This document discusses corporate governance in India and provides a way forward. It begins by defining corporate governance and outlining basic principles like fairness, accountability, responsibility and transparency. It then reviews corporate governance in India, changes introduced in the Companies Act 2013, and deficiencies that can lead to financial crises. Research findings on factors that influence corporate governance systems in India are presented. The document concludes that principles of good governance must be internalized in firms and transparency improved through standards convergence, while recognizing intangible assets and stakeholder roles are important to ongoing governance reforms.

1. CORPORATE GOVERNANCE IN INDIA - A WAY
FORWARD
PRESENTATION FOR
CORPORATE GOVERNANCE CONCEPT
BY
DR. Manisha maiduly
Associate Professor – SMCS

2. CG IN INDIA - A WAY FORWARD
CONCEPT OF CORPORATE GOVERNANCE
BASIC PRINCIPLES OF CORPORATE GOVERNANCE
CORPORATE GOVERNANCE IN INDIA – A REVIEW
TRANSPARENCY IN ACCOUNTING AND CG
CORPORATE GOVERNANCE – RESEARCH FINDINGS
CG - A WAY FORWARD
SUM UP

3. CONCEPT OF CORPORATE GOVERNANCE
The Cadbury Report which was released in the UK in 1991 outlined that "Corporate
governance is the system by which businesses are directed and controlled.“
Corporate Governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of
the many stakeholders like shareholders, management, customers, suppliers, financiers,
government and the community in a company.

4. BASIC PRINCIPLES OF CORPORATE GOVERNANCE
Fairness -Fairness refers to equal treatment, for example, all shareholders
should receive equal consideration for whatever shareholdings they
hold.
In addition to shareholders, there should also be fairness in the treatment
of all stakeholders including employees, communities and public
officials. The fairer the entity appears to stakeholders, the more likely it
is that it can survive the pressure of interested parties

5. BASIC PRINCIPLES OF CORPORATE GOVERNANCE - 2
Accountability - Corporate accountability refers to the obligation and responsibility to
give an explanation or reason for the company’s actions and conduct.
Responsibility - The Board of Directors are given authority to act on behalf of the
company. The Board of Directors are responsible for overseeing the management
of the business, affairs of the company, appointing the chief executive and
monitoring the performance of the company. In doing so, it is required to act in
the best interests of the company.
Accountability goes hand in hand with responsibility. The Board of Directors should
be made accountable to the shareholders for the way in which the company has
carried out its responsibilities.

6. BASIC PRINCIPLES OF CORPORATE GOVERNANCE - 3
Transparency - A principle of good governance is that stakeholders should
be informed about the company’s activities, what it plans to do in the
future and any risks involved in its business strategies.
Transparency means openness, a willingness by the company to provide
clear information to shareholders and other stakeholders. For example,
transparency refers to the openness and willingness to disclose
financial performance figures which are truthful and accurate.

7. BASIC PRINCIPLES OF CORPORATE GOVERNANCE - 4
Disclosure of material matters concerning the organisation’s performance
and activities should be timely and accurate to ensure that all investors
have access to clear, factual information which accurately reflects the
financial, social and environmental position of the organisation.
Organisations should clarify and make publicly known the roles and
responsibilities of the board and management to provide shareholders
with a level of accountability

8. CG IN INDIA – A REVIEW
Few New Provisions of Companies Act 2013 for Directors and
Shareholders
One or more women directors are recommended for certain classes of
companies
Every company in India must have a resident directory
The maximum permissible directors cannot exceed 15 in a public limited
company. If more directors have to be appointed, it can be done only
with approval of the shareholders after passing a Special Resolution
The Independent Directors are a newly introduced concept under the Act. A
code of conduct is prescribed and so are other functions and duties
The Independent directors must attend at least one meeting a year

9. CG IN INDIA - A REVIEW – 2
Every company must appoint an individual or firm as an auditor. The
responsibility of the Audit committee has increased
Filing and disclosures with the Registrar of Companies has increased
Top management recognizes the rights of the shareholders and ensures strong
co-operation between the company and the stakeholders
Every company has to make accurate disclosure of financial situations,
performance, material matter, ownership and governance

10. CG IN INDIA - A REVIEW – 3
Additional Provisions in Companies Act 2013
Related Party Transactions – A Related Party
Transaction (RPT) is the transfer of resources or
facilities between a company and another specific
party. The company devises policies which must
be disclosed on the website and in the annual
report. All these transactions must be approved by
the shareholders by passing a Special Resolution
as the Companies Act of 2013. Promoters of the
company cannot vote on a resolution for a related
party transaction.
Changes in Clause 35B – The e-voting facility has to
be provided to the shareholder for any resolution is
a legal binding for the company.

11. CG IN INDIA – A REVIEW – 4
Corporate Social Responsibility – The company has the responsibility to
promote social development in order to return something that is
beneficial for the society.
Whistle Blower Policy – This is a mandatory provision by SEBI which is a
vigil mechanism to report the wrong or unethical conduct of any
director of the company.

12. CG DEFICIENCY LEADS TO FINANCIAL CRISIS

13. CG - TRANSPARENCY IN ACCOUNTING
Ineffective corporate governance may result in financial crisis both for the company
and the stakeholders. Shareholders lose confidence in the company and share
prices will decline. The high profile corporate governance failure scams like
stock market scam, the UTI scam, Ketan Parekh scam, Satyam scam which were
severely criticized by the shareholders called for a need to make corporate
governance in India transparent as it greatly affects the development of the
country. (James Mc Ritchie, May 12, 2015)

14. CG – INVESTMENT DECISIONS
Good corporate governance helps in improving the competitiveness of the firm
strengthening the relationship with the interested and all contracting parties.
Over 60 percent of investors cite Good Corporate Governance Practices in
corporations as a key factor in their investment decisions (Mc Kinsey study
,2002

15. SCAMS AND CG IN INDIA
Corporate Governance in India
• Corporate governance is not so matured in South Asia like it is in U.S. or U.K.
In India, the effective initiative for corporate governance came from the listed
companies and industrial association, Confederation of Indian Industry (CII) in
1997. 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. (Vaish Associates
Advocates (8 January, 2016)

16. SEBI AND CG IN INDIA
In 1999, The Securities and Exchange Board of India (SEBI) made it mandatory for
all listed companies in phases. From April 2003, all the listed companies were
brought under mandatory requirement to follow the SEBI corporate governance
code.

