The document provides an assessment of corporate governance practices in India from the perspective of international investors. It finds that while India's regulatory framework is above average compared to other emerging markets, enforcement is still weak. Overall, corporate governance has improved among large companies primarily due to globalization rather than regulations. However, the pace of change is slower in smaller, unlisted companies and government-controlled firms. Further improvements require stronger enforcement, increased shareholder activism, and legal reforms.
Consultative Paper on Review Of Corporate Governance Norms in IndiaBFSICM
This document summarizes the evolution of corporate governance norms in India. It discusses key concepts of corporate governance and how the framework has developed over time through various committees and regulations like Clause 49. Some key developments include the establishment of SEBI, requirements for listed companies, and incorporation of international standards from OECD. Recent reforms focus on issues like related party transactions, auditor qualifications, and the new Companies Bill which addresses governance through entities like the audit committee.
Raising the bar_on_CG - world bank report 2013BFSICM
This study reviews the different approaches used by eight stock exchanges around the world to build indices incorporating corporate governance criteria. It finds that corporate governance indices (CGIs) can enhance legal frameworks by establishing objective benchmarks and provide companies opportunities to differentiate themselves. However, methodologies, disclosure, and monitoring processes need further development. CGIs address weaknesses in governance, but criteria and eligibility vary between indices based on listing tiers with mandatory rules or rating thresholds. Evaluation and transparency are important for an index's credibility. Overall, CGIs positively impact markets by promoting higher governance standards.
This document discusses corporate governance in India and regulations from the Securities and Exchange Board of India (SEBI). It begins with introducing corporate governance and defining it. It then discusses the development of corporate governance norms and practices in India. It outlines SEBI's role in establishing rules and regulations for corporate governance, particularly Clause 49, for publicly listed companies. Clause 49 focused on increasing board independence and transparency around financial disclosures, related party transactions, and internal controls. The document concludes that as Indian companies compete globally, strong corporate governance aligned with international standards has become increasingly important.
Uday salunkhe evolution of corporate governance indiaudaysalunkhe
This article gives an in depth analysis on Evolution Of Corporate Governance In India & It's Influence On India's Capital Market. It has been co- authored by Dr. Uday Salunkhe, Director of the prestigious Welingkar Institute of Management and Research.
Adi Godrej Report on Corporate Governance - Sep 2012BFSICM
This document outlines guiding principles for corporate governance proposed by a committee constituted by the Ministry of Corporate Affairs in India. It discusses the need to strengthen actual corporate governance performance within the existing legal framework. Key principles proposed include setting the right tone from top management, balancing conformance with laws and performance, increasing board diversity including in terms of familiarity between members and gender, and recognizing corporate governance as balancing stakeholder interests for long term shareholder value. The committee recognized that better practices are encouraged through voluntary adoption over legislation.
The document provides a history of corporate governance in India and discusses its development over time. It begins by discussing ancient Indian governance concepts from Kautilya in the 3rd century BC that were strikingly modern. In the 19th century, state laws enhanced board governance rights. Studies have found that while India has strong investor protections on paper, enforcement is a problem due to slow courts and corruption. Corporate governance gained prominence in India in the 1990s and was introduced voluntarily before becoming mandatory in the early 2000s. Reforms are ongoing to develop appropriate solutions that address India-specific challenges efficiently.
This presentation is about stock exchange.Stock exchange is an organisation and body of individuals whether incorporated or not established for the purpose of assisting,regulating,and controlling of business in buying ,selling and designing securities
This document discusses corporate governance in India. It begins by providing context on the state of corporate governance in India prior to reforms, noting issues like managing agency systems, licensing requirements, corruption, and ineffective oversight. It then discusses current weaknesses in corporate governance in India, including related party transactions, board independence, and enforcement. The document concludes by recommending improvements like increasing board independence, separating CEO and chairperson roles, strengthening shareholder rights and enforcement, and improving transparency and disclosure.
Consultative Paper on Review Of Corporate Governance Norms in IndiaBFSICM
This document summarizes the evolution of corporate governance norms in India. It discusses key concepts of corporate governance and how the framework has developed over time through various committees and regulations like Clause 49. Some key developments include the establishment of SEBI, requirements for listed companies, and incorporation of international standards from OECD. Recent reforms focus on issues like related party transactions, auditor qualifications, and the new Companies Bill which addresses governance through entities like the audit committee.
Raising the bar_on_CG - world bank report 2013BFSICM
This study reviews the different approaches used by eight stock exchanges around the world to build indices incorporating corporate governance criteria. It finds that corporate governance indices (CGIs) can enhance legal frameworks by establishing objective benchmarks and provide companies opportunities to differentiate themselves. However, methodologies, disclosure, and monitoring processes need further development. CGIs address weaknesses in governance, but criteria and eligibility vary between indices based on listing tiers with mandatory rules or rating thresholds. Evaluation and transparency are important for an index's credibility. Overall, CGIs positively impact markets by promoting higher governance standards.
This document discusses corporate governance in India and regulations from the Securities and Exchange Board of India (SEBI). It begins with introducing corporate governance and defining it. It then discusses the development of corporate governance norms and practices in India. It outlines SEBI's role in establishing rules and regulations for corporate governance, particularly Clause 49, for publicly listed companies. Clause 49 focused on increasing board independence and transparency around financial disclosures, related party transactions, and internal controls. The document concludes that as Indian companies compete globally, strong corporate governance aligned with international standards has become increasingly important.
Uday salunkhe evolution of corporate governance indiaudaysalunkhe
This article gives an in depth analysis on Evolution Of Corporate Governance In India & It's Influence On India's Capital Market. It has been co- authored by Dr. Uday Salunkhe, Director of the prestigious Welingkar Institute of Management and Research.
Adi Godrej Report on Corporate Governance - Sep 2012BFSICM
This document outlines guiding principles for corporate governance proposed by a committee constituted by the Ministry of Corporate Affairs in India. It discusses the need to strengthen actual corporate governance performance within the existing legal framework. Key principles proposed include setting the right tone from top management, balancing conformance with laws and performance, increasing board diversity including in terms of familiarity between members and gender, and recognizing corporate governance as balancing stakeholder interests for long term shareholder value. The committee recognized that better practices are encouraged through voluntary adoption over legislation.
The document provides a history of corporate governance in India and discusses its development over time. It begins by discussing ancient Indian governance concepts from Kautilya in the 3rd century BC that were strikingly modern. In the 19th century, state laws enhanced board governance rights. Studies have found that while India has strong investor protections on paper, enforcement is a problem due to slow courts and corruption. Corporate governance gained prominence in India in the 1990s and was introduced voluntarily before becoming mandatory in the early 2000s. Reforms are ongoing to develop appropriate solutions that address India-specific challenges efficiently.
This presentation is about stock exchange.Stock exchange is an organisation and body of individuals whether incorporated or not established for the purpose of assisting,regulating,and controlling of business in buying ,selling and designing securities
This document discusses corporate governance in India. It begins by providing context on the state of corporate governance in India prior to reforms, noting issues like managing agency systems, licensing requirements, corruption, and ineffective oversight. It then discusses current weaknesses in corporate governance in India, including related party transactions, board independence, and enforcement. The document concludes by recommending improvements like increasing board independence, separating CEO and chairperson roles, strengthening shareholder rights and enforcement, and improving transparency and disclosure.
This document provides an overview of corporate governance in India. It defines corporate governance and outlines the key players, principles, and objectives. It discusses the development of corporate governance in India, including economic reforms in the 1990s. It also summarizes the role of the Securities Exchange Board of India in regulating markets after major scandals in the 1990s and 2000s, including the introduction of Clause 49 to strengthen board oversight. Finally, it provides details of the large Satyam scandal of 2009 that damaged investor trust.
The Kumar Mangalam Birla Committee was formed by SEBI in 1999 to develop a code of corporate governance for Indian companies. The committee submitted recommendations for both mandatory and non-mandatory guidelines. Key mandatory recommendations included composition of boards, establishment of audit committees, and disclosure requirements. The recommendations were implemented through Clause 49 of the listing agreement, which came into effect in 2005 and aimed to improve governance standards for listed companies.
The document discusses corporate governance guidelines for Central Public Sector Undertakings (CPSEs) in India as issued by the Department of Public Enterprises (DPE). It outlines the composition and functions of boards of directors, audit committees, and remuneration committees according to DPE guidelines. However, some CPSEs are not fully complying with the guidelines regarding representation of independent directors and functioning of audit committees. Improving governance of CPSEs could help raise their performance and competitiveness.
This study analyzes the corporate governance practices of Aditya Birla Chemicals (India) Limited over a 5-year period from 2005-2010. The objectives are to analyze compliance with SEBI's Clause 49 listing agreement requirements and offer suggestions. The study finds that the company complies with Clause 49 requirements regarding board composition, audit and shareholder committees. It recommends improvements like developing a formal code of conduct, educating investors, strengthening internal auditing, and enhancing stakeholder value. In conclusion, corporate governance should be a way of life that considers all stakeholder interests.
respondents (77%) believe that
- Institutional investors are driven primarily by industry dynamics when making investment decisions. However, over 60% of investors ascribe high importance to corporate governance.
there is a strong relationship
- Most investors believe there is a strong relationship between corporate governance and stock price performance. Over 3/4 of investors think companies with better governance deliver better returns.
between corporate governance
- Investors perceive that sectors like financial services and healthcare have better governance, while sectors like infrastructure and mining have more governance issues. Family-run businesses are seen as having more governance problems compared to professionally-run companies.
and stock price performance.
Corporate governance practices in India & around the worldAshishAgarwal403
This document discusses corporate governance principles and practices in India. It defines corporate governance as relating to laws, procedures and practices that determine a company's ability to make managerial decisions while considering social impacts and accountability to shareholders. The key principles of corporate governance outlined include acknowledging shareholder rights, the role and responsibilities of the board of directors, integrity and ethical behavior, disclosure and transparency, and accountability. Common corporate governance practices in India include requirements under the Companies Act, securities laws, capital market discipline, nominees on company boards, and statutory audits. Globally, strategies focus on corporate objectives, communication/reporting, voting rights, board composition, remuneration policies, and strategic/operating performance.
This document discusses corporate governance in India and SEBI regulations. It defines corporate governance and outlines corporate governance norms. It describes how corporate governance has evolved in India, the role of the Securities and Exchange Board of India (SEBI) in implementing regulations like Clause 49, and the major changes Clause 49 introduced around board independence, disclosures, and other matters. The conclusion states that as Indian companies compete globally, adhering to world-class corporate governance standards has become essential.
Corporate governance and employee compensationaquagurl91
The document discusses various topics related to corporate governance and executive compensation in India. It begins with introducing corporate governance and defining agency theory. It then discusses illegal tactics of some Indian corporations, key corporate governance reforms and codes, and notable corporate scandals in India like Satyam and Harshad Mehta case. The document also covers differences between corporate governance in private and public sectors in India and concludes with executive compensation and employee stock option plans.
This document discusses mergers, acquisitions, and consolidations in business. It defines key terms like mergers, acquisitions, amalgamations, demergers, and spin-offs. It outlines the types of mergers like horizontal, vertical, concentric, and conglomerate mergers. It provides examples of some large mergers and acquisitions in India like Walmart's acquisition of Flipkart and the merger of Vodafone and Idea. It also discusses the legal framework around mergers and acquisitions in India and challenges companies may face.
India has risen 16 places in the Global Competitiveness Index to rank 39th, according to the World Economic Forum report. The report credits India's strong performance in areas like market efficiency, business sophistication, and innovation. The index evaluates 138 countries based on 12 pillars that determine productivity, grouped under basic requirements, efficiency enhancers, and innovation factors.
