"Shareholder value get lost when things are done illegally, when principles of
corporate governance are not adhered to, when cohesive action is not taken"- Cyrus Pallonji Mistry
Corporate Governance is a mechanism based on certain systems and
principles by which a company is governed. The governance ensures that a company
is directed and controlled in a way so as to achieve the goals and objectives
which include providing benefits to the stakeholders like shareholders,
employees, suppliers, customers and society in the long term and adding value to
the company. It is actually conducted by the board of Directors and the
concerned committees for the benefit of stakeholders' company'. Corporate
governance is all about balancing individual and societal goals as well as
economic and social goals.
Corporate Governance consists of:
- Explicit and implicit contracts between the company and the stakeholders for
distribution of responsibilities, rights and rewards.
- Procedures for reconciling the conflicting interests of stakeholders in
accordance with their duties, privileges and roles.
- Procedures for proper supervision, control, and information that flows to serve
as a system of checks and balances.
According to the Cadbury Committee of U.K
"Corporate governance is the system by which companies are directed and
Need for Corporate Governance in India
The need for corporate governance has emerged because of the increasing concerns
about the non-compliance of standards of financial reporting and accountability
by boards of directors and management of companies causing heavy losses to
investors. Following are the needs for corporate governance in India:
- Changing Ownership Structure:
A corporate firm has lots of stakeholders with different attitudes towards
corporate affairs, corporate governance protects the stakeholders' right by
implementing it through its code of conduct. Today a company has a very large
number of stakeholders spread all over the nation and even the world and a
majority of shareholders act unorganised with an indifferent attitude towards
corporate affairs. Maintaining a proper structure of a corporate body requires a
practical implementation of rules and regulations through a code of conduct of
- Social responsibility:
Society having greater expectations from corporate, they expect that corporates
take care of the environment, pollution, quality of goods and services,
sustainable development etc. Fulfilment of all these expectations is only
possible with proper corporate governance.
- Takeovers and Mergers:
Takeovers and mergers of corporate entities created lots of problems in the
past. It affects the right of various stakeholders in the company and creates a
problem of chaos, this factor also pushes the need of corporate governance in
- Confidence booster:
Corporate scams or frauds in the recent years of the past have shaken public
confidence in corporate management. The need for corporate governance is then
crucial for reviving investors' confidence in the corporate sector towards the
economic development of society.
- Mismanagement and corruption:
It has been observed in both developing and developed economies that there has
been a great increase in the monetary payments and packages of top level
corporate executives. There is no justification for exorbitant payments to top
ranking managers, out of corporate funds which is a property of shareholders and
society. This factor necessitates corporate governance to restrict the
ill-practices of top managements in the companies.
- Investors' influence:
Large corporate investors are becoming a challenge to the management of the
company as they influence the decisions of the company. Corporate governance set
the code to deal with such situations.
Globalization made the communication and transport between countries so easy and
frequent. Many Indian companies are listed with international stock exchange
which also triggers the need for corporate governance in India to structure the
companies at par with international level.
- Efficiency of management:
Hostile takeovers of corporations witnessed in several countries put a question
mark on the efficiency of managements of take-over companies. Lack of efficient
code of conduct for corporate managements points out to the need for corporate
Importance of Corporate Governance in India
Corporate governance safeguards not only the management but also the interests
of stakeholders and fosters the economic progress of India in the roaring
economies of the world. A company that has good corporate governance experiences
much higher level of confidence amongst the shareholders associated with that
Confident and independent directors contribute towards a positive outlook of the
company in financial market which positively influences the share prices.
Corporate Governance is one of the important criteria for foreign institutional
investors to decide on which company to invest in.
