Corporate Governance

A STUDY ON CORPORATE GOVERNANCE
INTRODUCTION
Companies pool capital from a large investor base both in the

domestic and in the international capital markets. In this context, investment is
ultimately an act of faith in the ability of a company’s management. In order to
manage the affairs of a company and to act in the best interests of all at all times,
there must be a system whereby the directors are entrusted with responsibilities
and duties in relation to the direction of the company affairs.
Corporate governance is a system of making Management

accountable towards the stakeholders for effective management of the
companies.
Corporate governance is also concerned with the morals, ethics,

values, parameters, conduct and behaviour of the company and its management.
The underlying principles of corporate governance revolve around

three basic inter- related segments. These are:
 Integrity and Fairness

 Transparency and Disclosures
 Accountability and Responsibility
According to the Confederation of Indian Industry (CII), corporate

governance deals with laws, procedures, practices and implicit rules that
determine the ability of the company to make managerial decisions vis- àvis its
claimants – in particular, its shareholders, creditors, customers, the State and
employees.
Corporate governance mainly consists of two elements i.e., A long-

term relationship, which has to deal with checks and balances, incentives of
managers and communications between Management and investors. The second
element is a transactional relationship involving matters relating to disclosure
and authority. In other words, 'good corporate governance' is simply 'good
business'.
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MEANING & DEFINITION OF CORPORATE

GOVERNANCE
Meaning:
Corporate governance refers to the structures and processes for the

direction and control of companies. Corporate governance concerns the
relationships among the management, Board of Directors, controlling
shareholders, minority shareholders and other stakeholders. Good corporate
governance contributes to sustainable economic development by enhancing the
performance of companies and increasing their access to outside capital.
A means whereby society can be sure that large corporations are well-run
institutions to which investors and lenders can confidently commit their funds.
It is a term that refers broadly to the rules, processes, or laws by which

businesses are operated, regulated, and controlled. The term can refer to internal
factors defined by the officers, stockholders or constitution of a corporation, as
well as to external forces such as customer groups, clients and government
regulations.
Creates safeguards against corruption and mismanagement, while

promoting fundamental values of a market economy in democratic society.
Considering the ethical failures in the last several years and the resulting
crisis in confidence...A sincere commitment to creating and sustaining an ethical
business culture in public and private sectors (has never been so important).
Definition: Definition of Corporate Governance has been given from time to

time by the various authorities.
As per ICSI: Corporate Governance is the best Management practices

compliance of law in true letter and adherence to ethical standards for effective
management and distribution of wealth and discharge of social responsibility for
sustainable development of all stakeholders.
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Basic and summarized definition
The above definition also reflects that a proper definition of corporate

governance should not just describe directors’ obligations towards shareholders.
Different countries have different ideas as to what constitutes good corporate
governance. Therefore any satisfactory definition, to be applicable to a modern,
global company, must synthesize best practice from the biggest economic powers
into something which can be applied across all major countries. In essence we
believe that good corporate governance consists of a system of structuring,
operating and controlling a company such as to achieve the following:
 a culture based on a foundation of sound business ethics
 fulfilling the long-term strategic goal of the owners while taking into account
the expectations of all the key stakeholders, and in particular:
 consider and care for the interests of employees, past, present and future
 work to maintain excellent relations with both customers and suppliers
 take account of the needs of the environment and the local community
 Maintaining proper compliance with all the applicable legal and regulatory
requirements under which the company is carrying out its activities.
We believe that a well-run organization must be structured in such a

way that all the above requirements are catered for and can be seen to be
operating effectively by all the interest groups concerned. We develop this
further in our section on best corporate governance practice. Here we have set
out our assessment of how corporate governance is usually discussed and
introduced our own, which we hope you have found useful. This page serves as a
hub to link to a range of issues related to the definition of corporate governance.
For example we define business ethics and Corporate Social Responsibility,
different country models and Codes of Conduct.
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HISTORICAL BACKGROUND
The principles of governance have been in existence for centuries. History

reveals that Kautilya also called Chanakya or Vishnu Gupta who was
Mahaamatya (equivalent to Prime Minister) in Maurya Empire in 300 BC
propounded principles of good governance. In his celebrated treatise on statecraft
“Arthashastra”, he provided principles of governance. He states the fourfold
duty of a king as:
Duties of a King
 Raksha (Protection) Protecting shareholders wealth

 Vriddhi (Enhancement) Enhancing wealth
 Palana (Maintenance) Maintenance of that wealth
 Yogakshema (Safeguard) Safeguarding interests of shareholders
Corporate governance …
And economic developments are intrinsically linked. Effective corporate

governance systems promote the development of strong financial
systemsirrespective of whether they are largely bank-based or market-based –
which, in turn, have an unmistakably positive effect on economic growth and
poverty reduction.
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OBJECTIVES OF CORPORATE GOVERNANCE

Transparency in corporate governance is essential for the growth, profitability and
stability of any business. The need for good corporate governance has intensified due to
growing competition amongst businesses in all economic sectors at the national, as well as
international level.
The Indian Companies Act of 2013 introduced some progressive and transparent
processes which benefit stakeholders, directors as well as the management of companies.
Investment advisory services and proxy firms provide concise information to the
shareholders about these newly introduced processes and regulations, which aim to improve
the corporate governance in India.
Corporate advisory services are offered by advisory firms to efficiently manage the
activities of companies to ensure stability and growth of the business, maintain the
reputation and reliability for customers and clients. The top management that consists of the
board of directors is responsible for governance. They must have effective control over
affairs of the company in the interest of the company and minority shareholders. Corporate
governance ensures strict and efficient application of management practices along with legal
compliance in the continually changing business scenario in India.
The fundamental objective of corporate governance is to boost and maximize shareholder value
and protect the interest of other stake holders. World Bank described Corporate Governance as blend
of law, regulation and appropriate voluntary private sector practices which enables the firm to attract
financial and human capital to perform efficiently, prepare itself by generating long term economic
value for its shareholders, while respecting the interests of stakeholders and society as a whole.
Corporate governance has various objectives to strengthen investor's confidence and intern leads to
fast growth and profits of companies. These are mentioned below:
1. A properly structured Board proficient of taking independent and objective decisions is in

place at the helm of affairs.
2. The Board is balanced as regards the representation of suitable number of non-executive and
independent directors who will take care of the interests and well-being of all the stakeholders.
3. The Board accepts transparent procedures and practices and arrives at decisions on the strength
of adequate information.
4. The Board has an effective mechanism to understand the concerns of stakeholders.
5. The Board keeps the shareholders informed of relevant developments impacting the company.
6. The Board effectively and regularly monitors the functioning of the management team.
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CORPORATE GOVERNANCE NORMS
Corporate governance are the policies, procedures and rules governing

the relationships between the shareholders, (stakeholders), directors and
managers in a company, as defined by the applicable laws, the corporate charter,
the company’s bylaws, and formal policies.
Primarily it is about managing top management, building in checks and

balances to ensure that the
executives pursue strategies that are in accordance with the corporate mission. It
consists of a set of processes, customs, policies, laws and institutions affecting
the way of a corporation is directed, administered or controlled. Corporate
governance governs the relationship among the many players involved (the
stakeholders) and the goals for which the corporation is governed.
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CONSTITUENTS OF CORPORATE GOVERNANCE
The three constituents of Corporate Governance are:
 Board of Directors or Board ;

 Shareholders ; and
 Management
These can further be detailed as:
 Roles and powers of the Board

 Composition of Board
 Legislation
 Code of Conduct
 Board Independence
 Board Skills
 Roles and powers of Shareholders
 Board Appointments
 Board Meetings
 Board Induction and training
 Monitoring the Board Performance
 Management skills and environment
 Business and Community Obligations
 Audit Committee
 Financial and Operational Reporting
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WHY CORPORATE GOVERNANCE MATTERS…
 Improving access to capital
Much attention to corporate governance issues in emerging markets

among policymakers and academics has focused on the role governance can play
in improving access for emerging market companies to global portfolio equity.
An increasing volume of empirical evidence indicates that well-governed
companies receive higher market valuations. However, improving corporate
governance will also increase all other capital flows to companies in developing
countries: from domestic and global capital; equity and debt; and from public
securities markets and private capital sources.
 Improving performance
Equally important and, irrespective of the need to access capital, good

corporate governance brings better performance for IFC clients. Improved
governance structures and processes help 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.
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NEED OF CORPORATE GOVERNANCE
(i) Wide Spread of Shareholders:
Today a company has a very large number of shareholders spread all over the nation and even
the world; and a majority of shareholders being unorganised and having an indifferent attitude towards
corporate affairs. The idea of shareholders’ democracy remains confined only to the law and the
Articles of Association; which requires a practical implementation through a code of conduct of
corporate governance.
(ii) Changing Ownership Structure:
The pattern of corporate ownership has changed considerably, in the present-day-times; with
institutional investors (foreign as well Indian) and mutual funds becoming largest shareholders in
large corporate private sector. These investors have become the greatest challenge to corporate
managements, forcing the latter to abide by some established code of corporate governance to build up
its image in society.
(iii) Corporate Scams or Scandals:
Corporate scams (or frauds) in the recent years of the past have shaken public confidence in
corporate management. The event of Harshad Mehta scandal, which is perhaps, one biggest scandal, is
in the heart and mind of all, connected with corporate shareholding or otherwise being educated and
socially conscious.
The need for corporate governance is, then, imperative for reviving investors’ confidence in the
corporate sector towards the economic development of society.
(iv) Greater Expectations of Society of the Corporate Sector:
Society of today holds greater expectations of the corporate sector in terms of reasonable price,
better quality, pollution control, best utilisation of resources etc. To meet social expectations, there is
a need for a code of corporate governance, for the best management of company in economic and
social terms.
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(v) Hostile Take-Overs:
Hostile take-overs of corporations witnessed in several countries, put a question mark on the
efficiency of managements of take-over companies. This factors also points out to the need for
corporate governance, in the form of an efficient code of conduct for corporate managements.
(vi) Huge Increase in Top Management Compensation:
It has been observed in both developing and developed economies that there has been a great
increase in the monetary payments (compensation) packages of top level corporate executives. There
is no justification for exorbitant payments to top ranking managers, out of corporate funds, which are
a property of shareholders and society.
This factor necessitates corporate governance to contain the ill-practices of top managements of
companies.
(vii) Globalization:
Desire of more and more Indian companies to get listed on international stock exchanges also
focuses on a need for corporate governance. In fact, corporate governance has become a buzzword in
the corporate sector. There is no doubt that international capital market recognises only companies
well-managed according to standard codes of corporate governance.
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PRINCIPLES OF CORPORATE GOVERNANCE
 There should be forward-thinking discussions about the business.
 The performance of current members of management should be

