Corporate Governance has been a central issue in developing countries long
before the recent rash of corporate scandals in advanced countries. Corporate
governance gained tremendous importance due to economic liberalization and
deregulation of industry and business. The concept of corporate governance came
in 1980's when several companies collapsed worldwide.
Then, at international
level and in India - Government, SEBI, RBI and Ministry of Corporate Affairs had
done sincere efforts to bring the changes in the operating system of board of
directors, financial and non-financial disclosures, compliance with codes of
corporate governance, competitive remuneration policy, shareholders rights and
responsibilities, internal controls and company's management. Corporate
governance has to bring balance and equilibrium between various stakeholders
like owners, promoters, employees, shareholders, customers, creditors, bankers,
investors, government and society.
Corporate governance aim is to minimize chances of corruption, malpractices,
financial frauds and misconduct of management. Corporate Governance standards
for listed companies are regulated by the Securities and Exchange Board of India
(SEBI) through clause 49 of the listing agreement of stock exchanges. SEBI
issued circulars from time to time since 21st February, 2000 to ensure
compliance of various requirements in terms of corporate governance.
A very few companies go beyond requirements of clause 49 in order to follow the
principles on which corporate governance is based namely accountability,
transparency, fairness, equity, efficiency, flexibility and above all legality
and integrity. Corporate governance should ensure courtesy, dignity and respect
in all types of transactions and functions of a company. Corporate governance is
a continuous journey. It must keep on evolving in tune with changing nature of
business and economics.
"Corporate Governance is not something that is put in place and then left.
Ensuring its effectiveness depends on regular reviews, preferably regular
independent reviews. And, in the end that comes down to the shareholders.
Outside assessment and self-assessment need to be regular events." - JIM JONES.
The corporate Governance as a means of achieving the equitable profitability for
the people of all the various and nowadays it has come to the centre stage
because of the two reasons i.e. one after the collapse of the Soviet Union at
the end of the cold war in 1990, it has become the conventional wisdom all over
the world that the market dynamics must prevail in the corporate matters. The
concept of Governance controlling and commanding heights of the economy has been
given up as being unproductive.
This, in turn has made the market the most decisive factor in setting the
economic issues. Secondly, it has also coincided with the thrust given to the
Globalization because of the administration and establishment of the World Trade
Organisation and the member nation of the World Trade Organisation trying to
bring down the tariff barriers. Globalisation involves the movement of the four
factors, namely, physical capital in terms of plant and machinery, financial
capital in terms of money invested in capital markets or in FDI, technology and
The pace of movement of financial capital is rapidly growing because of the
comprehensive impact of information technology into a global village. When
investments take place in emerging markets, investors want to be sure that not
only the capital markets or enterprise in which they invest are running
competently, but they also have good corporate governance.
Corporate Governance - Meaning
Corporate Governance represents the value framework, the ethical framework and
the moral framework under which business decisions are taken. In other words,
when investments take place across the nations, investors want to be sure that
not only is their capital handed effectively and adds to the creation of the
wealth but the business decisions are also taken in the manner which is not
illegal or involved the market hazards.
Corporate Governance in India is a set of internals, policy and procedures which
form the framework of a company's operations and its dealings with various
stakeholders such as customers, management, employees, government and industry
bodies. Corporate Governance is the soul of an organisation and must be adhered
to while indulging in any business.
The Importance And Need
The Corporate Governance is gaining importance specifically in the Indian
scenario due to many reasons. It lays down the framework for creating long-turn
trust between the companies and the external providers of the capital. Corporate
Governance focuses not only on shareholders but on all the stakeholders of the
company. In India, it is a system of rules, practises and processes to control a
It provides the framework for attaining the company's objectives. It also
improves strategic thinking and also helps in rationalising the management.
Corporate governance limits the liability of the top management and directors by
carefully articulating the decision-making process and ensures the integrity of
the financial reports. There is a great need for a corporate governance model
because of the diverse shareholding patterns in the companies.
The basic need for the Corporate governance has been highlighted because of the
series of scams that become an annual failure ever since the government
liberalised the economy in 1991. The high-profile corporate governance failure
scams like the market scam, the UTI scam, Ketan Parikh scam, Satyam scam were
criticised by the shareholders on a very large scale which then called for a
need of a corporate governance in India as it was greatly affecting the
development of the country.
Corporate Governance Principles
Corporate governance allude to all the laws, rules and regulations, codes and
practices which defines how the institutions administered and inspected,
determines the roles and responsibilities of different partners and provide the
economic value to the stakeholders in the long run while respecting the values
of the community it belongs.
Governance structure is the foremost principle followed by the corporate
governance which says that all the organizations should be headed by an
effective board and the roles, responsibilities and accountability within the
organization must be clearly identified. The board of independent minded
directors and its committees includes an appropriate combination of directors,
independent directors are another followed principles. Further, directors'
duties, remuneration, and performances, reporting and integrity, audit and
relations with shareholders must also be taken in consideration as the major
Facts And Figures With Recent Scenario
For the Corporate to take a root in the country to a large extent, most probably
it will depend on the economic and business environment that has been created by
the public grievance in the country. There cannot be good corporate governance
if public governance is weak of-course the story of a company that has reached
the dramatic heights of corporations like Enron, has highlighted the reality of
how the companies, which were the queens of the stock markets can ultimately
fall, a pack of cards when fraud, dishonesty and conspiracy became their
The collapse of the Enron Pvt Ltd. has affected the thousands of the employees.
Transparency in Corporate governance is needed and is essential for the growth,
profitability and stability of any business. UTI scam of the 1964 which is most
commonly referred as the US-64 of the UTI faced the troubles and the investors
of this cadre faced the major thrust in the year 1998 when they came to know
about the certain issues through which the media reports stating the things were
seriously taken as wrong with the mutual fund major.
