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International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421

Volume 3, No. 5, May 2014




i-Explore International Research Journal Consortium www.irjcjournals.org
17
Corporate Governance: Conceptualization in Indian Context

Neha Sharma, Assistant professor, BR Ambedkar College, Delhi University
Surya Prakash Rathi, M.B.A. (GGSIPU) and CFA-MFA (ICFAI)


ABSTRACT

The paper deals with the concept of corporate governance,
which is very deeply related to the health index of an
economy.The subject of corporate governance came to
global limelight after collapses of high profile companies
like the U.S. energy giant Enron, telecom heavyweight
WorldCom, Parmalat and multinational newspaper group
Hollinger Inc. The Satyam Scam in 2009 and Reebok scam
in 2012 shattered the myth of good corporate governance
India.

The Sarbanes-Oxley legislation in the USA, the Cadbury
Committee recommendations for European companies and
the Organisation for Economic Co-operation and
Development (OECD) principles of corporate
governance are some of the corporate governance norms
and standards.

Corporate governance is defined as the set of processes,
laws and institutions which affect the running and
management of a company. Corporate governance ensures
accountability in an organization and emphasizes on
shareholders' welfare. The primary stakeholders of
corporate governance are the shareholders, management
and the board of directors. Other stakeholders include
employees, customers, creditors, suppliers, regulators and
the community at large. Factors influencing corporate
governance are ownership structure, structure of company
boards, financial structure and institutional environment.

In India, there are six mechanisms to ensure corporate
governance i.e. Companies Act of 2013, SEBI act,
discipline of the capital market, nominees on company
board, statutory audits and codes of conduct. The new
Companies act 2013 and SEBIs proactive actions paint a
positive future for corporate governance in India.

INTRODUCTION

The subject of corporate governance came to global
limelight after collapses of high profile companies like the
U.S. energy giant Enron, which concealed large losses and
the telecom heavyweight WorldCom, which used
fraudulent accounting methods in 2001. The problem was
widespread with companies like Parmalat in Italy, which
concealed large debts failed and multinational newspaper
group Hollinger Inc., being shocked with revelations about
problems in their corporate governance in 2003. Question
marks appeared over corporate governance practices
around the world.

On 7
th
J anuary, 2009 B. Ramalinga Raju, the founder of
Satyam confessed to falsifying the accounts of his
company. This shattered the myth of good corporate
governance in Satyam. Satyam had always fulfilled all the
legal compliances; it had a respected board and an
international auditor. With such hallmarks of good
corporate governance unable to stop corporate governance
failure at Satyam, it greatly undermined the credibility of
the Indian corporate sector. This brought corporate
governance and its related guidelines in India under the
scanner.

In 2012, India was rocked by its biggest corporate
governance scandal after Satyam. Reebok India initiated
action against its former Managing Director Subhinder
Singh Prem and former Chief Operating Officer Vishnu
Bhagat over a fraud of Rs 8,700 crore. The company
claimed that the duo stole products by setting up secret
warehouses, fraudulent accounting practices and making
fictitious sales to cause a huge loss to the company.

There are arguments over the question that out of the
Anglo-Saxon market- model of corporate governance and
the bank-based models of Germany and J apan which is
better. There are huge difference between corporate
governance laws and practices in the developed countries
and in the developing world.

The issue of corporate governance is of pivotal important
for developing countries since it is integral to financial and
economic development. India has one of the best corporate
governance laws but poor implementation. The socialistic
policies of the pre-reform era have also affected corporate
governance in India.

Corporate governance and economic development are
intrinsically linked. Effective corporate governance
systems encourage the development of strong financial
systems. This leads to strong economic growth.
Good corporate governance practices also lower the cost
of capital by reducing risk.


The Sarbanes-Oxley legislation in the USA, the Cadbury
Committee recommendations for European companies and
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
Volume 3, No. 5, May 2014


i-Explore International Research Journal Consortium www.irjcjournals.org
18
the Organisation for Economic Co-operation and
Development (OECD) principles of corporate
governance are some of the corporate governance norms
and standards.

OBJECTIVES OF THE STUDY

1. To conceptualize corporate governance in Indian
context
2. To understand the factors influencing corporate
governance in the India

RESEARCH METHODOLOGY

In order to answer the research objectives factors were
found that influence corporate governance based on
secondary data acquired from the conduct of different
studies, newspaper reports and various government and
industry mandated committees reports on corporate
governance.

A complete theoretical framework has been developed to
understand the concept of corporate governance and its
evolution in India. The various mechanisms of corporate
governance India have been reviewed.