Issues and Challenges of Auditing In Islamic Financial Institutionsinventionjournals
The Islamic Finance Institutions (IFIs) has gained international recognition as a viable and vibrant component of the global financial system. As a matter of fact, Islamic Finance has seen an increased adoption across the globe, and is growing faster than any other industry at a rate of 15 to 20 percent a year. This study aims to expand the literature relating to IFIs and to provide a coeval outlook on the issues and challenges of Shari’ah audit in IFIs specifically in Malaysia. Hence, the earlier part of this study explains the current auditing standards for IFIs and the roles of Shari’ah auditors, followed by a close look up on the issues and challenges facing the audit of IFIs such as the standards and regulatory requirements of Shari’ah audits, independence of Shari’ah auditors and qualification as well as the accountability of the Shari’ah auditors. This study concludes that there is a need of regulatory framework specifically designed for Shari’ah audits along with the need of independent and accountable Shari’ah auditors to conduct the audit of IFIs.
Narayan murthy report on corporate governanceDhruvKothari13
The document summarizes the key recommendations from the Narayana Murthy Committee Report on Corporate Governance in India from 2003. The committee was formed by SEBI under Murthy's chairmanship to review corporate governance standards and disclosure requirements. The committee recommended several mandatory requirements, such as strengthening audit committees, requiring approval of related party transactions, and establishing whistleblower policies. It also recommended non-mandatory best practices around moving to unqualified financial statements, training board members, and evaluating board performance. The recommendations aimed to improve transparency, accountability and investor protection in Indian markets.
This document discusses the evolution of corporate governance in India. It describes three main periods:
1) The Managing Agency System from 1850-1955, where British merchants managed companies and provided financial and managerial expertise.
2) The Promoter System from 1956-1991, where the government passed laws to eliminate managing agencies and safeguard shareholder rights after India gained independence.
3) The Anglo-American System from 1992 onwards, where concepts like shareholder rights and control, and maximizing shareholder value were introduced through organizations like SEBI and new company laws.
This document summarizes the key points from the Naresh Chandra Committee report on corporate governance from 2002 presented by Sahana Hiremath. The report discusses how Kautilya's views on governing a monarchy can apply to successfully running modern corporations. It recommends strict corporate governance to build confidence among stakeholders. The report proposes establishing independent quality review boards to examine audit, secretarial, and cost accounting firms. It defines independent directors and recommends at least 50% of board members be independent. It also recommends exempting independent directors from certain civil and criminal liabilities and training programs for independent directors.
Any good business require corporate governance pptShailesh Sharma
The document compares the management styles and corporate governance practices of two construction business owners, Mr. Varpa and Mr. Soni, finding that Mr. Varpa exhibited poor leadership, centralized decision-making, and lacked transparency and commitment to employees, while Mr. Soni demonstrated good governance through decentralized management, merit-based promotions, and financial disclosure.
The corporate governance framework should promote transparent and fair markets to efficiently allocate resources. It should be consistent with the rule of law and enable effective supervision and enforcement. An effective framework requires a sound legal, regulatory and institutional foundation that market participants can rely on. The framework comprises elements of legislation, regulation, self-regulation and voluntary commitments that vary between countries based on circumstances. Frameworks should be reviewed and updated as experiences and business environments change.
This document provides an overview of corporate governance practices and regulations in India. It discusses several committees formed over time to address different aspects of corporate governance. It outlines the process for incorporating a new company. For public companies, an additional step of obtaining a commencement of business certificate is required. The document also details requirements for audit committees as per the Companies Act and Clause 49 of the listing agreement. This includes composition, roles, powers, and review responsibilities. Finally, it summarizes the WorldCom accounting fraud case and identifies failure of management, shareholders, and oversight committees as contributing factors.
The following presentation takes you through the Corporate Governance norms as prescribed by SEBI with a bit of detail into some major Corporate governance scams in INDIA
The document discusses corporate governance in India. It provides definitions and overviews of corporate governance, outlines the roles and responsibilities of directors, and discusses topics like disclosures, transparency, and examples of best practices. It also gives a brief history of corporate governance development in India, including key reports and regulatory changes. Board meeting frequency and composition requirements are outlined. In summary, the document covers definitions, history, and guidelines related to corporate governance for Indian companies.
Corporate Governance in India & SEBI RegulationsAtif Ghayas
This document discusses corporate governance in India and regulations from the Securities Exchange Board of India (SEBI). It defines corporate governance and outlines its key principles and objectives. It also discusses SEBI's role in establishing standards and protecting investors following scandals. The largest example discussed is the Satyam scandal, where the CEO confessed to overstating profits by billions through fake accounts and invoices.
Corporate Governance In Indian PrespectiveGeorge V James
This document discusses corporate governance in India and provides an overview of key committees and reports that have shaped corporate governance practices in India. It defines corporate governance and outlines its main principles. It also discusses important players like the board of directors, shareholders, and regulators. Furthermore, it summarizes some of the major milestones in India's journey toward better corporate governance standards, including key committees like the Confederation of Indian Industries Code in 1997 and the Kumar Mangalam Birla Committee Report in 2000 that introduced Clause 49.
This document provides an overview of corporate governance in India. It defines corporate governance and outlines the key players, principles, and objectives. It discusses the development of corporate governance in India, including economic reforms in the 1990s. It also summarizes the role of the Securities Exchange Board of India in regulating markets after major scandals in the 1990s and 2000s, including the introduction of Clause 49 to strengthen board oversight. Finally, it provides details of the large Satyam scandal of 2009 that damaged investor trust.
The Kumar Mangalam Birla Committee was formed by SEBI in 1999 to develop a code of corporate governance for Indian companies. The committee submitted recommendations for both mandatory and non-mandatory guidelines. Key mandatory recommendations included composition of boards, establishment of audit committees, and disclosure requirements. The recommendations were implemented through Clause 49 of the listing agreement, which came into effect in 2005 and aimed to improve governance standards for listed companies.
The document discusses corporate governance guidelines for Central Public Sector Undertakings (CPSEs) in India as issued by the Department of Public Enterprises (DPE). It outlines the composition and functions of boards of directors, audit committees, and remuneration committees according to DPE guidelines. However, some CPSEs are not fully complying with the guidelines regarding representation of independent directors and functioning of audit committees. Improving governance of CPSEs could help raise their performance and competitiveness.
This study analyzes the corporate governance practices of Aditya Birla Chemicals (India) Limited over a 5-year period from 2005-2010. The objectives are to analyze compliance with SEBI's Clause 49 listing agreement requirements and offer suggestions. The study finds that the company complies with Clause 49 requirements regarding board composition, audit and shareholder committees. It recommends improvements like developing a formal code of conduct, educating investors, strengthening internal auditing, and enhancing stakeholder value. In conclusion, corporate governance should be a way of life that considers all stakeholder interests.
respondents (77%) believe that
- Institutional investors are driven primarily by industry dynamics when making investment decisions. However, over 60% of investors ascribe high importance to corporate governance.
there is a strong relationship
- Most investors believe there is a strong relationship between corporate governance and stock price performance. Over 3/4 of investors think companies with better governance deliver better returns.
between corporate governance
- Investors perceive that sectors like financial services and healthcare have better governance, while sectors like infrastructure and mining have more governance issues. Family-run businesses are seen as having more governance problems compared to professionally-run companies.
and stock price performance.
Corporate governance practices in India & around the worldAshishAgarwal403
This document discusses corporate governance principles and practices in India. It defines corporate governance as relating to laws, procedures and practices that determine a company's ability to make managerial decisions while considering social impacts and accountability to shareholders. The key principles of corporate governance outlined include acknowledging shareholder rights, the role and responsibilities of the board of directors, integrity and ethical behavior, disclosure and transparency, and accountability. Common corporate governance practices in India include requirements under the Companies Act, securities laws, capital market discipline, nominees on company boards, and statutory audits. Globally, strategies focus on corporate objectives, communication/reporting, voting rights, board composition, remuneration policies, and strategic/operating performance.
This document discusses corporate governance in India and SEBI regulations. It defines corporate governance and outlines corporate governance norms. It describes how corporate governance has evolved in India, the role of the Securities and Exchange Board of India (SEBI) in implementing regulations like Clause 49, and the major changes Clause 49 introduced around board independence, disclosures, and other matters. The conclusion states that as Indian companies compete globally, adhering to world-class corporate governance standards has become essential.
Corporate governance and employee compensationaquagurl91
The document discusses various topics related to corporate governance and executive compensation in India. It begins with introducing corporate governance and defining agency theory. It then discusses illegal tactics of some Indian corporations, key corporate governance reforms and codes, and notable corporate scandals in India like Satyam and Harshad Mehta case. The document also covers differences between corporate governance in private and public sectors in India and concludes with executive compensation and employee stock option plans.
This document discusses mergers, acquisitions, and consolidations in business. It defines key terms like mergers, acquisitions, amalgamations, demergers, and spin-offs. It outlines the types of mergers like horizontal, vertical, concentric, and conglomerate mergers. It provides examples of some large mergers and acquisitions in India like Walmart's acquisition of Flipkart and the merger of Vodafone and Idea. It also discusses the legal framework around mergers and acquisitions in India and challenges companies may face.
India has risen 16 places in the Global Competitiveness Index to rank 39th, according to the World Economic Forum report. The report credits India's strong performance in areas like market efficiency, business sophistication, and innovation. The index evaluates 138 countries based on 12 pillars that determine productivity, grouped under basic requirements, efficiency enhancers, and innovation factors.
Issues and Challenges of Auditing In Islamic Financial Institutionsinventionjournals
The Islamic Finance Institutions (IFIs) has gained international recognition as a viable and vibrant component of the global financial system. As a matter of fact, Islamic Finance has seen an increased adoption across the globe, and is growing faster than any other industry at a rate of 15 to 20 percent a year. This study aims to expand the literature relating to IFIs and to provide a coeval outlook on the issues and challenges of Shari’ah audit in IFIs specifically in Malaysia. Hence, the earlier part of this study explains the current auditing standards for IFIs and the roles of Shari’ah auditors, followed by a close look up on the issues and challenges facing the audit of IFIs such as the standards and regulatory requirements of Shari’ah audits, independence of Shari’ah auditors and qualification as well as the accountability of the Shari’ah auditors. This study concludes that there is a need of regulatory framework specifically designed for Shari’ah audits along with the need of independent and accountable Shari’ah auditors to conduct the audit of IFIs.
Narayan murthy report on corporate governanceDhruvKothari13
The document summarizes the key recommendations from the Narayana Murthy Committee Report on Corporate Governance in India from 2003. The committee was formed by SEBI under Murthy's chairmanship to review corporate governance standards and disclosure requirements. The committee recommended several mandatory requirements, such as strengthening audit committees, requiring approval of related party transactions, and establishing whistleblower policies. It also recommended non-mandatory best practices around moving to unqualified financial statements, training board members, and evaluating board performance. The recommendations aimed to improve transparency, accountability and investor protection in Indian markets.
This document discusses the evolution of corporate governance in India. It describes three main periods:
1) The Managing Agency System from 1850-1955, where British merchants managed companies and provided financial and managerial expertise.
2) The Promoter System from 1956-1991, where the government passed laws to eliminate managing agencies and safeguard shareholder rights after India gained independence.
3) The Anglo-American System from 1992 onwards, where concepts like shareholder rights and control, and maximizing shareholder value were introduced through organizations like SEBI and new company laws.
This document summarizes the key points from the Naresh Chandra Committee report on corporate governance from 2002 presented by Sahana Hiremath. The report discusses how Kautilya's views on governing a monarchy can apply to successfully running modern corporations. It recommends strict corporate governance to build confidence among stakeholders. The report proposes establishing independent quality review boards to examine audit, secretarial, and cost accounting firms. It defines independent directors and recommends at least 50% of board members be independent. It also recommends exempting independent directors from certain civil and criminal liabilities and training programs for independent directors.
