Introduction

In recent years, corporate governance has attained significance all over the
world. Two important factors have led to rapid developments in the field, namely
the integration and globalization of financial markets and a surge of corporate
scandals such as Enron, World Com and others. Ever since India's biggest-ever
corporate fraud and governance failure unearthed at Satyam Computer Services
Limited, the concerns about good Corporate Governance have increased
phenomenally.
Lately, Brazil, Russia, India and China (BRIC) countries have emerged as an
influential economic power in the global economy. It is estimated that the
combined GDP of the BRIC countries is likely to be higher than that of developed
countries1 .Studies have projected that amongst the BRIC economies, India has
the potential to grow the fastest over the next 30-50 years (Wilson &
Purushothaman, 2003). The phenomenal growth has changed the nature and
character of the world economy including the foreign investment flows (Khanna
and Palepu, 2006). Foreign investments in India come directly and through
secondary markets. The cumulative foreign direct investment (FDI) to India until
August 2010, was US $137,960 million (RBI Bulletin, 2010). There has also been
a significant increase in cross border acquisitions and a number of firms list their
shares in multiple exchanges (Chemmanur and Fulghieri, 2006; Bell, Moore & AlShammari, 2008). Foreign institutional investors have made substantial
investments in the capital market for instance an amount $4.78 billion in the
Indian capital market in November 2010 alone and a total investment of $ 38
billion until March 2011
In the aftermath of the financial crisis, it is increasingly becoming apparent that
Boards and management of many major institutions operated with inadequate
and distorted information about the leverage and risks associated with their
companys assets. Perverse incentives, insufficient governance, and weak
regulation clearly contributed to the crisis, which has been around for over three
years and the world still seems to be recovering from it. Governments world over
are struggling with unhealthy fiscal situations, and recovery has been slow and
fragile. New challenges have emerged the sovereign debt crisis in Europe,
rating downgrade in the US and unsustainably high debt in many other parts of
the world. The spotlight on corporate governance is not just limited to the
financial sector. The recent closure of British newspaper News of the World too
showed the damage insufficient corporate governance can do to a company. At
home we are waking up to the need for enhanced governance in public
administration. The recent anti-graft Lokpal movement gathered massive public
support. Lokpal is aimed at instilling transparency, accountability and efficiency
in public service. Invariably, these events do have a silver lining companies,
regulators, and governments across the globe learnt several important lessons
from the recession. Firstly, companies realized that their boards need to play far
bigger roles in challenging management on strategy and the core assumptions
underlying the choices made. Secondly, organizations are paying greater
attention to their delivery model which entails taking a closer look at execution
and resource deployment encompassing People, Technology and Finance. Thirdly,
it is also about constantly keeping one eye on what is changing in the external
environments (geo-political, competition etc) and making strategic re-

alignments. As Indian companies go global, it is important to appreciate and

factor in these lessons within the corporate governance ethos of an organization.
Globalization has made businesses more complex. As the proportion of global
players entering emerging markets increases, established Indian players in
several sectors will be exposed to more intense competition. Cost, quality,
innovation, and pricing will hold the key to future success. Further, large
conglomerates in the energy hungry and technologically inferior country are
looking for strategic partners overseas to fuel their future growth. Todays CEO
more than ever before needs support to succeed in an increasingly complex and
globalized economy and it is here that corporate governance can become a true
differentiator. The challenge lies in using corporate governance as a tool to build
sustainable holistic changes to strategies and capabilities that go well beyond
financial success. The process of value creation is a complex one involving many
facets. Corporate governance is a two sided coin and it depends on the ability of
the board and management to work together on a common mission and strategy.
Corporate governance is a starting point in the discussion about the
responsibility of the board and management to the companys shareholders,
employees, customers and the society at large. Good corporate governance is
not a goal in itself but a means to achieving the goal.
Investors from developed countries are demanding that Indian Companies follow
international best practices with an emphasis on corporate governance. A
McKinsey survey conducted in 2002, found that investors were willing to pay a
premium of up to 25% for a well governed company (Barton, Coombes, & Wong,
2004). The scandals related to the Indian markets (Goswami, 2002), the global
financial crisis of 2008 and the more recent corporate fraud at Satyam has raised
a lot of concerns about governance practices in India. Consequently, there has
been an increasing effort around corporate governance structures and
mechanisms by both regulators and corporations. Since it is well recognized that
the institutional context of an economy i.e. the combination of formal rules,
informal constraints, and the enforcement characteristics varies significantly
across countries and has an influence on corporate financial and governance
structures (Walsh & Seward 1990; North, 1990), understanding the state of
corporate governance research in the Indian context is therefore of great
academic interest
The famous Cadbury Committee defined "Corporate Governance" in its Report
(Financial Aspects of Corporate Governance, published in 1992) as "the system
by which companies are directed and controlled".
The Organisation for Economic Cooperation and Development (OECD), which, in
1999, published its Principles of Corporate Governance gives a very
comprehensive definition of corporate governance, as under:
"A set of relationships between a company's management, its board, its
shareholders and other stakeholders. Corporate governance also provides the
structure through which the objectives of the company are set, and the means of
attaining those objectives and monitoring performance are determined. Good
corporate governance should provide proper incentives for the board and
management to pursue objectives that are in the interests of the company and
shareholders, and should facilitate effective monitoring, thereby encouraging
firms to use recourses more efficiently."

