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Author – Garima Choudhary ,5th year, B.A.LLB , Law college, Uttaranchal University.
Co-Author – Shashank Tyagi, Assistant professor, Law college, Uttaranchal University
Abstract
Corporate governance in India as we understand is set upon the principles on international control, policies and procedures which form the framework of companies operations and also consider in itself the working areas of various stakeholders such as customers, employees,management even the government and industrial bodies.
In order to avoid any unwelcoming events in term of finance and morals the companies adopted number of safety measures, the most effective and important measures which we also study in this paper is known as corporate governance.
Keywords.
Corporate governance,India,Stakeholders,management,company, employees, customers, government,financial irregularities.
INTRODUCTION
“Trust start with trustworthy leadership, it must be built into the corporate culture”
Aptly quoted by —- Barbara Brooks Kimmel.
The said lines are the basis of governance in corporate world. The corporate governance have the framework upon which the policies and procedures of companies based upon. As we know,corporate governance by which companies or corporate world are governed better to be named as ‘Good governance’. “These policies, principles and processes of corporate governance provides guidelines as to how the company can be directed or controlled, by giving platform that it can fulfil it’s goals and objectives in a manner that adds to the value of the company and is also beneficial for all Stakeholders in long term”1
In past or even in present various financial, ethical irregularities happened, by also which companies realized that a very firm step must be taken. But oftenly these corporate irregularties came to the public forum are credited to the quality of robustic culture of healthy governance of the corporate,which not only hurt the economy but also erroed the [1]
Sentiments in the very institution .To ensure better working and back drop of robors ustic culture of healthy governance of the corporate, the formula of independent directors came to its connection.Independent directors are anticipated to be independent from the management of company an ensure the rights of all members(shareholders, who invest in such company and also take stand for them when necessary or on relevant issues .
DEFINITIONS
According to Sir Aderian Cadbury- “The system by which companies are directed and controlled.Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources the aim is to align as nearly as possible the interest of individuals,corporation and society”.
According to Mathiesen(2002) “Corporate governanceis a field in economics that investigates how to secure or motivate efficient management of corporation by the use of incentive past e mechanism such as contracts, organisational designs and legislation. This is often limited to the question of improving financial performance,for example how the corporate owners can secure or motivate that corporate managers will a competiverate of return”.
Mathiesen’s definition states that the corporate governance always tries to find those different incentives which motivate the manager to give a good return to the owners of the corporation .
According to J.Wolfensohn,President of The World Bank,(1999)” Corporate governance is about promoting corporate fairness, and accountability.
ORIGIN
Corporate governance is not new as it have it’s seeds sown from the very past from the time of establishment of the companies .But ,when we talk about corporate governance as the field of study, it is les than 70 years old .a very much concern was given to this from last 40 years, as development was done by the changing needs of society and also the corporate world. So far to know, corporate governance the term was first used in United States, after world war llnd, the U.S. experienced strong economic growth which brings a need of good law to govern it.
In 1970 Securities and Exchange Commission(SEC) brought the issue of corporate to the forefront when they brought a stance on official corporate reform. In 1976, the corporate governance first appeared in the federal register , the official journal of federal government. This is the product which appeared after various financial and ethical irregularities which were happened in U.S. as World com scandal,Adelphicecommunication,Euron waste management inc. Scandal “This was basically appeared from the frustration of corporate accountability.”
In India, the concept of corporate governance is not new.Basically, it is the product from Arthashastra time, in place of CEOs there were Kings abd other officials, now the kings and other officials are replaced by corporate stakeholders and shareholders, included fo large investment.Debate of corporate governance as a law emerges in India basically after the report of Cadbury committee in U.K. “need for corporate governance arises due to separation of management from ownership.”1Successful entities always focus on both areas social as well as economical.Transperancy and accountability with the producers, shareholders,customersetc is must for fair governance and serving of their responsibilities .
In 20th century, the Former PM of India was the finance minister,assistedNarshima Rao to implement reform as named ‘LPG’ that is Liberlisation,Privatisation and Globalisation.This the stage where Indian economy was for the first time introduced to the world economy which brings the introduction to Capitalisation, corporate culture and business ethics.