Any good business require corporate governance pptShailesh Sharma
The document compares the management styles and corporate governance practices of two construction business owners, Mr. Varpa and Mr. Soni, finding that Mr. Varpa exhibited poor leadership, centralized decision-making, and lacked transparency and commitment to employees, while Mr. Soni demonstrated good governance through decentralized management, merit-based promotions, and financial disclosure.
The corporate governance framework should promote transparent and fair markets to efficiently allocate resources. It should be consistent with the rule of law and enable effective supervision and enforcement. An effective framework requires a sound legal, regulatory and institutional foundation that market participants can rely on. The framework comprises elements of legislation, regulation, self-regulation and voluntary commitments that vary between countries based on circumstances. Frameworks should be reviewed and updated as experiences and business environments change.
This document provides an overview of corporate governance practices and regulations in India. It discusses several committees formed over time to address different aspects of corporate governance. It outlines the process for incorporating a new company. For public companies, an additional step of obtaining a commencement of business certificate is required. The document also details requirements for audit committees as per the Companies Act and Clause 49 of the listing agreement. This includes composition, roles, powers, and review responsibilities. Finally, it summarizes the WorldCom accounting fraud case and identifies failure of management, shareholders, and oversight committees as contributing factors.
The following presentation takes you through the Corporate Governance norms as prescribed by SEBI with a bit of detail into some major Corporate governance scams in INDIA
The document discusses corporate governance in India. It provides definitions and overviews of corporate governance, outlines the roles and responsibilities of directors, and discusses topics like disclosures, transparency, and examples of best practices. It also gives a brief history of corporate governance development in India, including key reports and regulatory changes. Board meeting frequency and composition requirements are outlined. In summary, the document covers definitions, history, and guidelines related to corporate governance for Indian companies.
Corporate Governance in India & SEBI RegulationsAtif Ghayas
This document discusses corporate governance in India and regulations from the Securities Exchange Board of India (SEBI). It defines corporate governance and outlines its key principles and objectives. It also discusses SEBI's role in establishing standards and protecting investors following scandals. The largest example discussed is the Satyam scandal, where the CEO confessed to overstating profits by billions through fake accounts and invoices.
Corporate Governance In Indian PrespectiveGeorge V James
This document discusses corporate governance in India and provides an overview of key committees and reports that have shaped corporate governance practices in India. It defines corporate governance and outlines its main principles. It also discusses important players like the board of directors, shareholders, and regulators. Furthermore, it summarizes some of the major milestones in India's journey toward better corporate governance standards, including key committees like the Confederation of Indian Industries Code in 1997 and the Kumar Mangalam Birla Committee Report in 2000 that introduced Clause 49.
The document discusses corporate governance in India and regulations by the Securities and Exchange Board of India (SEBI). It defines corporate governance and outlines its importance. It describes SEBI's role in establishing rules and regulations for listed companies in India, including Clause 49 which mandates rules for boards of directors, audit committees, whistleblower policies, and financial disclosures. The changes aim to increase transparency and protect investors as Indian companies compete globally.
Corporate governance involves the systems and processes by which companies are directed and controlled, and addresses the relationships among stakeholders such as management, shareholders, customers, and communities; the roles of the board of directors and senior executives include setting strategy, overseeing risk management and financial reporting, and appointing the CEO, with the chairman leading the board and the managing director running day-to-day operations.
The document discusses various models of corporate governance including the Business House model, Anglo-American model, German model, Japanese model, Indian model, and Open Enterprise model. It then summarizes the key corporate governance reforms in India, including recommendations from the Kumar Mangalam Birla Committee Report of 2000, Naresh Chandra Committee Report of 2002, and Narayana Murthy Committee Report of 2003 which aimed to improve corporate governance standards for listed Indian companies.
The document evaluates corporate governance practices in India from 2005 to 2012 based on data from the Asian Corporate Governance Association's CG Watch reports. It finds that India scored 61 in 2005, ranking 3rd, and 56 in 2007, also ranking 3rd. However, India's scores and rankings declined in subsequent years to 49 in 2010 and 51 in 2012, ranking 7th both years. While India made progress in some areas like rules formulation, there is still room for improvement in enforcement and culture. The study analyzed various elements of corporate governance annually to assess India's practices over the period studied.
Corporate governance reference to case of Air India and Indian AirlinesAvinash Sinha
This document provides an overview of corporate governance at Air India. It begins with definitions of corporate governance and discusses the various legal frameworks that govern corporate governance in India, including the Companies Act of 1956. It then provides a brief introduction to Indian Airlines, which merged with Air India in 2011. The document outlines Air India's organizational structure and subsidiaries. It also discusses some key policies under the aviation minister Praful Patel in 2005 that negatively impacted Air India's finances, such as an order of 68 new planes and transferring international routes to private airlines. The document concludes with a discussion of Air India's financial aspects and future policies to improve its financial situation.
The document discusses four models of corporate governance:
1) The Anglo-American model has separation of ownership and control with shareholders appointing directors who appoint managers. Disclosure and investor protection rules are strong.
2) The German model has a two-tier board structure with equal shareholder and employee representation on the supervisory board.
3) The Japanese model emphasizes relationships between companies in keiretsu networks, with main banks and shareholders appointing boards.
4) The Indian model mixes Anglo-American and German approaches depending on the type of corporation, with private companies following the German model more closely.
This document outlines the course objectives, learning outcomes, and content for a Corporate Governance and Ethics course. The course aims to develop an understanding of corporate governance theories and practices in both national and international contexts. It also focuses on fostering an understanding of ethics and its influence on business. The course content covers topics such as corporate governance mechanisms, models and practices, governance in developing economies, corporate disclosure, risk management, ethics, social responsibility, and integrated reporting. On completing the course, students should be able to understand corporate governance concerns in different regulatory contexts, analyze implications of governance, and evaluate ethical issues in business.
This document outlines three main models of corporate governance: the Anglo-US model, Japanese model, and German model. It describes the key elements of each model, including the main players (e.g. management, directors, shareholders), ownership patterns, board composition, regulatory frameworks, and disclosure requirements. The Anglo-US model is characterized by dispersed share ownership among individual and institutional investors. The German model uniquely prescribes a two-tiered board structure consisting of a supervisory board and management board, with the supervisory board overseeing the management board. It also limits voting rights and includes employee representatives on the supervisory board.
The board of directors is generally described in terms of its prominent structural attributes, including size, composition, and independence.
This Quick Guide examines the importance of these and whether they contribute to board effectiveness and shareholder value.
It answers the questions:
• What is the composition of a typical board?
• Which factors improve governance quality?
• Which factors do not?
• Can a board’s quality be determined by its structure?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
Corporate social responsibility lecture notesSako Mwakalobo
This document discusses corporate social responsibility (CSR). It outlines some of the key arguments for and against CSR. There are differing views on whether businesses should focus solely on economic goals like profit or have broader social responsibilities. CSR can be defined in various ways, such as a commitment to sustainable development, considering stakeholder interests, and contributing to community well-being. Businesses need to balance their economic, legal, and social duties to be successful long-term. Globalization has led to differing international perspectives on appropriate corporate behavior.
Corporate collapses, misinformation, fraud and the failure of many watchdog institutions, from auditors to investment analysts, have driven the need for change beyond the self-policing business arena and into the realm of politics - as had happened to Enron and Worldcom - as well as lesser corporate debacles, such as Adelphia Communications, AOL, Arthur Andersen, Global Crossing, Tyco, created an atmosphere of doubt and among the investing public. Practical applications of corporate governance in the US now mean compliance with the law - not just compliance with a "softly" enforceable voluntary code.
Models of Corporate Governance
CORPORATE GOVERNANCE SYSTEMS
Efforts made for Effective Corporate Governance
Cadbury Committee
Sarbanes Oxley Act, 2002
Global Corporate Governance
External Auditor
Trends in Governance in Major MNC’s
India
China
Japan
Other European Model
With the notification of CSR provisions in Companies Act, 2013, it’s time for Indian Companies to imbibe the culture of giving back to the society. Essentially, it requires the prescribed companies to spend at least 2% of the average net profits of 3 immediately preceding financial years and setting up a CSR Committee for formulation and monitoring of CSR Policy. However the Board is restricted to confine to CSR activities mentioned in Schedule VII.
This document summarizes several major corporate and financial scams that occurred in India between the 1990s and early 2000s. It describes the Satyam scam where founder Byrraju Ramalinga Raju admitted to inflating account books by Rs 8,000 crore. It also summarizes the scams involving Harshad Mehta, Ketan Parekh, C.R. Bhansali, Sohin Daya, Dinesh Dalmia, Abdul Karim Telgi, Virendra Rastogi, UTI officials, and Sanjay Agarwal, estimating total losses of thousands of crores of rupees in each case through fraudulent activities like siphoning funds, price rigging, and
The document discusses the history and evolution of corporate governance in India. It provides details on key committees and recommendations that helped shape India's corporate governance framework over time. Some of the main elements of corporate governance that it outlines include the roles and responsibilities of boards of directors, shareholders and other stakeholders. It also discusses the impact of corporate governance on company performance and principles like transparency, accountability and protection of shareholder rights.
The document summarizes three models of corporate governance: the Anglo-US model, Japanese model, and German model.
The Anglo-US model is characterized by dispersed share ownership among individual and institutional investors. Power is balanced among management, directors, and shareholders. The board consists mainly of outsiders.
The Japanese model features concentrated ownership among main banks and affiliated companies. Interaction centers around the main bank. Boards are comprised solely of insiders.
The German model uses a two-tier board structure dividing management and oversight. Banks and corporations are large shareholders. Employees are represented on supervisory boards.
Models of corporate Governance presented by Dushyant MaheshwariDUSHYANT MAHESHWARI
This document discusses four main models of corporate governance:
1) The Anglo-American model focuses on separation of ownership and control with shareholders appointing directors who appoint managers. Boards usually have a mix of executive and independent directors.
2) The German model uses a two-tier board structure with a supervisory board elected equally by shareholders and employees/unions overseeing a management board.
3) The Japanese model involves cross-shareholdings between companies and banks/financial institutions jointly appointing boards dominated by division heads rather than independent directors.
4) The Indian model combines Anglo-American and German influences, with private companies following the German model of family/promoter control and public sectors following
Organization and administration are closely related concepts that both aim to control resources to achieve objectives. They exist together and are not separable, with organization concerning the formal structure and administration referring to the directing process within that structure. Effective administration requires unity of command, with each employee reporting to only one supervisor, and a clear line of authority so that a single supervisor's orders are followed under all circumstances.
The document discusses corporate governance in India and regulations by the Securities and Exchange Board of India (SEBI). It provides background on corporate governance and defines it. It outlines how corporate governance norms and practices in India have evolved, especially after economic reforms in the 1990s. It describes SEBI's role in establishing regulations like Clause 49 to strengthen corporate governance at listed companies in India and protect investors. The regulations address requirements around independent directors, board practices, auditing, whistleblowing and disclosures. The conclusion states that as Indian companies compete globally, adhering to strong corporate governance practices is essential.
This document provides an overview of corporate governance in India and regulations put in place by the Securities and Exchange Board of India (SEBI). It defines corporate governance and outlines its importance. It then discusses the evolution of corporate governance norms and practices in India. It also explains SEBI's role in reforming the stock market and introducing Clause 49, which strengthened corporate board independence and transparency requirements for publicly listed companies. The changes mandated by Clause 49 including increasing the role of independent directors and requirements around disclosures, internal controls and whistleblower policies.