Generally, Corporate Governance refers to practices by which organisations are

controlled, directed and governed. The fundamental concern of Corporate
Governance is to ensure the conditions whereby organisation's directors and
managers act in the interest of the organisation and its stakeholders and to
ensure the means by which managers are held accountable to capital providers
for the use of assets. To achieve the objectives of ensuring fair corporate
governance, the Government of India has put in place a statutory framework.

Evolution of Corporate Governance in India A Chronological

Perspective
Corporate governance is perhaps one of the most important differentiators of a
business that has impact on the profitability, growth and even sustainability of
business. It is a multi-level and multi-tiered process that is distilled from an
organizations culture, its policies, values and ethics, especially of the people
running the business and the way it deals with various stakeholders.
Creating value that is not only profitable to the business but sustainable in the
long-term interests of all stakeholders necessarily means that businesses have to
runand be seen to be runwith a high degree of ethical conduct and good
governance where compliance is not only in letter but also in spirit.
Historical Perspective
At the time of Independence in 1947, India had functioning stock markets, an
active manufacturing sector, a fairly developed banking sector, and also a
comparatively well-developed British-derived convention of corporate practices.
From 1947 through 1991, the Indian Government pursued markedly socialist
policies when the State nationalized most banks and became the principal
provider of both debt and equity capital for private firms.
The government agencies that provided capital to private firms were evaluated
on the basis of the amount of capital invested rather than on their returns on
investment. Competition, especially foreign competition, was suppressed. Private
providers of debt and equity capital faced serious obstacles in exercising
oversight over managers due to long delays in judicial proceedings and difficulty
in enforcing claims in bankruptcy. Public equity offerings could be made only at
government-set prices. Public companies in India were only required to comply
with limited governance and disclosure standards enumerated in the Companies
Act of 1956, the Listing Agreement, and the accounting standards set forth by
the Institute of Chartered Accountants of India (ICAI).
Faced with a fiscal crisis in 1991, the Indian Government responded by enacting
a series of reforms aimed at general economic liberalization. The Securities and
Exchange Board of India (SEBI)India's securities market regulatorwas formed
in 1992, and by the mid-1990s, the Indian economy was growing steadily, and
Indian firms had begun to seek equity capital to finance expansion into the
market spaces created by liberalization and the growth of outsourcing.

The need for capital, amongst other things, led to corporate governance reform
and many major corporate governance initiatives were launched in India since
the mid-1990s; most of these initiatives were focused on improving the
governance climate in corporate India, which, at that time, was somewhat
rudimentary.

Codifying Good Governance Norms

The first major initiative was undertaken by the Confederation of Indian Industry
(CII), Indias largest industry and business association, which came up with the
first voluntary code of corporate governance in 1998. More than a year before
the onset of the East Asian crisis, the CII had set up a committee to examine
corporate governance issues, and to recommend a voluntary code of best
practices.
Drawing heavily from the Anglo-Saxon Model of Corporate Governance, CII drew
up a voluntary Corporate Governance Code. The first draft of the code was
prepared by April 1997, and the final document titled Desirable Corporate
Governance: A Code, was publicly released in April 1998. The code was
voluntary, contained detailed provisions and focused on listed companies.
Although the CII Code was welcomed with much fanfare and even adopted by a
few progressive companies, it was felt that under Indian conditions a statutory
rather than a voluntary code would be far more purposive and meaningful, at
least in respect of essential features of corporate governance.3 Consequently,
the second major corporate governance initiative in the country was undertaken
by SEBI. In early 1999, it set up a committee under Kumar Mangalam Birla to
promote and raise the standards of good corporate governance.
The Birla Committee specifically placed emphasis on independent directors in
discussing board recommendations and made specific recommendations
regarding board representation and independence. The Committee also
recognized the importance of audit committees and made many specific
recommendations regarding the function and constitution of board audit
committees. In early 2000, the SEBI board accepted and ratified the key
recommendations of the Birla Committee, which were incorporated into Clause
49 of the Listing Agreement of the Stock Exchanges.
The Naresh Chandra committee4 was appointed in August 2002 by the
Department of Company Affairs (DCA) under the Ministry of Finance and
Company Affairs, to examine various corporate governance issues. The
Committee submitted its report in December 2002. It made recommendations in
terms of two key aspects of corporate governance: financial and non-financial
disclosures, and independent auditing and board oversight of management.
It also made a series of recommendations regarding, among other matters, the
grounds for disqualifying auditors from assignments, the type of non-audit
services that auditors should be prohibited from performing, and the need for
compulsory rotation of audit partners.
The fourth initiative on corporate governance in India is in the form of the
recommendations of the Narayana Murthy Committee.6 This committee was set