Importance of corporate governance is stated below:
- Good corporate governance ensures success and economic growth of a firm
- Strong corporate governance maintains investors' confidence in the financial
market, as a result of which company can raise capital efficiently and
- International flows of capital enable companies to access financing from a large
pool of investors. If countries are to reap the full benefits of the global
capital markets, and if they are to attract long-term capital, corporate
governance arrangements must be credible and well understood across borders. The
large inflows of foreign investment will contribute immensely to economic
- Properly structured governance lowers the capital cost.
- The importance of good corporate governance lies in the fact that it will enable
the corporate firms to attract capital and perform efficiently. Investors will
be willing to invest in the companies with a good record of corporate
- New policy of liberalization and deregulation adopted in India in the year 1991,
has given greater freedom to managements which should be prudently used to
promote investors' interests. But there are several instances of corporate
failures due to lack of transparency and disclosures and instances of
falsification of accounts. This problem will only be overcome by a proper
- A strong corporate governance is indispensable for a vibrant stock market. A
healthy stock market is an important instrument for investors protection.
Insider trading is a destruction of stock market. It means trading of shares of
a company by insiders like directors, managers and other employees of the
company on the basis of information which is not known to outsiders of the
- Corporate governance provides proper encouragement to the owners as well as
managers to achieve objectives that are in the interest of stakeholders and the
- It also minimizes wastages, corruption, risks and mismanagement.
- It helps in brand formation and development of a company. Many studies in India
and abroad has shown that foreign investors take notice of well- managed
companies and respond positively to them. Capital flows from foreign
institutional investors (FII) for investment in the capital market and foreign
direct investment (FDI) in joint ventures with Indian corporate companies if
they are convinced about the implementation of basic principles of good
- It make sures an organization is managed in a manner that fits the best
interests of all. Corporate governance is a means through which the company
signals to the market that effective self-regulation is in place and that
investors are safe to invest in their securities. Prohibiting inappropriate
actions and self-regulation are effective means of creating shareholders value.
- Officials of a corporate company take undue advantage at the expense of
investors through insider tradings. It is a kind of fraud and one way of dealing
with this problem is enacting legislation through corporate governance
prohibiting such trading and enforcing criminal action against violators.
The collapse of international giants likes Enron , WorldCom of the US and
Xerox of Japan took place due to the absence of good corporate governance and
corrupt practices adopted by management of these companies and their financial
Key Principles of Corporate GovernanceTransparency
A principle of good governance is that stakeholders should be informed about the
company's activities regarding its plans in the future and any risks involved in
its business strategies.
- Transparency means openness by the company willing to provide clear information
to shareholders and other stakeholders. For example, it refers to the openness
to disclose financial performance figures which are truthful and accurate.
- Disclosing materials concerning the organization's performances and activities
should be will timed and accurate to ensure that all investors have access to
clear, factual information which reflects the financial, social and
environmental position of the organization. A company should clarify the roles
and responsibilities of the board and management to provide a level of
- Transparency ensures that stakeholders can have confidence in the
decision-making and management processes of a company.
Corporate accountability refers to the obligation and responsibility to provide
an explanation or reason for the company's actions and conduct such as:
- The board should present a balanced and understandable assessment of the
company's position and prospects.
- The board is responsible for determining the nature and extent of the
significant risks the company is willing to take.
- The board should maintain sound risk management and internal control systems.
- The board should establish formal and transparent arrangements for corporate
reporting and risk management and for maintaining an appropriate relationship
with the company's auditors.
- The board should communicate with stakeholders at regular intervals giving a
fair, balanced and explicit analysis of how the company is achieving its
The Board of Directors are given authority to act on behalf of the company. They
should therefore accept full responsibility for the powers that it is given and
the authority that it exercises. The Board of Directors are responsible for
overseeing the management of the business, affairs of the company, appointing
the chief executive and monitoring the performance of the company. In doing so,
it is required to act in the best interests of the company.
Accountability goes hand in hand with responsibility. The Board of Directors
should be made accountable to the stakeholders for the way in which the company
has carried out its responsibilities.