evaluated.
 There should be planning for each key member of management.
 The board should ensure that the company has the right CEO.
 Shareholder value should be created with a long-term focus.
 The board should bring strategic discussions, including investments,

potential mergers and acquisitions, operational and financial planning and
growth.
 The board receives assessments on strategic fits risks, and valuations.
 The board should assess the company’s valuation and significant risks
and rewards as it focuses on the long-term interests of the company.
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COMPOSITION OF CORPORATE GOVERNANCE
 The Board of Director is typically central to corporate governance.

 The board should be elected by a majority. Some can be nominated if
they are well known and would be additive to the board.
 The governance should not be run solely by a CEO.
 The loyalty of the directors should be to the shareholders and the
company.
 All directors must have high integrity and represent the interests of all the
shareholders.
 All directors must have professional experience related to the company’s
vision and business and expertise with companies without related
business to the company.
 Directors should be willing to challenge, but also be collaborative and
collegiate.
 Directors should be business minded with a strong allegiance to the
company.
 Directors should have a diverse skill set.
 The board should represent a variety of perspectives and should be drawn
from a diverse pool of candidates.
 Boards can be different sizes depending on the needs of the company.
They should remain relatively small to promote effective communication
among directors.
 Board members must be able to dedicate their time and energy to their
position.
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IMPORTANCE ISSUES CORPORATE GOVERNACE IN

INDIA
1. Changing Ownership Structure :
In recent years, the ownership structure of companies has changed a lot. Public
financial institutions, mutual funds, etc. are the single largest shareholder in most of the large
companies. So, they have effective control on the management of the companies. They force
the management to use corporate governance. That is, they put pressure on the management to
become more efficient, transparent, accountable, etc. The also ask the management to make
consumer-friendly policies, to protect all social groups and to protect the environment. So, the
changing ownership structure has resulted in corporate governance.
2. Importance of Social Responsibility :
Today, social responsibility is given a lot of importance. The Board of Directors have
to protect the rights of the customers, employees, shareholders, suppliers, local communities,
etc. This is possible only if they use corporate governance.
3. Growing Number of Scams :
In recent years, many scams, frauds and corrupt practices have taken place. Misuse and
misappropriation of public money are happening everyday in India and worldwide. It is
happening in the stock market, banks, financial institutions, companies and government
offices. In order to avoid these scams and financial irregularities, many companies have started
4. Indifference on the part of Shareholders :
In general, shareholders are inactive in the management of their companies. They only
attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed
to speak in the meetings. Shareholders associations are not strong. Therefore, directors misuse
their power for their own benefits. So, there is a need for corporate governance to protect all
the stakeholders of the company.
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5. Globalisation :
Today most big companies are selling their goods in the global market. So, they have
to attract foreign investor and foreign customers. They also have to follow foreign rules and
regulations. All this requires corporate governance. Without Corporate governance, it is
impossible to enter, survive and succeed the global market.
6. Takeovers and Mergers :
Today, there are many takeovers and mergers in the business world. Corporate
governance is required to protect the interest of all the parties during takeovers and mergers.
7. SEBI :
SEBI has made corporate governance compulsory for certain companies. This is done
to protect the interest of the investors and other stakeholders.
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INDIAN SCENARIO
YEAR NAME OF AREAS/ASPECTS

COMMITTEE/BODY COVERED
1998 Confederation of Indian Industry Desirable Corporate
(CII) Governance
1999 Kumar Mangalam Birla Corporate Governance
Committee
2002 Naresh Chandra Committee Corporate Audit &
Governance
2003 N. R. Narayan Murthy Corporate Governance
Committee
2004 J. J. Irani Adoption of
Internationally accepted
best practices
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INTERNATIONAL SCENARIO
YEAR NAME OF AREAS/ASPECTS

COMMITTEE/BODY COVERED
1992 Sir Adrian Cadbury Financial Aspects of
Committee, UK Corporate Governance
1995 Greenbury Committeee, UK Directors’ Remuneration
1998 Hampel Committee, UK Combine Code of Best
Practice
1999 Blue Ribbon Committee, US Improving the
Effectiveness of Corporate
Audit Committee
1999 OECD & CACG Principles of Corporate
Governance in Common
wealth
2003 Derek Higgs Committee, UK Review of role of
effectiveness of Non-
executive Directors
2003 ASX Corporate Governance Principles of good
Council, Australia Corporate Governance and
Best Practice
Recommendations
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CORPORATE GOVERNANCE –
DEVELOPMENTS IN INDIA
In India, a small beginning was made by the Confederation of Indian

Industry (CII) in the field of good corporate governance which is explained
below.
Thereafter, various committees have been constituted to give

recommendations in this regard viz.. Kumar Manglam Birla Committee, Naresh
Chandra Committee, Narayana Murthy Committee etc.
1: CONFEDERATION OF INDIAN INDUSTRY (CII)

In 1996, CII took a special initiative on Corporate Governance, the
theme of such initiative was to develop and promote a code for Corporate
Governance to be adopted and followed by Indian Companies, be it in the Private
Sector or Public Sector, Banks or Financial Institutions, all of which are
corporate entities. A National Task Force was set up with Mr. Rahul Bajaj, as the
Chairman and including members from industry, the legal profession, media and
academia. This Task Force presented the draft guidelines and Code for Corporate
Governance in April 1997 at the National Conference and Annual session of CII.
After reviewing the various suggestions and the developments which have taken
place in India and abroad, the Task Force finalized the Desirable Corporate
Governance Code.
2: KUMAR MANGLAM BIRLA COMMITTEE

The SEBI appointed a Committee on Corporate Governance on
May 7, 1999 under the chairmanship of Shri Kumar Manglam Birla, to promote
and raise the standards of corporate governance mainly from the perspective of
the investors and shareholders and to prepare a code to suit the Indian corporate
environment.
Such committee submitted its interim & final report in 1999/2000.

The Committee made a number of recommendations towards corporate
governance which include constitution of audit committee, composition of Board
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of Directors, role of independent directors, & remuneration standard and

financial reporting etc. On the basis of such recommendations clause 49 (pre-
amended) of the listing agreement was issued by the SEBI.
3: NARESH CHANDRA COMMITTEE

The next development is constitution of a committee by
‘Department of Company Affairs’ (DCA), headed by Shri Naresh Chandra,
called ‘Naresh Chandra Committee’ on August 21, 2002, to examine various
issues of corporate governance relating to statutory auditor - company
relationship, rotation of statutory audit firm or partners, appointment of auditors
and determination of audit fees, independence of auditing functions, certification
of accounts and financial statements by management and directors role of
independent directors etc. Many recommendations of the report were
incorporated in the Companies (Amendment) Bill 2003, which is currently being
reviewed.
4: NARAYANA MURTHY COMMITTEE

Thereafter, ‘SEBI’ constituted another committee called ‘Narayana
Murthy Committee’ under the Chairmanship of N.R. Narayana Murthy
comprising 23 persons, which included representatives from the stock exchanges,
Chamber of Commerce, industry, investor associations and Professional bodies,
for reviewing implementation of the corporate governance code by listed
companies.
Many of the recommendations made by such committee has been

included in the revised Clause 49 of the Listing Agreement. The Narayana
Murthy Committee attempted to promulgate an effective approach for successful
corporate governance. The Committee submitted its final report on February 8,
2003.
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5: THE SECURITIES AND EXCHANGE BOARD OF INDIA
SEBI vide its circular no. SEBI/CFD/DIL/CG/1/2004/ 12/10,

Dated October 28, 2004 has revised the existing clause 49, related to corporate
governance. The above circular has also amended many of the exiting provisions
of Clause 49 of the listing agreement and has introduced a number of new
requirements.
The major changes in the new clause 49 include

amendments/additions to provisions relating to definition of independent
directors, strengthening the responsibilities of audit committees, improving
quality of financial disclosures, including those related to related party
transactions and proceeds from public/rights/preferential issues, requiring Boards
to adopt formal code of conduct and requiring CEO/CFO certification of
financial statements, etc. Such a step, if properly implemented, will go a long
way towards ensuring good governance practices in Indian Corporate Sector.
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PILLARS OF CORPORATE GOVERNANCE
The three pillars of corporate governance are: transparency,

accountability, and security. All three are critical in successfully running a
company and forming solid professional relationships among its stakeholders
which include board directors, managers, employees, and most importantly,
shareholders.
 FIRST PILLAR OF CORPORATE GOVERNANCE:

