What is corporate governance?

Corporate or a Corporation is derived from the Latin term “corpus” which means a “body”.
Governance means administering the processes and systems placed for satisfying stakeholder
expectation. When combined, Corporate Governance means a set of systems, procedures,
policies, practices, standards put in place by a corporate to ensure that relationship with various
stakeholders is maintained in transparent and honest manner

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent

management that can deliver the long-term success of the company.

Corporate governance is the system by which companies are directed and controlled. Boards of
directors are responsible for the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to satisfy themselves that an
appropriate governance structure is in place.

The subject of corporate governance has attracted worldwide attention with a series of collapse
of high profile companies like Enron, WorldCom, HIH insurance group etc.
These failures have shattered the trust of investors worldwide. Some of the scandals which made
headlines all around the world were somewhere related to poor corporate governance.

The responsibilities of the board include setting the company’s strategic aims, providing the
leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their stewardship.

Corporate governance is therefore about what the board of a company does and how it sets the
values of the company, and it is to be distinguished from the day to day operational management
of the company by full-time executives.

In the United Kingdom for listed companies corporate governance is part of the legal system as
the UK Corporate Governance Code applies to accounting periods beginning on or after 29 June
2010 and, as a result of the new Listing Regime introduced in April 2010, applies to all
companies with a Premium Listing of equity shares regardless of whether they are incorporated
in the UK or elsewhere.

But good governance can have wider impacts to the non listed sector because it is fundamentally
about improving transparency and accountability within existing systems. One of the interesting
developments in the last few years has been the way in which the ‘corporate’ governance label
has been used to describe governance and accountability issues beyond the corporate sector.
Thus Corporate Governance is being widely used to mean ‘Good Business Practices’.

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The term ‘Corporate Governance’ which was rarely encountered before the 1990s has now
become an all-pervasive term in the recent decade. In today’s scenario this term has become one
of the most crucial and important concepts in the management of companies.
The root of corporate governance dates back to Adam Smith but its popularity is of recent origin.
There is no universal definition of corporate governance. Some good definitions are given
hereunder:

“Corporate Governance is concerned with the way corporate entities are governed, as distinct
from the way businesses within those companies are managed. Corporate governance addresses
the issues facing Board of Directors, such as the interaction with top management and
relationships with the owners and others interested in the affairs of the company”
- Robert Ian (Bob) Tricker (who introduced the words
corporate governance for the first time in his book in 1984)”

“Corporate Governance is the application of best Management Practices, Compliance of Laws in

true letter and spirit and adherence to ethical standards for effective management and distribution
of wealth and discharge of social responsibility for sustainable development of all stakeholders.”
- Institute of Company Secretaries of India

“Corporate Governance is the way a company is organized and managed to ensure that all
financial stakeholders receive a fair share of the company’s earnings and assets.”
- Standard and Poor

Corporate Governance is a system of structuring, operating and controlling a company with the
following specific aims:—
(i) Fulfilling long-term strategic goals of owners;
(ii) Taking care of the interests of employees;
(iii) A consideration for the environment and local community;
(iv) Maintaining excellent relations with customers and suppliers;
(v) Proper compliance with all the applicable legal and regulatory requirements.
- Cadbury Committee, U.K

“Corporate Governance is about promoting corporate fairness, transparency and accountability”.

- James D. Wolfensohn (Ninth President World Bank) as quoted by an article in
Financial Times June 21, 1999

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 Four Pillars of Corporate Governance:

ACCOUNTABILITY TRANSPARENCY

FAIRNESS RESPONSIBILITY

Corporate
Governance

These 4 pillars provide basis to Corporate Governance and ensures :

Adequate disclosures to stakeholders

Effective decision making to achieve corporate objectives
Transparency in business transactions
Statutory and legal compliances
Protection of shareholder interest
Commitment to values and ethical conduct of business
Long term survival of the Company

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The Main Constituents of Good Corporate
Governance:
Role and powers of Board: the foremost requirement of good corporate governance is
the clear identification of powers, roles, responsibilities and accountability of the Board,
CEO and the Chairman of the board.

Legislation: a clear and unambiguous legislative and regulatory framework is

fundamental to effective corporate governance.

