Corporate Governance In India

Published Date: 02 Nov 2017

Prof Dr. N.S. Rao Shruti Mathur

Lalit Pipliwal

Category D

Setting Values For Corporate Governance

Abstract

Corporate Governance provides broad parameters of control and reporting system by the management board and it encompasess the interact you relationship among various consistent in determining performance of a corporation body. In broad sense management of human resourse and resolving corporation conflicts in an intregral part of corporate governance. Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. The management of the company hence assumes the role of a trustee for all the others. Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business.

Corporate Governance in India:

From the beginning of 1980s, situations have changed in India. There have been wide-ranging changes has taken place in both the laws and the regulations in the field of corporate law and the capital market. As a result of several scams in India. a need has arisen to bring reforms, in response to that, reforms began in 1991 in India. The most important event in the field of investor protection in India was the establishment of Securities and Exchange Board of India (SEBI) in 1992.

In India, the Confederation of Indian Industry (CII) took the lead in framing a desirable code of corporate governance in April 1998.  This was followed by the recommendation of the Kumar Mangalam Birla Committee on corporate governance appointed by the SEBI in the year 1997.The introduction of Clause 49  in Listing Agreements  in the year 2000 by SEBI was a major turning point in the history of corporate governance in India. In the Report of SEBI committee (India) on Corporate Governance defines corporate governance as, the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders.The recommendations of the committee were enshrined in clause 49 of the Listing Agreement of every Indian Stock Exchange. Every Company which has opted to list its shares in the recognized Stock Exchanges should enter into a listing agreement and non-compliance of the terms and conditions of the agreement can lead to a stringent action by the Stock Exchanges like de-listing of shares.

Corporate Governance in Today’s Context:

According to Milton Friedam, "corporate governance is to conduct the business in accordance with owner’s or shareholders desires, which generally will be to make as much money as possible" but this context is based on marked maximization that underpins shareholder capitalism. But this context was further expanded by J.Wolfensohn, president, World Bank, has said that "corporate governance is about promoting corporate fairness, transparency and accountability.Even the Experts at Organization of Economic Co-Operation and Development (OECD) have defined "corporate governance" as the system by which business corporations are directed and controlled, it means according to them it is a structure which specifies the distribution of rights and responsibilities among different participants in the corporation.

But today the concept of corporate governance has taken a new dimension and it runs as follows, "Corporate governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders".

Causes of Corporate Governance:

These are various reasons for the failure corporate mechanism. The failure of corporate governance is because of reasons like the following.

Looting company money: there are many people who are in the management who try to make money from their positions. The company that has been listed on the various exchanges should be goverened appropriately and all the profits should be in the company books and so they are all audited, but there are many individuals who work for their own benefit and try to loot the money that has been earned by the company .

Spending unnecessarily: there are also many people in public listed companies who may not be able to flagrantly loot the company, so they try to ensure that they spend a lot of money that is the part of the company’s income for their own benefit.

Irresponsible auditing: there are many companies that have many auditors who are on its trolls. There are also many other auditors from another neutral organization who are the external auditors who check the account books of the company there are many times when these two companies and the employees try to cheat the investors by painting a rosy picture and have great order books and also show inflated income deflated expenditure.

Payment: there are many companies that pay more to the employees than what they should actually be paid. These payment can be in the form of bonus and also other kinds of payments. This will cause the parson to be happy but the company will fall into dire straits.

The following are the key elements of good corporate governance:

Independence of directors

If the directors of a company are also the owners and/or their family members, entrepreneurs appointed by friends, or individuals who are involved in the daily management of the company, the board is unlikely to be impartial. Having a majority of non-executive independent directors will help avoid prejudice and conflicts of interest between the board and the management. Independent judgement is almost always in the best interest of the company.

Separation of 'strategic planner' role from 'operator' role

For small companies that do not have a board of directors, it is a good practice for the strategic planner of the business to be someone other than the owner-operator. This frees the planner from attending to day-to-day operational duties and enables him or her to focus on long-term, strategic business planning.

An 'exit strategy' for company owners

Whether it is a succession plan for passing on a family business or a buy-sell arrangement, an exit strategy should be planned and agreed upon by all parties concerned (eg shareholders, family members) well in advance.

Reliable systems and procedures

Potential creditors feel more confident if they know that the company has reliable systems and procedures in place. Such processes enable smaller SMEs to operate in the owners' absence (eg due to illness) and allow for smooth handovers to other parties.

Credible accounts

Even for the smallest SMEs, credible accounts enable the entrepreneur to know what is going on in the business and instils confidence in lenders.

Conclusion

Corporate governance philosophies differ around the world. However, with a few relatively minor exceptions, there exists a broad consensus on the elements of good corporate governance. It is widely understood that the most effective aspects of good corporate governance include:

•  A strong board of directors, independent of management and with sufficient expertise to oversee corporate management on behalf of the company’s shareholders;

•  Management compensation oversight, such as a compensation committee comprised of independent directors, to prevent opportunistic behaviour by management and help link management compensation to corporate performance;

•  Strong corporation laws and regulations designed to protect the rights of shareholders;

•  Extensive public disclosure requirements, including both financial and non-financial reporting designed to give shareholders and potential investors an accurate, timely and thorough picture of the company’s performance and liabilities; and

•  A robust independent audit function, with sufficiently thorough procedures to confirm the accuracy of a public company’s financial disclosure statements and overseen by a board committee comprised of independent directors, or by some other mechanism independent of management.