In India, the initiative was taken by an industrial association known as ,Confederation of Indian Industry(CII) . In December 1995, CII set up a task force to design a voluntary code of corporate governance. In April 1998 the code was released which is named as Desirable corporate governance:A Code. In year 1998,1999 and 2000, 25 leading companies voluntarily followed the code for example, Bajaj auto,Infosys,Dr reddy’s laboratories, Bharat forge,HDFC,ICICI and many others. “The real changes in the corporate sector could be felt with the introduction of 2009 Mandatory corporate governance voluntarily guidelines ,which has to comply by companies listed on stock exchange by clause 49 of listed agreements.”2
Corporate governance was affectively came into practise by the companies act, 2013, where new separate and affective provision were introduced as appointment of independent directors,inclusion of atleast one women director on the board, introduced corporate social responsibility and mandatory compliance of secretarial standards issued by Institute of company secretary of India as per section 118 of companies act 2013.[2]
NEED OF CORPORATE GOVERNANCE.
Financial scams both internationally and in India also, give a new area to fulfil by the laws which govern companies management ownership and stakeholders in order to prevent those huge financial scams and prevent corporate criminal liabilities in future.
The need of corporate governance was basically emerged when the conflict between ownership and management disciplines increases and the non compliance of financial auditors reporting which inflict losses on investors and show lack of fairness and transparency in the companies. For such ethical standards which to upgrade as per the changing society the corporate governance came into existence.
CORPORATE GOVERNANCE HOW MUCH PRACTICAL.
The implementation of law of corporate governance brings very much positive effect upon the working of corporates in India, the major highlights upon the positive working of corporate governance are basically of board performance, as it requires at least one women directors, appointment of independent director and their accountability towards shareholder as well as towards society and environments their social responsibility, risk management techniques, corporate social responsibility as India is first country who legislate on CSR and mandates 2 percent of the profits of last 3 years o invest in social welfare.
Example establishment of Muenzer Bharat Pvt Ltd in Navi Mumbai a privately held company which invested 10 million euros in India to set up the energy from waste Bio diesel plant which is capable of processing three thousand metric tones of waste based bio diesel.
But as we know,every coin has two sides, the working of corporate governance in books and its practical working in India and also in other countries are very different.Most companies in India tends only to comply on paper board appointment still by way of “word of mouth” or upon fellow board member recommendations. Even appointment of women directors is only books and no practical implementation are seen. Insider trading is the biggest issue which force back the implementation of corporate governance laws, corporate insiders refers to corporate officers, directors and employees as they access over all the important informations about the working of corporation, leak of those information affect the values shares of company, illegal leak of such confedential, non public information give arise to ‘ insider trading’. For example Mr. Raj gupta the former goldsman sacles, convicted of insider trading and was also order to pay huge amount as civil penalty and also barred from acting as director of a public company for leaking secrets of board room.
Accountability to stakeholders is the key issue in corporate governance. General meeting must be held for better interaction and questioning with the board. In other case, when founder of company remove by the CEOs, corporate governance should appear to bring laws for the control founder upon its own company. In Flipkart – Wallmart deal, fixel and other investors of Flipkart removed its co founder and director, Sachin Bansal and Binny Bansal . approach to CSR is way very far from implementation but practically noted few leading companies are approached towards CSR, for example ,ITC, Mahindra and Mahindra , ONGC but some are not in the same line for instance the leading company of Germany, the volkswayen served by a notice into 2015 from Unites States environmental protection agency for violation of the clean Air act. In year 2019 National green tribunal(NGT) panel, imposed fine of rupees 100 cr for damaged to health and environment to India.
Implementation of corporate governance in India must improve must make more stringent laws on companies accountability ,transparency and most important recognise the doctrine of lifting up of corporate veil and priorities risk management .
CONCLUSION.
Far structural and regulated charges, India has with several enactments like companies act 2013, SEBIs listing obligations and disclosure regulation which have contributed signified in strengthening govern norms and in increasingly among by way of disclosure interestingly, these changes has inspired by Anglo- saxon he key corporate model which is probably the key reason behind the practise of corporate governance with the desirable level of fruition. For achieving desirable result it is important that regulatory measures are modelled based on practises and business environment in India, to state the obvious, this should compelled with the board and the promoters embraced such reforms informed and spirit.
References
[1].www.economictimes.com