up by SEBI under the chairmanship of Mr. N.R. Narayana Murthy, in order to

review Clause 49, and to suggest measures to improve corporate governance
standards. Some of the major recommendations of the committee primarily
related to audit committees, audit reports, independent directors, related party
transactions, risk management, directorships and director compensation, codes
of conduct and financial disclosures.
The Murthy Committee, like the Birla Committee, pointed that international
developments constituted a factor that motivated reform and highlighted the
need for further reform in view of the recent failures of corporate governance,
particularly in the United States, combined with the observations of Indias stock
exchanges that compliance with Clause 49 had up to that point been uneven.
Like the Birla Committee, the Murthy Committee examined a range of corporate
governance issues relating to corporate boards and audit committees, as well as
disclosure to shareholders and, in its report, focused heavily on the role and
structure of corporate boards, while strengthening the definition of director
independence in the then-existing Clause 49, particularly to address the role of
insiders on Indian boards.
In its present form, Clause 49,7 called Corporate Governance, contains eight
sections dealing with the Board of Directors, Audit Committee, Remuneration of
Directors, Board Procedure, Management, Shareholders, Report on Corporate
Governance, and Compliance, respectively. Firms that do not comply with Clause
49 can be de-listed and charged with financial penalties.
In the light of the clear consideration of Anglo-American standards of governance
by both the Birla and Murthy Committees, it is not surprising that Indias
corporate governance reform effort should contain provisions similar to the
reform efforts undertaken outside India that adopted such models. In its final
report, the Birla Committee noted its dual reliance on international experiences
both as an impetus for reform following high-profile financial reporting failures
even among firms in the developed economies,8 and as a model for reform.
Significantly, the Birla Committee singled out the corporate governance reports
and codes being applied in the US and UK, such as the Report of the Cadbury
Committee, the Combined Code of the London Stock Exchange, and the Blue
Ribbon Committee on Corporate Governance in the US. The Committee even
directly sought out the input of Sir Adrian Cadbury, chair of the Cadbury
Committee, commissioned by the London Stock Exchange, in addition to Indian
business leaders.
While the report of the Murthy Committee did not explicitly cite the AngloAmerican models of governance, it was clearly a reaction to events in the United
States, particularly given the timing of the report, which followed just a few
months after the enactment of the Sarbanes-Oxley Act (SOA). There are striking
similarities between Clause 49 and the leading Anglo-American corporate
governance standards, in particular the Cadbury Report, the OECD Principles of
Corporate Governance, and Sarbanes-Oxley.
Indias corporate governance reform efforts did not cease after the adoption of
Clause 49. In parallel, the review and redrafting of the Companies Act, 1956 was
taken up by the Ministry of Corporate Affairs (MCA) on the basis of a detailed
consultative process and the Government constituted an Expert Committee on

Company Law under the Chairmanship of Dr. J.J. Irani on 2 December 2004 to
offer advice on a new Companies Bill.
Based, among other things, on the recommendations of the Irani Committee, the
Government of India introduced the Companies Bill, 2008, in the Indian
Parliament, which sought to enable the corporate sector in India to operate in a
regulatory environment characterized by best international practices that foster
entrepreneurship and investment. However, due to the dissolution of the
Fourteenth Lok Sabha, the Companies Bill, 2008, lapsed but since the provisions
of the Companies Bill, 2008 were broadly considered to be suitable for
addressing various contemporary issues relating to corporate governance, the
Government decided to re-introduce the Companies Bill, 2008, as the Companies
Bill, 20099, without any change in it except the Bill year.
In January 2009, the Indian corporate community was rocked by a massive
accounting scandal involving Satyam Computer Services (Satyam), one of Indias
largest information technology companies. The Satyam scandal10 prompted
quick action by the Indian government, including the arrest of several insiders
and auditors of Satyam, investigations by the MCA and SEBI, and substitution of
the companys directors with government nominees.
For corporate leaders, regulators, and politicians in India, as well as for foreign
investors, this necessitated a re-assessment of the countrys progress in
corporate governance. As a consequence of various corporate scams, Indias
ranking in the CLSA Corporate Governance Watch 201011 slid from third to
seventh in Asia.
Shortly after the news of the scandal broke, the CII began examining the
corporate governance issues arising out of the Satyam scandal and in late 2009,
the CII task force listed recommendations on corporate governance reform.12 In
his foreword to the Task Force Report, Mr Venu Srinivasan, President of CII, while
emphasizing the unique nature of the Satyam scandal, suggested that it was is a
one-off incident and that the overwhelming majority of corporate India does
business in a sound and legal manner.
Nonetheless, the CII Task force put forth important recommendations that
attempted to strike a balance between over-regulation and promotion of strong
corporate governance norms by recommending a series of voluntary reforms.
In addition to the CII, a number of other corporate groups have joined the
corporate governance dialogue. The National Association of Software and
Services Companies (NASSCOM) also formed a Corporate Governance and Ethics
Committee chaired by N.R. Narayana Murthy, a leading figure in the field of
Indian corporate governance reforms. The Committee issued its
recommendations in mid-2010, focusing on the stakeholders in the company. The
report emphasized recommendations relating to the audit committee and a
whistle blower policy, and also addressed the issue of the need to improve
shareholder rights. Additionally, the Institute of Company Secretaries of India
(ICSI) has also put forth a series of corporate governance recommendations.
Governance matters, including the independence of the boards of directors; the
responsibilities of the board, the audit committee, auditors, and secretarial
audits; and mechanisms to encourage and protect whistle blowing. The MCA also