TRANSPARENCY
In simplest terms, transparency means having nothing to hide. For a

company, this means it allows its processes and transactions observable to
outsiders. It also makes necessary disclosures, informs everyone affected about
its decisions, and complies with legal requirements. After the financial
scandals in the early 2000s, transparency has played a bigger role in preventing
fraud from happening again, especially at such a large scale. But aside from
stopping the next illegal moneymaking scheme, transparency also builds a good
reputation of the company in question. When shareholders feel they can trust a
company, they are willing to invest more, and this greatly helps in lowering cost
of capital. Therefore, a company gets its ROI on the money it spent on improving
transparency.
Transparency is a critical component of corporate governance because

it ensures that all of a company’s actions can be checked at any given time by an
outside observer. This makes its processes and transactions verifiable, so if a
question does come up about a step, the company can provide a clear answer.
And after the Enron scandal in 2001, transparency is no longer just an option, but
a legal requirement that a company has to comply with.
But although transparency is a necessity for the whole company, its

presence is even more important at the top where strategies are planned and
decisions are made. Shareholders expect that the corporate board is open about
their actions; otherwise, distrust will form. And when trust breaks, shareholders
tend to stay away and invest somewhere else.
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How transparent is your corporate board? Are directors’ actions

readily verifiable by internal and external audit? Is their leadership visible from
the top to all the way down? Is transparency applicable to everyone?
Transparency should have no exceptions, especially when your company’s goals
are involved. All stakeholders — from employees to investors — have the right
to know about the direction your company is headed for.
For easy implementation of a transparency policy, consider using

board portal software that doubles as corporate governance software.
 SECOND PILLAR OF CORPORATE GOVERNANCE:

ACCOUNTABILITY
It takes more than transparency to build integrity as a company. It
also takes accountability, which can also mean answerability or liability.
Shareholders are deeply interested in who will take the blame when something
goes wrong in one of a company’s many processes. And even when everything
goes smoothly as expected, knowing that someone will be held accountable for
future mishaps increases shareholders’ confidence, which in turn increases their
desire to invest more. Again, this concern over accountability goes back to the
financial scandals in the early 2000s, in which there had been a lot of money
stolen, but not enough people to answer for the crime.
Accountability can have a negative connotation because many

people associate it with blame. “Who’s responsible for when something goes
wrong?” is just one of the many questions that accountability seeks to answer.
But accountability is more than that. It’s about having ownership over one’s
actions whether the consequences of those actions are good or bad. Thus,
accountability covers not only failings, but also accomplishments. When the idea
of accountability is approached with this positive outlook, people will be more
open to it as a means to improve their performance. This applies from the staff
all the way up to the corporate board.
How can accountability improve performance? People who have no

sense of ownership over their tasks don’t feel the motivation to do more than
what’s expected of them. There’s no incentive to work hard and achieve
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something. But when they understand the weight of their responsibilities, they’re
more inclined to make sure that they carry out their tasks properly. And when
they’re successful in this regard, they’re likely to feel a sense of accomplishment,
and this further fuels their desire to do better.
So how’s the level of accountability in your corporate board? Are

you directors there to simply fill in a seat while leafing through their board packs
and board books, or are they actively engaged in decisions and strategies for your
company?
 THIRD PILLAR OF CORPORATE GOVERNANCE: SECURITY
A company is expected to make their processes transparent and

their people accountable while keeping their enterprise data secure from
unauthorized access. There is simply no compromise for this. Companies that
experience security breaches involving the exposure of their clients’ personal
information quickly lose their credibility. To get back the public’s trust,
extensive damage control is called for — just look at what had to be done after
Neiman Marcus and Target suffered from data leak.age Thus, even with
accountability and transparency, a company without inadequate security
measures will have a hard time attracting shareholders. After all, any scandal —
even a breach caused by third-party hackers — can have a negative effect on a
company’s stock market performance.
The increasing threat of cyber crime in recent years puts security

at a high priority for many companies. Complying with security standards isn’t
enough — a company needs to imbibe a culture of security to ensure that trade
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secrets, corporate data, and client information are all kept safe from unauthorized
access from inside and out. Security is not just an IT concern anymore, unlike in
the past.
Nowadays, everyone in a company has a responsibility to adhere

to strict security standards. Even entry-level staff members usually have their
own company email addresses. But are they trained enough to conscientiously
keep their accounts safe? And that’s just scratching the surface. Think of how
much confidential data there is at the hands of directors in the corporate board,
and suddenly, the stakes are much higher.
Thus, directors should be made aware of the seriousness of cyber

crime and the gravity of its consequences. A security breach — especially
involving client information — can make the public easily lose their trust. Trust
is a big factor would-be shareholders consider before making an investment in a
company.
How high is the awareness level of your company’s directors when

it comes to security? Don’t let them take their chances — make sure that they’re
using board portal software and board governance software to keep meeting
documents secure all the time, even when they’re using their iPads or Android
tablets for virtual collaborative sessions and electronic board meetings. The
system does away with paper-based board packs and board books and digitizes
everything, making encryption (both in transmission and storage) as a means of
protection possible.
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 COMBINING ALL THREE PILLARS OF CORPORATE

GOVERNANCE
Taken together, transparency, accountability, and security define a

company’s integrity. Achieving all three isn’t an easy thing to do, but
fortunately, companies now have an partner in board portal software that also
doubles as corporate governance software. A board portal doesn’t just digitize
the whole board meeting process; it also makes the process more transparent by
keeping clear and complete documentation at all times. For example, a director
who wants to review the details surrounding the decision for a recent merger can
pull out the meeting minutes from the archive.
An outside auditor authorized to request the same kind of

documentation will have access to it, too. In short, information needed by anyone
with authorization — whether they’re part of the company or an outsider — can
get what they need quickly and easily.
Aside from being readily available, documents and other meeting

files are version-controlled and comes with audit trails. This means that when
different versions of a file exist, each version carries a record of what changers
were made and who made those changes. This feature of board portals address
the need for accountability.
As for security, a board portal has to adhere to industry standards

to keep files safe whether in transmission or in storage. With features such as
access right control, authentication procedures, password requirements,
encryption, and auto-purge for lost devices, a board portal turns iPads and
Androud tablets the most secure briefcase a director can ever have.
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FRAMEWORK OF CORPORATE GOVERNANCE
REGULATORY FRAMEWORK
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
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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.
LEGAL FRAMEWORK
An effective regulatory and legal framework is indispensable for the proper

and sustained growth of the company. In rapidly changing national and global business
environment, it has become necessary that regulation of corporate entities is in tune
with the emerging economic trends, encourage good corporate governance and enable
protection of the interests of the investors and other stakeholders. Further, due to
continuous increase in the complexities of business operation, the forms of corporate
organizations are constantly changing. As a result, there is a need for the law to take
into account the requirements of different kinds of companies that may exist and seek
to provide common principles to which all kinds of companies may refer while devising
their corporate governance structure.
The important legislations for regulating the entire corporate structure and
for dealing with various aspects of governance in companies are Companies Act, 1956
and Companies Bill, 2004. These laws have been introduced and amended, from time
to time, to bring more transparency and accountability in the provisions of corporate
governance. That is, corporate laws have been simplified so that they are amenable to
clear interpretation and provide a framework that would facilitate faster economic
growth.
Secondly, the Securities Contracts (Regulation) Act, 1956, Securities and

Exchange Board of India Act, 1992 and Depositories Act, 1996 have been introduced
by Securities and Exchange Board of India (SEBI), with a view to protect the interests
of investors in the securities markets as well as to maintain the standards of corporate
governance in the country.
24
Companies Laws
The Ministry of Corporate Affairs (MCA) is the main authority for
regulating and promoting efficient, transparent and accountable form of corporate
governance in the Indian corporate sector. It is constantly working towards
improvement in the legislative framework and administrative set up, so as to enable
easy incorporation and exit of the companies, as well as convenient compliance of
regulations with transparency and accountability in corporate governance. It is
primarily concerned with administration of the Companies Act, 1956 and related
legislations.
1. The Companies Act, 1956 is the central legislation in India that empowers the
Central Government to regulate the formation, financing, functioning and winding up
of companies. It applies to whole of India and to all types of companies, whether
registered under this Act or an earlier Act. It provides for the powers and
responsibilities of the directors and managers, raising of capital, holding of company
meetings, maintenance and audit of company accounts, powers of inspection, etc.
The main objectives with which this Act has been introduced are to:- (i) help in
the development of companies on healthy lines; (ii) maintain a minimum standard of
good behaviour and business honesty in company promotion and management; (iii)
protect the interests of the shareholders as well as the creditors; (iv) ensure fair and true
disclosure of the affairs of companies in their annual published balance sheet and profit
and loss accounts; (v) ensure proper standard of accounting and auditing; (vi) provide
fair remuneration to management and Board of Directors as well as to company's
employees; etc.
The Companies Act, 1956 has elaborate provisions relating to the