- This document discusses corporate governance in India and regulations established by the Securities and Exchange Board of India (SEBI). It provides background on corporate scandals that led to increased regulation. SEBI established Clause 49, which strengthened the role of independent directors and introduced new disclosure requirements for public companies. The key changes required companies to have a minimum number of independent directors, limited terms for non-executive directors, established codes of conduct, and enhanced financial disclosures and internal controls. Effective corporate governance is important for India's corporations as they increasingly compete globally and attract foreign investment.
The document discusses reforms that have been undertaken in the Indian capital market. It outlines 11 key reforms: 1) Establishment of the Securities and Exchange Board of India (SEBI) to regulate the capital market, 2) Establishment of credit rating agencies, 3) Increased merchant banking activities, 4) Strong performance of the Indian economy, 5) Rising electronic transactions, 6) Growth of the mutual fund industry, 7) Growth of stock exchanges, 8) Increased investor protection, 9) Growth of derivative transactions, 10) Insurance sector reforms, and 11) Growth of commodity trading. The reforms have led to tremendous growth in the Indian capital market.
This document is an assignment on corporate governance of banks submitted by Nikhil Kumar Tyagi to his faculty member at Amity Law School. It contains an introduction to corporate governance and its importance for banks. It discusses the historical background of corporate governance development and the role of organizations like RBI, OECD, and Basel Committee in establishing corporate governance standards and guidelines for banks internationally. The document also covers specifics around corporate governance for banks, the Banking Regulation Act of 1949 in India, and international standards.
It consists meaning of corporate governance, clause 49 of listing agreement, initiatives for governing practices in India and drivers for the growth of corporate governance in India.
This is a part of syllabus of the Business ethics of MBA.
Corporate governance is the system of rules and practices by which companies are directed and controlled. The document discusses the principles, pillars, and elements of corporate governance, including accountability, fairness, transparency, and independence. It also provides details on the evolution of corporate governance in India, the role of organizations like SEBI and CII, and key regulations like Clause 49 that strengthened corporate governance practices for public companies.
Venture Capital Funds in india- A Critical AnalysisVipasha Ghangoria
The Rough Draft was prepared as per the requirement of LL.M. (Business Laws) course work at National Law School of India University, Bangalore.
For full information on Venture Capital Funds, the researcher may be contacted here- vipashag@nls.ac.in
Vipasha Ghangoria,
Doctoral Researcher (International Commercial Arbitration)
Critical evaluation of small investors by Abhishek PandeAbhishek Pande
The document discusses the role of SEBI (Securities and Exchange Board of India) as the regulator of the Indian stock market and its role in protecting small investors. It outlines SEBI's objectives such as promoting awareness among small investors, educating them about economic trends, and overall economic development. The document then describes some of SEBI's powers and responsibilities, including licensing brokers and dealers, preventing fraud, regulating mergers and acquisitions, auditing stock exchanges, making new rules, and educating investors. It also discusses SEBI's findings related to issues small investors face such as misleading advice, inflated ratings and fees, front-running in high-frequency trading, and companies being bailed out.
This document discusses internal controls and the role of chartered accountants in developing and maintaining effective internal control systems. It defines internal controls and outlines their importance for mitigating risks and preventing issues like fraud. It describes the skills chartered accountants can contribute in areas like developing control standards, identifying gaps, monitoring controls, and assisting with regulatory compliance. The document also provides a brief history of the development of internal controls and key frameworks/regulations globally and in India.
This document discusses creating a shareholders trust in India to offset management control. It proposes establishing a trust under the Indian Trust Act of 1882, with management acting as trustees and shareholders as beneficiaries. This would make management impartial and accountable to shareholders. Currently, shareholders have little power while management has full control. A trust could guarantee shareholders a return and prevent losses, while making management answerable. It would give investors greater rights and encourage more investment in companies.
The document discusses the need for strong corporate governance practices in India. It notes that there have been growing instances of financial scams and irregularities at companies that have damaged investor confidence. Corporate governance aims to protect shareholders and other stakeholders by promoting transparency, accountability and fair practices. The document outlines how globalization, mergers and acquisitions, and regulations from groups like SEBI have made robust corporate governance important for public companies.
Corporate governance compliance practices of indian companiesAlexander Decker
This document summarizes the evolution of corporate governance practices in India. It discusses several committees that were formed starting in the late 1990s to early 2000s to develop codes and recommendations around improving corporate governance for Indian companies. These included the CII Code in 1998, the Birla Committee in 1999, the Naresh Chandra Committee in 2002, and the Narayana Murthy Committee in 2003. The recommendations from these committees helped establish Clause 49 of the listing agreement, which aimed to enhance standards of corporate governance for listed companies in India. The document also briefly reviews some prior literature that has analyzed corporate governance reporting practices among Indian firms and the relationship between adopting Clause 49 and company volatility/returns.
Notes of Module 5 Corporate Governance
Content
Concept of Corporate Governance
Corporate Governance in India
Objective of Corporate Governance
Features of Corporate Governance
Elements of Corporate Governance
Importance of Corporate Governance
Important Issues in Corporate Governance
Corporate Governance and Agency Theory
Reforming Board of Directors
*Birla Committee
*Naresh Candra Committee
*Narayana Murthy Committee
Bibliography
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Corporate governance involves balancing economic and social goals as well as individual and group interests. The primary purpose is to create wealth legally and ethically by satisfying key stakeholders. Good governance requires mechanisms for internal control by boards and managers as well as external control through regulations, markets and stakeholders. In India, corporate governance initiatives began in the 1990s led by industry groups and later the securities regulator SEBI. Key reforms strengthened board independence and financial disclosure standards. While standards have improved, further training of directors and ensuring the spirit not just letter of regulations remains an ongoing challenge.
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2. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
PREFACE
In view of the importance of portfolio equity flows to emerging markets, the Institute of
International Finance (IIF) established in January 2001 the IIF Equity Advisory Group (EAG)
consisting of senior executives from leading asset management firms throughout the world. The
EAG, chaired by Edward Baker, Chief Investment Officer of Global Emerging Markets, Alliance
Capital, Ltd., is seeking implementation of its Code of Corporate Governance in key emerging
market countries that are of particular interest to the Institute’s membership base. The IIF Code,
which was first released in February 2002 and revised in May 2003,1 endeavors to improve the
investment climate in emerging markets by establishing practical guidelines for the treatment of
minority shareholders, the structure and responsibilities of the board of directors, and the
transparency of ownership and control of companies.
The strategy for promoting the implementation of the IIF Code, as the standard by which
the company/shareholder relationship is measured, is country-focused. Country Task Forces
have been set up for Brazil, China, India, Lebanon, Mexico, Poland, Russia, South Africa, South
Korea, and Turkey.
In November 2005, the India Task Force held meetings in Mumbai and New Delhi with
senior officials from the government, the Reserve Bank of India, the Securities and Exchange
Board of India (SEBI), the Bombay Stock Exchange (BSE), the National Stock Exchange of
India (NSE), private companies, rating agencies, law firms and consultancies involved in
corporate governance. Task Force members in attendance included Manish Singhai, Alliance
Capital Management, and Keith Savard and Rakhi Kumar of the IIF staff.
The aim of this report is to offer an assessment as to where India stands relative to the
investment environment that members of the IIF Equity Advisory Group would like to see
develop in key emerging market counties. This report is not meant to provide an exhaustive due
diligence of corporate governance in India and, as with other Task Force Reports, neither the
Task Force nor the IIF can in any way attest to or guarantee the accuracy or completeness of the
information in the report.
1
Investors’ poor experience in a generally weak corporate governance environment in many emerging markets led
to relatively strict and comprehensive original IIF guidelines. Nevertheless, more detailed standards were
considered desirable in a few areas in light of far-reaching new legislation such as the Sarbanes-Oxley Act passed by
the U.S. Congress in the summer of 2002. The revised standards offer guidance to emerging market officials as they
decide what rules and regulations must be put in place to satisfy investors.
3. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
SUMMARY APPRAISAL
Historically, India has had an active equity market. There are approximately 6,000
listed companies and over 40 million people invest in shares and mutual funds in the country.
Total market capitalization of India’s stock markets as of December 30, 2005 was $546 billion.
The top ten companies account for more than one-third of total market capitalization. Seen from
the perspective of the IIF Code, the corporate governance framework in India as it applies
to listed companies is above average compared to other emerging market economies
surveyed by the IIF. The Securities and Exchange Board of India (SEBI), the independent
capital markets regulator, has made significant efforts to keep up with changing corporate
governance practices in leading equity markets around the world, namely the United Kingdom
and the United States. In October 2004, SEBI revised existing corporate governance
requirements to incorporate selected features of the Sarbanes-Oxley Act. Indian companies were
required to be in compliance with these new requirements, introduced in Clause 49 of SEBI’s
listing agreement, by December 31, 2005.
Improvements in corporate governance in Indian companies seem largely to be
voluntary and driven by globalization. In India, there is a general belief that financial markets
reward good corporate governance practices through access to cheaper capital and higher stock
prices. Indian companies have been increasingly attracting foreign capital either through listing
on international stock exchanges or through private equity placements and foreign institutional
investments. Some Indian companies were early adopters of good corporate governance
practices, and companies like Infosys Technologies (Infosys) serve as examples of how equity
markets reward well-governed companies.
Companies that wish to access markets for capital or that wish to become leading
global suppliers to corporations in developed markets are becoming increasingly
transparent and are more willing to adopt higher corporate governance standards.
Similarly, companies that wish to become multinationals by acquiring businesses globally are
also improving their corporate governance. Many Indian companies realize that the probability
of getting board and shareholder approval for a merger or an acquisition is greater when the
acquiring company has good corporate governance. These governance changes are having a
trickle-down effect on smaller Indian companies. Unlisted medium-cap companies, driven by
the desire to go public in the future, are slowly embracing better corporate governance practices.
Several family-owned companies that have been around for two or three generations have also
begun tackling their corporate governance problems by training the younger generation of
managers from the family and by introducing family councils to deal with disputes. However,
the pace of change in smaller, unlisted companies and most companies in the government-
controlled sector (also called Public Sector Units or PSUs) is generally slow.
Stock exchanges are viewed as being at the front line of the surveillance function for
compliance with all listing requirements, including those that pertain to corporate
governance. India has 22 recognized stock exchanges, the two most important being the
Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited
(NSE). Clause 49 requires companies to file a quarterly compliance report with the stock
exchange. The stock exchange in turn is required to file an annual compliance report with SEBI
2
4. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
for each listed company. Quarterly reports due on March 31, 2006 will begin carrying
compliance information with the new governance listing requirements. Neither the stock
exchanges nor SEBI have increased staff as needed to effectively scrutinize compliance with
Clause 49.
Compliance reporting in India is based on a ‘check the box’ approach, where
companies have to check ‘yes’ or ‘no’ to indicate compliance with listing requirements.
Questions are raised by the stock exchanges only when a company checks the ‘no’ or non-
compliant box. If a company has checked ‘yes,’ in general, limited effort is made to ensure that
a company does indeed comply with requirements. This gives non-compliant companies the
opportunity to check the ‘yes’ box to avoid raising red flags.
Although stock exchanges in India have responsibility for surveillance, they do not
have the authority to take punitive action against errant companies. That authority vests
with SEBI, which can impose fines of up to $5.5 million. The largest fine to date imposed by
SEBI has been for $0.2 million. SEBI has a fraud investigation unit but it cannot take any
criminal action against errant managements or boards of directors. Authority to pursue criminal
action lies with the Ministry of Company Affairs, a government agency that has the ultimate
responsibility to supervise compliance with the Companies Act of 1956. In addition to SEBI, the
Reserve Bank of India (RBI) has regulatory authority over companies in the banking and
financial service sectors, while the Insurance Regulatory and Development Authority (IRDA), a
regulatory body, has authority over companies in the insurance industry.