Code of Conduct: it is essential that an organization's explicitly prescribed code of

conduct is communicated to all stakeholders and is clearly understood by them. There
should be some system in place to periodically measure and evaluate the adherence to
such code of conduct by each member of the organization.

Board Independence: an independent board is essential for sound corporate governance.

It means that the board is capable of assessing the performance of managers with an
objective perspective. Hence, the majority of board members should be independent of
both the management team and any commercial dealings with the company. Such
independence ensures the effectiveness of the board in supervising the activities of
management as well as make sure that there are no actual or perceived conflicts of
interests.

Board Skills: in order to be able to undertake its functions effectively, the board must
possess the necessary blend of qualities, skills, knowledge and experience so as to make
quality contribution. It includes operational or technical expertise, financial skills, legal
skills as well as knowledge of government and regulatory requirements.

Management Environment: includes setting up of clear objectives and appropriate

ethical framework, establishing due processes, providing for transparency and clear
enunciation of responsibility and accountability, implementing sound business planning,
encouraging business risk assessment, having right people and right skill for jobs,
establishing clear boundaries for acceptable behaviour, establishing performance
evaluation measures and evaluating performance and sufficiently recognizing individual
and group contribution.

Board Appointments: to ensure that the most competent people are appointed in the
board, the board positions must be filled through the process of extensive search. A well-

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 defined and open procedure must be in place for reappointments as well as for
appointment of new directors.

Board Induction and Training: is essential to ensure that directors remain abreast of all
development, which are or may impact corporate governance and other related issues.

Board Meetings: are the forums for board decision making. These meetings enable
directors to discharge their responsibilities. The effectiveness of board meetings is
dependent on carefully planned agendas and providing relevant papers and materials to
directors sufficiently prior to board meetings.

Strategy Setting: the objective of the company must be clearly documented in a long
term corporate strategy including an annual business plan together with achievable and
measurable performance targets and milestones.

Business and Community Obligations: though the basic activity of a business entity is
inherently commercial yet it must also take care of community's obligations. The
stakeholders must be informed about the approval by the proposed and ongoing
initiatives taken to meet the community obligations.

Financial and Operational Reporting: the board requires comprehensive, regular,

reliable, timely, correct and relevant information in a form and of a quality that is
appropriate to discharge its function of monitoring corporate performance.

Monitoring the Board Performance: the board must monitor and evaluate its
combined performance and also that of individual directors at periodic intervals, using
key performance indicators besides peer review.

Audit Committee: is inter alia responsible for liaison with management, internal and
statutory auditors, reviewing the adequacy of internal control and compliance with
significant policies and procedures, reporting to the board on the key issues.

Risk Management: risk is an important element of corporate functioning and

governance. There should be a clearly established process of identifying, analyzing and
treating risks, which could prevent the company from effectively achieving its objectives.
The board has the ultimate responsibility for identifying major risks to the organization,
setting acceptable levels of risks and ensuring that senior management takes steps to
detect, monitor and control these risks.

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Advantages of Good Corporate Governance
Practices:
Corporate Governance is needed to create a corporate culture of transparency, accountability and
disclosure. It refers to compliance with all the moral and ethical values, legal framework and
voluntarily adopted practices. It serves many other benefits to a corporate such as:
(a) Corporate Performance: Improved governance structures and processes ensure quality
decision-making, encourage effective succession planning for senior management and enhance
the long-term prosperity of companies, independent of the type of company and its sources of
finance. This can be linked with improved corporate performance- either in terms of share price
or profitability.
(b) Enhanced Investor Trust: Investors consider corporate governance as important as
financial performance when evaluating companies for investment. Investors who are provided
with high levels of disclosure and transparency are likely to invest openly in those companies.
The consulting firm McKinsey surveyed and determined that global institutional investors are
prepared to pay a premium of upto 40 percent for shares in companies with superior corporate
governance practices.
(c) Better Access to Global Market: Good corporate governance systems attracts investment
from global investors, which subsequently leads to greater efficiencies in the financial sector.
(d) Combating Corruption: Companies that are transparent, and have sound system that
provide full disclosure of accounting and auditing procedures, allow transparency in all business
transactions, provide environment where corruption would certainly fade out. Corporate
Governance enables a corporation to compete more efficiently and prevent fraud and
malpractices within the organization.
(e) Easy Finance from Institutions: Several structural changes like increased role of financial
intermediaries and institutional investors, size of the enterprises, investment choices available to
investors, increased competition, and increased risk exposure have made monitoring the use of
capital more complex thereby increasing the need of Good Corporate Governance. Evidences
indicate that well-governed companies receive higher market valuations. The credit worthiness
of a company can be trusted on the basis of corporate governance practiced in the company.
(f) Enhancing Enterprise Valuation: Improved management accountability and operational
transparency fulfill investors’ expectations and confidence on management and corporations, and
in return, increase the value of corporations.