Governance of Companies, which deals with management and administration of
companies. It contains special provisions with respect to the accounts and audit,
directors’ remuneration, other financial and nonfinancial disclosures, corporate
democracy, prevention of mismanagement, etc.
Every company shall in each year, hold in addition to any other meetings, a
general meeting as its annual general meeting and shall specify the meeting as such in
the notices calling it; and not more than fifteen months shall elapse between the date of
one annual general meeting of a company and that of the next. At each annual general
25
Meeting, every company shall appoint an auditor or auditors to hold office from the
conclusion of that meeting until the conclusion of the next annual general meeting and
shall, within seven days of the appointment, give intimation thereof to every auditor so
appointed.
Every auditor of a company shall have a right of access at all times to the
books and accounts and vouchers of the company, whether kept at the head office of
the company or elsewhere, and shall be entitled to require from the officers of the
company such information and explanations as the auditor may think necessary for the
performance of his duties as auditor.
The auditor shall inquire: - (i) whether loans and advances made by the
company on the basis of security have been properly secured and whether the terms on
which they have been made are not prejudicial to the interests of the company or its
members; (ii) whether transactions of the company which are represented merely by
book entries are not prejudicial to the interests of the company; etc.
In the case of every company, a meeting of its Board of directors shall be

held at least once in every three months and at least four such meetings shall be held in
every year. Every director of a company, who is in any way, whether directly or
indirectly, concerned or interested in a contract or arrangement, or proposed contract or
arrangement, entered into or to be entered into, by or on behalf of the company, shall
disclose the nature of his concern or interest at a meeting of the Board of directors.
No director of a company shall, as a director, take any part in the discussion

of, or vote on, any contract or arrangement entered into, or to be entered into, by or on
behalf of the company, if he is in any way, whether directly or indirectly, concerned or
interested in the contract or arrangement; nor shall his presence count for the purpose of
forming a quorum at the time of any such discussion or vote; and if he does vote, his
vote shall be void.
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Every company shall keep one or more registers in which shall be entered
separately particulars of all contracts or arrangements, including the following
particulars to the extent they are applicable in each case, namely:- (i) the date of the
contract or arrangement; (ii) the names of the parties thereto; (iii) the principal terms
and conditions thereof; (iv) in the case of a contract or arrangement to which this Act
applies, the date on which it was placed before the Board; (v) the names of the directors
voting for and against the contract or arrangement and the names of those remaining
neutral. Further, every company shall keep at its registered office a register of its
directors, managing director, managing agent, secretaries and treasurers, manager and
secretary.
The remuneration payable to the directors of a company, including any

managing or whole-time director, shall be determined, either by the articles of the
company, or by a resolution or, if the articles so require, by a special resolution, passed
by the company in general meeting; and the remuneration payable to any such director
determined as aforesaid shall be inclusive of the remuneration payable to such director
for services rendered by him in any other capacity. However, any remuneration for
services rendered by any such director in any other capacity shall not be so included if:-
(i) the services rendered are of a professional nature; and (ii) in the opinion of the
Central Government, the director possesses the requisite qualifications for the practice
of the profession.
A director may receive remuneration by way of a fee for each meeting of

the Board, or a committee thereof, attended by him. A director who is neither in the
whole-time employment of the company nor a managing director may be paid
remuneration, either by way of a monthly, quarterly or annual payment with the
approval of the Central Government; or by way of commission if the company by
special resolution authorises such payment. However, the remuneration paid to such
director, or where there is more than one such director, to all of them together, shall not
exceed:- (i) one per cent of the net profits of the company, if the company has a
managing or whole-time director, a managing agent or secretaries and treasurers or a
manager; (ii) three per cent of the net profits of the company, in any other case.
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Every public company having paid-up capital of not less than five crores of
rupees shall constitute a committee of the Board knows as 'Audit Committee' which
shall consist of not less than three directors and such number of other directors as the
Board may determine of which two thirds of the total number of members shall be
directors, other than managing or whole-time directors. The annual report of the
company shall disclose the composition of the Audit Committee. The auditors, the
internal auditor, if any, and the director-in-charge of finance shall attend and participate
at meetings of the Audit Committee but shall not have the right to vote.
The Audit Committee should have discussions with the auditors periodically
about internal control systems, the scope of audit including the observations of the
auditors and review the half-yearly and annual financial statements before submission
to the Board and also ensure compliance of internal control systems. It shall have
authority to investigate into any matter in relation to the items specified by the Board
and for this purpose, shall have full access to information contained in the records of
the company and external professional advice, if necessary. The recommendations of
the Audit Committee on any matter relating to financial management, including the
audit report, shall be binding on the Board. If the Board does not accept the
recommendations of the Audit Committee, it shall record the reasons thereof and
communicate such reasons to the shareholders.
Besides, a listed public company may, and in the case of resolutions relating
to such business as the Central Government may, by notification, declare to be
conducted only by postal ballot, shall, get any resolution passed by means of a postal
ballot, instead of transacting the business in general meeting of the company. Where a
company decides to pass any resolution by resorting to postal ballot, it shall send a
notice to all the shareholders, along with a draft resolution explaining the reasons
thereof, and requesting them to send their assent or dissent in writing on a postal ballot
within a period of thirty days from the date of posting of the letter. If a resolution is
assented to by a requisite majority of the shareholders by means of postal ballot, it shall
be deemed to have been duly passed at a general meeting convened in that behalf.
However, if a shareholder sends his assent or dissent in writing on a postal ballot and
thereafter any person fraudulently defaces or destroys the ballot paper or declaration of
28
identify of the shareholder, such person shall be punishable with imprisonment for a
term which may extend to six months or with fine or with both.
2. In the competitive and technology driven business environment, while corporates

require greater autonomy of operation and opportunity for self-regulation with optimum
compliance costs, there is a need to bring about transparency through better disclosures
and greater responsibility on the part of corporate owners and management for
improved compliance. In response to such changing corporate climate, the Companies
Act, 1956 has been amended from time to time so as to provide more transparency in
corporate governance and protect the interests of small investors, depositors and
debenture holders, etc.
The important step in this direction has been the Companies Bill, 2004, which
has been introduced to provide the comprehensive review of the company law. It
contained important provisions relating to corporate governance, like, independence of
auditors, relationship of auditors with the management of company, independent
directors with a view to improve the corporate governance practices in the corporate
sector. It is subjected to greater flexibility and self-regulation by companies, better
financial and non-financial disclosures, more efficient enforcement of law, etc.
This amendment to the Companies Act 1956 mainly focused on reforming the
audit process and the board of directors. It mainly aimed at:- (i) laying down the
process of appointment and qualification of auditors, (ii) prohibiting non-audit services
by the auditors; (iii) prescribing compulsory rotation, at least of the Audit Partner; (iv)
requiring certification of annual audited accounts by both CEO and CFO; etc. For
reforming the boards, the bill included that remuneration of non-executive directors can
be fixed only by shareholders and must be disclosed. A limit on the amount which can
be paid would also be laid down. It is also envisaged that the directors should be
imparted suitable training. However, among others, an independent director should not
have substantial pecuniary interest in the company’s shares.
SEBI Laws
Improved corporate governance is the key objective of the regulatory framework in the
securities market. Accordingly, Securities and Exchange Board of India (SEBI) has
29
made several efforts with a view to evaluate the adequacy of existing corporate
governance practices in the country and further improve these practices. It is
implementing and maintaining the standards of corporate governance through the use of
its legal and regulatory framework, namely:-
1. Securities Contracts (Regulation) Act, 1956
This Act was enacted to prevent undesirable transactions and to check

speculation in the securities by regulating the business of dealing therein. Any stock
exchange, which is desirous of being recognised, may make an application in the
prescribed manner to the Central Government. Every application shall contain such
particulars as may be prescribed, and shall be accompanied by a copy of the bye-laws
of the stock exchange for the regulation and control of contracts as well as a copy of the
rules relating in general to the constitution of the stock exchange, and in particular to:-
(i) the governing body of such stock exchange, its constitution and powers of
management and the manner in which its business is to be transacted; (ii) the powers
and duties of the office bearers of the stock exchange; (iii) the admission into the stock
exchange of various classes of members, the qualifications for membership, and the
exclusion, suspension, expulsion and re-admission of members there from or there into;
(iv) the procedure for the registration of partnerships as members of the stock
exchange, in cases where the rules provide for such membership; and the nomination
and appointment of authorised representatives and clerks.
Every recognised stock exchange shall furnish the Central Government with
a copy of the annual report, and such annual report shall contain such particulars as
may be prescribed. It may make rules or amend any rules made by it to provide for all
or any of the following matters, namely:- (i) the restriction of voting rights to members
only in respect of any matter placed before the stock exchange at any meeting; (ii) the
regulation of voting rights in respect of any matter placed before the stock exchange at
any meeting so that each member may be entitled to have one vote only, irrespective of
his share of the paid-up equity capital of the stock exchange; (iii) the restriction on the
right of a member to appoint another person as his proxy to attend and vote at a meeting
of the stock exchange; etc.
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If, in the opinion of the Central Government, an emergency has arisen

and for the purpose of meeting the emergency, the Central Government considers it
expedient so to do, it may, by notification in the Official Gazette, for reasons to be set
out therein, direct a recognised stock exchange to suspend such of its business for such
period not exceeding seven days and subject to such conditions as may be specified in
the notification, and, if, in the opinion of the Central Government, the interest of the
trade or the public interest requires that the period should be extended, it may, by like
notification extend the said period from time to time.
Securities Contracts (Regulation) Amendment Act, 2007 has been enacted

in order to further amend the Securities Contracts (Regulation) Act, 1956, with a view
to include securitisation instruments under the definition of 'securities' and provide for
disclosure based regulation for issue of the securitised instruments and the procedure
thereof. This has been done keeping in view that there is considerable potential in the
securities market for the certificates or instruments under securitisation transactions.
Further, replication of the securities markets framework for these instruments would
facilitate trading on stock exchanges and, in turn, help development of the market in
terms of depth and liquidity.
2. Securities and Exchange Board of India Act, 1992
This Act was enacted to protect the interests of investors in securities and to
promote the development of, and to regulate, the securities market and for matters
connected therewith or incidental thereto. For this purpose, the SEBI (the Board), by
regulation, specify:- (i) the matters relating to issue of capital, transfer of securities and
other matters incidental thereto; and (b) the manner in which such matters shall be
disclosed by the companies.
No stock-broker, sub-broker, share transfer agent, banker to an issue,

trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio
manager, investment adviser and such other intermediary who may be associated with
securities market shall buy, sell or deal in securities except under, and in accordance
with, the conditions of a certificate of registration obtained from the Board in
accordance with the regulations made under this Act.
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No depository, participant, custodian of securities, foreign institutional

investor, credit rating agency, or any other intermediary associated with the securities
market as the Board may by notification in this behalf specify, shall buy or sell or deal
in securities except under and in accordance with the conditions of a certificate of
registration obtained from the Board in accordance with the regulations made under this
Act.
Further, no person shall sponsor or cause to be sponsored or carry on or caused

to be carried on any venture capital funds or collective investment scheme including
mutual funds, unless he obtains a certificate of registration from the Board in
accordance with the regulations.
Every application for registration shall be in such manner and on payment of

such fees as may be determined by regulations. The Board may, by order, suspend or
cancel a certificate of registration in a prescribed manner, as may be determined by
regulations under this Act. However, no order shall be made unless the person
concerned has been given a reasonable opportunity of being heard.
3. Depositories Act, 1996
This Act was enacted to provide for regulation of depositories in securities

and for matters connected therewith or incidental thereto. It provides for the
introduction of scripless trading system and settlement, which is considered necessary
for the effective functioning of the securities markets. As per the Act, the term
'depository' means "a company formed and registered under the Companies Act, 1956
and which has been granted a certificate of registration under sub-section (1A) of
section 12 of the Securities and Exchange Board of India Act, 1992".
No depository shall act as a depository unless it obtains a certificate of

commencement of business from the Board (the SEBI). The Board shall grant a
certificate only if it is satisfied that the depository has adequate systems and safeguards
to prevent manipulation of records and transactions. However, a certificate shall not be
refused unless the depository concerned has been given a reasonable opportunity of
being heard.
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A depository shall enter into an agreement with one or more participants as its
agent, in such form as may be specified by the bye-laws. Any person, through a
participant, may enter into an agreement, in such form as may be specified by the bye-
laws, with any depository for availing its services. Any such person shall surrender the
certificate of security, for which he seeks to avail the services of a depository, to the
issuer in such manner as may be specified by the regulations. The issuer, on receipt of
certificate of security, shall cancel the certificate of security and substitute in its records
the name of the depository as a registered owner in respect of that security and inform
the depository accordingly. A depository shall, on receipt of information, enter the
name of the person referred in its records, as the beneficial owner.
On receipt of intimation from a participant, every depository shall register the

transfer of security in the name of the transferee. If a beneficial owner or a transferee of
any security seeks to have custody of such security, the depository shall inform the
issuer accordingly.
Every person subscribing to securities offered by an issuer shall have the option
either to receive the security certificates or hold securities with a depository. Where a
person opts to hold a security with a depository, the issuer shall intimate such
depository the details of allotment of the security, and on receipt of such information
the depository shall enter in its records the name of the allottee as the beneficial owner
of that security.
A depository shall be deemed to be the registered owner for the

purposes of effecting transfer of ownership of security on behalf of a beneficial owner.
However, it shall not have any voting rights or any other rights in respect of securities
held by it. The beneficial owner shall be entitled to all the rights and benefits and be
subjected to all the liabilities in respect of his securities held by a depository.
The Board, on being satisfied that it is necessary in the public interest or

in the interest of investors so to do, may, by order in writing,:- (i) call upon any issuer,
depository, participant or beneficial owner to furnish in writing such information
relating to the securities held in a depository as it may require; or (ii) authorise any
person to make an enquiry or inspection in relation to the affairs of the issuer,
33
beneficial owner, depository or participant, who shall submit a report of such enquiry or
inspection to it within such period as may be specified in the order.
34
BENEFITS AND LIMITATIONS
The concept of corporate governance has been attracting public attention

for quite some time. It has been finding wide acceptance for its relevance and
importance to the industry and economy. It contributes not only to the efficiency of a
business enterprise, but also, to the growth and progress of a country's economy.
Progressively, firms have voluntarily put in place systems of good corporate
governance for the following reasons:
 Several studies in India and abroad have indicated that markets and investors
take notice of well managed companies and respond positively to them. Such
companies have a system of good corporate governance in place, which allows
sufficient freedom to the board and management to take decisions towards the
progress of their companies and to innovate, while remaining within the
framework of effective accountability.
 In today's globalised world, corporations need to access global pools of capital
as well as attract and retain the best human capital from various parts of the
world. Under such a scenario, unless a corporation embraces and demonstrates
ethical conduct, it will not be able to succeed.
 The credibility offered by good corporate governance procedures also helps
maintain the confidence of investors – both foreign and domestic – to attract
more long-term capital. This will ultimately induce more stable sources of
financing.
 A corporation is a congregation of various stakeholders, like customers,
employees, investors, vendor partners, government and society. Its growth
requires the cooperation of all the stakeholders. Hence it imperative for a
corporation to be fair and transparent to all its stakeholders in all its transactions
by adhering to the best corporate governance practices.
 Good Corporate Governance standards add considerable value to the operational
performance of a company by:
 improving strategic thinking at the top through induction of independent
directors who bring in experience and new ideas;
 rationalizing the management and constant monitoring of risk that a firm faces
globally;
35
 limiting the liability of top management and directors by carefully articulating

the decision making process;
 assuring the integrity of financial reports, etc.
It also has a long term reputational effects among key stakeholders, both internally
and externally.
 Also, the instances of financial crisis have brought the subject of corporate
governance to the surface. They have shifted the emphasis on compliance with
substance, rather than form, and brought to sharper focus the need for
intellectual honesty and integrity. This is because financial and non-financial
disclosures made by any firm are only as good and honest as the people behind
them.
 Good governance system, demonstrated by adoption of good corporate
governance practices, builds confidence amongst stakeholders as well as
prospective stakeholders. Investors are willing to pay higher prices to the
corporates demonstrating strict adherence to internally accepted norms of
 Effective governance reduces perceived risks, consequently reduces cost of
capital and enables board of directors to take quick and better decisions which
ultimately improves bottom line of the corporates.
 Adoption of good corporate governance practices provides long term sustenance
and strengthens stakeholders' relationship.
 A good corporate citizen becomes an icon and enjoy a position of respects.
 Potential stakeholders aspire to enter into relationships with enterprises whose
governance credentials are exemplary.
 Adoption of good corporate governance practices provides stability and growth
to the enterprise.
36
CORPORATE GOVERNANCE PROVISIONS AS PER

COMPANIS ACT, 2013
Companies Bill, 2012, takes giant strides in privileging corporate

governance. Directors face severe restrictions, auditors will be rotated,
independent directors (IDs) have been strengthened, more powers are vested in
shareholders, private companies lose many exemptions and transparency gets a
boost. Extensive controls on loans and investments are another limb of
governance. Greater involvement by shareholders will replace government
approvals, a welcome move. Loans to all parties not only corporates will be
covered in the loan limits and investments by companies.
Contracts with related parties will require prior approval by the

board and, in some cases, by shareholders. By a unique provision, shareholders
interested in the matter cannot vote on these general meeting resolutions. Small
shareholders are ensured board participation by one director representing them.
Related-party contracts must be justified and fully disclosed in the Director's
Report. These approvals will, however, not be required if the transactions are on
arm's-length basis. The directors, promoters, key management personnel and top
10 shareholders in listed companies must report any share purchase or sale
within 15 days to the registrar.
All listed or notified classes of companies must have at least one-

third directors as IDs. Any director's associated party cannot do business with the
company except on an arm's length basis. Directors will be responsible only for
acts of omission or commission or negligence if they do not act on information
that should come to their knowledge as board members. They must oversee the
welfare of all stakeholders. No conflict of interest is allowed between the
company and another organization with which they are connected; or hold office
beyond two terms of three years each followed by rest of one term. All board
resolutions must be approved by at least one ID. If a third of the directors so
notify, resolutions moved by circulation have to be considered by the board.
37
The Bill provides additional matters to be resolved upon only at

board meetings, viz, (a) issue of securities, (b) granting of loans or guarantees,
etc, (c) diversification of company's business, (d) approval of any merger or
reconstruction, (e) taking a substantial stake in another company, (f) related-
party transaction, or (g) other prescribed matters. For many matters, shareholders'
Special Resolution is now needed, not just ordinary resolution, viz, selling or
leasing out undertakings, borrowing money or to remit or give time for debt
repayment by a director. Even private companies cannot give a loan to a director
or associated parties except by shareholders' prior Special Resolution approval.
Working directors and senior management staff have been

prohibited from entering into any call or put option on securities of the company,
subsidiary or associates. Insider trading in any company will fetch penalties. The
Remuneration Committee, headed by an ID, shall decide a remuneration policy,
having fixed and variable pay, and pay relationship between directors and senior
management, and to be disclosed to shareholders.
Audit committee responsibility has been expanded to include

monitoring of auditors' independence, their performance evaluation, approval of
modification of related-party transactions, scrutiny of loans and investments,
valuation of assets and evaluation of internal controls and risk management.
They have to establish a vigil mechanism and protection for any whistle-blower.
The members must be able to understand financial statements and have a
majority of IDs. Large companies must mandatorily have professional internal
auditors.
Firms of auditors of listed and specified classes of companies

must have a rest period after two consecutive terms of five years each. Their
continuation can be reviewed at every AGM. During their tenure, partner and
team are to be rotated. A sole proprietary firm has to retire at the end of five
years. The auditor will not be eligible for appointment, if he is providing other
services to the company, its subsidiary or associates. In this scenario, we will
surely see a concentration of large audits amongst the Big Four audit firms as per
the trend in the developed world.
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The responsibility of auditors and penalty for

negligence/wrongdoing has gone up, including criminal liability on the entire
firm for even one partner's collusion in a fraud. This measure will be
counterproductive by keeping good talent away. Disciplinary process is to be
transferred from ICAI to a statutory board.
For private companies, many exemptions have been withdrawn.

