This document provides an overview of corporate governance practices in Indian companies. It discusses key concepts like the role of boards of directors, independence of directors, shareholder rights and responsibilities, and recent governance issues and cases in India. The key points covered include defining corporate governance, systems and processes to ensure company interests are prioritized, importance of board structure and composition, role of independent directors, shareholder democracy provisions, and recent high-profile governance disputes and cases in companies like Tata, Usha Martin, ICICI Bank, and Infosys.

1. CORPORATE GOVERNANCE IN
INDIAN COMPANIES
Presented by
Dr.R.VIJAYALAKSHMI
Assistant Professor
Department of Commerce
SRM Institute of Science of Technology
Chennai

2. CORPORATE GOVERNANCE
• The Company’s philosophy on CG is to attain
the highest level of
transparency
accountability
integrity
This objective extends, not merely with
statutory requirements but also to be beyond
then, putting into place, procedures & systems

3. Concept of Corporate Governance
• A set of Systems & Processes which ensure
that a Company is managed to the best of
interests of all the Stakeholders.
• - the set of systems that help the task includes
certain structural & organisational aspects
• - the processes that help corporate
governance embraces how things are done
within such structures & organisational
systems

4. Systems-Structural & Organisational
Aspects
• Optimum Size of the Board
• Optimum Composition of the Board
• Chairman & C E O
• Role of Nominee Directors
• Competency & Qualification of Directors
• Change of the Composition of the Board
• Different Committees of the Board

5. CONCEPT OF BOARD CULTURE
• Directors are de facto owners of their
Companies
• Sec. 179 confers upon them powers subject to
the A/A of the Company
• They do not owe any explanation to the
Shareholders for whatever they do till the
AGM.
• Auditors are also at the mercy of directors.

6. Board Culture
• Is the way of working, the manner in which
discussions take place and the way decisions
are taken.
• BoD in India have a peculiar culture- mixture
of two cultures; indigenous culture and the
culture inherited from Britishers.
• Two Faces: Apparent Face and Not so
Apparent Face.

7. CONCEPT OF INDEPENDENT
DIRECTORS
• As per SOX, 2002 of the U.S, an independent
director is one
• who has no affiliation with a public company
or any of its outfits
• does not accept any advisory or any
compensatory fee from the public company &
has no consulting assignment with the
company.

8. Purpose of Independent directors
• To ensure adherence to good corporate
governance standards and to check diversion of
funds.
• After Satyam episode, the integrity of the high
profile independent directors of the said
company was in doubt.
• The ambiguity of the nature of duties of
independent directors often leads to a situation
where they are blamed for all the wrong doings.

9. Independent Directors
Section 149
• Every listed Company shall have at least one-
third of the total number of directors as
independent directors.
• Selection to be done by the BoD, but
approved by Shareholders at their meetings
• Not entitled to any Stock Option but may
receive remuneration in the form of fee u/s
197(5), reimbursement of expenses & profit
related commissions.

10. Women Directors
• Section 149 (1) provides that the following
class of companies shall appoint at least one
woman director
• Every listed company
• Every other public company having a paid up
capital of Rs. 100 crores or more or turnover
of Rs. 300 crores or more.

11. Justification for Women Directors
• Percentage of women directors in India is a
strikingly low 7%
• Gender equality in decision making bodies is seen
as a pre requisite of democracy.
• The measure is seen as good for companies in the
long run because it ensures that the female talent
pool is harnessed.
• Female directors expanded the content of the
board discussions
• Companies with more women directors tend to
pay less for acquisitions

12. Justification for Women Directors
• Women demonstrate a democratic leadership
style which boosts motivation and helps increase
cooperation from the management
• A Study by Catalyst and HBS states that
Companies with more women corporate officers
donated more significantly and contributed to
higher level of CSR
• Boards and managements with gender diversity
have experienced enhanced corporate
performance, higher return on equity, return on
sales and return on capital employed.