Because of this segmented regulatory structure, authority and responsibility for
surveillance and enforcement is divided among various entities. As a result, a mismatch
between the level of authority and responsibility is commonplace. The cost of non-
compliance in the form of fines, legal action and de-listing is low and has proved to be an
ineffective mechanism to deal with errant companies. SEBI has been largely unsuccessful in
prosecuting individuals and companies brought to trial for non-compliance. SEBI personnel
need adequate training to develop skills required to build strong cases against errant companies.
It is important that SEBI successfully prosecute non-compliant companies and individuals if they
wish to be viewed as a powerful regulator. The current system of enforcement in the country is
viewed as weak and entrenched in bureaucracy. In addition, the ultimate justice delivery system
for investors – the court system – lacks effectiveness due to large case volumes.
The authorities are working diligently to improve the country’s corporate
governance framework. The latest reform being undertaken is the overhaul of the Indian
Companies Act of 1956 (amended as recently as 2002). A bill to adopt a new act is currently
awaiting approval by the Indian parliament and could be adopted as early as February 2006. If
the bill passes, the voluminous provisions in the current act would be reduced by roughly two-
thirds. The major change proposed in the new Companies Act is the simplification of procedures
by moving to a rules-based system. The current Companies Act legislates almost all operational
procedures in companies such as incorporation, issuance of capital, winding up etc. Under the
new Companies Act, these procedures will no longer be legislated by law but instead be based on
rules to be prescribed by authorities. It is uncertain which authority will prescribe the rules.
3
5. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
The India Task Force views this ambiguity with concern. Although the new Companies
Act is intended to simplify procedures, smooth implementation and achieve higher
compliance, the ambiguity about which authority will prescribe the rules may well lead to
duplication. Moreover, given the level of reported corruption (and lack of enforcement)
within the lower levels of the Indian bureaucracy, the changes would likely increase
administrative costs for companies initially. The government should clearly define roles and
responsibilities for rule-setting before adopting the new Companies Act to avoid confusion and
limit an increase in administrative costs for companies.
On balance, India’s corporate governance policy framework is above average and moving
in the right direction, though weak surveillance and enforcement practices slow down the pace of
improvements. The Task Force believes that further improvements in Indian corporate
governance practices require the following actions:
• Encourage better compliance with listing requirements by substantially increasing the
cost of non-compliance
• Strengthen surveillance mechanisms
• Introduce sector-specific corporate governance best practices
• Increase shareholder activism in the country by undertaking pension reforms
• Pursue legal reforms to provide investors with a mechanism by which they can
redress grievances in a timely and cost-effective manner
4
6. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
KEY CORPORATE GOVERNANCE ISSUES
Meeting the challenges of a well-developed equity market
India’s equity markets are well developed compared to other emerging market countries.
The Securities and Exchange Board of India (SEBI), an independent judicial body, regulates the
exchanges. Corporate governance-related listing requirements in India are largely based
on recommendations of the Cadbury and Higgs Reports and the Sarbanes-Oxley Act.
SEBI has been proactive in keeping India’s corporate governance rules and regulations in
line with best practices around the world. In 1999, SEBI appointed the Kumaramangalam
Birla Committee to recommend improvements to the corporate governance framework. In 2002,
SEBI updated its listing requirements with Clause 49, which has mandatory and non-mandatory
corporate governance provisions. These listing requirements were again changed in 2004 to
incorporate some best practices laid out in the Sarbanes-Oxley Act. All listed companies are
required to be in compliance with Clause 49 by December 31, 2005.
Although the corporate governance framework in the country has been improved, the
latest reforms as prescribed by Clause 49 have weak enforceable penalties for non-
compliance. The severest penalty for non-compliance with Clause 49 is the de-listing of a
security. However, under current practices companies are seldom de-listed. Regulatory
authorities view de-listing as hurting minority investors by taking away their ability to exit equity
markets. As a result there are over 1,000 non-compliant companies (approximately 20 percent of
total companies) listed on the BSE. Although these companies account for less than 5 percent of
total market capitalization and have little or no trading volume, the reluctance of regulators to
take action against errant companies raises concerns regarding the enforcement and surveillance
mechanisms in the country.
As a positive, SEBI has also issued regulations relating to the acquisition of significant
shareholdings, takeovers, share buy-backs and insider trading. Bankruptcy laws and anti-
competitive laws are also in place. There is currently a bill in Parliament to revamp the
Companies Act of 1956, which was amended as recently as 2002. The bill proposes to
simplify procedures by moving to a rules-based system. If the bill passes, the voluminous
provisions in the current act would be reduced by two-thirds from the present roughly 780
provisions. However, it is unclear who will have the authority to set the rules. The India Task
Force is concerned that if the new rules are set by civil servants this could increase red
tape.
With the adoption of SEBI’s Clause 49, corporate governance requirements in India
as written now compare favorably with the IIF code and comply with over two-thirds of
policies recommended by the IIF. In addition to mandatory requirements, Clause 49 provides a
list of non-mandatory requirements, which promotes governance practices such as creating a
board level remuneration committee, training for board members, conducting board member
evaluations and establishing whistle blower mechanisms. Companies are required to provide
information regarding their governance practices in a separate Corporate Governance section in
the Annual Report to Shareholders in which non-compliance with any mandatory requirements,
and the extent to which non-mandatory requirements have been adopted, should be highlighted.
5
7. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Globalization, a catalyst for change
The state of corporate governance in India has improved over the last four years,
particularly among large cap Indian companies. Improvements in corporate governance
include increased transparency with regard to accounting and financial information and, to a
lesser extent, more independent directors on boards. Although Clause 49 mandates many of
these improvements, Indian companies were voluntarily improving corporate governance even
before the requirements of Clause 49 came into effect for listed companies.
In many large Indian companies, globalization—and not regulatory requirements—
has served as the impetus for adoption of corporate governance best practices. The
motivation to voluntarily improve the internal governance structure of a company can be
attributed to the following:
• Need to access foreign capital. Companies seek to access capital either through
listing on a foreign stock exchange such as the LSE, NYSE or NASDAQ or by
attracting private equity, foreign institutional investors or joint venture partnerships.
• Need to become a reputable company to export globally. Many Indian companies,
especially those that wish to export goods or services to companies in developed
markets, realize that buyers are more comfortable working with companies that have
the transparency and ethics levels found among suppliers in developed markets.
• Desire to become multinational companies. In their quest to become multinational
companies, successful Indian companies generally have been willing to improve their
corporate governance structure in order to acquire business or assets in foreign
countries. Indian companies have increasingly realized that the shareholders and
boards of directors of foreign companies consider the corporate governance structure
of the bidding company before approving the sale or merger of an asset.
The trickle-down effect
Infosys, a highly successful information technology provider, was one of the first Indian
companies to voluntarily adopt high standards of corporate governance. The founder-promoter
and largest shareholder of the company, voluntarily added truly independent directors to Infosys’
board, improved financial transparency through better disclosure in accounting statements, and
ensured compliance with recommendations of the Higgs Report and Sarbanes-Oxley Act. For
these efforts, Infosys stock is much sought after by domestic and foreign investors.
Some other Indian companies have also improved their governance practices. For
example ICICI Bank improved transparency around its financial reporting when it raised foreign
capital. The Tata Group, one of India’s oldest family-owned business, has adopted better
corporate governance practices compared to many other Indian conglomerates by moving to a
holding company structure and adopting an explicit ethics code of conduct. Similarly the
Housing Development Finance Corporation Ltd. (HDFC) has adopted a socially responsible
focus in their lending practices since inception.
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8. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
High market premiums that the stocks of these companies command has reinforced
the belief among Indian investors and, more importantly, other Indian companies that
better corporate governance contributes to a high stock price and provides access to
cheaper capital. This trickle-down effect is now permeating throughout the medium-cap
Indian companies who are willing to improve corporate governance to increase
shareholder value. Some unlisted companies planning to launch an IPO or attract private equity
capital are adopting Clause 49 listing requirements. This change, however, is proceeding slowly.
Corporate Governance problems cut across public and private sector
The Indian government owns significant stakes in several businesses ranging from oil
and gas companies to banks. The public sector has been shrinking in size over the years due to
the government’s privatization efforts. However, recent privatization efforts have been
suspended due to political opposition from the leftist parties within the ruling coalition.
Nevertheless, the need to continue reforming India’s public sector units (PSUs) should not
be halted while they await privatization. Better corporate governance structures in PSUs will
likely increase the sale value of these companies, thereby realizing greater revenues for the
exchequer. Corporate governance-related reforms that need to be implemented in the PSU sector
include:
• Increased autonomy for management
• Independent board-level nomination committees to appoint directors
• Reduced interference from sector Ministers
• Focus on profitability by linking senior management compensation to performance
In the private sector, most large Indian companies are family-owned conglomerates
manufacturing items from cars to watches. Indian conglomerates have been successful in
competing against multinational corporations by streamlining costs and rationalizing businesses.
However, the broader corporate governance structure in Indian companies generally
remains poor. The ownership structure of individual companies within the conglomerates
is usually opaque. Often the controlling family retains control by creating complex cross-
holdings among subsidiaries. Related-party transactions among subsidiaries and, in
particular, related lending is a concern. In addition, ownership of Indian family-controlled
companies is moving into the second or third generation. Reforms need to be tailored to address
the specific concerns facing the family-owned conglomerate structure. It is important that,
among other things, family-owned companies focus on:
• Voluntarily adopting mechanisms for governance of the family’s ownership stake; for
example, creating family councils that deal with family disputes
• Reforming company boards by increasing overall board independence and reducing
the number of family member-directors
• Limiting the role of family members in senior management
• Increasing transparency around the ownership structure and related-party transactions
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9. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Complex and divided regulatory system impedes surveillance and enforcement functions
SEBI, the Reserve Bank of India (RBI), and the Insurance Regulatory and Development
Authority (IRDA) supervise India’s equity markets. The Ministry of Company Affairs has the
ultimate responsibility for ensuring compliance with the Companies Act of 1956. The equity
market regulatory structure in India is illustrated below.
Ministry of Company Affairs
• Sole responsibility for supervision of the
Companies Act 1956
• Authority to pursue criminal action against listed
and unlisted companies
• Provides surveillance function over unlisted
companies
RBI IRDA
• Banking and financial • Regulator of the
market regulator insurance sector
• Oversees governance
issues in banks and
has right to reject
appointed directors
SEBI
• Capital markets regulator
• Authority over listed
companies
• Supervises stock
exchanges
Although noteworthy efforts have been made to improve the corporate governance
framework as it pertains to existing laws and requirements, less has been done to revamp
existing surveillance and enforcement functions. Beginning March 31, 2006, listed companies
will at the end of every quarter submit information regarding compliance with Clause 49. Stock
exchanges will be required to scrutinize the compliance reports and send an annual compliance
report to SEBI based on their findings.
However, the compliance reports submitted by companies will follow a ‘check the
box’ (yes or no) approach. Companies will not be required to provide backup information or
explain why they are or are not in compliance with the listing requirements. Red flags will be
raised only if a company has checked ‘no,’ indicating non-compliance with a particular listing
requirement. Compliance audits conducted by the stock exchanges and regulatory
authorities will not be designed to ensure that a company does indeed comply with
requirements. This leaves room for companies to abuse the system by falsely checking ‘yes’ in
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10. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
order to avoid raising red flags. In addition to the limited scope of compliance audits,
staffing levels and training in the compliance departments appear to be inadequate.
An e-governance initiative is currently underway at the Ministry of Company
Affairs that will allow companies to file reports electronically. E-filings will reduce
paperwork and hopefully alleviate some of the red tape that currently exists within the system. It
will also enable stock exchanges and regulators to use technology to aid in the surveillance
process.