All loans to working directors and other parties, related-party transactions, a
business diversification or capital raising, etc. will need board or general body
approval. Disclosure requirements to shareholders have been enhanced.
39
WEAKNESSES OF CORPORATE GOVERNANCE
1. NO PROPER STRUCTURE
It is true that the ‘corporate governance’ has no unique structure or
design and is largely considered ambiguous. There is still lack of awareness about
its various issues, like, quality and frequency of financial and managerial
disclosure, compliance with the code of best practice, roles and responsibilities of
Board of Directories, shareholders rights, etc. There have been many instances of
failure and scams in the corporate sector, like collusion between companies and
their accounting firms, presence of weak or ineffective internal audits, lack of
required skills by managers, lack of proper disclosures, non-compliance with
standards, etc. As a result, both management and auditors have come under greater
scrutiny.
But, with the integration of Indian economy with global markets,

industrialists and corporate in the country are being increasingly asked to adopt
better and transparent corporate practices. The degree to which corporations
observe basic principles of good corporate governance is an increasingly important
factor for taking key investment decisions. If companies are to reap the full
benefits of the global capital market, capture efficiency gains, benefit by
economies of scale and attract long term capital, adoption of corporate governance
standards must be credible, consistent, coherent and inspiring. Individual
shareholders, who usually do not exercise governance rights, are highly concerned
about getting fair treatment from controlling shareholders and management.
Creditors, especially banks, play a key role in governance systems, and serve as
external monitors over corporate performance. Employees and other stakeholders
also play an important role in contributing to the long term success and
performance of the corporation. Thus, it is necessary to apply governance practices
in a right manner for better growth of a company. There are two types of
mechanism that resolve the conflicts among different corporate claim-holders,
especially, the conflicts between owners and managers, and those between
controlling shareholders and minority shareholders. The first type consists of
various internal variables, e.g.
40
(1) The ownership structure,
(2) Board of directors
(3) Executive compensation and
(4) Financial disclosure.
The second includes external mechanism with variables, e.g.
(1) Effective takeover market,
(2) Legal infrastructure and
(3) Product market competition.
2. NO GOVERNMENT SUPPORT
Strong governance standards focusing on fairness, transparency,
accountability and responsibility are vital not only for the healthy and
vibrant corporate sector growth, as well as inclusive growth of the economy.
Recent corporate scandals have led to public pressure to reform business practices
and increase regulation. The public outcry over the recent scandals has made it
clear that the status quo is no longer acceptable: the public is demanding
accountability and responsibility in corporate behavior. It is widely believed that
it will take more than just leadership by the corporate sector to restore public
confidence in our capital markets and ensure their ongoing vitality. It will also take
effective government action, in the form of reformed regulatory systems, improved
auditing, and stepped up law enforcement. These responses make clear that the
governance of corporations has become a central item on the public policy agenda.
The recent scandals themselves demonstrate that lax regulatory institutions,
standards, and enforcement can have huge implications for the economy and for
the public. Of course, government responses to scandals should be well considered
and effective.
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3. INSIDER TRADING
Corporate insiders like officers, directors and employees by the virtue
of their position have access to confidential information about the corporation and
may misappropriate that information to reap profits. In most countries, trading by
corporate insiders such as officers, key employees, directors, and large
shareholders may be legal, if this trading is done in a way that does not take
advantage of non-public information. However, the term is frequently used to refer
to a practice in which an insider or a related party trades based on material non-
public information obtained during the performance of the insider’s duties at the
corporation, or otherwise in breach of a fiduciary or other relationship of trust and
confidence or where the non-public information was misappropriated from the
company. Such corporate insiders use these information in such a way to reap
profits or avoid losses on the stock market, to the detriment of the source of the
information and to the typical investors who buy or sell their stock without the
advantage of “inside” information.
The term insider trading is popularly used in the negative sense as it

is perceived that the persons having access to the price sensitive and unpublished
information used the same for their personal gains. However insider trading per se
does not mean any illegal conduct. It encompasses both legal as well as illegal
conduct. The legal version is when corporate insider’s officers, directors, and
employees buy and sell stock in their own companies. In order to legalize their
transactions, the directors and employees of the company should inform about
their dealing with the securities to the SEBI. Insider trading is defined as-“The use
of material non-public information in trading the shares of the company by a
corporate insider or any other person who owes a fiduciary duty to the company”.
SEBI is the watchdog of all the stock exchanges in India. It has been obligated to
protect the interest of the investors in the securities market and to regulate the stock
market through such other regulations as it deems fit. It is due to the very fact that
the investors invest on the shares being speculative, but when the prices of the
shares could be predicted well before in hand then they may take a decision
accordingly. Hence, pre-determined price may result in undesired consequences
as people may buy huge amount of shares whose value may appreciate.
42
Section 17 Securities Exchange Act, 1933 contained prohibitions to

deal with the fraud in the sale of the securities in the most stringent manner
possible. The Act addressed insider trading directly through Section 16(b) and
indirectly through Section 10(b). Section 16(b) of the Securities Exchange Act,
1934 prohibits the purchase and sale of the shares within six month period
involving the directors, officers, stock holders owning more than 10% of the shares
of the company. The rationale behind the incorporation of this provision is that it
is only the substantial shareholders and the persons concerned with the decision
and management of the company who can have access to the price sensitive
information and therefore there should be bar upon them to transact in securities.
In the case of Samir.C.Arora vs. SEBI Mr. Arora was prohibited by

the SEBI in its order not to buy, sell or deal in securities, in any manner, directly
or indirectly, for a period of five years. Also, if Mr. Arora desired to sell the
securities held by him, he required a prior permission of SEBI. Mr. Arora contested
this order of SEBI in the Securities Appellate Tribunal. SAT set aside the order of
SEBI on grounds of insufficient evidence to prove the charges of insider trading
and professional misconduct against Mr. Arora.
This case testifies the fact that the SEBI lacks the thorough
investigative mechanism and a vigilant approach due to which the culprits are able
to escape from the clutches of law. In most of the cases, SEBI failed to adduce
evidence and corroborate its stance before the court. Unlike the balance of
probabilities that is required in proving a civil liability, a case involving criminal
liability requires the allegations to be proved beyond reasonable doubts. Therefore
there should be thread bare investigation and all the loopholes if any should be
properly plugged in.
4. BASIS OF INDIAN MODEL
The problem in the Indian corporate sector is that of disciplining the

dominant shareholder and protecting the minority shareholders. Clearly, the
problem of corporate governance abuses by the dominant shareholder can be
solved only by forces outside the company itself. In an environment in which
43
ownership and management have become widely separated, the owners are unable
to exercise effective control over the management or the Board.
The central problem in Indian corporate governance is not a conflict

between management and owners as in the US and the UK, but a conflict between
the dominant shareholders and the minority shareholders. The problem of the
dominant shareholder arises in three large categories of Indian companies. First
are the public sector units (PSUs) where the government is the dominant (in fact,
majority) shareholder and the general public holds a minority stake. Second are
the multinational companies (MNCs) where the foreign parent is the dominant (in
most cases, majority) shareholder. Third are the Indian business groups where the
promoters (together with their friends and relatives) are the dominant shareholders
with large minority stakes, government owned financial institutions hold a
comparable stake, and the balance is held by the general public. It is important to
bear in mind that the relation between the company and its shareholders and the
relation between the shareholders inter-se is primarily contractual in nature.
The memorandum and articles of association of the company

constitute the core of this contract and the corporate law provides the framework
within which the contracts operate. The essence of this contractual relationship is
that each shareholder is entitled to a share in the profits and assets of the company
in proportion to his shareholding. Flowing from this is the fact that the Board and
the management of the company have a fiduciary responsibility towards each and
every shareholder and not just towards the majority or dominant shareholder.
Shareholder democracy is not the essence of the corporate form of business at all.
Shares are first and foremost ownership rights – rights to profits and assets. In
other cases, shares also carry some secondary rights including the control rights –
rights to appoint the Board and approve certain major decisions. The term
shareholder democracy focuses on the secondary and less important part of
shareholder rights. Corporate governance ought to be concerned more about
ownership rights. If a shareholder’s ownership rights have been trampled upon, it
is no answer to say that his control rights have been fully respected.
44
OTHER WEAKNESSES
 Family-owned business- Family-owned companies are characterized as

organizations in which the shareholders belong to the same family and participate
substantially in the management, direction, and operation of the company. A
family business refers to a company where the voting majority is in the hands of
the controlling family; including the founder(s) who intend to pass the business on
to their descendants. Many Indian businesses are old family establishments and
while controlling shareholders may welcome cash infusions by outside investors,
but they may hesitate to relinquish control. It becomes difficult for outsiders to
track the business realities of individual companies. As the family and its business
grow larger, this situation can lead to many inefficiencies and internal conflicts
that could threaten the continuity of the business. Family control also brings
governance problems – not least of which are a lack of checks and balances over
executive decision making and behavior, and a lack of transparent reporting to the
outside world.
 Noncompliance with disclosure norms and even the failure of auditor’s reports to
conform to the law attract nominal fines with hardly any punitive action. The
Institute of Chartered Accountants in India has not been known to take action
against erring auditors.
 While the Companies Act provides clear instructions for maintaining and updating
share registers, in reality minority shareholders have often suffered from
irregularities in share transfers and registrations – deliberate or unintentional.
 Sometimes non-voting preferential shares are used by promoters to channel funds
and deprive minority shareholders of their dues.
 Minority shareholders have sometimes been defrauded by the management
undertaking clandestine side deals with the acquirers in the relatively scarce events
of corporate takeovers and mergers.
 Misleading financial statements- There are many ways to present factually
accurate information on a financial statement in a manner that is misleading to
investors. By, for example, selling property from a parent company to a subsidiary
to maximize parent company revenues.
 The Harshad Mehta stock market scam of 1992 followed by incidents of
companies allotting preferential shares to their promoters at deeply discounted
45
prices as well as those of companies simply disappearing with investors’ money.