13. Small Shareholders’ Directors
Section 151
• Most of the companies have a large number of
small shareholders who are spread through the
length and breath of the country. It was not
possible for them to attend the AGM. Hence the
Act provides that:
• A listed company may have one director elected
by small shareholders
• Small Shareholder is a shareholder holding shares
of the nominal value of not more than
Rs.20,000/-

14. Shareholders’ Democracy
• The Companies Act 2013 has armed the
Shareholders with very effective and powerful
weapons
• Section 13 Not bound by alterations of M/A
or A/A after the date on which he became
Member.
• Section 41 Empowers the shareholders to
apply to the Court to have the variation of rights
cancelled.
• Section 56 Confers upon shareholders
absolute right over shares.

15. Shareholders’ Democracy-Contd….
• Section 86 Members can demand poll before or
on declaration of result of voting by show of
hands.
• Section 87 Those entitled to more than one
vote may use their votes differently
• Section 96 i) Shareholders may apply to NCLT
to convene the AGM
• ii) Entitles shareholders to receive a
minimum of 21 days’ notice for AGM.

16. Shareholders’ Democracy-Contd….
• Section 152 Shareholders can object to the
moving of motion at an AGM for appointment of
two or more persons as directors by a single
resolution
• Section 160 Allows a Member himself or thro’
some other member to propose candidature of a
person to stand for directorship
• Section 163 Option given to adopt proportional
representation for the appointment of directors
whether by a single transferable vote or
cumulative voting.

17. Shareholders’ Democracy-Contd….
• Section 271 May present a petition to NCLT
for winding up of the company
Despite powerful weapons, the
shareholders have not been able to assert
themselves and have not been used by
shareholders to correct any wrongful act on
the part of directors.

18. GOVERNANCE IN ARTHASHASTRA
• It is a well-known fact that Kautilya or
Chanakya, (370-- 283 BC) a teacher in Taxila,
was insulted by the Nanda king. Kautilya then
vowed to destabilise the dynasty and left
Taxila. He later coronated Chandra Gupta
Maurya as the king. In his magnum opus,
Arthashastra (wealth of knowledge/
knowledge of wealth), he has exquisitely
described governance principles as including:

19. • Judicial fairness,
• Code of conduct for the king,
• Administering justice,
• Concept of punishment,
• Strict code of conduct for administrators and
businessmen,
• Measures against misappropriation of State Fund,
• Identification and prevention of corrupt practices,
• Prescription of rules to prevent misuse of power

20. LESSONS ABOUT GOVERNANCE FROM
THE BHAGAVAD GITA
• If followed by people from grassroot level, the people
throughout the globe will attain peace and prosperity.
• 1. Dharma -- righteousness in activities
• 2. Kausalam -- optimising one’s competence and
capability
• 3. Detachment - Discharging one’s duty without
attachment
• 4. Effective performance - Performing one’s duty
effectively and efficiently
• 5. Emulating exemplary men - Follow the path of great
men who have displayed extraordinary brilliance and
excellence

21. • 6. Jignasa - Thirst to acquire knowledge
• 7. Loka sangraha -- work for societal welfare and
wellbeing
• 8. Stithadhee - Developing stable mind and
focussed mindset in every effort.
• 9. Stithaprajna – Unperturbed mind, detachment
in work and maintenance of equanimity
• 10. Nishkama karma - Work with confidence and
without fear and work without expectation of any
return

22. Issues in CG Practices in India
• Getting the Board Right
• Performance Evaluation of Directors
• True independence of directors
• Removal of independent of directors
• Accountability to Shareholders
• Executive Compensation
• Founders’ Control and Succession Planning
• Risk Management

23. • Privacy and Data Protection
• Board’s Approach to CSR
Several enactments have contributed
significantly in strengthening the CG norms&
in increasing the accountability by way of
disclosures. Regulatory measures should be
modelled based on practices and business
environment in India.