The US-64 were extremely
doing good but suddenly noticed the depletion of the funds and vindication which
exceeded the sales. This happened during the period of July 1995 and march 1996
and the reserve came down by Rs 3,014 cr.
Landmark Cases Which Led To The Recent Amendments In The Companies Act, 2013
In India, SEBI realised the need for the corporate governance and for this
purpose appointed several committees such as Kumar Mangalam Birla Committee,
Naresh Committee and Narayan Murthy Committee. The emergence of the corporate
governance in India has been incorporated with the Kumara Mangalam Birla
Committee as it is a landmark in this regard. The Kumara Mangalam Birla
Committee has divided its recommendations into two mandatory and non-mandatory.
Mandatory recommendations included the issues such as the composition of the
board, appointment and structure of audit committees, remuneration of directors,
additional information regarding management, disclosures the director's
interests and shareholders rights.
The non-mandatory recommendations including the issues concerning with the
chairman, information of the shareholders, nominee's appointments etc. and
basically this committee of the corporate governance found that the companies
were not paying attention to the timely promulgation of the required information
to the investors in by India. The need for the corporate governance has also
escalated due to the growing competition amongst all the businesses at all the
The Indian Companies Act 2013 has also introduced some of the progressive and
transparent processes which benefits not only the stakeholders but also the
directors as well as the management of the companies. Before the introduction of
the India Companies Act 2013, corporate governance was guided by the clause 49
the listing agreement between a company and the stock exchanges on which it is
listed. Under this clause 49 of Securities and Exchange Board of India (SEBI)
has prescribed a format in which the information shall be obtained by the stock
exchange from the companies.
The clause 49of the SEBI guidelines went through many amendments before gaining
the present status and the major changes which were done through the amendments
were in the definition of independent directors, strengthening the
responsibilities of audit committees, improving quality of financial
disclosures, including those relating to party transactions and proceeds from
public/rights/preferential issues, requiring boards to adopt formal code of
conduct requiring CEO/CFO certification and also for the improving disclosures
for shareholders. These amendments have become more effective from 1st October
The need of the hour Corporate governance is all about the commitment to the
values and to the ethical business practises. No discussion on the public
affairs will be complete without a reference to ethics and values.
The quality of corporate governance is also determined by the manner in which
the top management particularly the board of directors allocates the financial
resources of the company between themselves and other groups such as employees,
customers, government, etc. The basic qualities at all times expected to be in
this regard are trust, honesty, integrity, transparency and compliance with the
laws of the land.
There is and increasing body of public opinion that would expect a business
enterprise not only to be a mere economic unit but also to be a good corporate
citizen. For this, corporate governance must be based on a genuine respect for
business ethics and values.
But unfortunately, the business environment in India is replete with unethical
situations such as bribery, corruption, insider trading and malpractices of
various kinds that insiders do not think "foul of siphoning off" funds ought
legitimately to belong to the outsiders and the stakeholders. However, it is
heartening to note that things are slowly moving for the better.
After the liberalisation process in India, the scenario of the economics has
begun to change rapidly. Globalisation has significantly increased the business
risks and Mervyn King has agreeably stated that the "Organisation need to
practise qualitative corporate governance rather than quantitative governance
thereby ensuring it is a properly run."
Nowadays corporate governance practises are the feature of the Indian corporate.
For example, corporate governance at Infosys is a value-based framework to
manage the company affairs in just and fair manner. It has evolved the best
practises over the years to ensure timely and accurate disclosure of information
such as finance, profitability, performances and governance of the company.
The Unseen Force Behind The Organization
A company or an organization is not all about profits, market valuations and
turnovers, there is a lot that goes into building its position and image in the
reputed marketplace. Corporate governance is on such hidden force. After
numerous impropriety, maligned reputations and economic downturns, companies are
now realising that few concrete steps towards better governance could have saved
years of their labour. Designing the framework of corporate governance in India
is no mean task in itself.
The requirements and fundamentals vary across sectors, industries as well as
nationalities. Other sectors, such as FMCG, IT and retail need to prioritize
good governance, but this may not help them in enhancing their market value. The
influence of governance on value also varies. Nevertheless, corporate governance
in India will continue to be crucial no matter what. The approach must be a
perfect balance between excessive stringency and too much flexibility. Only
framework must be holistic and take the interests of all the stakeholders into
It is obvious from the above stated context that it is necessary to have good
governance in India as the overall competition is increasing and the environment
in which corporates are operating is very dynamic. Past performances should not
be seen as an indication of future performance.
There is a great need to practise the good governance effectively and it must be
implemented and enforced preferably by the self-regulation with the voluntary
adoption of ethical codes and values of a business conduct and if necessary,
then through the relevant regulatory laws framed by the Government.
In addition to the context of globalisation and liberalisation, rapid
alterations in emerging economics including India is growing. Shareholders are
involved in the decision making of the companies.
The more the level of corporate governance, the stronger is the company in the
eyes of the shareholders of the company. Against a backdrop of some very public
governance scandals, regulators continue to employ a rules-based approach
implementing good governance, but this has not proved effectively.
As India continues its path towards the better governance, international
investors are playing a key role in driving the changes.
- Gurmeet Singh, Advocate, For M/S Gurmeet Singh & Associates,
Advocates and Legal Consultants,
Website: www.gurmeetsinghandassociates.com /.in, Email:
[email protected], Ph No:+91 8750002000
- Ms.Priya Chawla,
- Adv.Vidushi Jain,
- Adv. Hritwik , Adv.Aman Sharma,
- Sh. Aman Karamvir,
- Adv.Tripty Rajput,
- Ms.Divya Kaushal,
- Adv. Alpana Yadav