India has liberalised 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. Getting the Board Right Enough has been said on board and its role as the cornerstone for good corporate governance.
This clause is incorporated in the listing agreement of stock exchanges with companies and it is compulsory for listed companies to comply with its provisions.
MCA through its various appointed committees and forums such as National Foundation for Corporate Governance NFCGa not-for-profit trust, facilitates exchange of experiences and ideas amongst corporate leaders, policy makers, regulators, law enforcing agencies and non- government organizations.
Regulation The Companies Act, got assent of the President of India on 29th August, and it was enacted on 12th September, repealing the old Companies Act, The Companies Act, provides a formal structure for corporate governance by enhancing disclosures, reporting and transparency through enhanced as well as new compliance norms.
Apart from this, the Monopolies and Restrictive Trade Practices Act, which is replaced by the Competition Actthe Foreign Exchange Regulation Corporate governance in india, which has now been replaced by Foreign Exchange Management Act,the Industries Development and Regulation Act, and other legislations also have a bearing on the corporate governance principles.
In addition to various acts and guidelines by various regulators, non-regulatory bodies have also published codes and guidelines on Corporate Governance from time to time.
On 21 Augustthe Ministry of Finance appointed the Corporate governance in india Chandra Committee to examine various corporate governance issues primarily around auditor — company relationship, rotation of auditors and defining Independent directors. Many of these recommendations were then incorporated in the Revised Clause 49 that is seen as an important statutory requirement.
Board of Directors The Desirable Corporate Governance Code by CII for the first time introduced the concept of independent directors for listed companies and compensation paid to them.
The Kumar Mangalam Birla Committee then suggested that for a company with an executive Chairman, at least half of the board should be independent directors, else at least one-third. The Act introduces the requirement of appointing a resident director and a woman director.
The Act has also introduced new concepts such as performance evaluation of the board, committee and individual directors. The revised Clause 49 in now also states that all compensation paid to non —executive directors, including independent directors shall be fixed by the Board and shall require prior approval of shareholders in the General meeting and that limit shall be placed on stock options granted to non executive directors.
Such remuneration and stock option is required to be disclosed in the annual report of the company. It acts as an oversight body for transparent, effective anti-fraud and risk management mechanisms, and efficient Internal Audit and External Audit functions financial reporting. As per section of the Companies Act, read with Rule 6 of Companies Meetings of Board and its powers Rules,every listed company and all other public companies with paid up capital of Rs.
The Kumar Mangalam Birla Committee, Naresh Chandra Committee and the Narayana Murthy Committee recommended constitution, composition for audit committee to include independent directors and also formulated the responsibilities, powers and functions of the Audit Committee.
The Audit Committee and its Chairman are also entrusted with the ethics and compliance mechanisms of an organization, including review of functioning of the whistleblower mechanism. Subsidiary Companies The rationale behind having separate provisions with respect to subsidiary companies in the Revised Clause 49 was the need for the board of the holding company to have some independent link with the board of the subsidiary and provide necessary oversight.
Hence, the recommendation of Narayana Murthy Committee to make provisions relating to the composition of the Board of Directors of the holding company to be made applicable to the composition of the Board of Directors of subsidiary companies and to have at least one independent director on the Board of Directors of the holding company on the Board of Directors of the subsidiary company, were incorporated in the Revised Clause 49 of the Listing Agreement.
Besides the Audit Committee of the holding Company is to review the financial statements, in particular investments made by the subsidiary and disclosures about materially significant transactions ensures that potential conflicts of interests with those of the company may be taken care of.
Role of Institutional Investors Fast growing countries like India have attracted large shareholding by international investors and large Indian financial institutions with global ambitions.
This has resulted in a significant progress in the standards of corporate governance in the investee companies. Many research reports published in recent years show that companies with good governance system have generated high risk-adjusted returns for their shareholders.
So, if a company wants institutional investor participation, it will have to convincingly raise the quality of corporate governance practices.
Indian companies thus need to adopt the best practices such as the OECD Corporate Governance Principles revised in that serve as a global benchmark.
In countries like India where corporate ownership still continues to be highly concentrated, it is important that all shareholders including domestic and foreign institutional investors are treated equitably.
Institutional investors are expected to actively participate in the AGM voting on the shares held by them in their portfolio companies along with public disclosure of their voting records and reasons for non-disclosures. Their reason for assenting or dissenting to any Board Resolution of their portfolio companies shall be disclosed on their website.
Stakeholders Relationship Committee As one of its mandatory recommendations, the Kumar Mangalam Birla Committee propounded the need to form a board committee under the chairmanship of a non-executive director to specifically look into the redressing of shareholder complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc.
The Act as well as the revised Clause 49 now mandate the formation of such a committee with broader remit to cover issues and concerns of all stakeholders and not just shareholders. The Act now mandates companies with more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year are required to constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board to resolve the grievances of security holders of the company.
Clause 49 included this recommendation as a part of management disclosures. Risk Management was however propounded for the first time by the Narayana Murthy Committee in its report by which it required that the company shall lay down procedures to inform Board members about the risk assessment and minimization procedures.
These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework and overlooked by a Risk Management Committee.
This is incorporated in Clause 49 as a part of internal disclosures to the Board. The Act and Revised Clause 49 specify requirements related to risk management.Corporate governance is a part of Indian corporate sector since the beginning but corporate governance failure and fraud of Satyam Computer Services Limited increased the concerns about corporate governance in India.
Jan 08, · Ever since India's biggest-ever corporate fraud and governance failure unearthed at Satyam Computer Services Limited, the concerns about good Corporate Governance have increased phenomenally.
Internationally, there has been a great deal of debate going on for quite some time.
Corporate governance is the mechanisms, This is the reason that corporate governance in India has taken the centre stage. United States, United Kingdom. The so-called "Anglo-American model" of corporate governance emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated.
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 liberalised the regulatory fabric of the country to align its corporate governance norms with those of developed countries. And yet, achieving good governance and ensuring. To promote good corporate governance, SEBI (Securities and Exchange Board of India) constituted a committee on corporate governance under the chairmanship of Kumar Mangalam Birla.
On the basis of the recommendations of this committee, SEBI issued certain guidelines on corporate governance; which are required to be incorporated in the listing agreement between the company and the stock exchange.
Corporate Governance In India, proxy, firms, proxy advisory, Institutional Investor Advisory Services India Limited, IiAS, India, international, Clause