With regard to enforcement, there is a mismatch between the level of authority and
responsibility among regulators. Regulators often share supervisory responsibilities with each
other. However, this over lapping of responsibility can sometimes hamper enforcement efforts.
For example, a bank that is listed on a stock exchange will fall primarily under the purview of
the RBI; SEBI will have regulatory responsibility with regard to its activities as a listed
company; and the Ministry of Company Affairs will have authority to take criminal action for
non-compliance with the Companies Act. Each regulator will act within its limited scope of
supervision and inform the co-regulator about action that needs to be taken under their purview.
With authority and responsibility for surveillance and enforcement divided among various
entities, the scope and willingness to take action can get diluted. As a result, the overall system
of surveillance and enforcement in India is relatively weak.
Delivery of justice by the court system is slow
Courts in India are the ultimate justice delivery providers for minority shareholders.
Although laws in India are generally comparable to those in the United Kingdom,2 the court
system is seen as inadequate to handle the volume of cases being brought to trial. This
results in delays in the delivery of justice. Verdicts are sometimes given 10 to 20 years after the
incidences occur. This is one of the main reasons that shareholder activism has not taken
hold in India, as minority investors are not willing to wait decades for redress.
As reported in the press corruption is present in the court system, especially in the lower
courts, which further delays the delivery of verdicts and increases the cost of litigation. Also,
judges in lower courts who preside over murder trial are expected to be conversant with
corporate law and preside over white-collar crimes like fraud. An amendment to the
Companies Act of 2002 required the establishment of special courts to handle securities-
and finance-related crimes. Three years after the amendment, the government is still in the
process of identifying and appointing qualified judges. The establishment of separate courts for
white-collar crimes is a step in the right direction but the infrastructure of these specialized
courts have to keep pace with growth in the needs of the market to ensure that these newly
created courts can dispense justice in a quick and efficient manner.
2
India’s legal system was created by the British and therefore laws are similar to those in the UK.
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11. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Corruption
As has been widely reported in the media, corruption in the lower levels of Indian
bureaucracy makes the overall business environment less than attractive to investors, particularly
foreign investors. Based on the 2005 Corruption Perception Index developed by Transparency
International (where the higher the number the greater the level of perceived corruption), India
ranked 88 out of 158 countries. On a scale from 0 to 10 (with 0 being highly corrupt) India
scored a 2.9. In another report by transparency international that focuses solely on the perception
of corruption in India, 60 percent of those surveyed believed that corruption will further increase
in the next three years.
Corruption in India has to be tackled by the government if the overall governance
structure is to improve. There is a general belief among Indians that the powerful can get away
with non-compliance. The move towards e-governance (i.e. electronic filing systems) is a small
step in the right direction and can help reduce some of the ‘delays’ in transferring and filing
papers when approvals are sought from multiple regulators. A centralized system or database
would also make it difficult for individual officials to make ‘corrections’ for bribes as changes
leave a trail. The combination of increased cost for non-compliance and greater use of
technology for reporting and filing will help reduce some of the corruption in the system.
Lack of shareholder activism
Shareholder activism in India is practically non-existent. There are several
explanations for the lack of shareholder activism in the Indian equity market:
• Large number of tightly controlled companies: In India promoters typically retain
control of companies by owning a small, yet significant, ownership stake in companies.
Shares not owned or controlled by the promoter and his family and friends are widely
dispersed, making it difficult for minority shareholders to voice their concerns.
• Lack of institutional share ownership: Although FII’s increasingly own a large
number of shares in Indian companies, in general, no single minority shareholder owns
enough shares to significantly influence change. Therefore, even though there are laws
that empower shareholders controlling 10 percent of equity, the dispersed nature of
ownership of shares makes it difficult for minority shareholders to benefit from the low
threshold levels that allow for taking a more active role in the management of the
company.
• Limited investment scope for pension/insurance companies: Pension and insurance
companies in India are owned by the government and constitute a large part of the PSU
sector. The Indian government has only recently begun allowing private sector
companies to engage in these activities. The government strictly regulates the
instruments in which pension funds can invest. Some companies like LIC and UTI have
significant stakes in Indian companies but are not activist shareholders. As a result in
India there is no large institutional shareholder engage in shareholder activism through its
investment decisions like Calpers in the United States.
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12. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
• Weak court system: As mentioned above, the time taken to deliver verdicts through the
court system in India is inordinately long. This acts as a deterrent for minority
shareholders to pursue legal action against companies.
Pension reforms are required to create a class of Indian institutional investors who will
further the cause of minority shareholders and help strengthen corporate governance in Indian
companies. In addition, the framework to pursue class-action lawsuits against companies needs
to be strengthened. Class-action lawsuits are a powerful mechanism through which minority
shareholders can collectively seek compensation for corporate wrongdoings by
controlling/managing shareholders.
OUTLOOK AND RECOMMENDATIONS
The corporate governance framework in India as it pertains to laws and listing
requirements for companies is robust and in line with the IIF’s guidelines. The India Task
Force expects corporate governance structures in Indian companies to improve further
going forward. Our expectation is based on the willingness of Indian companies to
voluntarily improve their corporate governance to attract capital. As foreign direct
investment flows to India continue, medium-sized Indian companies should be more willing to
embrace better practices to gain access to foreign capital.
Several individuals that were interviewed by the India Task Force were optimistic
about the corporate governance environment because of two factors—a generational shift
occurring in the Indian economy and a more active press. The generation of young
professionals in India, having worked in large multinational corporations, have greater exposure
to western-style corporate governance. There is a feeling among the ‘older’ generation that this
‘new’ generation believes in doing things right. The common belief is that as this new
generation matures and is appointed to managerial roles in organizations they will pursue and
insist on higher corporate governance standards.
In India, an active free press has partially substituted for the lack of shareholder
activism. Increased competition in the media industry has resulted in journalists and news
channels conducting sophisticated financial analysis and investigations. The Indian media’s
relentless pursuit of the next big story has resulted in intense scrutiny of governance practices in
large Indian companies. This has raised awareness of the importance of good corporate
governance among investors and furthered the cause of reform.
However, if improvements in India’s corporate governance environment are to be
realized, it is important that the government improve infrastructure as it relates to
surveillance and enforcement mechanisms and the court system. Like most developing
economies, India suffers from corruption, which increases the cost of doing business. The
government needs to tackle this fundamental problem if long-term improvements are to be made.
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13. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
For corporate governance-related improvements to percolate faster throughout Indian
companies, the pace of reform needs to be increased. The Task Force recommends that the
following specific actions be taken:
• Strengthen Clause 49 by giving SEBI and stock exchanges the authority to take action
against errant companies (besides de-listing) by substantially increasing the cost of
non-compliance.
• Increase shareholder activism in the country by creating a class of institutional
investors who can take up corporate governance-related causes as significant
shareholders. This can be achieved by speeding up currently stalled pension reforms.
• Improve surveillance mechanisms by adding manpower and training existing staff in
the surveillance function at the stock exchange and regulatory authority level to carry
out more compliance audits.
• Streamline the regulatory structure to reduce dilution of surveillance responsibility.
• Improve corporate governance-related reporting by companies to include back-up
information to explain compliance with key requirements of Clause 49.
• Expedite the appointment of judges to the specialized courts created to handle
corporate and finance-related cases.
• Improve framework to bring class-action lawsuits against errant companies.
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14. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
INDIAN CORPORATE GOVERNANCE FRAMEWORK
India’s legal framework for corporate governance is found in the Companies Act of 1956,
most recently amended in 2002, and in Clause 49 of SEBI’s requirements for listed companies.
The analysis below compares the Companies Act and SEBI’s listing requirements with the IIF
Code.
Minority Shareholder Protection
The legal structure for corporate governance in India provides for strong minority
shareholder protection compared with other emerging markets. Together, the Companies Act
and SEBI’s listing requirements account for most of the key minority shareholder protections
that are found in the IIF Code.
Although the threshold limits at which minority shareholders can participate by calling
special meetings and exercising other rights (usually 10 percent) is below the threshold
suggested by the IIF code, in practice these thresholds cannot be reached as founder-promoters
control many Indian companies. Non-founders’ share ownership is dispersed. Therefore, the
India Task Force finds that even though in theory India’s legal framework provides for strong
minority shareholder protection, in practice minority shareholders cannot always garner the
strength to exercise their voting rights together.
Voting Rights
According to Indian rules and regulations, all shareholders have the right to participate
and vote at general meetings. The IIF Code states that firms are encouraged to allow proxy
voting and, as a best practice, proxy systems should be universally available to all shareholders.
The Companies Act fulfills this provision of the IIF Code, granting all shareholders the legal
right to appoint a proxy.
The IIF code states that each share should have one vote, and that the “one share, one
vote” principle should be a threshold requirement for new issues. Until recently, laws in India
complied with this rule. However, a rule enacted in 2001 by the Ministry of Company Affairs
now permits Indian companies to issue shares with multiple voting rights or dividends as long as
such shares do not exceed 25 percent of share capital and shareholders approve the issuance.
Indian law does not have specific provisions for cumulative voting, which the IIF Code
states should be permitted. Provisions for cumulative voting, particularly in the election of
directors, would be a means to foster stronger minority shareholder protection in India’s legal
framework for corporate governance.
Firm Capital Structure
The IIF Code recommends that firms require shareholder approval or board approval to
change their capital structure through takeovers, mergers, division or spin-offs, capital increases,
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15. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
dilution of voting and ownership rights, IPOs and significant share buybacks. Laws in India
regarding a firm’s capital structure meet and in some areas exceed the IIF Code’s requirements.
For example, in India, acquisition of more than 15 percent of shares or voting rights requires the
acquirer to make a public offering, whereas the IIF Code requires a public offer when ownership
exceeds 35 percent. To approve a merger, under SEBI’s regulations a shareholder vote of 75
percent is required, as provided in the IIF Code.
According to the IIF Code, capital increases above a certain threshold should first be
offered to existing shareholders. India’s Companies Act complies by requiring that new capital
issues first be offered to existing shareholders in proportion to their shares of paid-up capital.
Only by a special resolution can this requirement be waived. This is intended as a minority
shareholder protection mechanism.
Shareholder Meetings/Other Rights
India’s legal framework complies with nearly all of the IIF Code’s provisions for
minority shareholder protection as it pertains to shareholder meetings. The Companies Act
requires that an Annual General Meeting (AGM) be held every year, and that a notice convening
the meeting be sent to all shareholders at least 21 days in advance of the meeting. In addition to
the AGM, the Companies Act allows for shareholders controlling 10 percent of voting rights or
paid-up capital to call a special or Extraordinary General Meeting (EGM), which complies with
the IIF Code’s provision.
India’s legal provisions for quorum at the AGM may not sufficiently protect minority
shareholders. The Companies Act only stipulates that 5 people must be present at the AGM to
reach quorum, whereas the IIF Code recommends a quorum of around 30 percent of shareholders
and suggests that some independent non-majority-owning shareholders should be present.
To help expedite minority shareholders’ grievances, SEBI’s Clause 49 stipulates that
there must be a board-level shareholder grievance committee to address such disputes, and that a
non-executive director must chair this committee. The introduction of grievance committees is
one mechanism whereby shareholders can obtain redress outside of India’s inefficient and
corrupt court system.
Structure and Responsibilities of the Board of Directors
India’s laws and regulations address nearly all of the key guidelines found in the IIF
Code that pertain to boards of directors. Scope for improvement lies in requiring the creation of
a board level nomination committee that would be responsible for identifying and recommending
new directors. This would help curb the appointment of friends of founder/promoters or
controlling shareholders as non-executive/independent directors.