Eight Codes of Corporate Governance
- Governance Structure:
All organizations should be headed by an effective board
and all the responsibilities and accountabilities within the organisation should
be clearly distinguished.
- Structure of the Board and its Committees:
The board should consist of
appropriate combination of executive directors, independent directors and
non-independent non-executive directors to prevent one individual or a small
group of individuals from dominating the board's decision. The board's size and
scale should be in proportion with the level of diversity of the organisation.
Appropriate board committees may be formed to assist the board in effective
performances to fulfil the duties.
- Director's Appointment Procedure:
There should be a formal, rigorous and
transparent process for various activities like appointments, election,
re-election of directors etc. Members for the board should be appointment on
merit basis fulfilling objective criteria which should include skills,
knowledge, experience, and independence for the benefits of the company. The
board should ensure that a formal, rigorous and transparent procedure be in
place for planning the succession of all key officeholders.
- Directors' duties, remuneration and performance:
Directors should be aware of
their legal duties. They must observe and foster high ethical standards and a
strong ethical culture in their organisation. Each director must be able to give
sufficient time to discharge his or her duties effectively. Conflicts of
interest should be disclosed and managed.
The board of members is responsible
for the governance of the organisation's information, information technology and
information security. The board, committees and individual directors should be
supplied with informations in a timely manner and in an appropriate form and
quality. The performances of board members should be evaluated and be held
accountable to appropriate stakeholders. The board should be transparent, fair
and consistent in determining the remuneration policy for directors and senior
- Risk Governance and Internal Control:
The board will be held responsible for
risk governance. It must check the development and execution of a comprehensive
and powerful system of risk management and also ensures the maintenance of a
sound internal control system.
- Reporting with Integrity:
The board must present a fair, balanced and
understandable assessment of the performances and outlook of organization's
financial, environmental, social and governance position in its annual report
and on its website.
All the organizations should consider having an effective and independent
internal audit function that has the respect, confidence and cooperation of both
the board and the management. The board should establish formal and transparent
arrangements to appoint organisation's auditors and maintain an appropriate
relationship with them.
- Relations with Shareholders and other key Stakeholders:
The board should be
responsible for ensuring that an appropriate interchange and disclosure takes
place between the organisation, its shareholders and other key stakeholders. The
board should respect the interests of its shareholders and other key
stakeholders within the context of its fundamental purpose.
Regulatory Framework for Corporate Governance in India
- The Companies Act, 2013
The new Companies Law contains many provisions related to good corporate
governance like Composition of Board of Directors, Admitting Woman Director,
Admitting Independent Director, Directors Training and Evaluation, Constitution
of Audit Committee, Internal Audit, Risk Management Committee, SFIO Purview,
Subsidiaries Companies Management, Compliance center etc.
All such provisions of new Companies Law are instrumental in providing a
good Corporate Governance structure. Few provisions are:
- Section 134:
It mandates to attach a report to every Financial statement by
Board of Directors containing all the details of the matter including the
statement containing director's responsibility.
- Section 177:
It requires Board of Directors of every listed company or any
other class of committee to constitute an Audit Committee. It also provides the
manner to constitute the committee.
- Section 184:
It mandates the Director disclose his interest in any company or
companies, body corporate, firms, or other association of Individuals. The
director is required to disclose any such interest at the first meeting of the
board and if there is any change in the interest, then the first meeting will be
held after such change.
- Securities and Exchange Board of India (SEBI)
SEBI is a regulatory authority established on April 12, 1992 with the main
purpose of curbing the malpractices in the financial market and protecting the
interest of its investors. Its main objective is to regulate the activities of
Stock Exchange and to ensure the healthy development in the financial market. In
order to ensure good corporate governance, SEBI came up with detailed norms of
- As per the new rules, the companies are required to get shareholders approval
for RPT (Related Party Transactions), a provision for whistle blower
mechanism, clear mandate to have at least one woman director in the Board and
moreover it elaborated disclosures on pay packages.
