other forms of businesses, such as limited liability companies or partnerships, need other forms of
registration. The function of this registration is usually to define the financial liability the owners of the
company have. It limits their risk to the amount they have invested in that particular organization.
Registration also allows the government to monitor companies to execute its other functions in the
business world.

Consumer Protection
The governments role in business includes protecting the consumer or customer. When a vendor fails to
honor the guarantee, the purchaser has recourse in the law. Likewise, when a product causes harm to an
individual, the courts may hold the vendor or manufacturer responsible. Labeling is another requirement
the government imposes on marketers. Many foods, for example, must display nutritional content on the

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packaging. The U.S. has been making advances in consumer rights for decades. However, the consumer
movement still needs considerable development to protect the public .

Employee Protection
Many state and federal agencies work to protect the rights of employees. The Occupational Health and
Safety Administration, for example, is an agency under the Department of Labor. Its mission is to ensure a
safe and healthful work environment. The Equal Opportunity Commission protects employees from
discrimination.

Environmental Protection
When a marketing transaction impacts a third party--others besides the marketer and purchaser--the
effect is called an externality. The third party is often the environment. Thus, it is the government's role
to regulate industry and thereby protect the public from environmental externalities.

Taxation
Governments at all levels tax businesses, and the resulting revenue is an important part of government
budgets. Some revenue is taxed at the corporate level, then taxed as personal income when distributed
as dividends. This is in no way inappropriate, since it balances the tax burden between the company and
individual and allows the government to tax more equitably.

Investor Protection
Government mandates that companies make financial information public, thereby protecting the rights of
investors and facilitating further investment. This is generally done through filings with the Securities and
Exchange Commission.

Ensure the stakeholder interest

The role of the government is also to protect the stakeholders interests which can only be done by
appointment the monitoring committees which will ensure that they dont cheat their stakeholder.

Laws for govern companies

The government should more focus on making laws for govern companies. It should also make sure that
all companies are following those laws.

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Appointment of regulators
Government should appoint regulators to regulate the several sectors, to monitor the activities of the
companies, to allow them to have a fair competition as well as to protect them from any dispute.

Punishment on disobeying of laws

Government should also enforce those laws which will be implementing if any of the company will disobey
the rules and regulation for governing companies.

RECOMMENDATIONS:
Government has a pivotal role to play in corporate governance. It should also create a conducive
environment and level the play-field so that businesses and individuals interests can thrive and create
wealth for the nation. It should play this role by:
Providing appropriate infrastructure and basic services such as water, electricity, communication etc.
Making regulatory and statutory laws. This should include the updating of the Zimbabwe Companies
Act.
Enacting measures to combat corruption which include giving judicial powers to the anti-corruption
commission.
Leading by example through implementing corporate governance in central government itself and thus
demonstrating will-power which would permeate down to its citizens.
Introducing the teaching of ethics and values at an early age in schools through to tertiary levels. This
will help nurture and sustain the moral values of society and these values will guide its citizens in
implementing corporate governance. Morally upright citizens have no problems in upholding the
principles of fairness, transparency and accountability which are some of the core tenets of good
corporate governance. Zimbabwes moral fibre has been eroded by the economic challenges the country
has faced for the past decade. It is therefore necessary that ethics and values be instilled in the society
by including them in the curriculum of schools and tertiary institutions.
Adopting both the legislative (comply or else) and the voluntary (comply or explain) regimes. Both
regimes are essential because of the economic and political history of our country, Zimbabwe. The
Government, in its wisdom, would then decide what would be legislated depending on the prevailing
corporate and societys cultural way of doing business.

Conclusion:
Corporate governance is a set of rules that define the relationship between stakeholders, management,
and board of directors of a company and influence how that company is operating but apart from all these
the role of government is always necessary. The government should make laws for the strong governance
standards which will provides better access to capital and aids economic growth. Properly designed rules
of governance should focus on implementing the values of fairness, transparency, accountability, and
responsibility to both shareholders and stakeholders. In order to be effectively and ethically governed,
businesses need not only good internal governance, but also must operate in a sound institutional
environment. Therefore, elements such as secure private property rights, functioning judiciary, and free
press are necessary to translate corporate governance laws and regulations into on-the-ground practice

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REFERENCES:
http://seminarprojects.com/Thread-the-role-of-Pakistan-government-in-business-environmentppt#ixzz3RYUV4S7T
Source: Boundless. Why Governments Intervene In Markets. Boundless Economics. Boundless,
03 Jul. 2014. Retrieved 10 Feb. 2015
from https://www.boundless.com/economics/textbooks/boundless-economicstextbook/introducing-supply-and-demand-3/government-intervention-and-disequilibrium-49/whygovernments-intervene-in-markets-182-12280/

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