These concerns about corporate governance stemming from the corporate scandals
as well as opening up to the forces of competition and globalization gave rise to
several investigations into the ways to fix the corporate governance situation in
India.
 One of the big problems with Indian corporate governance is that too many listed
companies and directors follow the letter of the law, rather than the spirit. Clause
49 of the country’s listing rules sets out a series of corporate governance
regulations. For example, a listed company must have a non-executive and one-
third of its board should be non-executive directors. The nonexecutives should be
on the board to challenge management, but in reality they tend not to.
 ‘Good people are very few’ partly because there is a legal limit on the amount
companies can pay non-executives. They are not allowed to receive a salary and
can only be paid for attendance at board meetings that gives the non-executives
little incentive to fulfill their obligations properly.
 Directors’ remuneration needs a rethink, as does the process of appointing
directors. Currently, non-executives are generally selected by the board, with little
input from shareholders – they should become more active. An independent
agency should also rate the standards of corporate governance at listed companies.
46
ISSUES IN CORPORATE GOVERNANCE
In the last decade, the frequency of corporate frauds and governance

failures that have dotted the global corporate map have witnessed comparably
vigorous efforts of improving corporate governance practices. India has
liberalized the regulatory fabric of the country to align its corporate governance
norms with those of developed countries. And yet, achieving good governance
and ensuring results of such governance practices continue to remain one of the
top priorities of stakeholders even today.
Set out below are top ten issues affecting corporate governance practices in
India.
1. Getting the Board Right
Enough has been said on board and its role as the cornerstone for good
corporate governance. To this end, the law requires a healthy mix of executive
and non-executive directors and appointment of at least one woman director for
diversity. There is no doubt that a capable, diverse and active board would, to
large extent, improve governance standards of a company. The challenge lies in
ingraining governance in corporate cultures so that there is improving
compliance "in spirit". Most companies' in India tend to only comply on paper;
board appointments are still by way of "word of mouth" or fellow board member
recommendations. It is common for friends and family of promoters (a uniquely
Indian term for founders and controlling shareholders) and management to be
appointed as board members. Innovative solutions are the need of the hour – for
instance, rating board diversity and governance practices and publishing such
results or using performance evaluation as a minimum benchmark for director
appointment.
47
2. Performance Evaluation of Directors
Although performance evaluation of directors has been part of the

existing legal framework in India, it caught the regulator's attention recently. In
January 2017, SEBI, India's capital markets regulator, released a 'Guidance Note
on Board Evaluation'. This note elaborated on different aspects of performance
evaluation by laying down the means to identify objectives, different criteria and
method of evaluation. For performance evaluation to achieve the desired results
on governance practices, there is often a call for results of such evaluation are
made public. Having said that, evaluation is always a sensitive subject and public
disclosures may run counter-productive. In a peer review situation, to avoid
public scrutiny, negative feedback may not be shared. To negate this behaviour,
the role of independent directors in performance evaluation is key.
3. True Independence of Directors
Independent directors' appointment was supposed to be the biggest

corporate governance reform. However, 15 years down the line, independent
directors have hardly been able to make the desired impact. The regulator on its
part has, time and again, made the norms tighter – introduced comprehensive
definition of independent directors, defined a role of the audit committee, etc.
However, most Indian promoters design a tick-the-box way out of the regulatory
requirements. The independence of such promoter appointed independent
directors is questionable as it is unlikely that they will stand-up for minority
interests against the promoter. Despite all the governance reforms, the regulator
is still found wanting. Perhaps, the focus needs to shift to limiting promoter's
powers in matters relating to in independent directors.
4. Removal of Independent Directors
While independent directors have been generally criticized for

playing a passive role on the board, instances of independent directors not siding
with promoter decisions have not been taken well – they were removed from
48
their position by promoters. Under law, an independent director can be easily

removed by promoters or majority shareholders. This inherent conflict has a
direct impact on independence. In fact, earlier this year, even SEBI's
International Advisory Board proposed an increase in transparency with regard
to appointment and removal of directors. To protect independent directors from
vendetta action and confer upon them greater freedom of action, it is imperative
to provide for additional checks in the process of their removal – for instance,
requiring approval of majority of public shareholders.
5. Accountability to Stakeholders
Empowerment of independent directors has to be supplemented

with greater duties for, and accountability of directors. In this regard, Indian
company law, revamped in 2013, mandates that directors owe duties not only
towards the company and shareholders but also towards the employees,
community and for the protection of environment. Although these general duties
have been imposed on all directors, directors including independent directors
have been complacent due to lack of enforcement action. To increase
accountability, it may be a good idea to require the entire board to be present at
general meetings to give stakeholders an opportunity to interact with the board
and pose questions.
6. Executive Compensation
Executive compensation is a contentious issue especially when

subject to shareholder accountability. Companies have to offer competitive
compensation to attract talent. However, such executive compensation needs to
stand the test of stakeholders' scrutiny. Presently, under Indian law, the
nomination and remuneration committee (a committee of the board comprising
of a majority of independent directors) is required to frame a policy on
remuneration of key employees. Also, the annual remuneration paid to key
executives is required to be made public. Is this enough? To retain and nurture a
trustworthy relationship between the shareholders and the executive, companies
may consider framing remuneration policies which are transparent and require
shareholders' approval.
49
7. Founders' Control and Succession Planning
In India, founders' ability to control the affairs of the company has the
potential of derailing the entire corporate governance system. Unlike developed
economies, in India, identity of the founder and the company is often merged.
The founders, irrespective of their legal position, continue to exercise significant
influence over the key business decisions of companies and fail to acknowledge
the need for succession planning. From a governance and business continuity
perspective, it is best if founders chalk out a succession plan and implement it.
Family owned Indian companies suffer an inherent inhibition to let go of control.
The best way to tackle with this is widen the shareholder base - as PE and other
institutional investors pump in capital, founders are forced to think about a
succession plan and step away with dignity.
8. Risk Management
Today, large businesses are exposed to real-time monitoring by

business media and national media houses. Given that the board is only playing
an oversight role on the affairs of a company, framing and implementing a risk
management policy is necessary. In this context, Indian company law requires
the board to include a statement in its report to the shareholders indicating
development and implementation of risk management policy for the company.
The independent directors are mandated to assess the risk management systems
of the company. For a governance model to be effective, a robust risk
management policy which spells out key guiding principles and practices for
mitigating risks in day-to-day activities is imperative.
9. Privacy and Data Protection
As a key aspect of risk management, privacy and data protection is

an important governance issue. In this era of digitalization, a sound
understanding of the fundamentals of cyber security must be expected from
every director. Good governance will be only achieved if executives are able to
50
engage and understand the specialists in their firm. The board must assess the
potential risk of handling data and take steps to ensure such data is protected
from potential misuse. The board must invest a reasonable amount of time and
money in order ensure the goal of data protection is achieved.
10. Board's Approach to Corporate Social Responsibility (CSR)
India is one of the few countries which has legislated on CSR.

Companies meeting specified thresholds are required to constitute a CSR
committee from within the board. This committee then frames a CSR policy and
recommends spending on CSR activities based on such policy. Companies are
required to spend at least 2% of the average net profits of last three financial
years. For companies who fail to meet the CSR spend, the boards of such
companies are required to disclose reasons for such failure in the board's report.
During the last year, companies which failed to comply received notices from the
ministry of corporate affairs asking for reasons why they did not incur CSR
spend and in some cases questioning the reasons disclosed for not spending. In
these circumstances, increased effort and seriousness by the board towards CSR
is necessary. CSR projects should be managed by board with as much interest
and vigor as any other business project of the company.
51
LISTING AGREEMENT
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 non-
executive 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.
52
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.
53
SCOPE OF CORPORATE GOVERNANCE
Corporate governance instils ethical standards in the company. It creates

space for open dialogue by incorporating transparency and fair play in strategic
operations of the corporate management. The significance of corporate governance
lies in :
1. Accountability of Management to shareholders and other stakeholders