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(g) Reduced Risk of Corporate Crisis and Scandals: Effective Corporate Governance ensures
efficient risk mitigation system in place. A transparent and accountable system makes the Board
of a company aware of the majority of the mask risks involved in a particular strategy, thereby,
placing various control systems in place to facilitate the monitoring of the related issues.

(h) Accountability: Investor relations are essential part of good corporate governance. Investors
directly/ indirectly entrust management of the company to create enhanced value for their
investment. The company is hence obliged to make timely disclosures on regular basis to all its
shareholders in order to maintain good investor relation. Good Corporate Governance practices
create the environment whereby Boards cannot ignore their accountability to these stakeholders.

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Corporate Governance Theories:
(a) Agency Theory
According to this theory, managers act as 'Agents' of the corporation. The owners set the central
objectives of the corporation. Managers are responsible for carrying out these objectives in day-
to-day work of the company. Corporate Governance is control of management through designing
the structures and processes.
In agency theory, the owners are the principals. But principals may not have knowledge or skill
for getting the objectives executed. Thus, principal authorises the mangers to act as 'Agents' and
a contract between principal and agent is made. Under the contract of agency, the agent should
act in good faith. He should protect the interest of the principal and should remain faithful to the
goals.
In modern corporations, the shareholdings are widely spread. The management (the agent)
directly or indirectly selected by the shareholders (the Principals), pursue the objectives set out
by the shareholders. The main thrust of the Agency Theory is that the actions of the management
differ from those required by the shareholders to maximize their return. The principals who are
widely scattered may not be able to counter this in the absence of proper systems in place as
regards timely disclosures, monitoring and oversight. Corporate Governance puts in place such
systems of oversight.

(b) Stockholder/shareholder Theory

According to this theory, it is the corporation which is considered as the property of
shareholders/ stockholders. They can dispose off this property, as they like. They want to get
maximum return from this property.
The owners seek a return on their investment and that is why they invest in a corporation. But
this narrow role has been expanded into overseeing the operations of the corporations and its
mangers to ensure that the corporation is in compliance with ethical and legal standards set by
the government. So the directors are responsible for any damage or harm done to their property
i.e., the corporation. The role of managers is to maximise the wealth of the shareholders. They,
therefore should exercise due diligence, care and avoid conflict of interest and should not violate
the confidence reposed in them.

(c) Stakeholder Theory

According to this theory, the company is seen as an input-output model and all the interest
groups which include creditors, employees, customers, suppliers, local-community and the
government are to be considered. From their point of view, a corporation exists for them and not
the shareholders alone.
The different stakeholders also have a self interest. The interests of these different stakeholders
are at times conflicting. The managers and the corporation are responsible to mediate between

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these different stakeholders interest. The stake holders have solidarity with each other. This
theory assumes that stakeholders are capable and willing to negotiate and bargain with one
another. This results in long term self interest.
The role of shareholders is reduced in the corporation. But they should also work to make their
interest compatible with the other stake holders. This, requires integrity and managers play an
important role here. They have to act as faithful agents but of all stakeholders, not just
stockholders.

(d) Stewardship Theory

The word 'steward' means a person who manages another's property or estate. Here, the word is
used in the sense of guardian in relation to a corporation, this theory is value based. The
managers and employees are to safeguard the resources of corporation and its property and
interest when the owner is absent. They are like a caretaker. They have to take utmost care of the
corporation. They should not use the property for their selfish ends. This theory thus makes use
of the social approach to human nature.
The managers should manage the corporation as if it is their own corporation. They are not
agents as such but occupy a position of stewards. The managers are motivated by the principal’s
objective and the behaviour pattern is collective, pro-organizational and trustworthy. Thus, under
this theory, first of all values as standards are identified and formulated. Second step is to
develop training programmes that help to achieve excellence. Thirdly, moral support is important
to fill any gaps in values.