- Clause 35B of the Listing Agreement is being amended by the regulatory
authority. Now as per the amended clause, Listed companies are required to
provide the option of e-voting to its shareholders on all proposed or passed
general meetings. Those who do not have access to e-voting facility, they should
be entitled to cast their votes in writing on Postal Ballot. The amended
provision was needed so that the provisions of the listing agreement can be
aligned with the provisions of Companies Act, 2013. By doing so, a closer step
is provided to strengthen the Corporate Governance norms in India with respect
to Listed companies.
- Clause 49 of the Listing Agreement was also amended by SEBI in order to
strengthen the Corporate Governance framework for Listed companies in India. The
revised clause forbids the independent directors from being eligible for any
kind of stock option. Whistle blower policy is also added in the revised clause
whereby the directors and employees can report any unethical behavior, any fraud
or if there is violation of Code of Conduct of the company.
With the amended
provision, Audit Committee is also enhanced, now it will include evaluation of
risk management system, internal financial control and will keep a check on
inter-corporate loans and investments. The amendment now requires all the
companies to form a policy for the purpose of determination of 'material
subsidiaries' and that will be published online.
- Standard Listing Agreement of Stock Exchanges
The Listing Agreement is the basic document which is executed between companies
and the Stock Exchange when companies are listed on the stock exchange. The main
purposes of the listing agreement are to ensure that companies are following
good corporate governance. The Stock Exchange on behalf of the Security Exchange
Board of India ensures that companies follow good corporate governance.
Listing Agreement comprises of 54 clauses stating corporate governance which
listed companies have to follow and in case of failing to such, companies have
to face disciplinary actions, suspension, and delisting of securities. The
companies also have to make certain disclosures and act by the clauses of the
- Accounting Standards issued by the ICAI
ICAI stands for Institute of Chartered Accountants of India. It is a statutory
body established by Chartered Accountants Act, 1949. It issues accounting
standards for disclosure of financial information.
- Section 129 of the Companies Act, 2013 states that financial statements of a
company shall comply with the accounting standards notified under section 133 of
the Act. It also states that the financial statement shall give true and fair
view of the state of affairs of the company.
- Section 133 states that Central government may prescribe the accounting
standards as recommended by ICAI. Accounting standards are provided so that good
corporate governance can be ensured in a company. Some accounting standards
issued by ICAI are:
- Disclosure of Accounting policies followed in preparation of Financial
- Determination of values at which the inventories are carried in a
- Cash flow statements for assessing the ability of an enterprise in
- Standard to ensure that appropriate measurement bases are applied to
provisions and contingent liability,
- Standard prescribing accounting treatment of cost and revenue associated
with construction contracts.
- Secretarial standards issued by ICSI (Institute of Company Secretaries of
It is an autonomous body constituted by the Company Secretaries Act, 1980. It is
a body to regulate and develop the profession of Company Secretaries in India.
It issues secretarial standards as per the provision of the Companies Act,2013.
Section 118(10) of the Companies Act states that every company shall observe
secretarial standards specified by Institute of Company Secretaries of India
with respect to General and Board meetings.
- Secretarial standard-1 on Meeting of the Board seeks to prescribe a set of
principles for conducting meetings of Board of Directors. These principles are
equally applicable to the meetings of committees as well. SS-1 principles are
applicable to the Meeting of Board of Directors of all companies except one
- Secretarial standard-2 prescribes a set of principles for conducting and
convening general meetings. This standard also deals with the procedure for
conducting e-voting and postal ballot. SS-2 is applicable to all types of
General meetings of all companies except one person company incorporated under
the act. The principles in SS-2 are applicable mutatis-mutandis to meetings
of creditors and debenture holders. Moreover, it also prescribes that any
meeting of members or creditors or debenture-holders of a company under the
direction of CLB (Company Law Board), NCLT (National Company Law Tribunal) or
any other authority shall be governed by the provisions of this standard.