2. Transparency in basic operations of the company and integrity in financial reports
produced by the company
3. Component Board comprising of Executive and Independent Directors
4. Checks & balances is an integral part of good corporate governance.
5. Adherence to the rules of company in law and spirit
6. Code of responsibility for Directors and Employees of the company
7. Open Dialogue between management and stakeholders of the company.
8. Investor Loyalty is a guarantor of good corporate governance practices
A Component board comprising of experienced professionals and active

directorship who brings rich experience and intellectual vision on the board
resulting in a greater economic efficiency of the company and enjoys the
indispensable trust of the shareholders and key stakeholders of the company and
they turn into trusted market players in the corporate sector enjoying everlasting
market repute.
54
CASE STUDY
THE SATYAM SCAM
The failure of corporate governance and of misleading accounts is a

failure of both the management and of the auditors. The promoters decided to
inflate the revenue and profit figures of Satyam. In the event, the company has a
huge hole in its balance sheet, consisting of non-existent assets and cash reserves
that have been recorded and liabilities that are unrecorded.
This episode has led to debates in India, about some of inadequacies

in the corporate governance norms. Questions have been raised about the
performance/ effectiveness of board of directors, roles of auditors, the impact of
regulations, disclosures, etc
It is one such great opportunity to reassess some of the existing

framework on corporate governance, systems for better enforcements of
regulations; effective roles and duties of directors, executives, regulators; ethics in
businesses and empowerment of minority shareholders.
One must, however, understand that no matter how strong a

regulatory system is, it cannot always prevent frauds. Despite the enormous
increase of disclosures and stringent risk management systems scams do take
place. Moreover, strong measures often lead to expensive regulations and
defiance. There are limits to legislations as a lot depends on the integrity and
ethical values of various corporate players such as directors, promoters, executives
and shareholders. The key lies in management decisions and its commitment to
establish and follow rigorous governance systems. The implementation must be in
the letter and spirit, and one should recognize the responsibility of the company
towards its stakeholders. In particular, non-executive directors are supposed to
give an independent assessment of the quality of management. But time and time
again, failures of corporate governance suggest that they do not. The infractions
of law have arisen despite independent directors which were stopped by external
forces. There are several reasons pointing to these anomalies-
First, it is difficult to appoint truly independent directors. This is particularly hard
55
to achieve in countries such as India where family ownership is widespread and

there is a close-knit group of corporate leaders. It is difficult for non-executive
directors to perform a scrutiny objective at the best of times.
Next, the very idea of independent directors is to ensure commitment to values,
ethical business conduct and about making a distinction between personal and
corporate funds in the management of a company. Yet, most independent directors
have become sidekicks for the management, eying their commission and fees,
forgetting their very purpose of appointment. In contrast, the problem in the Indian
corporate sector is disciplining the dominant shareholder and protecting the
minority shareholders, vindicated in the recent Satyam case. After successfully
working over the decades separating ownership and management, owners, realized
that they have lost control over the management or the board.
56
CONCLUSION
According to the recent survey India is the largest hub of insider

trading, which has determent the interest of individual investor and their
confidence the capital market because of non-availability of proper monitoring
authority to investigate and prosecute insider. If such activities continues the
basic function of stock exchange i.e. capital formation will be reduced as general
investors trust will be lost on functioning of stock exchange.
“Complaining about insider trading without finding a workable solution

is like crying that the government should do something about smoking as it
causes cancer, but doing nothing.”
Same is the situation with the Indian government and SEBI both have
not been successful to curb insider trading. Though SEBI is now making some
efforts to prevent insider to trade in stock exchange and disturb the main
functioning of it. Efforts made by SEBI on a slow pace which needs to be fasten
up otherwise this kind of activities will loses the trust of general investors.
“It is difficult to prescribe remedies to each one of the trading

malpractice in Indian Stock Market. But the problem of insider trading and secret
take-over bids could tackled to a large extent by appropriate regulatory measures
by authority.”
Corporate Governance is the mechanism by which the agency

problems of corporation stakeholders, including the shareholders, creditors,
management, employees, consumers and the public at large are framed and
sought to resolve.
As Indian companies compete globally for access to capital

markets, many are finding that the ability to benchmark against world-class
organizations is essential.
For a long time, India was a managed, protected economy with the
corporate sector operating in an insular fashion. But as restriction have eased,
57
Indian corporations are emerging on the world stage and discovering that the old
ways of doing business are no longer sufficient in such a fast-paced global
environment.
It is evident from above that it is essential that good governance

practices must be effectively implemented and enforced preferably by self-
regulation and voluntary adoption of ethical code of business conduct and if
necessary through relevant regulatory laws and rules framed by Government or
its agencies such as SFBI, RBI.
The effective implementation of good governance practices would

ensure investors’ confidence in the corporate companies which will lead to
greater investment in them ensuring their sustained growth. Thus good corporate
governance would greatly benefit the companies enabling them to thrive and
prosper.
Further, in the context of liberalization and globalisation there is

growing realization in the emerging economies including India that a country’s
business environment must be maintained and operated in a manner that is
conducive to investors’ confidence so that both domestic and foreign investors
are induced to make adequate investment in corporate companies. This will be
conducive to rapid capital formation and sustained growth of the economy.
Some persons regard certain good corporate practices as ‘irritants’

to the growth of their businesses since they require the implementation of
minimum standards of corporate governance. However, fact of the matter is that
the observance of practices of good corporate governance will ensure investors’
confidence in the companies which have record of good corporate governance.
Further, it needs to be emphasized that practices and principles of

good corporate governance have been evolved which stimulate business rather
than stifle it. In fact in good corporate governance structure what is ensured is
that companies must preferably follow voluntarily ethical code of business
conduct which are conducive to the expansion of investment in them and ensure
good outcome in terms of rates of return.
58
BIBLOGRAPHY
 https://buc.kim/d/4cmIA6w5bmXm?pub=link
 https://buc.kim/d/6To1VwLtskG7?pub=link
 https://buc.kim/d/6vmxTRjQQ26q?pub=link
 https://buc.kim/d/50xsV4b4K8Az?pub=link
 https://www.slideshare.net/chetanjagtap77/corporate-governance-project
 https://m.acc.com/legalresources/publications/topten/tticgpi.cfm
 https://www.corpgov.net/2015/05/corporate-governance-in-india/
 https://www.lawctopus.com/academike/corporate-governance-in-india/
 http://www.mondaq.com/india/x/456460/Shareholders/Corporate+Governanc
e+Framework+In+India
 https://www.google.co.in/amp/s/blog.ipleaders.in/corporate-governance-
companies-act-2013/amp/
 https://pages.exed.hbs.org/governance?&utm_campaign=IN%20-%20Generic%20-
%20Topic&utm_medium=SEM&utm_source=google&utm_term=corporate%20gove
rnance&gclid=EAIaIQobChMI_s7xn8zh4AIVV6SWCh3URAvAEAAYASAAEgIbPfD_BwE
 https://books.google.co.in/books?hl=en&lr=&id=x4qqbgaaqbaj&oi=fnd&pg=pp1&
dq=corporate+governance:+principles,+policies+and+practices&ots=g16hccztby&s
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principles%2c%20policies%20and%20practices&f=false
 https://global.oup.com/ukhe/product/corporate-governance-
9780198702757?cc=gb&lang=en&
59

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A STUDY ON CORPORATE GOVERNANCE

Companies pool capital from a large investor base both in the

Corporate governance is a system of making Management

Corporate governance is also concerned with the morals, ethics,

The underlying principles of corporate governance revolve around

 Integrity and Fairness

According to the Confederation of Indian Industry (CII), corporate

Corporate governance mainly consists of two elements i.e., A long-

MEANING & DEFINITION OF CORPORATE

Corporate governance refers to the structures and processes for the

It is a term that refers broadly to the rules, processes, or laws by which

Creates safeguards against corruption and mismanagement, while

Definition: Definition of Corporate Governance has been given from time to

As per ICSI: Corporate Governance is the best Management practices

Basic and summarized definition

The above definition also reflects that a proper definition of corporate

 a culture based on a foundation of sound business ethics

We believe that a well-run organization must be structured in such a

The principles of governance have been in existence for centuries. History

 Raksha (Protection) Protecting shareholders wealth

And economic developments are intrinsically linked. Effective corporate

OBJECTIVES OF CORPORATE GOVERNANCE

1. A properly structured Board proficient of taking independent and objective decisions is in

CORPORATE GOVERNANCE NORMS

Corporate governance are the policies, procedures and rules governing

Primarily it is about managing top management, building in checks and

CONSTITUENTS OF CORPORATE GOVERNANCE

The three constituents of Corporate Governance are:

 Board of Directors or Board ;

These can further be detailed as:

 Roles and powers of the Board

WHY CORPORATE GOVERNANCE MATTERS…

 Improving access to capital

Much attention to corporate governance issues in emerging markets

Equally important and, irrespective of the need to access capital, good

NEED OF CORPORATE GOVERNANCE

(i) Wide Spread of Shareholders:

(ii) Changing Ownership Structure:

(iii) Corporate Scams or Scandals:

(iv) Greater Expectations of Society of the Corporate Sector:

(vi) Huge Increase in Top Management Compensation:

PRINCIPLES OF CORPORATE GOVERNANCE

 There should be forward-thinking discussions about the business.

 The performance of current members of management should be

 Shareholder value should be created with a long-term focus.

 The board should bring strategic discussions, including investments,

COMPOSITION OF CORPORATE GOVERNANCE

 The Board of Director is typically central to corporate governance.

IMPORTANCE ISSUES CORPORATE GOVERNACE IN

1. Changing Ownership Structure :

2. Importance of Social Responsibility :

3. Growing Number of Scams :

4. Indifference on the part of Shareholders :

6. Takeovers and Mergers :

YEAR NAME OF AREAS/ASPECTS

YEAR NAME OF AREAS/ASPECTS

In India, a small beginning was made by the Confederation of Indian

Thereafter, various committees have been constituted to give

1: CONFEDERATION OF INDIAN INDUSTRY (CII)

2: KUMAR MANGLAM BIRLA COMMITTEE

Such committee submitted its interim & final report in 1999/2000.

of Directors, role of independent directors, & remuneration standard and

3: NARESH CHANDRA COMMITTEE