CORPORATE for good corporate governance and appointed several committees

CORPORATE GOVERNANCE SCENARIO IN INDIA Need of Corporate Governance: Transparency in corporate governance is essentialfor the growth, profitability and stability of any business. The need for goodcorporate governance has intensified due to growing competition amongstbusinesses in all economic sectors at the national, as well as internationallevel. The need for an efficient corporate governance is also elevated becauseof the increasing concern about the non-compliance of standards of financialreporting and accountability by management of corporate and boards of directorsinflicting heavy losses on investors.The negligence of efficient corporategovernance and corrupt practices adopted by the management and financialconsulting firms has resulted in the collapse of international giants likeEnron, WorldCom of US and Xerox of Japan.The failuresof these multinational giants bring out the importance of good corporategovernance structure making clear the distinction of power between the Board ofDirectors and the management which can lead to appropriate governance processesand procedures under which management is free to manage and board of directorsis free to monitor and give policy directions.In India, SEBI realized the need for goodcorporate governance and appointed several committees such asThe CII Code :More than ayear before the onset of the Asian crisis, CII set up a committee to examinecorporate governance issues, and recommend a voluntary code of best practices.

The committee was driven by the conviction that good corporate governance wasessential for Indian companies to access domestic as well as global capital atcompetitive rates. The first draft of the code was prepared by April 1997, andthe final documentiv, waspublicly released in April 1998. The code was voluntary, contained detailedprovisions, and focused on listed companies.

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Kumar Manglam Birla Committee:The secondmajor corporate governance initiative in the country was undertaken by SEBI. Inearly 1999, it set up a committee under Kumar Mangalam Birla to promote andraise the standards of good corporate governance. In early 2000, the SEBI boardhad accepted and ratified key recommendations of this committee, and these wereincorporated into Clause 49 of the Listing Agreement of the Stock Exchanges.

This report pointed out that the issue of corporate governance involves besidesshareholders, all other stakeholders. The committee’s recommendations havelooked at corporate governance from the point of view of the stakeholders andin particular that of shareholders and investors.  Naresh Chandra Committee: The Naresh Chandra committee wasappointed in August 2002 by the Department of Company Affairs (DCA) under theMinistry of Finance and Company Affairs to examine various corporate governanceissues. The Committee submitted its report in December 2002. It maderecommendations in two key aspects of corporate governance: financial andnon-financial disclosures: and independent auditing and board oversight ofmanagement Narayana Murthy Committee.The fourth initiative on corporategovernance in India is in the form of the recommendations of the NarayanaMurthy committee.

The committee was set up by SEBI, under the chairmanship ofMr. N. R. Narayana Murthy, to review Clause 49, and suggest measures to improvecorporate governance standards. Some of the major recommendations of thecommittee primarily related to audit committees, audit reports, independentdirectors, related party transactions, risk management, directorships anddirector compensation, codes of conduct and financial disclosures.vIssues affecting Corporate Governance in India·        To get the Board right·        True Independence of Directors·        Removal of Independent Directors·        Accountability to Stakeholders           ·        Executive Compensation·        Founders’ Control and SuccessionPlanning·        Risk Management·        Privacy and Data Protection·        Board’s Approach to Corporate SocialResponsibility (CSR)The Indian Companies Act of 2013 introducedsome progressive and transparent processes which benefit stakeholders,directors as well as the management of companies. Investment advisory servicesand proxy firms provide concise information to the shareholders about thesenewly introduced processes and regulations, which aim to improve the corporategovernance in India.

Corporateadvisory services are offered by advisory firms to efficiently manage theactivities of companies to ensure stability and growth of the business,maintain the reputation and reliability for customers and clients. The topmanagement that consists of the board of directors is responsible forgovernance. They must have effective control over affairs of the company in theinterest of the company and minority shareholders. Corporate governance ensuresstrict and efficient application of management practices along with legalcompliance in the continually changing business scenario in India.Corporate governance was guided by Clause 49 of the Listing Agreement before introduction of the Companies Actof 2013. As per the new provision, SEBI has also approved certain amendments inthe Listing Agreement so as to improve the transparency in transactions oflisted companies and giving a bigger say to minority stakeholders ininfluencing the decisions of management.