Biggest Failures of Corporate Governance in India
Panel of Experts
- Harshad Mehta Scam (1992)
It is one of the most Technical Scam done with cleverness in the year
1992. The protagonist of the scam Harshad Mehta diverted bank funds worth Rs.
3500 crores to a group of stockbrokers. These funds were then put into the
stock market selectively, causing it to surge to over 4500 points. The
immediate impact of Harshad Mehta scam was sharp felt in share prices and
indices. The market faced loss of 0.1 million crores in terms of market
capitalization. This resulted in the postponing of sanctioning of Private
sector Mutual Fund by SEBI. The Euro-Issues Planned by various companies
were delayed due to the scam.
- Ketan Parekh Scam (1999-2001)
Ketan Parekh is described as Pied Piper of Dalal Street. His financing method
was very simple, he used to buy a share when they traded at a low price and when
the price was high enough he pledges to share with the bank as collateral for
Funds. He also borrowed funds from various companies like HCFL. The amount
involved in the scam was Rs.1500 crore.
Impacts of the scam were:
- One of the biggest falls in Bombay stock exchange- 700 points.
- Short selling was banned for 6 months.
- Options and future index derivatives were introduced.
- Satyam Scam (2009)
Satyam Scam took place in the year 2009 and it is regarded as "Debacle of
Indian Financial System". It was one of the biggest accounting scandals where
protagonist Ramalinga Raju accepted that he cooked up accounts of Satyam
Computers and inflated Satyam computers bank balances and accounting entries
including the amount of Rs. 8000 Crores.
- PACL Scheme Scam (2015)
It was the scam of Luring near 55 million investors by the technique of raising
money against bogus allotment letters. The matter involved the alleged
collection of about 450 billion rupees ($6.8 billion) from roughly 55 million
investors across the country.
- Saradha Chit Fund Scam(2013)
It was one of the biggest Ponzi schemes about fake collective investments
involving the amount of nearly Rs. 4000 crores led by Sudipta Sen. The chit fund
ultimately collapsed leading to defaults after a crackdown by SEBI and the
Reserve Bank of India. The default, apart from leaving small depositors high and
dry, also led to 10 media terminals owned by Saradha being forced to wind up,
leaving 1000 journalists jobless.
To curb the recurring issue of accounting scandals like above mentioned, a panel
of experts was set up by SEBI.
This panel recommended:
- Rotation of Audit Partners
- Selection of CFO by the company's Audit Committee
- Standardization of disclosure of earnings
- Streamlining the submission of financial results.
Biggest Challenges in Corporate Governance In India
- Getting the board right:
In India, it is a common practice that friends and
family of promoters to be appointed as board members. But Innovative solutions
are the need of the hour like rating board diversity and governance practices
and publishing such results or using performance evaluation as a minimum
benchmark for director appointment.
- Performance evaluation of directors:
Although performance evaluation of
directors has been part of the existing legal framework in India, but it's still
an issue. To achieve the desired results on governance practices, there is often
a call for results of performance evaluation to be shared in public. But
corporate firms to avoid public scrutiny, negative feedback may not be shared by
- True Independence of Directors:
Independent directors have hardly been able to
make the desired impact in fifteen years till now as it Independent directors'
appointment was supposed to be the biggest corporate governance reform. The
independence of promoter appointed as independent directors is questionable as
it is unlikely that they will stand-up for minority interests against the
- Removal of Independent Directors:
In most of the cases, the major issue in
corporate governance arises as independent directors were easily removed from
their positions by the promoters if they do not side with promoters' decisions.
Under law, an independent director can be easily removed by promoters or
- Accountability to Stakeholders:
Indian company law, revamped in 2013, mandates
that directors owe duties not only towards the company and shareholders but also
towards the employees, community and for the protection of environment.