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Objectives of Corporate Governance:
The fundamental objective of corporate governance is to enhance shareholders' value and protect
the interests of other stakeholders by improving the corporate performance and accountability.
Hence it harmonises the need for a company to strike a balance at all times between the need to
enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other
stakeholders in the company. Further, its objective is to generate an environment of trust and
confidence amongst those having competing and conflicting interests. Corporate Governance is
aimed at creating an organization which maximizes the wealth of shareholders. It envisages an
organization in which emphasis is laid on fulfilling the social responsibilities towards the
stakeholders in addition to the earning of profits. The objectives of Corporate Governance are to
ensure the following:

1. Properly constituted Board capable of taking independent and objective decisions.

2. Board is independent in terms of Non-Executive and Independent Directors.
3. Board adopts transparent procedures and practices.
4. Board has an effective machinery to serve the concerns of the Stakeholders.
5. Board to monitor the functioning of the Management Team.
6. Properly constituted Board capable of taking independent and objective decisions.
7. Board is independent in terms of Non-Executive and Independent Directors.
8. Board adopts transparent procedures and practices.
9. Board has an effective machinery to serve the concerns of the Stakeholders.
10. Board to monitor the functioning of the Management Team.
11. Board remains in effective control of the affairs of the Company.

The overall endeavor of the board should be to take the organisation forward so as to maximize
long term value and shareholders’ wealth.

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Prerequisites of Corporate Governance:
Today adoption of good Corporate Governance practices has emerged as an integral element for
doing business. It is not only a pre-requisite for facing intense competition for sustainable growth
in the emerging global market scenario but is also an embodiment of the parameters of fairness,
accountability, disclosures and transparency to maximize value for the stakeholders.

Corporate governance is beyond the realm of law. It cannot be regulated by legislation alone.
Legislation can only lay down a common framework – the "form" to ensure standards. The
"substance" will ultimately determine the credibility and integrity of the process. Substance is
inexorably linked to the mindset and ethical standards of management.

Studies of corporate governance practices across several countries conducted by the Asian
Development Bank, International Monetary Fund, Organization for Economic Cooperation and
Development and the World Bank reveal that there is no single model of good corporate
governance.

The OECD Code also recognizes that different legal systems, institutional frameworks and
traditions across countries have led to the development of a range of different approaches to
corporate governance. However, a high degree of priority has been placed on the interests of
shareholders, who place their trust in corporations to use their investment funds wisely and
effectively is common to all good corporate governance regimes. Also, irrespective of the model,
there are three different forms of corporate responsibilities which all models do respect:

Political Responsibilities: the basic political obligations are abiding by legitimate law;
respect for the system of rights and the principles of constitutional state.

Social Responsibilities: the corporate ethical responsibilities, which the company

understands and promotes either as a community with shared values or as a part of larger
community with shared values.

Economic Responsibilities: acting in accordance with the logic of competitive markets

to earn profits on the basis of innovation and respect for the rights/democracy of the
shareholders which can be expressed in terms of managements' obligation as 'maximizing
shareholders value'.

In addition, business ethics and corporate awareness of the environmental and societal interest of
the communities, within which they operate, can have an impact on the reputation and long-term
performance of corporations.

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The three key constituents of corporate governance are the Board of Directors, the Shareholders
and the Management.

The pivotal role in any system of corporate governance is performed by the board of directors. It
is accountable to the stakeholders and directs and controls the management. It stewards the
company, sets its strategic aim and financial goals and oversees their implementation, puts in
place adequate internal controls and periodically reports the activities and progress of the
company in the company in a transparent manner to all the stakeholders.

The shareholders' role in corporate governance is to appoint the directors and the auditors and to
hold the board accountable for the proper governance of the company by requiring the board to
provide them periodically with the requisite information in a transparent fashion, of the activities
and progress of the company.

The responsibility of the management is to undertake the management of the company in terms
of the direction provided by the board, to put in place adequate control systems and to ensure
their operation and to provide information to the board on a timely basis and in a transparent
manner to enable the board to monitor the accountability of management to it.