indicated that the guidelines constituted a first step in the process of facilitating
corporate governance and that the option to perhaps move to something more
mandatory remains open.
In parallel, subsequent to the introduction of the Companies Bill, 2009 in the Lok
Sabha, the Central Government received several suggestions for amendments in
the said Bill from the various stakeholders and the Parliamentary Standing
Committee on Finance who also made numerous recommendations in its report.
In view of the large number of amendments suggested to the Companies Bill,
2009, arising from the recommendations of the Parliamentary Standing
Committee on Finance and suggestions of the stakeholders, the Central
Government decided to withdraw the Companies Bill, 2009 and introduce a fresh
Bill incorporating the recommendations of Standing Committee and suggestions
of the stakeholders.
The revised Bill, namely, the Companies Bill, 201114 was introduced in the Lok
Sabha on 14th December 2011; however the same was withdrawn by the
Government on 22nd December and sent back for consideration by the Standing
Committee on Finance15. The Companies Bill, 2011 is expected to be presented
in Parliament in the 2012 budget session.
Though the corporate governance efforts in India have been spearheaded by
SEBI over the last decade, the more recent steps have been taken by the MCA.
Also there has been an effort to consolidate corporate governance norms into the
Companies Act, 1956. Towards that end, the Companies Bill, 2011, does contain
several aspects of corporate governance which have hitherto been the mainstay
of Clause 49. This represents a trend towards legislating on corporate
governance rather than leaving it to the domain of the Listing Agreement. It also
signifies a shift in corporate governance administration from SEBI, which
oversees the implementation of Clause 49, towards the MCA, which administers
the Companies Act.
Full Circle
A significant feature of the corporate governance reforms in India has been its
voluntary nature and the active role played by public listed companies in
improving governance standards in India. CII, a non-government, not-for-profit,
industry-led and industry-managed organization dominated by large public listed
firms had played an active role in the development of Indias corporate
governance norms.
What began as a voluntary effort soon acquired mandatory status through the
adoption of Clause 49, as all companies (of a certain size) listed on stock
exchanges were required to comply with these norms, a trend which was further
reinforced by the introduction of stringent penalties for violation of the
prescribed norms. While the Voluntary Corporate Governance guidelines of 2009
represented a move back to a voluntary framework for corporate governance,
recent efforts to consolidate corporate governance norms into the Companies
Act, 1956 marks a reversal of the earlier approach16.
In that sense, the corporate governance norms in India appear to have
completed two full cycles of oscillating between the voluntary and the
mandatory approaches.