Although, these general duties have been imposed on all directors, directors
including independent directors but they disregard it easily due to lack of
- Executive Compensation:
Executive compensation is a controversial issue
especially when subjected to shareholder accountability. Companies have to offer
competitive compensation to attract talent. However, such executive compensation
needs to stand the test of stakeholders' scrutiny.
- Founders' Control and Succession Planning:
In India, founders' ability to
control the affairs of the company has the potential of derailing the entire
corporate governance system. Unlike developed economies, in India, identity of
the founder and the company is often merged.
- Risk Management:
The board is only playing an oversight role on the affairs of
a company, framing and implementing a risk management policy is necessary. In
this context, Indian company law requires the board to include a statement in
its report to the shareholders indicating development and implementation of risk
management policy for the company.
Overcoming Existing Issues in Corporate Governance
In the issues mentioned above, to adapt to the standards and practices which are
mentioned in various laws and guidelines its entire onus lies upon the directors
of the companies. Other than the laws and norms prescribed by various
institutions from time to time, the companies are also expected to act
responsibly towards the society as a whole because the extent of corporates have
been increased and they affect each and every citizen of the country either
directly or indirectly.
The burden of corporate firms has already been reduced
by the amendments done in various provisions by the regulating bodies. To curb
the issues of corporate governance, it is also required that the stakeholders
also participate in the decision making processes with the directors to make it
a contributory job altogether.
Regulating authority has taken various steps to the issues of corporate sector
in its governance and committees are formed by them for recommending solutions.
Committees for Resolving Issues in Corporate Governance
Various committees have been created all across the world for a
good corporate governance covering major aspects:
Committees across the globe
||Name of the Committee
||Sir Adrian Cadbury Committee, UK
||Financial Aspects of Corporate Governance
||Mervyn E. King's Committee, South Africa
||Greenbury Committee, UK
||Independent Directors' Remuneration
||Hampel committee, UK
||Combined Code of Best Practices
||Blue Ribbon Committee , US
||Improving the Effectiveness of Corporate Audit Committee
||The Organisation for Economic Cooperation and
||Principles of Corporate Governance
||Principles for corporate Governance in Common Wealth
||Derek Higgs Committee , UK
||Review of role of effectiveness of Non-executive
||ASX Corporate governance council, Australia
||Principles of Good Corporate governance and Best
Corporate Governance Committees in India
||Name of the Committee
||Confederation of Indian Industry (CII)
||Desirable Corporate Governance - A code
||Kumar Mangalam Birla Committee
||Naresh Chandra Committee
||Corporate Audit and Governance
||N R Narayana Murthy Committee
Confederation of Indian Industry (CII) Initiative:
With the emergence of
competitions in economies under the liberalized regime, concerns were raised
regarding corporate governance practices in India. The process of 'restructuring
the corporate governance framework' and development of a 'Code of Corporate
Governance' was initiated by CII in 1996. A National Task Force was set up under
the Chairmanship of Rahul Bajaj and presently he is the chairman of Bajaj Group.
The Task force made a number of recommendations related to board constitution,
role of non‐executive directors, role of audit committees and others. The
committee submitted its Code in 1998.
National Code on Corporate Governance:
In 1999, government appointed a
committee under the leadership of Kumar Mangalam Birla. The committee released a
draft of India's first National Code on Corporate Governance for listed
companies. In 2000, with the due approval of the Code by SEBI, it was
implemented in stages in the following two years.
The Committee made its primary objective to view corporate Governance from the
perspective of the investors and shareholders and to prepare a Code
conducive to the Corporate Environment of
India. The shareholders, the Board of Directors and the Management were
identified by the committee as the three important constituents of Corporate
Governance and focused mainly on the roles and responsibilities as well as the
rights of each of these constituents as far as the good governance is
Kumar Mangalam Birla Committee:
In 1999, SEBI set up a committee under the
Chairmanship of Kumar Mangalam Birla to suggest suitable recommendations for the
Listing Agreement of Companies with their Stock Exchanges to improve the
existing standards of Corporate Governance in the listed companies. The
committee paid much attention to role and composition of the Board of directors,
disclosure laws and share transfers.