The literature review includes the study of evolution of
corporate governance in India. It also details the various
mechanisms for corporate governance in India. It then
studies the effects of board of directors, ownership model,
legal environment and economic environment on
corporate governance. It details the different models of
corporate governance in various countries.

DATA COLLECTION

The data used in the study is secondary data. The
secondary data used is acquired from the conduct of
different studies, various newspaper reports and various
government and industry mandated committees reports on
corporate governance.

DEFINITION OF TERMS

Corporate governance is about how suppliers of capital
get managers to return profits, make sure managers do not
misuse the capital by investing in bad projects, and how
shareholders and creditors monitor managers. (American
Management Association)

Corporate governance is the relationship between
corporate managers, directors and providers of equity,
people and institutions who save and invest their capital to
earn a return. It ensures that the board of directors is
accountable for the pursuit of corporate objectives and the
corporation itself conforms to the rules and regulations.
(International Chamber of Commerce)

Shleifer and Vishy (1997) define corporate governance as
the ways in which suppliers of finance to corporations
assure themselves of getting a return on their investment.

Gillan and Starks (1998) define corporate governance as
the system of laws, rules and factors that control
operations at a company.

Corporate governance is the system by which companies
are directed and controlled. (The Cadbury Committee on
Financial Aspects of Corporate Governance, 1992)

Corporate governance involves a commitment of a
company to run its businesses ina legal, ethical and
transparent manner a dedication that must come from the
very top and permeate throughout the organization.
(Report of the CII Task Force on Corporate Governance,
2009)

REVIEW OF LITERATURE

Chakrabarti, (2005) discusses the evolution of Corporate
Governance in India. He states that this issue is central to
the subjects of finance and economics. Major corporate
governance failures in developed countries have garnered
much media attention. Good corporate governance is
directly related to economic development, so it becomes
very important for developing countries. He discusses how
socialist era policies have affected corporate governance in
India. He discusses what ails the Indian corporate sector
and the major efforts made since liberalisation to improve
the system. One major step in this direction has been,
SEBI instituted the Clause 49 of the Listing Agreements
dealing with corporate governance. Indian banks are also
moving towards more market-based governance.

Varma, (1997) states that the corporate governance
problems in India are very different from that in USA or
UK. In those countries, the problem is related to making
the management accountable to the owners. The problem
in the India is of managing good corporate conduct by the
dominant shareholder and protecting the minority
shareholders. It discusses the role of the regulator and the
capital market, which can lead to good corporate conduct
by the dominant shareholder and protect the interest of the
minority shareholder. Regulators face a problem that in
correcting corporate governance issues they could be
involved in micro-management of business decisions
beyond their mandate. The capital market does not have
the enforcing power but can make business judgements. It
disciplines the dominant shareholder by denying him
access to the capital market. The paper discusses the
trends of deregulation, institutionalization, globalization
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
Volume 3, No. 5, May 2014


i-Explore International Research Journal Consortium www.irjcjournals.org
19
and tax reforms which make the minority shareholder
powerful. The author argues that a more efficient and
vibrant capital market can lead to better corporate
governance in India.

Yadav & Baxi, (2009) discuss the corporate governance
failure at Satyam. They argue that the failure of
independent directors and failure to implement good
corporate governance measures led to the failure of the
company.

Goswami, (2002) discusses corporate governance in India.
He says at time of independence, India had a factory sector
accounting for a tenth of the national product, four
functioning stock markets and a well regulated banking
system. The 1956 Companies Act built on this base. The
early corporate sector in India was characterized by the
managing agency system. The 1951 Industries
Development and Regulation Actand the 1956 Industrial
Policy Resolution, put in place a system of licensing and
red-tape that led to slow economic growth and corruption
and marked the move towards socialism. In the following
decades Indian Corporate sector grew more inefficient and
corrupt. Exorbitant tax rates promoted accounting
practices which could help in tax evasion.

Since the capital market was unable to raise equity capital
efficiently, the buck was passed to central government
development finance institutions and other state-
government owned development finance institutions to
provide long-term credit to companies. These institutions
along with and the central government mutual fund, the
Unit Trust of India had nominee directors on board of
companies to which they had lent. But these directors
played very inactive roles. It discusses the development of
corporate governance in India after liberalization.

Y.V. Reddy, (2002) summarizes the reforms-era policies
for corporate governance in Indian banks.

