Corporate governance in India- introduction

1. Corporate Governance
Shreyas Vyas
Faculty
NISM

2. Introduction
• Corporate governance is a crucial aspect of modern business management
as it governs the trajectory and operations of organisations.
• It comprises the mechanisms, processes, and relationships that guide
decision-making, ensuring that transparency, accountability, and ethical
behaviour are upheld.
• With the diverse cultural, legal, and economic contexts in which businesses
operate, various models of corporate governance have emerged worldwide.
• Each model has its own set of characteristics, strengths, and challenges that
have a significant impact on corporate performance and stakeholder
interests.
• The history of corporate governance can be traced back to ancient times
when trade and business practices were prevalent in various civilizations.
However, the modern concept of corporate governance as we know it today
has its roots in the 20th century.

3. • In the realm of corporate governance within India, agency theory pertains to
the structure addressing the correlation between shareholders (principals) and
managers (agents) of a corporation.
• It centres on the potential conflicts of interest that may emerge due to the
separation of ownership and control in corporations, where shareholders
delegate decision-making authority to managers to act on their behalf.
• The fundamental principles of agency theory in the context of Indian corporate
governance are akin to those worldwide but are applied within India's distinct
legal and regulatory framework.
• Corporate governance in India, as in many other countries, is designed to
establish a framework of rules, regulations, practices, and processes by which
corporations are directed, controlled, and operated.
• The rationale behind corporate governance in India is to ensure that
companies are managed in a way that is transparent, ethical, and accountable,
benefiting not only the shareholders but also various stakeholders including
employees, customers, creditors, and the society at large.

4. Three pillars of corporate governance in India
• The first pillar of corporate governance compliance forms the first pillar of
corporate governance in India, embodying the principle of operating within
the boundaries of laws, regulations, and ethical norms.
• The second pillar of corporate governance is control which focuses on
establishing mechanisms and processes to monitor and manage a company's
operations effectively. Internal controls, risk management systems, and checks
and balances are key components of this pillar.
• The third pillar i.e. conduct underscores the ethical behavior and responsible
conduct of all individuals within the organization, from the board of directors
to employees and stakeholders. Ethical conduct is fundamental for
maintaining public trust, enhancing the company's reputation, and driving
sustainable growth.

5. Models of corporate governance
Anglo-American Model: Many countries, including the United States, the United
Kingdom, Canada, and Australia, follow the Anglo-American model of corporate
governance, which focuses on the interests of shareholders.
The primary goal is to increase shareholder value and provide investment returns.
The board of directors, elected by shareholders, plays a significant role in making
important decisions and supervising the company's operations.
Some of the major Characteristics of this model are:
1. Shareholder Primacy: The Anglo-American model places a strong emphasis on
maximizing shareholder wealth and prioritizes short-term financial performance.
2. Board Structure: The board of directors, typically comprising independent
directors, oversees the management and ensures alignment with shareholder
interests.
3. Executive Compensation: Executive remuneration is often linked to financial
performance and shareholder value creation.
4. Regulatory Framework: The model relies on self-regulation and market discipline,
with less direct regulatory intervention.

6. Continental European Model: In select countries like Germany, France, the
Netherlands, and Italy, a well-liked method of corporate governance is
utilized.
• This approach differs from the Anglo-American style by emphasizing fairness
and inclusivity for all stakeholders, including employees and the wider
community.
• The main aspect of this model is the presence of two boards- a supervisory
board and a management board.
• This setup guarantees that the company's decisions are overseen by a group
of directors accountable to shareholders and other stakeholders. By
considering the interests of a more diverse group of stakeholders, this
governance model aims to promote sustainable and responsible business
practices.

7. Some of the characteristics of this model of corporate governance are:
• Stakeholder Orientation: In contrast to the shareholder-centric approach
commonly adopted in the Anglo-American model, the Continental European
model emphasizes promoting the welfare and interests of all individuals and
groups involved in a business, including employees, customers, suppliers, and
the broader community. This model recognizes that a company's success
depends not only on financial performance but also on its ability to create long-
term value and positive societal impact.
• Co-Determination: To foster a culture of communication and teamwork, it may
be beneficial to appoint employee representatives to the supervisory board. This
approach allows for a diverse range of perspectives to be heard and considered
in decision-making processes, ultimately leading to a more inclusive and
equitable workplace environment.
• Long-Term Focus: At the forefront of our approach is a focus on ensuring
enduring stability and sustainable expansion, as opposed to pursuing immediate
financial gains.

8. Asian Model: This specific model is extensively utilized throughout Japan, South Korea, and
China, where it is highly regarded for its effective combination of traditional values, family
ownership, and robust connections with banks and government institutions.
• In all decision-making processes, long-term relationships, trust, and loyalty are considered
to be of paramount importance, reflecting the deeply ingrained cultural values and
business practices of the region.
• Some of the Characteristics of this model of corporate governance are as follows:
Long-Term Perspective: In Asian business culture, there is a greater emphasis on fostering
long-term growth and investment as opposed to prioritizing immediate financial gains. This
approach recognizes the value of patience and strategic planning in achieving sustainable
success, rather than solely focusing on short-term profits. Such a mindset is deeply
ingrained in many Asian economies and reflects a commitment to creating lasting value for
all stakeholders involved.
Family Involvement: It is not uncommon for numerous families to have full ownership and
control over their businesses. This often leads to a profound sense of obligation and
dedication towards the company and its operations.
Business Networks: Establishing strong connections with financial institutions and
governmental bodies can offer a sense of security and steadfastness when faced with
tumultuous economic conditions. Such affiliations can provide access to valuable resources
and information, as well as potential avenues for support and assistance in times of need.
Building and maintaining these relationships requires effort and dedication, but can prove
to be a wise investment in the long run.

9. The committees that have submitted notable work on corporate governance in India are as
follows:
• Kumar Mangalam Birla Committee: This committee was Chaired by Kumar Mangalam Birla to
suggest measures for improving corporate governance standards in India. The committee’s
recommendations led to changes such as the separation of the roles of Chairman and CEO,
strengthening the role of independent directors, and enhancing financial disclosures.
• Narayana Murthy Committee: This committee was chaired by N. R. Narayana Murthy, the co-
founder of Infosys, this committee gave its recommendations for improving corporate
governance in India, particularly about disclosures and accounting standards.
• Naresh Chandra Committee: The Naresh Chandra Committee was first set up in 2002 to review
the working of audit firms in India. It was reconstituted in 2009 to review the disciplinary
mechanism for chartered accountants. While not solely focused on corporate governance,
these committees indirectly influenced the governance framework by addressing audit quality
and oversight.
• Uday Kotak Committee: This committee was chaired by Uday Kotak, and this committee gave
its recommendations relating to SEBI’s Listing Regulations, measures relating to board
composition, related-party transactions, and enhancing the role of independent directors.
• Bimal Jalan Committee: This committee was chaired by Bimal Jalan, this committee gave its
recommendations for review of the existing framework for ownership and governance of
market infrastructure institutions (MIIs) in India. The committee provided recommendations to
ensure the independence, governance, and regulatory oversight of MIIs.

10. Mechanisms of Corporate Governance
• Foundation of Mechanism
• Working in Company Law –Various provisions
• Working in Securities Market- SEBI Act & Various Regulations
• Sectorial working

11. THANK YOU