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16. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Board Structure
The IIF Code provides a number of key guidelines relating to independent and non-
executive directors. SEBI’s Clause 49 includes a definition of board independence which
complies with the IIF Code—that at least one-third of the board be non-executive and that a
majority of these be independent. Clause 49 goes further to require that in cases where the
chairman of the board is an executive, 50 percent of the board be comprised of independent
directors.
Despite the requirement for board independence, the availability of trained independent
directors in India is limited. Qualified directors are often willing to join only prestigious
companies but shy away from joining the boards of smaller companies that could benefit the
most from the guidance of independent directors. Recognizing the need for qualified
independent directors, efforts are being made by organizations such as the Confederation of
Indian Industries, the Federation of Indian Chambers of Commerce and Industry, and stock
exchanges to train directors.
Board meetings
Clause 49 states that the board should meet at least four times a year, which complies
with the IIF’s provision for the frequency of meetings. The Indian rules and regulations for
quorum at board meetings only partially comply with the IIF Code’s provisions. The IIF Code
provides that a board quorum should consist of executive, non-executive, and independent non-
executive directors. The Companies Act, on the other hand, only requires that 33 percent of
board members or two members, whichever is greater, be present. There is no provision that
specifies whether non-executive or independent members need be present.
Nomination and election of directors
The Companies Act mandates that the directors of the Board be approved and appointed
by the company in the Annual General Meeting. The IIF Code states that minority shareholders
should have a mechanism for putting forward directors at both Annual General Meetings (AGM)
and Extraordinary General Meetings (EGM). In India, founder/promoters or controlling
shareholders generally appoint directors. There is limited scope for minority shareholders to
recommend director nominees.
The IIF Code stipulates that there should be a board-level nomination committee and that
it should be chaired by an independent director. Indian rules and regulations have no provisions
mandating the creation of a board-level nomination committee.
Board committees
The IIF Code states that there should be at least three board committees: a nomination
committee, a compensation committee, and an audit committee. In India, every board is required
to have a shareholder grievance committee, as discussed above, and an audit committee.
Creation of a separate remuneration committee is a non-mandatory requirement in Clause 49 of
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17. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
the SEBI Code. In practice, however, boards of some large companies have an audit,
remuneration and nomination committee.
Disclosure
The IIF Code provides that any material information that could affect share prices should
be disclosed through the stock exchange, including the acquisition or disposal of substantial
assets, board changes, related-party dealings, ownership changes, and directors’ shareholdings.
SEBI’s Insider Trading Regulations, 2002, require every company to appoint a compliance
officer who is responsible for setting policies, procedures, and monitoring adherence to the rules
for the preservation of ‘price sensitive information’ to prevent insider trading. SEBI has
established an insider trading committee to monitor this activity. The Task Force learned that
insider trading is common in India, but difficult to detect. There is no good legal definition of
insider trading, which hampers surveillance efforts.
Clause 49 also requires that listed companies begin disclosing their corporate governance
practices in the Annual Report to shareholders. Moreover, companies are required to provide on
their website information such as quarterly results and presentations made to analysts.
Companies that do not have their own website have to send this information to the stock
exchange on which they are listed so that the stock exchange can put it on its website.
Rules concerning disclosure of board member remuneration and conflicts of interest fully
comply with the IIF Code. All fees and compensation paid to non-executive directors are fixed
by the board of directors and require prior approval of shareholders in the Annual General
Meeting.
Other responsibilities
Clause 49 requires listed companies to inform board members about risk assessments and
risk minimization procedures in the company. The audit committee is also responsible for
reviewing all related-party transactions and internal audit functions of the company.
The IIF code recommends that the governance framework require companies to have an
investor relations program and to provide a policy statement concerning environmental issues
and social responsibility. There are no such provisions in the Indian governance framework.
However, in practice, some large Indian companies have social responsibility initiatives.
Accounting/Auditing
India’s corporate governance framework agrees with most of the IIF guidelines in this
area. However, requiring semi-annual audits as prescribed in the IIF Code and prohibiting the
contemporaneous provision of audit and non-audit services from the same firm can further
strengthen this area.
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18. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
At present, under the non-mandatory requirement of Clause 49, Indian companies are
encouraged to send half-yearly financial reports. Listed companies are required to provide
quarterly compliance reports to regulatory authorities but the information provided in the half-
yearly report and quarterly reports are not subject to full audit review.
Standards
The Institute of Chartered Accountants of India (ICAI) is an independent body regulating
the accounting and auditing profession in India. The ICAI lays down the parameters of
accounting and auditing standards in India and conducts professional examinations to certify
accountants. Over the past two years the ICAI has revised a majority of India’s Accounting
Standards to comply with International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS). The ICAI is in the process of issuing/revising seven additional
accounting standards in order to become fully compliant with all IAS and IFRS requirements.
The Companies Act requires shareholders to appoint an independent auditor at each
Annual General Meeting. It also requires that the independent auditor be certified by the ICAI.
Comprehensive audits are conducted annually in India.
Audit Committee
Revisions to Clause 49 incorporate several practices required by the Sarbanes-Oxley Act
in the United States. Audit committees of listed Indian companies are now required to have a
minimum of three directors as members, with at least two-thirds of the members being
independent. In addition, at least one member of the audit committee should have accounting or
related financial management expertise. Clause 49 also requires audit committees to review the
adequacy of internal control systems.
Clause 49 does not prohibit the contemporaneous provision of audit and non-audit
services from the same entity. It does, however, require the audit committee to fix audit fees and
approve payments to auditors for other services provided.
Transparency of ownership and control
The Indian corporate governance framework meets most of the IIF Code’s guidelines in
this area. Improvements can be made by requiring disclosure of related-party transactions to
shareholders. Currently, senior management is required to disclose potential conflicts of interest
only to the Board. Given that most large Indian companies are family-controlled conglomerates,
related-party transactions and related lending are a concern. Disclosure to shareholders in the
Annual Report is needed. Clause 49 requires listed companies to disclose materially significant
related-party transactions in the Report on Corporate Governance in the Annual Report to
Shareholders, however, it does not define the term ‘materially significant’.
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19. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Regulatory Environment
India’s regulatory framework meets most of the IIF’s guidelines in this area. Although
SEBI, the capital markets regulator, is an independent body as required under the IIF Code, the
weak enforcement mechanism in the country is a key concern for members of the India Task
Force. Significant government action is needed to improve the enforcement and surveillance
functions of regulators in India.
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20. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
APPENDIX
Comparison of IIF Code
and
The Companies Act (CA) and the Securities and Exchange Board of India (SEBI) Listing
Requirements
Issue IIF Code CA and SEBI
Minority shareholder protection
Voting rights
Proxy voting Firms are encouraged to allow proxy Shareholders can appoint a proxy. A proxy can
voting. demand a poll and cast his vote but cannot speak
at the meeting. The notice convening the
meeting must state that shareholders can appoint
a proxy.
One-share, one-vote principle “One share, one vote” should be a threshold All shares are equal within one class.
requirement for new issues.
Shares with different voting rights or dividend
can be issued as long as shareholders approve
the issue and such shares do not exceed 25% of
total share capital. (Companies Rule 2001 –
issue of share capital with different voting rights
or dividends)
Cumulative voting Cumulative voting should be permitted. No provisions.
Capital structure
Procedures on major corporate Shareholder approval of mergers and major Mergers require a special resolution (more than
changes asset transactions should be required. 75% of shareholders present) at the shareholder
meeting. In the event shareholders are not called
If an offer is made above a reasonable
upon to approve the merger, the acquirer has to
minimum threshold of outstanding stock, a
make a public announcement of his/her intent to
significant portion of that purchase must be
acquire the shares. (Reg. 12 SEBI- Takeover
through a public offer.
Code)
Ownership exceeding 35% triggers a public Acquisition of 15% or more shares or voting
offer in which all shareholders are treated rights of any company requires the acquirer to
equally. make a mandatory public offering. (Reg. 10
SEBI – Takeover Code).
Under a merger or takeover, minority Exception: Compliance not mandatory when (i)
shareholders should have a legal right to sell acquirer already owns 15% or more but less than
shares at appraised value. 75% of shares or voting rights of the company
and in one year acquires less than 5% of shares
or voting rights, (ii) acquirer already owns 75%
of shares or voting rights of the company.
Capital increase (pre-emptive Shareholder approval is required. Any If a company is issuing further capital it is
rights) capital increase over a period of one year required to offer the shares to existing equity
and above a minimum threshold must first holders in proportion to the capital paid-up on
be offered to all existing shareholders. those shares on that date. Notice for exercising
the offer should be given at least 15 days prior to
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21. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
the issue. The offer can be transferred to
another person unless the Articles of the
company specifically disallow such transfer.
Exception: (i) no preferential allotment if a
special resolution to that effect has been passed
in the Annual General Meeting, (ii) if a special
resolution is not passed than the number of votes
cast in favor of forfeiting preferential allotment
should exceed votes against the forfeiture, and
the Central Government should approve the
application of the board of directors to waive
requirement of preferential allotment.
(Sec. 81 of CA)
Share buybacks Details of share buybacks should be fully A company can acquire its owns shares if (i) the
disclosed to shareholders. buy-back is authorized by its Articles, (ii) a
special resolution has been passed in the
shareholders’ meeting authorizing the buy-back,
(iii) the buy-back is less than 25% of the total
paid up capital and free reserves, (iv) the ratio of
debt owed by the company is not more than
twice the capital and its free reserves after the
buy-back. (Sec. 77A of CA)
Exception: A special shareholders resolution is
not needed is the buy-back is less than 10% of
the total paid-up equity capital and free reserves
of the company and the buy-back has been
authorized by the Board of Directors of the
company.
Shareholder meeting/Other rights
Meeting notice and agenda Meeting notice and agenda should be sent to Companies are required to hold an Annual
shareholders within a reasonable amount of General Meeting (AGM) every year. (Sec. 166
time prior to meetings to prepare the proxy of CA)
system and to be released publicly.
Notice for such meeting should be sent to
shareholders 21 days in advance. (Sec. 171 of
CA)
Special meetings Minority shareholders should be able to call Shareholder controlling 10% of voting rights or
special meetings with some minimum paid-up capital can call for a special or
threshold of the outstanding shares. Extraordinary General Meeting (EGM). (Sec.
169 of CA)
Treatment of foreign Foreign shareholders should be treated Foreign Institutional Investors (FIIs) must
shareholders equally with domestic shareholders. register with SEBI to participate in the market.
Investments and returns are freely repatriable,
except in the case of 22 specified items which
attract the condition of dividend balancing
and/or where the approval is subject to specific
conditions such as lock in period on original
investment, dividend cap, foreign exchanging
neutrality, etc.
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22. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
Conflicts between Should have mechanisms whereby a Companies are required to create a
shareholders majority of minority shareholders can ‘Shareholders/Investors Grievance Committee’
trigger an arbitration procedure to resolve under the chairmanship of a non-executive
conflicts between minority and controlling director to look into the redressing of
shareholders. shareholder and investor complaints like transfer
of shares, non-receipt of balance sheet, non-
receipt of declared dividends etc.
(SEBI Code, Clause 49)
Quorum Should not be set too high or too low. Quorum is set at five persons for a public
Suggested level would be about 30% and company and two for other companies. (Sec.
should include some independent non- 174 of CA)
majority-owning shareholders. All key
corporate decisions require a qualified
quorum.
Structure and responsibilities of the Board of Directors
Board structure
Definition of independence Cannot have a business or personal An independent director is a non-executive
relationship with the management or director who: (i) aside from director’s
company, and cannot be a controlling remuneration, does not have any material
shareholder such that independence, or pecuniary relationship or transactions with the
appearance of independence, is jeopardized. company, its promoters, management or
subsidiaries which may affect the independence
of judgment, (ii) is not related to the promoter
or a person in management on the board or one
level below the board, (iii) has not been an
executive for the past three years, (iv) is not or
has not been a partner in the past three years of a
statutory or internal audit firm or a firm
providing consulting services to the company,
(v) is not a material supplier, service provider or
customer or a lessor or lessee of the company
which may affect independence of the director,
(vi) is not a substantial (owning 2% or more of
voting rights) shareholder of the company.