Sarkar and Sarkar, (2005) found that corporate boards of
large companies in Unites States were bigger in
comparison to India in 2003. It also showed that Indian
boards had fewer independent directors and 41% of Indian
companies had a promoter on the board. It states that there
is evidence that larger boards lead to poorer performance
both in India and in the United States.

Sarkar and Sarkar, (2005) find that company value
actually declines with a rise in the holding of mutual funds
and insurance companies between zero and a 25% holding,
after which there is no clear effect. On the other hand, for
DFIs holdings, there is no clear effect on valuation below
25%, but a significant positive effect above 25%,
suggesting better monitoring takes place when the stakes
are higher.

THEORETICAL FRAMEWORK

Corporate governance is defined as the set of processes,
laws and institutions which affect the running and
management of a company. Corporate governance ensures
accountability in an organization and emphasizes on
shareholders' welfare.

The primary stakeholders of corporate governance are the
shareholders, management and the board of directors.
Other stakeholders include employees, customers,
creditors, suppliers, regulators and the community at large.
Factors influencing corporate governance:

1. The ownership structure
The structure of ownership of a company guides to a
major degree the way it is managed and run. In the USA
and UK, it is distributed between individuals and
institutional shareholders and in Germany and J apan it is
in the hands of a few large shareholders. In India corporate
sector is characterized by the co-existence of government
owned, private and multinational companies.
2. The structure of company boards
The structure of company board influence the way the
companies are managed and controlled as they establish
the strategic objectives of the company, the policies
governing it and deciding the top management.
3. The financial structure
The financial structure of the company, that is the way
debt and equity is divided, has implications for the quality
of governance.
4. The institutional environment
The legal, regulatory, and political environments have
implications on the way a company operates. Political
decisions create the legal and economic mechanisms to
control corporate governance

Mechanisms of corporate governance:
In India, there are six mechanisms to ensure corporate
governance.
1. Companies Act
Companies in our country are regulated by the new
Companies Act, 2013, which has replaced the Companies
Act 1956.The Companies Bill, 2012 has also been passed.
2. Securities Law
The primary securities law in our country is the SEBI Act.
Securities and Exchange Board of India (SEBI) was set
up in 1992. For investor protection, it has mandated
information disclosure both in prospectus and in annual
accounts. For listed Indian companies, SEBI has
prescribed a Code of corporate governance provided in the
Clause 49 of the listing agreement with stock exchanges.
3. Discipline of the capital market
Capital market has major impact on corporate governance.
The minority shareholders can play an effective role here.
They can depress the share process of a company by
refusing to subscribe to the capital of a company in the
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
Volume 3, No. 5, May 2014


i-Explore International Research Journal Consortium www.irjcjournals.org
20
primary market and selling their shares in the secondary
market.
4. Nominees on company boards
Financial institutions have large shareholdings and debt
holdings in companies. They have nominees on the boards
of companies who can play an effective role by blocking
any move which is detrimental to the interest of the
company.
5. Statutory Audit
Statutory audit ensures good corporate governance.
Auditors are the most effective tool of accountability for
the shareholders, lenders and others who have financial
stakes in companies.
6. Codes of conduct
In spite of all regulatory mechanisms which also have
penal provisions corporate governance failures still
happen. What is needed is self-regulation on the part of
directors in form of voluntary corporate code of conducts.
Background to Corporate Governance in India

The 1956 Companies Act built on the pre-independence
era base of clearly defined stock-market and trading rules,
well developed equity and banking culture. The 1951
Industries (Development and Regulation) Act and the
1956 Industrial Policy Resolution led to license raj and
slow economic growth. Corporate bankruptcy is dealt by
the 1985 Sick Industrial Companies Act (SICA). A
company is considered sick only after its entire net
worth has been eroded, and it is referred to the Board for
Industrial and Financial Reconstruction (BIFR).

There have been irregularities in share transfers and
registrations. Company Boards have been questioned on
their independence and effectiveness in their role as a
watch-dog to deter ineffective and corrupt corporate
practices.

In 1991, Indian economy started liberalizing. In 1992,
SEBI was established and it signaled the opening of a new
chapter in corporate governance and investor protection in
India. SEBI primarily regulates and monitors stock
trading. It has contributed meaningfully in creating the
ground rules of corporate conduct in the country.

One of the first such initiatives to promote good corporate
governance in India was the Confederation of Indian
Industry Code for Desirable Corporate Governance,
developed by a committee chaired by Rahul Bajaj. This
committee was formed in 1996 and submitted its code in
April 1998.