Acknowledging that accountability,
transparency and equal treatment of all stakeholders are the key elements of
corporate governance. The Committee evolved a Code of Governance in the context
of the prevailing conditions in the capital market. The Code was accepted in
2000 by SEBI and incorporated into a new Clause 49, which was inserted into the
Listing Agreement of Companies with their Stock Exchanges.
Clause 49 (2000) of the Listing Agreement
In February 2000, the SEBI revised its Listing Agreement to incorporate the
recommendations of the country's new code on corporate governance, introduced by
the Birla Committee. These rules comprising a new section, Clause 49 of the
listing Agreements were circulated by SEBI through its circular dated February
21, 2000. It took effect in phases over a period from 2002 to 2003. All the
listed companies with a paid up capital of Rs. 3 crores and above or net worth
of Rs. 25 crores or more at any time during the life of the company as of March
31, 2003 were governed by these principles.
RBI Advisory Group headed by Dr. R H Patil
This group recommended some more
codes and principles of private sector companies including consolidation of
accounts incorporating performance of subsidiaries, criteria of independent
directors and disclosures to SEBI in the year 2001.
N R Narayan Murthy Committee
In 2002, SEBI formed another committee under the
Chairmanship of N R Narayan Murthy, the then Chief Mentor of Infosys
Technologies Ltd. to further streamline the provisions of Clause 49. Based on
the recommendations of the Committee, SEBI revised some sections of the Clause
in August 2003 and later once again after further deliberations in December
2003. SEBI published a revised Clause 49, relating to corporate governance,
which set forth a schedule for newly listed companies and those already listed
to comply with the revisions. Major changes in the Clause included amendments
/additions to provisions relating definition of independent directors,
strengthening the responsibility of Audit Committees and requiring Boards to
adopt a formal Code of Conduct.
In January 2006, SEBI issued some further clarifications on Clause 49. Further
amendments were made in some of the provisions of the Clause in July 2007 which
dealt with quarterly reporting.
Revised Provisions under Clause 49 of the Listing Agreement
In its final form, Clause 49 of the Listing Agreement covered the following
provisions regarding corporate governance by listed companies:
- Mandatory Provisions:
- Board of Directors: Composition of the Board, Definition of Independent
directors and proportion of Independent Directors in the total board strength,
Compensation of non-executive directors and disclosures, Board meetings,
Information to be made available to the Board, membership of Board level
committees by the directors and Code of Conduct II.
- Audit Committee: Its constitution, its meetings, role, powers and review of
- Subsidiary companies: Number of subsidiaries, review of financial statements of
the subsidiaries by the holding company, transactions of the listed holding
company with the subsidiaries and other related disclosures.
- Disclosures: These include a series of mandatory disclosures like basis of
Related Party Transactions, Accounting treatment, Risk management, Utilization
of proceeds of public issues, Remuneration of Directors, Management Discussion
and Analysis Report in the company's Annual Report, setting up of
Shareholders/Investors Grievances committee and other items to be reported to
- CEO/CFO Certification: This certification relates to the review of
financial statements and cash flow statements by the CFO, compliance with
existing accounting standards, laws and regulations, responsibility for
maintaining internal controls, etc
- Separate Section in the Company's Annual Report on Corporate Governance.
- Compliance certificate from Auditors or practicing Company Secretaries.
- Non-Mandatory provisions
These included provisions regarding the following:
- Tenure of Independent directors.
- Constitution of the Remuneration Committee.
- Declaration of Half yearly Financial Performance including summary of
significant events to be sent to shareholders' residences.
- Progression towards a regime of Unqualified Financial Statements.
- Training of Board members in the business model and risk profile of business
parameters of the company including their responsibilities.
- Evaluation of Non‐executive Board member.