Conceptual discussion
Efficient, Transparent, and Impeccable Corporate Governance is vital for stability,
profitability, and desired growth of the business of any organization. The
importance of such corporate governance has now become more intensified,
owing to ever-growing competition and rivalry in the businesses of almost all
economic sectors, both at the national and international levels. Therefore, the
new Indian Companies Act of 2013 has rightly introduced some new refining and
innovative things, to make corporate governance in India optimally progressive,
transparent, and beneficial to all the concerned people. Providing concise
information about these newly-introduced things for betterment in the corporate
governance in India, is the main objective of this web-article.
Corporate Governance is basically an approach of managing efficiently and
prudently all the activities of a company, in order to make the business stable
and secure, growth-oriented, maximally profitable to its shareholders, and highly
reputed and reliable among all customers and clients concerned. The Board
Structure and Top Management are directly and exclusively responsible for such
governance. For these purposes, the top management of must have flawless and
effective control over all affairs of the organization, regular monitoring of all
business activities and transactions, proper care and concern for the interest and
benefits of the shareholders, and strict compliances to regulatory and
governmental bodies. Thus, corporate governance is strict and efficient
application of all best management practices, and corporate & legal
compliances, amid the contemporary and continually changing business
scenarios.
Value proposition
A unique feature of the Indian business landscape is the large presence of
promoter-led companies. Promoters manage the companys operations and take
important decisions though in many cases their holding tends to be lower than
that of other shareholders. According to some estimates, 95% of the listed
companies and almost 100 percent of the 42 mn unlisted companies in India are
family-owned businesses. These companies collectively account for over 70
percent of the market capitalization, 75 percent of the GDP and 57 percent of the
employment in the country. In highly developed markets like the US too, family
owned businesses account for over one-third of the S&P 500 and Fortune 500
companies and employ over half of the American workforce. A study of 24
family-owned businesses by Harvard Business School showed that out of the
sample of 24 companies, 12 family-owned businesses frequently outperformed
their non-family owned peers. The key reasons attributable to the success of
family-owned businesses are: command (i.e. granting senior management
decision-making independence); continuity (i.e. adhering to a farsighted
mission); community (i.e. embedding a culture with deep concern for
employees); and connection (establishing strong relationships with clients and
suppliers). Since the demarcation of ownership and management in ownermanaged companies is not specifically drawn, corporate governance assumes
greater significance in the context of sustainable value creation. As Indian
businesses globalize, it is important to approach governance challenges
holistically. Achieving desired competencies requires focus on structures,
processes and people.

State and explain the implementation of the existing system

Regulatory bodies
The Indian statutory framework has, by and large, been in consonance with the
international best practices of corporate governance. Broadly speaking, the
corporate governance mechanism for companies in India is enumerated in the
following enactments/ regulations/ guidelines/ listing agreement:
1. The Companies Act, 2013 inter alia contains provisions relating to board
constitution, board meetings, board processes, independent directors, general
meetings, audit committees, related party transactions, disclosure requirements
in financial statements, etc.
2. Securities and Exchange Board of India (SEBI) Guidelines: SEBI is a regulatory
authority having jurisdiction over listed companies and which issues regulations,
rules and guidelines to companies to ensure protection of investors.
3. Standard Listing Agreement of Stock Exchanges: For companies whose shares
are listed on the stock exchanges.
4. Accounting Standards issued by the Institute of Chartered Accountants of India
(ICAI): ICAI is an autonomous body, which issues accounting standards providing
guidelines for disclosures of financial information. Section 129 of the New
Companies Act inter alia provides that the financial statements shall give a true
and fair view of the state of affairs of the company or companies, comply with
the accounting standards notified under s 133 of the New Companies Act. It is
further provided that items contained in such financial statements shall be in
accordance with the accounting standards.
5. Secretarial Standards issued by the Institute of Company Secretaries of India
(ICSI): ICSI is an autonomous body, which issues secretarial standards in terms of
the provisions of the New Companies Act. So far, the ICSI has issued Secretarial
Standard on "Meetings of the Board of Directors" (SS-1) and Secretarial
Standards on "General Meetings" (SS-2). These Secretarial Standards have come
into force w.e.f. July 1, 2015. Section 118(10) of the New Companies Act provide

that every company (other than one person company) shall observe Secretarial
Standards specified as such by the ICSI with respect to general and board
meetings.

Regulatory framework
1. The Government of India has recently notified Companies Act, 2013 ("New
Companies Act"), which replaces the erstwhile Companies Act, 1956. The
New Act has greater emphasis on corporate governance through the board
and board processes. The New Act covers corporate governance through
its following provisions:

New Companies Act introduces significant changes to the composition of

the boards of directors.

Every company is required to appoint 1 (one) resident director on its

board.

Nominee directors shall no longer be treated as independent directors.

Listed companies and specified classes of public companies are required

to appoint independent directors and women directors on their boards.

New Companies Act for the first time codifies the duties of directors.

Listed companies and certain other public companies shall be required to

appoint at least 1 (one) woman director on its board.

New Companies Act mandates following committees to be constituted by

the board for prescribed class of companies:
o

Audit committee

Nomination and remuneration committee

Stakeholders relationship committee

Corporate social responsibility committee

2. SEBI has amended the Listing Agreement with effect from October 1, 2014 to
align it with New Companies Act.
Clause 49 of the Listing Agreement can be said to be a bold initiative towards
strengthening corporate governance amongst the listed companies. This Clause
intends to put a check over the activities of companies in order to save the
interest of the shareholders. Broadly, cl 49 provides for the following:
1. Board of Directors

The Board of Directors shall comprise of such number of minimum independent

directors, as prescribed. In case where the Chairman of the Board is a nonexecutive director, at least one-third of the Board shall comprise of independent
directors and where the Chairman of the Board is an executive director, at least
half of the Board shall comprise of independent directors. A relative of a
promoter or an executive director shall not be regarded as an independent
director.
2. Audit Committee
The Audit Committee to be set up shall comprise of minimum three directors as
members, two-thirds of which shall be independent.
3. Disclosure Requirements
Periodical disclosures relating to the financial and commercial transactions,
remuneration of directors, etc, to ensure transparency.
4. CEO/ CFO Certification
To certify to the Board that they have reviewed the financial statements and the
same are fair and in compliance with the laws/ regulations and accept
responsibility for internal control systems.
5. Report and Compliance
A separate section in the annual report on compliance with Corporate
Governance, quarterly compliance report to stock exchange signed by the
compliance officer or CEO, company to disclose compliance with non-mandatory
requirements in annual reports.