The underlying principles of corporate governance revolve around three basic inter-related
segments. These are:

Integrity and Fairness

Transparency and Disclosures

Accountability and Responsibility

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Need for Corporate Governance in Indian
scenario:
Corporate governance is a part of Indian corporate sector since the beginning but corporate
governance failure and fraud such as that of Satyam Computer Services Limited increased the
concerns about corporate governance in India. In the last decade, corporate fraud and governance
failure is occurring frequently which is why we require good corporate governance in the
country. India provides proper norms and laws aligned with international requirements to govern
a corporate. Some of the important reasons are discussed below which raised the need for
corporate governance in India.

1. A corporate has a lot of shareholders with different attitudes towards corporate affairs,
corporate governance protects the shareholder democracy by implementing it through its
code of conduct.
2. Large corporate investors are becoming a challenge to the management of the company
because they are influencing the decision of the company. Corporate governance set the
code to deal with such situations.
3. Corporate governance is necessary to build public confidence in the corporation which was
shaken due to numerous corporate frauds in recent years. It is important for reviving the
confidence of investors.
4. Society having greater expectations from corporate, they expect that corporate take care of
the environment, pollution, quality of goods and services, sustainable development etc.
code to conduct corporate is important to fulfill all these expectations.
5. Takeovers of the corporate entity created lots of problems in the past. It affects the right of
various stakeholders in the company. This factor also pushes the need of corporate
governance in the country.
6. Globalization made the communication and transport between countries easy and frequent,
so many Indian companies are listed with international stock exchange which also triggers
the need for corporate governance in India.
7. The huge flow of international capital in Indian companies is also affecting the
management of Indian Corporate which require a code of corporate conduct.

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 Corporate Governance in India
Most listed companies and large corporate groups in India were born as family-owned
businesses, with family members occupying managerial positions and making all the key
business decisions. This also meant very little distinction between the company’s finances
and that of the family owners. With the evolution of the equity markets though, many of
these family-owned businesses listed themselves on the exchanges. However, the traditional
(mis) governance practices continued. Promoters, though no longer the sole owners,
continued to wield disproportionate influence over decisions. Companies freely extended
loans to group entities, folks from the family secured berths on the Board with generous pay
packets and companies entered into cosy business deals with family and friends. The rights
of public shareholders were freely trampled upon.
This was sought to be fixed in the Companies Act 1956, by requiring company Boards to
seek Central Government permission for certain decisions (managerial remuneration beyond
a certain limit, loans to directors) and shareholder approvals for others (appointment of
relatives, for instance).
As these checks proved inadequate, SEBI constituted a series of committees — Kumar
Mangalam Birla Committee in 2000, Narayana Murthy Committee in 2003 and Adi Godrej
Committee in 2012 — to come up with more elaborate governance norms for India Inc. Yet
another committee — the Uday Kotak committee — was constituted in June 2017 for further
review.
In the year 2000, SEBI (Securities Exchange Board of India) had incorporated clause 49 to
the Listing Agreement. SEBI, as part of its endeavour to improve the standards of Corporate
Governance in line with the needs of a dynamic market, has amended clause 49 from time to
time. In April 2014, SEBI revised clause 49 in line with the norms of Companies Act 2013.
Again some amendments were made in September 2014.
On 2nd September 2015 has notified SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 which is applicable from December 2015 for the listed
entity who have listed designated securities on recognized stock exchanges.
Today, India’s corporate governance framework requires listed companies to have
independent directors manning one-third of their Board, disclose all related party deals,
disclose comparative metrics on managerial pay, appoint audit and nomination committees,
and require the CEO and CFO to sign off on the governance norms being met in the financial
statements. Minority shareholders with 10 per cent voting rights also have the right to drag
companies to Court for ‘oppression and mismanagement’.

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Corporate Governance Forums
The spirit to implement internationally accepted norms of corporate governance standards found
expression in private sector, public sector and the government thinking. The framework for
corporate governance is not only an important component affecting the long-term prosperity of
companies, but it is critical in terms of National Governance, Human Governance, Societal
Governance, Economic Governance and Political Governance since the activities of the
corporate have an impact on every aspect of the society as such.
The need to find an institutional framework for corporate governance and to advocate its cause
has resulted in the setting up and constitution of various corporate governance forums and
institutions the world over.