24. THE TATA CG EPISODE
• The Tata-Mistry dispute giving rise to CG
issues needs to be considered against the
backdrop of Tata Group’s corporate structure
and India’s CG laws.
• Existence of a weak board and Instances of
excessive interference by majority
shareholders/promoter group.
• Majority-minority shareholder imbalance
• Poor Governance at Public Trusts

25. FAMILY FEUD IN USHA MARTIN
• UM has been in the news since the spat
between the cousins- Prashant & Rajeev
Jhawar
• In April, 2017 the Board had passed a
resolution , moved by the SBI nominee, to
strip Prashant of his post as Non-Executive
Chairman and
• Also trim the power of Basant Jhawar as
chairman emeritus of the company.

26. FAMILY DISPUTE
• The allegation was that despite several reminders
from banks, the son-father duo did not complete
the documentation process relating to the pledge
of their stakes to the concerned banks.
• This irked the lenders who decided to move a
resolution against them.
• But many in the industry thought Rajeev Jhawar,
MD, UM had influenced the Board to remove
them.

27. FAMILY DISPUTE- contd….
• Prashant later filed a case before the NCLT for
alleged mismanagement and fraudulent activities
and has been seeking a forensic audit.
• Prashant, an NRI, has now been locked in a legal
battle over the control of UM with Rajeev, and
had participated in a recent Board Meeting via
video conference from London.
• He and his father proposed to bring a
professional at the top level and also put Rajeev
& Prashant on the Committee to oversee the sale
of steel division.

28. FAMILY DISPUTE- contd….
• In February, 2018 the UM Board reappointed
Rajeev as the MD despite opposition from
Rajeev and Basant Jhawar.
• All the other board members including six
independent directors and the nominee
director of the SBI voted in his favour.
• However, the reappointment is subject to
shareholders approval at their forthcoming
AGM in September, 2018.

29. ICICI AND AXIS CEO PROBLEMS
• Chanda Kochhar , CEO of ICICI Bank influenced a
Rs.3250 crore loan in 2012 to Videocon run by
Venugopal Dhoot, in return for a sweet heart deal
for Deepak Kochhar, her husband, in NuPower
Renewables
• Shikha Sharma, CEO of AXIS Bank has been pulled
up by RBI for under-reporting Rs.9,478 crore of
bad loans of 2015-16
• If both are tainted and their performance is
under-par, what is the point in letting them to
continue to run their banks?

30. CASE AGAINST INDEPENDENT
DIRECTORS OF IDBI
• The FIR was filed against a loan given by IDBI
Bank, Chennai Branch to Sivasankaran’s associate
firm WinWin D OY, based in Finland, in October,
2010
• Three years later, the firm sought voluntary
liquidation under bankruptcy laws of that
country. The loan of Rs.322.4 crore had swelled
by then.
• The FIR names even independent directors which
has drawn the ire of corporate India.

31. CASE AGAINST INDEPENDENT
DIRECTORS OF IDBI-contd…
• The loan book of IDBI as on March, 2013 was
Rs. 1.96 lakh crore.
• Was it possible for a board of seven directors ,
including four independent directors, to look
into the origin of each and every loan?
• An FIR against the independent directors
tarnishes their reputation, the only asset
studiously built over the years by honest
professionals.

32. BOARD ROOM BATTLE OF INFOSYS
• For over one and a half years, there have been
differences between the Infosys board and
founders on matters of governance.
• A major allegation by the Co-Founder and first
CEO of Infosys Mr. N.R.Narayanamoorthy was
that C G was compromised by the Infosys
Board when the company acquired the Israeli
firm Panaya.

33. BOARD ROOM BATTLE OF INFOSYS-
contd….
• Infosys paid $200 million for the company while
the latest valuation was $150 million.
• Mr. NRN also questioned the high severance
package (Rs.18 crore) given to the former CFO
Rajiv Bansal.
• He also wanted a report submitted by an
independent U.S. agency on allegations of
irregularities in the Panaya acquisition to be
made public.
• The Board defended the salary increases and
refused to make the report public.

34. BOARD ROOM BATTLE OF INFOSYS-
contd…
• The Board claimed that Infosys had
maintained highest standards of CG.
• To restore order at the company, Infosys has
brought back highly respected Nandan
Nilekani as the company’s non-executive
chairman.
• Board Room Battles, as long as they are
resolved with resoluteness and speed, do not
hurt client-end relationship.

35. THANK YOU