Companies Act 2013

Before the introduction of the Companies Act of 2013, the corporate governance
was mainly being guided by the Clause 49 of the Listing Agreement. Now, in light
of the new provisions and regulations introduced by the Companies Act of 2013
for corporate governance, SEBI has also approved some significant amendments
in the Listing Agreement, in order to improve transactional transparency of the
listed companies, and offer greater power to the minority shareholders in
influencing management decisions. These approved series of amendments in the
Listing Agreement are notified through the circular dated April 17, 2014; and will
be effective from October 1, 2014.
New Provisions for Stakeholders and Directors:

Appointment of one or more Woman Directors is recommended to certain

prescribed classes of companies.

Every company in India must have a Resident Director, who stayed

anywhere in India for a time-period not less than 182 days in the
preceding calendar year under CA - 2013.

As per CA 2013, the maximal number of permissible Directors in a public

limited company shall not exceed 15. However, some more directors can
also be appointed with proper approval of shareholders by passing a
Special Resolution.

Introduced newly is the concept of the Independent Directors in the listed

public companies under CA, 2013. Detailed rules and provisions for
mandatory appointment, tenure, meetings, etc., of such independent
directors are also provided. The Nominee Directors are not included in the
category of the Independent Directors.

The CA 2013 prescribes a Code of conduct and other functions and duties
which raise the bar of standards and performances of independent
directors. The duties include constructive attendance in all board/general
meetings, reporting unethical practices, fraud and violation of law,
retaining any confidential information etc.

The Independent directors of the company shall hold at least one meeting
in a year, without the attendance of non-independent directors and
members of management. All the independent directors of the company
shall strive to be present at such meeting.

As per CA 2013, every company shall, at the first AGM appoint an

individual or firm as an auditor who shall hold the office from the
conclusion of this meeting till the conclusion of its sixth AGM and
thereafter till the conclusion of every sixth meeting.

The role and responsibilities of Audit Committee has been eventually

increased.

Disclosure & filing requirement with Registrar of Companies, has

significantly increased.

The top management must duly recognize the legitimate rights of the
shareholders, and encourage perennially strong and sound co-operation
between the company and its shareholders.

Every company must ensure punctual and accurate disclosure on all

material matters, inevitably including the current financial situation,
performance, ownership, and governance.

The Board of Directors of every listed company and certain class of Public
Companies shall lawfully constitute the Nomination and Remuneration
Committees.

The Companies Act of 2013 urges companies to conduct a strict

performance evaluation of all directors on their respective boards,
including the independent directors.

Related Party Transactions:

A Related Party Transaction (RPT) is a significant transfer of resources, services,
facilities, or obligations, between a company and any specified related party,
with or without a monetary price. It is responsibility of a company to devise
policies on the materiality of such related party transactions, and also on the
dealing with these. Such policies must be disclosed and displayed on the website
of the company, and also in the annual report. The following points are
prescribed by the CA-2013, in connection with the related party transactions:

All such transactions shall necessarily need prior approval of the Audit
Committee.

All material related party transactions shall be duly approved and escorted
by a special resolution of the shareholders; and the related parties shall
abstain from voting on such resolutions. Explicit information about all
material related party transactions shall be presented quarterly, along
with the carefully drafted compliance report on corporate government.

As per the new SEBI norms, the key managerial personnel of the parent
company, are also likely to be regarded as the related parties; so is the
case of the joint ventures, co-ventures, or co-associates.