These amendments have become effectivefrom 1st October 2014Provisions:·        One or more women directors are recommended for certainclasses of companies·        Every company in India must have a resident directory·        The maximum permissible directors cannot exceed 15 in apublic limited company. If more directors have to be appointed, it can be doneonly with approval of the shareholders after passing a Special Resolution·        The Independent Directors are a newly introduced conceptunder the Act. A code of conduct is prescribed and so are other functions andduties·        The Independent directors must attend at least one meeting ayear·        Every company must appoint an individual or firm as anauditor. The responsibility of the Audit committee has increased·        Filing and disclosures with the Registrar of Companies hasincreased·        Top management recognizes the rights of the shareholders andensures strong co-operation between the company and the stakeholders·        Every company has to make accurate disclosure of financialsituations, performance, material matter, ownership and governance.·        Related Party Transactions·        Corporate Social Responsibility·        Whistle Blower Policy – This is a mandatory provision bySEBI which is a vigil mechanism to report the wrong or unethical conduct of anydirector of the company.

 Whyis Corporate Governance in India Important?Foreign institutional investors (FII) and FDI considerCorporate Governance as an important criteria to decide on which company toinvest in. Active and independent directors contribute towards a positiveoutlook of the company in the financial market, positively influencing shareprices. A company that has good corporate governance has a much higher level ofconfidence amongst the shareholders associated with that company. Takeovers and Mergers: Today, there are many takeovers and mergers in the businessworld.

Corporate governance is required to protect the interest of all theparties during takeovers and mergers.Indifference on the part of Shareholders: In general,shareholders are inactive in the management of their companies. They onlyattend the Annual general meeting. Postal ballot is still absent in India.Proxies are not allowed to speak in the meetings. Shareholders associations arenot strong. Therefore, directors misuse their power for their own benefits.

So,there is a need for corporate governance to protect all the stakeholders of thecompany.SEBI: SEBI has made corporate governance compulsory for certaincompanies. This is done to protect the interest of the investors and otherstakeholders.

Growing Number of Scams: In recent years, many scams, frauds and corrupt practices havetaken place. Misuse and misappropriation of public money are happening everydayin India and worldwide. It is happening in the stock market, banks, financialinstitutions, companies and government offices.

In order to avoid these scamsand financial irregularities, many companies have started corporate governance. Corporate governance failure in India: 1.      SubrataRoy, Sahara: SaharaGroup was accused of failing to refund over Rs. 20,000 crore to its more than30 million small investors which it collected through two unlisted companies ofSahara. In 2011, SEBI ordered Sahara to refund this amount with interestto the investors, as the issue was not in compliance with the requirementsapplicable to the public offerings of securities.  2.     Ramalinga Raju, Satyam Computers: Thefailure of corporate governance and of misleading accounts is a failure of boththe management and of the auditors. The promoters decided to inflate therevenue and profit figures of Satyam.

In the event, the company has a huge holein its balance sheet, consisting of non-existent assets and cash reserves thathave been recorded and liabilities that are unrecorded. This episode has led todebates in India, about some of inadequacies in the corporate governance norms.Questions have been raised about the performance/ effectiveness of board ofdirectors, roles of auditors, the impact of regulations, disclosures, etc.B Ramalinga Raju, thefounder of Satyam Computers, got into trouble after he admitted to inflatingthe company revenue, profit and profit margins for every single quarter over aperiod of 5 years, from 2003-2008.

The amount embezzled by him is estimated tobe around Rs. 7,200 crore. In April 2015, Ramalinga Raju and his brothers weresentenced to 7 years in jail, and fined Rs. 5.

5 crore.  3.      Reebok India case Agencies probing the alleged Rs 870crore corporate fraud in the operation of Reebok India have detected a systemic”mismanagement” in the business planning and governance of thecompany reportedly done by some of its officials and employees. The main reasonfor this scam were the governance and operations in the company weremismanaged. Thebills were inflated and not recorded correctly. So, the probe clearly indicatesthat it was not a corporate scam in the apparel manufacturing firm but it wasnon-adherence to the rules and guidelines of business procedures in thefirm,” sources privy to the probe said.

The I-T which has indicated to analleged Rs 140 crore tax evasion in the case.  4.     Sudipta Sen,Saradha Chit Fund .Saradha group which ran a chit fund inWest Bengal had collected around ?200 to 300 billion from investors with apromise of high returns for their investments. The company which enjoyed strongpolitical backings collapsed in April 2013. The amount investors lost isestimated to be between Rs. 2060 – 2400 crores.

    5.     Harshad Mehta