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An Analysis of Corporate Governance Issues in the Indian

Context: Challenges and Prospects

Summary
Corporate law is the body of laws, rules, regulations and practices that govern
the formation and operation of corporations. It's the body of law that
regulates legalentities that exist to conduct business.
Different Models:
 market model
 control model of corporate governance
 Anglo-American "model"
 Business house model
 Coordinated or multi stakeholder model
Objective of Study:
 To analyze the issues of corporate governance in the Indian context
 To know the problems and diagnoses of corporate governance
 To understand governance mechanisms and solutions about corporate
governance

POPULARLY CHAMPIONED PRINCIPLES OF CORPORATE GOVERNANCE IN THE


WORLD WIDE:
Challenges for effective corporate governance:

 Executive compensation vs. Regulation of RPTs


 Board composition vs. Competence of directors
 Investor activism vs. State activism
 Market-driven incentives vs. Non-market mechanisms
 Fiduciary duty to shareholders vs. Subpar disclosure and internal controls

MECHANISMS AND CONTROLS:


Corporate governance mechanisms and controls are designed to reduce the
inefficiencies that arise from moral hazard and adverse selection. For example,
to monitor managers' behavior, an independent third party (the external auditor)
attests the accuracy of information provided by management to investors. An
ideal control system should regulate both motivation and ability.
INTERNAL CORPORATE GOVERNANCE CONTROL: Internal corporate
governance controls monitor activities and then take corrective action to
accomplish organizational goals. Examples include:
 Balance of power
 Remuneration
EXTERNAL MECHANISMS OF CORPORATE GOVERNANCE
CONTROL:
 Government regulation
 Competition
 External auditor
 Print media
SUGGESTIONS FOR THE EFFECTIVE CORPORATE GOVERNANCE:
 There should be an independent and transparent process of evaluation of
performance of board members.
 Independent directors: Even where there are controlling or majority
shareholders, there should be enough quality independent directors to
staff key committees, particularly the audit committee. At a minimum,
this implies at least two or three independent directors constituting at
least one-third of the board.
 Succession planning: The Company should have clear and transparent
succession-planning processes to guide the selection of new executive
managers.