Changes in Clause 35B of the Equity Listing Agreement:

The issuer is legally bound to provide convenient e-voting facility to its
shareholders, in connection with all resolutions to be made on behalf of the
shareholders. This e-voting could be performed at the general meetings or
through postal ballot; the issuer can also utilize services of any agency for evoting platform, but strictly as per the rules of MCA. Such e-voting process shall
be maintained open for a period specified in the Companies (Management and
Administration) Rules of 2014, for enabling the shareholders to forward their
respective and precious assent or dissent to the specified resolution. Noteworthy,
here, also is the initiative of the Ministry of Corporate Affairs (MCA), Government
of India, to hold meeting of board of directors, and meeting of shareholders,
through Video Conferencing.
Corporate Social Responsibility (CSR) Due Contribution towards
Society
The Corporate Social Responsibility (CSR) is the name given to the responsibility
of corporate towards the societies or communities. It is advocated as these
corporate bodies draw their necessary resources from society; these are ethically
expected to return something creative and beneficial back to the society, the
value of which is manifold. Thus, the concept of corporate social responsibility
boosts the vision and policies of the sustainable development. The new Indian
Companies Act of 2013 also puts emphasis on this CSR, to promote social
development along with progress of corporates in the country.
Whistle Blower Policy A Mandatory Provision by SEBI

The companies shall utilize a censorious and punctilious vigil mechanism,

to report about wrong or unethical conduct or behavior of any director or

employee of the company, actual or suspected fraud or violation of the

code of conduct or ethics of the company, etc.

Such mechanism will also safeguard any directors/employees against

victimization of them, and will also enable the concerned people for
meeting directly the Chairman of the Audit Committee, in some
exceptional cases.

Detailed information regarding the establishment of any such vigil

mechanism shall be disclosed overtly by a company on its website, and
also in the Board's report.

Thus, the new Indian Companies Act of 2013, has introduced many intelligent
and innovative measures and provisions for betterment in the corporate
governance in all economic sectors of India. These corrective and prudent rules,
regulations, and provisions of the CA-2013 seek to enhance active involvement
of the shareholders in efficient and transparent corporate governance, place top
responsibilities on entrusted and considerate management personnel, safeguard
interests of shareholders and the society, and equip the corporate world of India
for progressing fast at par with the roaring economies of the world.
Some examples

A proactive and transparent approach to dealing with bad news and

putting the investors at the centre of value creation realm In 2001, a
financial scam hit a non-banking financial company, which is a part of one
of Indias biggest conglomerates. There were several irregularities in the
NBFCs accounts. Firstly, it had a huge inter-corporate deposit exposure to
its subsidiary which breached limits set by the regulator. Secondly, its
capital adequacy was allegedly beefed up by dubious means. Thirdly, all
details regarding the NBFCs financial status were not correctly disclosed
in its rights issue document. And finally, the NBFC invested money in the
stock market through its subsidiary on which it incurred huge losses. When
the Group management discovered the irregularities, they chose to
acknowledge the fraud in the public domain. They immediately fi led an
FIR against the NBFCs then MD and top executives. They also fi led mercy
petition with the banking regulator and promised to make good the capital
shortfall resulting from the fraud. Immediately following the fraud, the
NBFC stopped taking deposits from the public and redeemed maturing
deposits with interest. They cleaned the NBFCs balance sheet by
provisioning for its loans and investments in its subsidiary and by posting
a huge loss in that financial year. This open and transparent approach
adopted by the Group management restored investor confidence in the
NBFC and enabled its smooth functioning in the following years
A fast moving consumer goods company has successfully used the
Balanced Scorecard method as a way to identify the right risks and
monitor performance in the context of the changing risk profile of the
organization. The companys board identified its value drivers based on its
financials, customers, internal capabilities, innovation and learning and
stakeholders. Further, the organization devised a Balanced Scorecard with
active inputs from the Board to align performance measures to company
strategies. It did so by identifying critical success factors for each strategy
and the business initiatives required to exploit those success factors,

formulating Key Performance Indicators (KPIs) for each success factor to

gauge the business initiatives success, and ensuring that all business
perspectives are included in those KPIs. It continuously monitored risks by
developing a holistic view of risks, monitoring the quality of risk mitigating
actions, and realigning strategy to risk profiles.

Key developments in systems prevailing in other countries

UK
In July 2010, the UK published Stewardship Code to enhance the quality of
engagement between institutional investors and companies. The Code aims at
improving long term returns to shareholders and efficient exercise of governance
responsibilities
A committee under Sir David Walker reviewed corporate governance in UK
banking industry and made recommendations in several areas including
effectiveness of risk management at Board level, the balance of skills,
effectiveness of Board practices, and the role of institutional investors.
Close on the heels of the Walker Report, the Financial Reporting Council (FRC)
also revamped the UK Corporate Governance code applicable to listed
companies. The revised code includes several key changes encompassing annual
re-election of the Chairman, additional responsibilities for the Board chair to
provide effective Board leadership, emphasis on the balance of skill sets and
processes adopted for selection of the Board members, requirement that Board
evaluation should be undertaken by external agencies at least once in three
years and greater transparency, disclosures and communications related to
Executive compensation and the basis thereof.
US
The US passed DoddFrank Wall Street Reform and Consumer Protection Act in
2010 to promote the financial stability of the US, to end too big to fail, to
protect American taxpayers by ending bailouts, and to protect consumers from
abusive financial services practices. More importantly, this legislation has set
new benchmarks in aspects such as Board compensation, accountability, risk
oversight and linking executive pay to performance
South Africa
South Africa released King III Report in 2009. The report calls for integrated
sustainability reporting, combined assurance from management, internal, and
external auditors, annual review of internal financial controls, and risk based
internal audit
Conclusion
The question that needs to be asked is whether the introduction of the
aforementioned regulatory changes will lead to improved corporate governance
and sustainable value creation. It is worth noting that following the Enron and