17. ACCOUNTING STANDARDS AND CG IN INDIA
The objective of accountants is to ensure good corporate governance by reducing the gap
between insiders and outsiders to a corporation through the disclosure of right and timely
information. (Nikhil Chandra Shil (2008)
Accounting standards assumed greater importance with the growing concern for effective
corporate governance. Almost all the high profile failures of large global corporations are
the result of the combined effect of failures in business, failures in governance and failures
in reporting. (Mohit Baijal).
The practice of proper accounting standards is more relevant issue of good corporate
governance in the present competitive era as the standards provide a useful mechanism to
restructure the core corporate values. (Dr.K.Shankaraiah and D.N.Rao (June 2004).

18. CORPORATE GOVERNANCE AND IFRS
Corporate Governance requirements imposed internationally as part of the New International
Financial Architecture (NIFA) include compliance with International Financial Reporting
Standards (IFRS). (Ronita D.Singh & Susan Newberry (Dec, 2009
The focus of IFRS is to provide the necessary financial information to the primary users of
financial statements who cannot get any financial information from any other source
(other than the financial statements.
IFRS strives for transparency. Substance over form is one of the principles of IFRS that brings out the
essence of the transaction and how it is to be reported in the financial reports. Time value of money
is also an important principle of IFRS.

19. CG IN INDIA – RESEARCH FINDINGS
The results of regression show that when the number of Independent directors on the board is
higher, discretionary accruals are lower. This finding is consistent with past research and
illustrates a setting in which a large proportion of independent directors is associate with
better monitoring (Govind and others in JIAA Vol XLVII (2) Dec 2015)
Financial leverage is significantly related to discretionary accruals as the literature supports that
earnings management is carried out in order to avoid debt covenants or to meet contractual
obligations. The results evidenced that higher the leverage, lesser are the chances of earnings
management. More debt in the capital structure of the company will force the company to limit
its earnings management activities as the lenders fully scrutinize the financials of that
company. (Govind and others in JIAA Vol XLVII (2) Dec 2015)

20. CG IN INDIA – RESEARCH FINDINGS (2)
Major key factors that influence the CG System are: Disclosures in Annual
Report, Quality of Corporate Reporting, Adequacy of Processes,
Involvement of Managers in CG activities, Management continuous
interaction with functional departments, Board and Corporate ethics,
Role of Independent Directors, Quality of Board and CSR and CG
System – a tool or developing managerial activities ( S.Mohan –
unpublished PhD thesis of JNTU Hyderabad)

21. CG IN INDIA – RESEARCH FINDINGS ( 3)
Empirical investigation of the relationship between ownership/control structure, in terms
of identity of the shareholder, and firm performance essentially attempts to test the
managerial/agency theory propositions that different ownership control structure
result in different performance (Short and others 1994).
There is lot of evidence to show that institutional shareholders do not adopt a
monitoring role, preferring to sell their holding in problem companies rather than
intervening in the management of the company (Hirschman 1970, Myners 2001)

22. INTANGIBLES AND CG - FINDINGS
Summers C 1982, Masahiko Aoki 1983 say that after industrialization the shift in the factors of
production shows that the employees should have a greater say in CG.
Drucker 2000 emphasize that emergence of the knowledge worker as the key player in the
knowledge economy, has implications for the governance of corporation in the future.
Raghuram Rajan and others 2000 state the when most of the value was embedded in assets that
could be owned, the boundaries were fixed and there was nothing directors could or were
required to do, to guard them. But now most of the value comes from the assets that cannot be
easily appropriated, like information or human capital. This raises new challenge to the directors
in CG.
There is no single model of good CG that fits for all (Narayana Murthy Committee Report 2003)

23. INTANGIBLES AND CG – FINDINGS
Rajni Deverajan 2004 –observed that shareholders are not the primary factors that drive good
governance. The new drivers are the stakeholders and their intangible contributions. Firms
in the IT sector adopt good governance standards to attract these stakeholders namely, good
employees (the knowledge workers) who create value for the new age companies and attract
prospective clients and retain the existing clients.
It also leverages the establishment of strategic alliances that act as a platform for sustainable
development.
Benchmark for good governance should also include benchmarks for monitoring and managing
the value creators i.e. intangibles.
Good governance should also encompass evolving standards to protect, preserve and enhance
the value of the value drivers in this sector.

24. CG – A WAY FORWARD
Basic Principles of Fairness, Accountability, Responsibility, Transparency and
Disclosure must be internalized in the firm
Companies Act 2013 is in right direction. It is in consistence with changes in the world
Transparency in Accounting gets improved with immediate convergence of
Accounting standards in India with IFRS
CG is related to Investment Decisions, Intangibles Contribution, Information
technology changes and there is a need for sensitization among all stakeholders
Hence there is strong need for International Corporate Governance Day to be adopted
and ICSI efforts are in right direction

25. SUM UP
CG Concept and principles
CG in India – Companies Act changes
Transparency in Accounting – Convergence to IFRS
CG and role of Intangibles
CG and ICSI Role
Need for ICGD – a good initiative by ICSI

26. THANK YOU AND QUESTIONS IF ANY