(SEBI Code, Clause 49)
All pecuniary relationship/transactions of non-
executive directors should be disclosed in the
annual report. (SEBI Code, Clause 49)
Share of independent directors At least one-third of the board should be The number of independent directors is
non-executive, a majority of whom should dependent on whether the Chairman is an
be independent. executive or non-executive director. In the case
of a non-executive chairman, at least one-third
of the board should be comprised of independent
directors and in the case of an executive
chairman, at least half of the board should be
comprised of independent directors. (SEBI
Code, Clause 49)
21
23. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
Frequency and record of For large companies, board meetings every The Board shall meet at least four times a year,
meetings quarter, audit committee meetings every 6 with a minimum time gap of three months
months. Minutes of meetings should between any two meetings. (SEBI Code, Clause
become part of public record. 49)
Quorum Should consist of executive, non-executive, Quorum for board meetings is 33% of total
and independent non-executive members. board strength or 2 members whichever is
higher. (Sec. 287 of CA)
Nomination and election of Should be done by a committee chaired by No specific provision mandating the creation of
directors an independent director. Minority a board-level nominating committee.
shareholders should have mechanism for
The directors of the Board are appointed by the
putting forward directors at Annual General
company in the Annual General Meeting. (Sec.
Meeting (AGM) and Extraordinary General
255 of CA)
Meeting (EGM).
At the time of appointment of a new director or
the re-appointment of a director, shareholders
must be provided with a brief résumé of the
director, nature of his expertise in specific
functional areas and names of companies in
which the person also holds other directorships.
(SEBI Code, Clause 49)
Term limits for independent For large companies, re-election should be Unless the Articles of a Company provide for
directors every 3 years with specified term limits. the retirement of all directors at every AGM, not
less than one-third directors have to be
appointed by the company at the AGM. (Sec
255 of CA)
Board committees The Board should set up 3 essential Every board is required to have an audit
committees: nomination, compensation and committee and a shareholder grievance
audit. committee. The board of directors is required to
consider the CEO’s remuneration. Creation of a
separate remuneration committee is a non-
mandatory requirement in Clause 49 of SEBI’s
listing requirements. In practice, however, most
boards of large companies have an audit,
remuneration and nomination committee.
Disclosure
Disclosure of information that Any material information that could affect Every company is required to appoint a
affects share prices share prices should be disclosed through compliance officer who is responsible for setting
stock exchange. Material information policies, procedures, monitoring adherence to
includes acquisition/disposal of assets, the rules for the preservation of ‘price sensitive
board changes, related-party deals, information’ to prevent insider trading. (SEBI
ownership changes, directors’ Insider Trading Regulation, 2002)
shareholdings, etc.
There should be a separate section on Corporate
Governance in the annual report to shareholders.
Non-compliance with any mandatory
requirements and the extent to which the non-
mandatory requirements have been adopted
should be specifically highlighted. (SEBI Code,
Clause 49)
22
24. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
Procedures for information Through local exchanges, and as best Information such as quarterly results and
release practice, through company website. presentations made by companies to analysts
shall be put on the company’s website, or shall
be sent in such a form as to enable the stock
exchange on which the company is listed to put
it on its website. (SEBI Code, Clause 49)
Remuneration of directors Should be disclosed in annual report. All All fees/compensation paid to non-executive
major compensation schemes, including directors are fixed by the Board of Directors and
stock options, should be fully disclosed and require previous approval of shareholders in the
subject to shareholder approval. Annual General Meeting. The shareholder’s
resolution should specify the limits for the
maximum number of stock options that can be
granted to non-executive directors in any
financial year and in aggregate. (SEBI Code,
Clause 49)
Other responsibilities
Conflict of interest Any potential or actual conflicts of interest A company is required to disclose all bases for
on the part of directors should be disclosed. related-party transactions to the audit
Head of audit committee should not have committee. It has to periodically provide a
any such conflicts of interest. Board statement in summary form of transactions with
members should abstain from voting if they related parties in the ordinary course of
have a conflict of interest pertaining to that business, details of material individual
matter. Audit or ethics committee is transactions with related parties which are not in
required to review conflict-of-interest the normal course of business, and transactions
situations. with related parties or others that are not on an
arms length basis with management’s
justification for such transactions. (SEBI Code,
Clause 49)
Disclosure of materially significant related-party
transactions that may have potential conflicts
with the interests of the company at large have
to be made in the Report on Corporate
Governance in the Annual Report to
Shareholders. (SEBI Code, Clause 49)
Integrity of internal control Should be a function of the audit The company is required to lay down procedures
and risk management system committee. to inform Board members about 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. (SEBI
Code, Clause 49)
The audit committee also has to review the
adequacy of the internal audit function, if any,
including the structure of the internal audit
department, staffing, seniority of the officials
heading the department, reporting structure
coverage, and frequency of internal audit. (SEBI
Code, Clause 49)
Investor relations Should have an investor relations program. No specific provisions.
23
25. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
Social responsibility and ethics Make a statement of policy concerning No provisions.
environmental issues and social
responsibility.
Accounting/Auditing
Standards
National/international GAAP Identify accounting standard used. Comply India materially conforms to the International
with local practices and use consolidated Financial Reporting Standards (IFRS) and
accounting (annually) for all subsidiaries in International Standards on Auditing (ISA).
which sizable ownership exists. (ICAI and Companies Act)
Frequency Semi-annually audited report at end-FY. Quarterly reports are subject to limited audit
review.
As part of the non-mandatory requirements, a
half-yearly declaration of financial performance,
including a summary of the significant events in
the last six months, may be sent to each
household of shareholders. (SEBI Code, Clause
49)
Comprehensive audits are conducted annually.
Audit quality Independent public accountant. As a best Every company at each AGM shall appoint an
practice, auditors should adhere to the auditor(s) to hold office till the conclusion of the
global standards devised by the next AGM. (Sec. 224 of CA)
International Forum on Accountancy
The Companies Act requires annual accounts to
Development (IFAD).
be audited by an independent certified chartered
accountant who is a member of the Institute of
Chartered Accountants of India (ICAI).
The quality of financial disclosures for listed
companies is determined by the Department of
Company Affairs, SEBI, and the ICAI. The
ICAI lays down the parameters of accounting
and auditing standards.
The companies act requires management to
explain and deviations from the prescribed
accounting standards in financial statements.
Audit committee
Audit committee For large firms, must be chaired by The audit committee shall have minimum three
qualified independent director with a directors as members, with two-thirds of the
financial background members being independent. (SEBI Code,
Clause 49)
All members of the audit committee should be
financially literate and at least one member shall
have accounting or related financial
management expertise. (SEBI Code, Clause 49)
24
26. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
Relationship/communication Committee should approve services The audit committee recommends to the board
with internal and external provided by external auditor. Breakdown the appointment, re-appointment, and if required
auditors of proportion of fees paid for each service the replacement or removal of the external
should be made available in annual report. auditor and the fixation of audit fees. The
As a best practice, communication with committee also has to approve payment to
auditors should be without executives auditors for other services provided. (SEBI
present. Contemporaneous provision of Code, Clause 49)
audit and non-audit services from the same
The audit committee has to review with
entity should be prohibited.
management the performance of the external
and internal audit firm and the adequacy of
internal control systems. (SEBI Code, Clause
49)
Transparency of ownership and control
Buyout offer to minority As a best practice, ownership exceeding Acquisition of 15% or more shares or voting
shareholders 35% triggers a buyout offer in which all rights of any company requires the acquirer to
shareholders are treated equally. make a mandatory public offering. (Reg. 10
SEBI – Takeover Code).
Exception: Compliance not mandatory when (i)
acquirer already owns 15% or more but less than
75% of shares or voting rights of the company
and in one year acquires less than 5% of shares
or voting rights, (ii) acquirer already owns 75%
of shares or voting rights of the company.
Related-party ownership Companies should disclose directors’ and Senior management is required to disclose
senior executives’ shareholdings, and all potential conflicts of interest to the board.
insider dealings by directors and senior
Directors are required to disclose share dealings
executives should be disclosed. Senior
beyond prescribed thresholds
executives’ and directors’ share transactions
should be disclosed within 3 days of SEBI has issued rules against Insider trading.
execution. However, monitoring and prosecuting insider
trading activity is very difficult
Minimally significant Shareholders with minimally significant An acquirer, who acquires shares or voting
shareholders ownership (greater than 3-10%) of rights exceeding specified threshold levels has
outstanding shares must disclose their to disclose at every stage the aggregate of his
holdings. holdings or voting rights to the company and to
the stock exchanges where the companies are
listed. Current threshold limits are 5%, 10% or
14% of shares or voting rights (Reg. 7 SEBI –
Takeover Code)
Regulatory environment
Enforcement powers The supervisory authority and the exchange The Ministry of Company Affairs (MoCA),
must have adequate enforcement powers. regulators like RBI and SEBI and stock
Exchanges should have the power to grant, exchanges have surveillance functions.
review, suspend, or terminate the listing of
MoCA has surveillance responsibility over
securities. Enforcement authorities should
unlisted. For listed companies, stock exchanges
have adequate training and an
are considered to be the first line of defense
understanding of the judicial process.
followed by SEBI. RBI oversees companies in
the banking and financial sector.
25
27. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Issue IIF Code CA and SEBI
Independence of supervisory The supervisory body and the exchange SEBI is an independent quasi-judicial body that
body and of exchange should be independent from government plays an active regulatory and development role
and industry. in India’s security market. The Central
Government appoints the chairman and may
nominate a maximum of nine other members.
The body is funded by contributions from public
financial and institutional institutions, banks and
the Government of India.
26
28. The Institute of International Finance, Inc. Corporate Governance in India – An Investor Perspective
Members of the IIF Equity Advisory Group
__________________________________________________________________
Mr. Edward Baker (Chair) Mr. Dipak Rastogi
Chief Investment Officer of Global Emerging Vice Chairman, Emerging Markets
Markets Citigroup Investments, Inc.
Alliance Capital Management
Mr. Gordon Clancy
Mr. Khalid Sheikh Managing Director, Asia Pacific Head
Senior Vice President Citigroup Venture Capital
Emerging Markets Analysis and Multilateral
Organizations Mr. Gavin Grant
ABN AMRO Bank NV Director, Corporate Governance Research
Deutsche Bank
Mr. Bernard Sucher
Managing Director Mr. Victor L. L. Chu
Alfa Capital Chairman
First Eastern Investment Group
Ms. Sanem Bilgin
South African & Emerging Market Equity Analyst Mr. Mark Young
Alliance Capital, Ltd. Senior Director, Emerging Markets
Fitch Ratings
Mr. Manish Singhai
Principal Portfolio Manager Mr. Grzegorz Konieczny
Alliance Capital Management Senior Vice President/Portfolio Manager
Central and Eastern Europe
Mr. Gregory Eckersley Franklin Templeton Investment
Chief Investment Officer
Alliance Capital Management Mr. Jeremy Paulson-Ellis
Chairman
Mr. Philippe Lespinard Genesis Investment Management, Ltd.
Chief Investment Officer
BNP Paribas Mr. Colin Melvin
Director of Corporate Governance
Mr. Andrzej Dorosz Hermes Investment Management, Ltd.
President of the Board
Bank Gospodarstwa Krajowego Mr. William F. Browder
Chief Executive Officer
Ms. Cheryl Hesse Hermitage Capital Management
Vice President and Senior Counsel
Capital Group International, Inc.
27