SEBI constituted two committees to look into the issue of
corporate governance. The first committee headed by
Kumar Mangalam Birla submitted its report in early 2000,
and the second and chaired by Narayana Murthy, three
years later. These two committees brought great changes
in corporate governance in India through the formulation
of Clause 49 of Listing Agreements.

The 2002, Naresh Chandra Committee on Corporate Audit
and Governance and in 2004 the Expert Committee on
Corporate Law (J .J . Irani Committee)focused on
suggesting reforms for the Companies Act of 1956 that
still formed the backbone of corporate law in India before
the Companies Act, 2013 was introduced.

The SEBI enacted the Clause 49 of the Listings
Agreements using the recommendations of the Birla
Committee. Clause 49 is a milestone in the evolution of
corporate governance in India. It is similar to the
Sarbanes-Oxley measures in the United States

The major areas of corporate governance covered by
important features of Clause 49 regulation are:

1. Composition of the board of directors
2. The composition and functioning of the audit
committee
3. Governance and disclosures regarding subsidiary
companies
4. Disclosures by the company
5. CEO/CFO certification of financial results
6. Reporting on corporate governance as part of the
annual report
7. Certification of compliance of a company with the
provisions of Clause 49

Clause 49 stipulates specific corporate disclosures in the
following areas:

1. Related party transactions
2. Accounting treatment
3. Risk management procedures
4. Proceeds from various kinds of share issues
5. Remuneration of directors
6. A Management Discussion and Analysis section in
the annual report discussing general business
conditions and outlook
7. Background and committee memberships of new
directors as well as presentations to analysts

Companies Act 2013
The Act replaces the National Advisory Committee on
Accounting Standards with National Financial
Reporting Authority (NFRA). This will lay down
accounting and auditing policies. This will monitor and
enforce compliance with accounting and auditing
standards.

The Board of directors (BOD) report has been mandated to
include information on details of meetings, attendance,
remuneration of directors and Key Managerial Personnel
(KMP), penalty or punishment imposed on the company or
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
Volume 3, No. 5, May 2014


i-Explore International Research Journal Consortium www.irjcjournals.org
21
its officers. It would also include the statement on
independence declaration given by independent directors.
It would have the companys policy on directors
appointment and remuneration, including the criteria for
determining independence of a director, positive attributes
of an independent director and remuneration policy for
KMP and others.

Companies will have to share financial reports, audit
report and all documents prescribed by law with every
member and every other entitled stakeholder, not less than
21 days before date of meeting. Company will have to
have a website where all financial statements would be
made available.

Conditions have been laid as to tenure of auditors.
Company cannot appoint or re-appoint its auditors for
more than two terms of 5 consecutive years, if the auditor
is an audit firm and more than one term of five
consecutive years if the auditor is an individual. An
auditor can provide services to the company only as
approved by the board or the Audit Committee. Auditors
have to report to central government any offence involving
fraud being committed against the company by its officer
or employee.

Members or depositors or any class of them can claim
damages or compensation or demand any other suitable
action from or against the auditor/audit firm for any
misleading or improper statement made in audit report or
any unlawful or wrong act or conduct and can file class
action suit against defaulting company, directors and
officers to claim compensation.

Any company with a net worth of 500 crore rupees or
more; or turnover of 1000 crore rupees or more; or net
profit of 5 crore rupees or more during every financial
year will constitute a Corporate Social Responsibility
(CSR) Committee. It will have three or more directors and
at least one director will be independent. Board has to
approve CSR policy and disclose the contents in the board
report and place it on the company website.

The Act has created the Serious Fraud Investigation Office
(SFIO).The board needs to have at least one minimum
director who has stayed in India for at least 182 days in the
previous calendar year. It would also need to have one
women director. Every listed company will have at least
one third of total directors as independent directors
.
Central government will prescribe the minimum number
of independent directors in public companies. The Act
states that independent directors should not have any
material pecuniary relationship with the company, its
promoters, directors and subsidiaries which can affect the
independence of the director either in the current financial
year or immediately preceding two years.
Every listed company and certain classes of public
companies will constitute an Audit Committee. It would
have a minimum of three directors, with Independent
Directors forming a majority. The board will lay down the
terms of working of Audit committee. The committee will
recommend the terms of appointment and remuneration of
auditors. It will monitor auditors independence and
performance; effectiveness of the audit process and review
the financial statement and auditors report.