- Whistle Blower Policy
Proxy Services for Corporate Governance Evaluation
A proxy firm plays many roles like a proxy advisor, proxy voting
agency, vote service provider or shareholder voting research provider and so on.
It provides services to shareholders also to institutional investors to vote
their shares at shareholder meetings of listed companies.
The services provided by them include agenda translation, provision of vote
management software, voting policy development, company research, and vote
administration including vote execution. Not all firms provide voting
recommendations and those that do may simply execute client voting instructions.
Some of the Proxy firms in global network are:
- Egan-Jones Proxy Services (USA
- Glass, Lewis & Co (USA)
- In Govern Research Services (INDIA)
- Institutional Investor Advisory Services India Limited (IiAS) (INDIA)
- Institutional Shareholder Services (USA)
- Stakeholders Empowerment Services (SES) (INDIA)
Proxy Firms Controversy
In 2013, the US Securities and Exchange Commission charged fine of ISS $300,000
to Rockville, Md.-based proxy adviser Institutional Shareholder Services (ISS)
for failing to safeguard the confidential proxy voting information of clients
participating in a number of significant proxy contests. Since then the role of
proxy firms has come under considerable scrutiny.
Corporate Governance Rating
Rating practices of corporate governance and value creation for
its Stakeholders is being carried out by leading Rating Agencies like CRISIL.
These types of rating helps the companies by providing unbiased evaluation of
the company's corporate governance practices. It is carried out by an outsider
reputed agency and an appropriate Rating Certificate is given to the company for
The Company can use this certificate for raising finance
from the market as well as from foreign investors. This results in allocating
resources in a better way and enhancing investor's confidence in the company.
The basis for rating a company for its corporate governance practices is the
company's compliance with SEBI Revised Clause 49 of the Listing Agreement with
the Stock Exchanges and also the manner in which the various norms are
Comments on Corporate Governance
Certain useful comments on the concept of corporate governance are given below:
- Corporate governance is more than a company's administration. It refers to fair,
efficient and transparent functioning of the corporate management system.
- Corporate governance refers to a code of conduct to which the Board of Directors
must abide by while running the corporate enterprise.
- Corporate governance refers to a set of systems, procedures and practices which
ensure that the company is managed in the best interest of all corporate
- Enron Scandal: The Fall of a Wall Street, Enron's shares were worth
$90.75. When it declared bankruptcy on December 2, 2001, they were trading
at $0.26 [Enron Corp. scandal - https://www.investopedia.com/updates/enron-scandal-summary/
- WorldCom exaggerated profits by around $3 billion in 2001 and $797 in Q1
2002, and reported a profit of $1.4 billion instead of a net loss. It filed
for bankruptcy on July 21, 2002. [WorldCom scandal] - https://www.investopedia.com/terms/w/worldcom.asp
- Xerox overstated its revenues for the past five years by almost $2bn (£1.3bn).
[xerox scandal] - https://www.theguardian.com/business/2002/jun/29/2
- The Companies Act 2013 enacted by the Parliament of India on 12
September, 2013 contains 98 sections. - http://ebook.mca.gov.in/default.aspx
- A related-party transaction (RPT) is a business deal or arrangement between two
parties who are joined by a preexisting special relationship.
- A postal ballot is a system of voting in which person send their votes by post
when they cannot be present.
- Used when comparing two or more things to say that although changes will be
necessary in order to take account of different situations, the basic point
remains the same.
Corporate Governance in India
and Corporate Governance
Growth of Corporate Governance in the Era of scams
An Analysis On Corporate Governance Laws In India
Role of Proxy Advisory Firms In Corporate Governance
Corporate governance is a system of best management practice
Corporate Governance Issues Regarding Remuneration of Executive Directors in
Understanding the Concept of Corporate Governance in the Light of Companies
Key Issues And Challenges Of Corporate Governance And Ethics: Analysis Of
Yes Bank And PNB Scam