WorldCom debacles at the turn of this century, similar regulatory changes came
about (e.g. the Sarbanes Oxley Act referred to as SOX). However, recent events
have proved that the presence of these regulations has not been entirely
effective in promoting good corporate governance. Too much of regulations and
making them more prescriptive gives rise to the risk that companies approach
corporate governance as an exercise in regulatory compliance. World over and
within our country, there are many instances wherein companies have proactively embraced good governance practices that exceed the statutory
requirements and this has helped the early starters to create a positive impact
with stakeholders and has also helped attract the best talent. While regulations
can at best be a good starting point, it is equally important to have national level
institutions that research and disseminate good governance practices across the
corporate landscape. Thereafter it is up to every company to imbibe these
governance principles and practices into their eco-system that will best meet its
challenges. It is also worthwhile to recognize that due to differences in ownership
structures and cultures, corporate governance practices in one part of the world
may not always be successful in other cultures. For instance, the US is now
seeing a trend wherein an increasing number of companies are segregating the
CEO and Board chair roles. While this may make sense in the US which is
characterized by large institutional shareholdings and segregation of ownership
and management, this may not be appropriate from an Indian standpoint to
emulate. India is dominated by family owned and managed listed companies and
therefore the subject of Board leadership and segregation requires greater
thought and insights which regulation may not be in a position to address.
In the context of the larger stakeholder agenda, the role of the Board becomes
extremely critical. Boards need to challenge and probe the decisions made to
ensure that they are not detrimental to the companys long term health.
However, for the Board to be effective in its role, it needs to demonstrate a good
grasp of the business realities and work pro-actively with the management to
identify the priorities. Achieving this requires that accountability needs to flow
both ways - while the CEO is responsible for implementing the strategy and
delivering results, the Board has a key role to play in the areas of strategy, talent
management, sustainability and succession.

Challenges
Corporate governance practices in India are still evolving. It is a process of
engaging shareholders and the management effectively to enhance the
organizations value. It involves participation of various stakeholders and
management, communication, exchanging and validating ideas, and lots of
debate and discussion. Hence, corporate governance is essentially a function of
the mind-set and culture prevalent in the organizations operating environment.
Corporate governance cannot be looked at in isolation; it is heavily influenced by
the overall governance eco-system. Recent scandals in corporate India have
raised questions not only about the practices adopted by companies to solicit
business but also about the standards of accountability in public administration
including within the government machinery and institutions. These larger
governance issues will need to be addressed alongside governance issues within
corporates. Corporate governance in India faces its own set of challenges which
are set out below:
1. There is a gap between corporate governance standards in the public sector
and the private sector. PSUs are subjected to varying levels of government
interference in their routine functioning, undermining their autonomy. Further,
restrictive and outdated labour laws in India make laying off employees and
closing businesses difficult. Many PSUs which ceased operations decades ago still
own and maintain obsolete properties and machinery and pay their staff while
the government debates their future. In FY11, about a third of Indias 249 state
owned companies collectively lost $3.4 bn.
2. Although India has numerous regulations, their enforcement is quite weak.
Numerous government departments, multiple layers of bureaucracy and complex
power sharing equations among them stifle stringent enforcement of regulations.
Private enforcement i.e. enforcement by shareholders and market intermediaries
is weak too.
3. There needs to be an objective debate in corporate India about what is
required to be done to make Independent directors more effective. In the past,
there has been a tendency to blame independent directors for governance
issues. It is important to address the challenges such as true independence,
developing the institution and pool of personnel with diverse skill sets who can
provide exemplary board service and improve corporate functioning and taking
concrete measures to improve their functioning through a combination of
orientation, training, clear roles and adequate remuneration.
4. There is substantial room for improvement in enhancing accountability. Within
many board rooms in India, the topic of CEO succession is not often discussed.
CEO succession planning calls for wider debate and rigorous processes than the
ones currently followed, especially in owner-managed businesses. Also, boards
need to be held more accountable for their decisions and actions.
5. The post financial crisis era has witnessed a marked rise in investor activism.
This is particularly true of institutional investors who have longer term interest in
a company and have a greater say in its functioning. However, investor activism
in India is relatively muted. As experience has shown, greater investor scrutiny

could bring about substantial improvement in corporate governance. This is an

important area where India needs to catch up with the developed world fast. 6.
The regulation and scrutiny of the audit profession in India could benefit from
some objective introspection.