Every listed company and those prescribed by the Rules
are required to constitute a Nomination and Remuneration
Committee. It will consist of minimum three non-
executive directors with Independent Directors forming a
majority. It will formulate the criteria for determining
qualifications, positive attributes and independence of a
director and recommend to the board remuneration policy
for directors, KMP and all other employees. .The policy of
the committee will be disclosed in the boards report.

Listed companies or those that have more than one
thousand shareholders, debenture-holders, deposit holders
and any other security holders at any time during a
financial year will have constitute a Stakeholders
Relationship Committee. It will be chaired by a non-
executive director. The board will decide other members
of the committee. The committee will consider and resolve
the grievances of security holders of the company.
Such class or class of companies as maybe prescribed will
appoint an internal auditor to conduct internal audit of the
company. Such an auditor would have to be a chartered
accountant or cost accountant, or such other professional
as maybe decided by the board. Central government can
prescribe manner and intervals in which internal audit
shall be done and reported to the board.

Indian Model of Corporate Governance

It is an amalgamation of the Anglo-American legal
framework enmeshed with and two broad categories of
financial systems, i.e. the market based system of Unites
States and Britain and the bank based system of J apan and
Germany.

The Anglo-Saxon system is market based where ultimate
control is with financial market and there is distance
between ownership and management. It has a powerful
CEO. Shareholders do not have much accountability with
the management and often use financial markets, where
they sell their shares as their mode of holding the
management accountable. This ensures that management
does not lower shareholder interests. Banks have a nearly
no role in management of the company.

Companies function in a very different manner in the bank
based systems in Germany and J apan where banks play a
very major role. In Germany, share ownership is more
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
Volume 3, No. 5, May 2014


i-Explore International Research Journal Consortium www.irjcjournals.org
22
concentrated and banks provide finance and observe
routine business activities. The companies are run by
Aufstichtsrat, big supervisory boards which are composed
of nearly50% labour representation. The supervisory board
appoints another board, Vorstand to manage the company
which is accountable to it. The company is very closely
associated with the bank that owns shares in the company
and gives it board representation. The company takes the
banks consent over all major steps.

The Indian corporate governance system has the basic
corporate legal structure of Anglo-Saxon model, but the
share ownership is more concentrated and financial
institutions play an important role in financing companies.
Equity ownership and board representation allow these
financial bodies to monitor the management. But their
powers are limited to as compared to the bank based
systems.

Factors influencing corporate governance in the Indian
Context

1. Role of Independent Directors
Indian corporate structure gives great importance to the
role of independent directors for enforcing good corporate
governance. Clause 49 of Listing Agreements with stock
exchanges stipulates that non-executive members should
comprise at least half of a board of directors. It defines an
independent director and requires that independent
directors comprise at least half of a board of directors if
the chairperson is an executive director and at least a third
if the chairperson is a non-executive director. They serve
as watchdog over management. The Companies Act 203
has mandated that every listed company will have at least
one third of total directors as independent directors.
Central government will prescribe the minimum number
of independent directors in public companies. The Act
states that independent directors should not have any
material pecuniary relationship with the company, its
promoters, directors and subsidiaries which can affect the
independence of the director either in the current financial
year or immediately preceding two years.

2. Directors Remuneration
According to the SEBI Code on Corporate Governance,
Board of directors decide the remuneration of Non-
Executive Directors. A full disclosure has to be made
regarding the elements of remuneration package,
incentives, service contracts and Stock Options.

The Companies Act 2013 mandates that every listed company
and those prescribed by the Rules are required to constitute a
Nomination and Remuneration Committee. It will consist of
minimum three non-executive directors with Independent
Directors forming a majority. It will formulate the criteria for
determining qualifications, positive attributes and independence
of a director and recommend to the board remuneration policy
for directors, KMP and all other employees. The policy of the
committee will be disclosed in the boards reportThis
transparency helps in avoiding conflict of interest and
remuneration affecting the effectiveness of non-executive
directors role.

3. Ownership model
The structure of ownership of a company determines how
it is run. The ownership structure can be dispersed among
individual and institutional shareholders as in the US and
UK or can be concentrated in the hands of a few large
shareholders as in Germany and J apan.

Indian corporate sector is characterized by the co-
existence of government owned, private and multinational
Enterprises. A publicly owned company can raise
inexpensive capital if its existing shareholders assign it a
high value. In this process they can overstate the
companys profits to keep the value of its bonds and
equities at a higher value.

4. Competency of Board of directors
The structure of company boards has considerable
influence on the way the companies are managed and
controlled. The board of directors is responsible for
establishing strategy and its execution plan for the
company. They have to question managements strategy if
it is going against the path of good corporate governance.

