April 26, 2018
The relationship between ownership structure, performance and demands of society, encourages companies to exercise a high degree of diligence in their governance. In order to have sustainable development, such practices must be integrated into the very ethos of the company and its business. From the long-term perspective, corporate governance improves performance, draws investment, which leads to the creation of jobs, wealth and consumer welfare.
Evolvement of Corporate Governance
Recent corporate scandals in India, such as Punjab National Bank (February 2018), Saradha Group (2013) and the Commonwealth Games (2010) have highlighted the need for good corporate governance practices for restoration of public trust. Good governance aligns with the interests of all parties involved in the functioning of an entity. Corporate governance must ﬂow from ethical business practices, even if there is an absence of concrete legislation to enforce it.
Best corporate governance practices are emerging all over the world, and the Indian government is implementing numerous enactments and regulations to protect investors and attract investment.
Digital solutions are introduced to strengthen the four pillars of corporate governance: 'Accountability', 'Fairness', 'Transparency', and 'Responsibility', making a determined push for e-governance through single point access to all information to reduce the role of Government employees; including Central Public Procurement Portal and Government E-Marketplace.
Several committees have been constituted by CII, SEBI and MCA to make recommendations, codes and guidelines on corporate governance:
CII's Desirable CG Code, 1998
Kumar Mangalam Birla Committee, 2000
Task Force on Corporate Excellence, 2000
Naresh Chandra Committee, 2002
Narayan Murthy Committee, 2003
Dr. J J Irani Expert Committee, 2005
CG Voluntary Guidelines, 2009
Guidelines issued by the Department of Public Enterprises for Central Public Sector Undertakings, 2010
Adi Godrej Committee Report, 2012
The Companies Act, 2013
Clause 49 of Listing Agreement, 2014
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
The Companies (Amendment) Act, 2015 and 2017
BSE & IFC announce collaboration for development of the CG Scorecard for India, February 2016
Uday Kotak 21 member committee on corporate governance submitted its report, October 2017
Corporate Anti-Bribery Code released by The Institute of Company Secretaries of India, October 2017
IICA – IFC entered into a Cooperation Agreement for instituting a Corporate Governance Index, 2018
Recent Key Events
January 19, 2018: Government to announce corporate governance norms to improve the quality of credit appraisal at Indian banks, including measures to track performance of executive rank employees.
February 10, 2018: SEBI to take up the Kotak panel report on corporate governance at its next board meeting. SEBI held preliminary discussions with the Ministry of Corporate Affairs and the Finance Ministry on proposed norms. The Kotak panel report headed by senior banker Mr. Uday Kotak suggested a major overhaul of corporate governance norms for listed companies in a 177-page report submitted on October 5, 2017.
March 2018: Union Cabinet approves a proposal for establishing the National Financial Reporting Authority, an independent regulator for the auditing community. It also approves the Fugitive Economic Offenders Bill 2018, which will be tabled in Parliament in the next session.
Beneﬁts of Good Corporate Governance
Higher level of conﬁdence amongst its stakeholders
Brand formation and development
Increased access to the capital market
Mitigate risks and fraudulent manipulation
Improved employee morale and higher productivity
Application of corporate governance norms in promoter-driven companies are susceptible to promoters exerting disproportionate inﬂuence over decisions.
Increased compliance to improve governance could prove costly for small companies.
Lack of awareness and experience among board members.
Actualization of Corporate Governance Endeavors
Demonstrate greater transparency to their stakeholders
Develop a robust anti-corruption and anti-bribery training program
Set up systems that keep insiders, including managers and directors, from taking advantage of their positions
Whistleblower policy is a mandatory provision by SEBI
CSR to promote social development
Minimum of 1 female Director in a certain class of companies to encourage women empowerment
Every company in India must have a Resident Director
The maximum number of Directors cannot exceed 15 in a public limited company
Independent Directors have a code of conduct and must attend at least one meeting a year
Top management must recognize the rights of the shareholders and ensures strong co-operation between the company and the stakeholders
Special Resolution to be passed by stakeholders to approve related party transactions
E-voting facility must be provided to the shareholder
The responsibility of the Audit Committee has increased. Section 143(12) of Companies Act, 2013 requires auditors to report fraud to the Central Government, where the Auditor has reason to believe that a fraud has been committed against the company.
Accurate and timely ﬁling of documents with the Registrar of Companies
Indian Companies Recognized for Corporate Governance
A 2016 survey of FICCI shows that post reforms, quality of ﬁnancial and non-ﬁnancial disclosures have improved, transparency in corporate decision making is greater, and effectiveness of independent directors has increased.
As on January 26 2018 of 1,723 NSE listed companies, 1,667 companies had met the mandate of one woman director on board.
About 209,032 shell companies struck-off the Registrar's record by September 2017. Over 300,000 directors of companies that had defaulted on statutory compliances have been disqualiﬁed from serving on boards of other companies.
Professionals, Chartered Accountants, Company Secretaries, and Cost Accountants associated with such shell companies, and involved in illegal activities, have been identiﬁed and action is being taken.
India climbs up in the World Bank's 'Ease of Doing Business' rankings.
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