1. INSTITUTE OF COMPANY SECRETARIES OF INDIA (ICSI)

Recognising the fact that Corporate Governance is the key to development of corporate
sector, the Institute has adopted a farsighted vision “To be a global leader in promoting
Good Corporate Governance"
The Mission of the Institute is "To develop the high calibre professionals facilitating
good Corporate Governance".
In pursuit of excellence and to identify, foster and reward the culture of evolving globally
acceptable standards of corporate governance among Indian companies, the “ICSI
National Award for Excellence in Corporate Governance” was instituted by ICSI in the
year 2001

2. NATIONAL FOUNDATION FOR CORPORATE GOVERNANCE (NFCG)

With the goal of promoting better corporate governance practices in India, the Ministry of
Corporate Affairs, Government of India, has set up National Foundation for Corporate
Governance (NFCG) along with Confederation of Indian Industry (CII), Institute of
Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India
(ICAI). In the year 2010, stakeholders in NFCG have been expanded with the inclusion of
Institute of Cost Accountants of India and the National Stock Exchange of India Ltd.

3. ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

(OECD)
The Organisation for Economic Co-operation and Development (OECD). was established
in 1961. The OECD was one of the first non-government organizations to spell out the
principles that should govern corporate. The OECD Principles of Corporate Governance
has provided governments, regulators and other standard setters with an international
benchmark.

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 4. THE INSTITUTE OF DIRECTORS (IoD), UK
The IoD is a non party-political business organisation established in United Kingdom in
1903. The IoD seeks to provide an environment conducive to business success.

5. COMMONWEALTH ASSOCIATION OF CORPORATE GOVERNANCE (CACG)

The Commonwealth Association of Corporate Governance (CACG) was established in
1998 with the objective of promoting the best international standards germane to a country
on corporate governance through education, consultation and information throughout the
Commonwealth as a means to achieve global standards of business efficiency, commercial
probity and effective economic and social development.

6. INTERNATIONAL CORPORATE GOVERNANCE NETWORK (ICGN)

The International Corporate Governance Network (“ICGN”) is a not-for-profit company
limited by guarantee under the laws of England and Wales. The Network's mission is to
develop and encourage adherence to corporate governance standards and guidelines, and to
promote good corporate governance worldwide.

7. THE EUROPEAN CORPORATE GOVERNANCE INSTITUTE (ECGI)

The European Corporate Governance Institute (ECGI) was founded in 2002. It has been
established to improve corporate governance through fostering independent scientific
research and related activities.

8. CONFERENCE BOARD
The Conference Board was established in 1916 in the United States of America. The
Conference Board governance programs helps companies improve their processes, inspire
public confidence, and ensure they are complying with regulations.

9. THE ASIAN CORPORATE GOVERNANCE ASSOCIATION (ACGA)

The Asian Corporate Governance Association (ACGA) is an independent, non-profit
membership organisation dedicated to working with investors, companies and regulators in
the implementation of effective corporate governance practices throughout Asia.

10. CORPORATE SECRETARIES INTERNATIONAL ASSOCIATION (CSIA)

CSIA is dedicated to promoting the values and practices of governance professionals in
order to create, foster or enhance the environment in which business can be conducted in a
fair, profitable and sustainable manner.

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 Corporate Governance Framework in India
The Indian framework on Corporate Governance has been vastly in sync with the international
standards. Broadly, it can be described in the following:

1. The Companies Acts 2013 has provisions concerning Independent Directors, Board
Constitution, General meetings, Board meetings, Board processes, Related Party Transactions,
Audit Committees, etc.

2. SEBI (Securities and Exchange Board of India) Guidelines ensure the protection of investors
and have mandated the companies to adhere to the best practices mentioned in the guidelines.

3. Accounting Standards issued by the ICAI (Institute of Chartered Accountants of India)

wherein the ICAI is an autonomous body and issues accounting standards. The disclosure of
financial statements is also made mandatory by the ICAI backed by the Companies Act 2013,
Sec. 129.

4. Standard Listing Agreement of Stock Exchanges applies to the companies whose shares are
listed on various stock exchanges.