5. Role of Audit committee
Audit committee improves the quality of financial
reporting by reviewing the financial statements, creating a
climate of discipline and reducing the opportunity for
fraud. It provides a communication link with the external
auditor and strengthens the Internal Audit Function.The
companies Act 2013 mandates every listed company and
certain classes of public companies will constitute an
Audit Committee. It would have a minimum of three
directors, with Independent Directors forming a majority.
The board will lay down the terms of working of Audit
committee. The committee will recommend the terms of
appointment and remuneration of auditors. It will monitor
auditors independence and performance; effectiveness of
the audit process and review the financial statement and
auditors report. It will vet inter corporate loans and
investments. It will evaluate internal financial controls and
risk management systems and monitor the end use of
money collected via public offers.

6. Role of shareholders committee
SEBIs Code for Corporate Governance stipulates the
constitution of shareholders committee under the
chairmanship of a non-executive director to ensure that the
grievances of shareholders are properly received and
solved. Institutional investors can play an activist role in
ensuring good corporate governance. They can act as
communication channel for individual shareholders for
taking up their concerns with the company's management.
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
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The Companies Act 2013 mandates that listed companies
or those that have more than one thousand shareholders,
debenture-holders, deposit holders and any other security
holders at any time during a financial year will have
constitute a Stakeholders Relationship Committee. It will
be chaired by a non-executive director. The board will
decide other members of the committee. The committee
will consider and resolve the grievances of security
holders of the company.

7. Role of rating agencies
The rating agencies look into the companys books to
make assessments and investigate the financial condition
of the company. They can lower the rating of a company if
they find erroneous and noncompliant financial statements
and warn investors.

8. Efficiency and trustworthiness of Audit
The auditing firms should properly investigate and report
to shareholders about any risk.

10. Transparency and full disclosure of information
The company should make full and true disclosures in
their mandatory disclosures to the stock market and annual
reports. This increases share holder confidence. Under the
Companies Act 2013, the Board of directors (BOD) report
has been mandated to include information on details of
meetings, attendance, remuneration of directors and Key
Managerial Personnel (KMP), penalty or punishment
imposed on the company or its officers. It would have the
companys policy on directors appointment and
remuneration, including the criteria for determining
independence of a director, positive attributes of an
independent director and remuneration policy for KMP
and others. It would also list down the comments made by
the board on every reservation or adverse remark or
disclaimer made by the auditor and the company secretary
in their reports. It will have the CSR policy.

11. Effective implementation of whistleblower policy
Companies should adopt the non-mandatory whistleblower
policy of Clause 49 of the Listing Agreement.

CONCLUSION

The spirit of corporate governance ensures fairness,
transparency and accountability. Appointing a chief ethics
officer and having a clear code of ethics will go a long
way in enabling good corporate governance. Indian
corporate system has evolved from a socialist era public
sector dominated economy to a vibrant private sector
driven one. The laws have evolved slowly. But the new
Companies act 2013 and SEBIs proactive actions paint a
positive future for corporate governance in India. Indian
corporate governance system is characterized by strong
laws but poor implementation. Independent directors can
play a very important role in this. The new Companies
Act 2013 has laid down mandatory and clear provision in
this regard and made this a very efficient mechanism of
corporate governance. Timely and accurate flow of
information to the equity shareholders is very important as
they can play a pivotal role in ensuring good corporate
governance. The new Act by broadening the horizon of
board of directors report and updating of financial records
on the website of the company has ensured this.
Enforcement of laws has also seen a positive movement
with establishment of Serious Fraud Investigation Office,
having statutory status. Auditors have also been provided
with clear cut guidelines in the new Act. The control of
fair practices by rating agencies and an effective whistle
blower mechanism would further strengthen corporate
governance in India. With the dynamic economic
environment it becomes imperative for laws to keep
changing and adapting.

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LIST OF ABBREVIATIONS

1. BIFR- Board for Industrial and Financial
Restructuring
2. DFI- Designated Financial Institutions
3. OECD- Organizations for Economic Co-operation
and Development
4. PSEs- Public Sector Enterprises
5. SEBI- Securities Exchange Board of India
6. SFIO- Serious Fraud Investigation Office
7. SICA- Sick Industrial Companies Act
8. NFRA- National Financial Reporting Authority
9. KMP - Key Managerial Personnel
10. BOD- Board of directors
11. NCLT- National Company Law Tribunal
12. CSR- Corporate Social Responsibility

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