Corporate Governance in India - Evolution and Challenges
Corporate Governance in India - Evolution and Challenges
Corporate Governance in India - Evolution and Challenges
IN INDIA –
It also lowers the cost of capital by reducing risk and creates higher firm valuation
boosting real investments (La Porta et al.,1997, 1998, 2000, henceforth LLSV);
It limits the liability of top management and directors, by carefully articulating the
decision making process;
It removes mistrust between different stakeholders, reduce legal costs and improve
social and labor relationships and external economies like environmental protection.
Need for Regulation
Bad Corporate Governance practice by a firm can be seen as a
negative externality. One corporate scandal can potentially erode
shareholders trust in the whole of the corporate sector and thus
negatively affect the businesses of honest firms as well. This theory is
reinforced by the recent corporate scandals in India, as seen in the
case Satyam. Thus in such cases, the state has the responsibility to
intervene to provide a level playing field and also to prevent market
failure;
Kumar Mangalam Birla committee report and Clause 49 - While the CII
code was well-received and some progressive companies adopted it, it was felt
that under Indian conditions a statutory code would be more purposeful, and
meaningful. Consequently, the second major Corporate Governance initiative
in the country was undertaken by SEBI. In early 1999, SEBI set up a
committee under Kumar Mangalam Birla to promote and raise the standards of
good Corporate Governance. In early 2000, the SEBI board had accepted and
ratified key recommendations of this committee, and these were incorporated
into Clause 49 of the Listing Agreement of the Stock Exchanges.
Initiatives in India
The Naresh Chandra committee report on Corporate Governance - The
Naresh Chandra committee was appointed in August 2002 by the
Department of Company Affairs (DCA) under the Ministry of Finance and
Company Affairs to examine various Corpoarte Governance issues. The
Committee submitted its report in December 2002. It made
recommendations in two key aspects of Corporate Governance: financial and
non-financial disclosures: and independent auditing and board oversight of
management.