5. SEBI (Listing Obligation and Disclosure Requirements) applies to companies recognised on

stock exchange, its primary objective is to align listing agreement with Companies Act,2013.

6. Secretarial Standards Issued by the ICSI (Institute of Company Secretaries of India) issues
standards on ‘Meetings of the board of Directors’, General Meetings’, etc.. The companies Act
2013 empowers this autonomous body to provide standards which each and every company is
required to adhere to so that they are not punished under the Companies Act itself.

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 Issues in Corporate Governance in India
Although there exist many issues in the field of Corporate Governance especially in India, an
effort has been made to highlight only the major ones here:
1. Board performance
Woman directors are not given equal opportunities to be appointed to the board. The balance of
executive and non-executive directors is not maintained. Evaluation is not performed from time
to time and transparency is lost somewhere. The performance is not result oriented.

2. Independent Directors
Independent directors are appointed for a reason which does not seem to be fulfilled in the
current scenario. Even after SEBI guidelines being issued to the corporate, for the appointment
of an audit committee or giving of a comprehensive definition of the independent directors, the
actual situation appears to be worse.

3. Accountability to Stakeholders
The accountability is not restricted to that of the shareholders or the company; it is for the society
at large and also the environment. The directors are not to keep in mind their own interests but
also the interests of the community.

4. Risk Management
The risk management techniques are to be mandatorily be undertaken by the directors as per the
Company Laws and they have to mention in their report to shareholders as well. This is not being
done in the most sincere manners required for the job.

5. Privacy and Data Protection

This is an important governance issue. Cyber security has evolved to be the most important
aspect of modern governance. Good governance can only be achieved once the directors and
other leaders in the company are well known about the hazards in this field.

6. Corporate Social Responsibility (CSR)

Although India being among the few countries to legislate on CSR, making it mandatory for
certain companies to invest minimum 2% of the average profits in the last 3 years for CSR
activities or otherwise provide proper reasons in the reports in case of failure, Yet the threshold
mentioned in Section 135 of Companies Act 2013 for the applicability of CSR requirements is
very high thus a very few companies tend to fall in the threshold of:
a) Net Worth of Rs. 500 Crore or more
b) Turnover of Rs. 1000 Crore or more
c) Net profit of Rs. 5 Crore or more

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Suggestions
In line with the issues mentioned above, there is a greater onus upon the directors
of the companies to adapt to the standards and best practices provided in various
laws and guidelines. 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 corporate are so huge in the current
times, that they affect each and every individual citizen of the country equally. The
burden on the companies is already reduced as they are made to follow a set of
guidelines and they are not required to make any amends to that. It is also required
that the stakeholders also participate in the decision making processes to make it a
contributory job altogether.

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Conclusion
The more the level of corporate governance, the stronger is the company in the
eyes of the shareholders of the company. The independent and the active directors
are the ones who infuse and contribute towards displaying the corporate as that of
having a positive outlook. When it comes to investment, the investors also seek to
find the companies with stronger corporate governance in them. The corporate
governance requirements in India deliberate the companies to audit their working
culture and give the shareholders community a more positive outlook as their
actions have moral and legal implications. The new norms after the Companies Act
2013 came into the picture are very balanced and innovative. They have helped
reformed the growth of Indian companies as per international standards.
Shareholders are involved in the decision making of the companies and various
safeguards have been put in order so that the interests of the shareholders and the
society as a whole are not sidelined. Corporate Governance imbibes the much-
required transparency in the corporate. Therefore, it pushes India ahead in the race
of emerging economies of the world.

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Bibliography

Ethics, Governance and Sustainability

-ICSI Professional Programme Study Material

Management of Board Governance

-Ministry of Corporate Governance

Corporate Governance Voluntary Guidelines

-Ministry of Corporate Governance

World Wide Web

- Corpgov.net
- icaew.com
- managementstudy.com
- economicetimes.com

References taken from:

- Goswami, Omkar, 2002, “Corporate Governance in India,” Taking Action
Against Corruption in Asia and the Pacific (Manila: Asian Development Bank)

- Gibson, M.S. (forthcoming), Is Corporate Governance Ineffective in Emerging

Markets? Journal of Financial and Quantitative Analysis.

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