"Shareholder value get lost when things are done illegally, when principles of corporate governance are not adhered to, when cohesive action is not taken"- Cyrus Pallonji Mistry

Introduction
Corporate Governance is a mechanism based on certain systems and principles by which a company is governed. The governance ensures that a company is directed and controlled in a way so as to achieve the goals and objectives which include providing benefits to the stakeholders like shareholders, employees, suppliers, customers and society in the long term and adding value to the company. It is actually conducted by the board of Directors and the concerned committees for the benefit of stakeholders' company'. Corporate governance is all about balancing individual and societal goals as well as economic and social goals.

Corporate Governance consists of:

1. Explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights and rewards.
2. Procedures for reconciling the conflicting interests of stakeholders in accordance with their duties, privileges and roles.
3. Procedures for proper supervision, control, and information that flows to serve as a system of checks and balances.

According to the Cadbury Committee of U.K,
"Corporate governance is the system by which companies are directed and controlled."

Need for Corporate Governance in India

The need for corporate governance has emerged because of the increasing concerns about the non-compliance of standards of financial reporting and accountability by boards of directors and management of companies causing heavy losses to investors. Following are the needs for corporate governance in India:

1. Changing Ownership Structure:
   A corporate firm has lots of stakeholders with different attitudes towards corporate affairs, corporate governance protects the stakeholders' right by implementing it through its code of conduct. Today a company has a very large number of stakeholders spread all over the nation and even the world and a majority of shareholders act unorganised with an indifferent attitude towards corporate affairs. Maintaining a proper structure of a corporate body requires a practical implementation of rules and regulations through a code of conduct of corporate governance.
    
2. Social responsibility:
   Society having greater expectations from corporate, they expect that corporates take care of the environment, pollution, quality of goods and services, sustainable development etc. Fulfilment of all these expectations is only possible with proper corporate governance.
    
3. Takeovers and Mergers:
   Takeovers and mergers of corporate entities created lots of problems in the past. It affects the right of various stakeholders in the company and creates a problem of chaos, this factor also pushes the need of corporate governance in the country.
    
4. Confidence booster:
   Corporate scams or frauds in the recent years of the past have shaken public confidence in corporate management. The need for corporate governance is then crucial for reviving investors' confidence in the corporate sector towards the economic development of society.
    
5. Mismanagement and corruption:
   It has been observed in both developing and developed economies that there has been a great increase in the monetary payments and packages of top level corporate executives. There is no justification for exorbitant payments to top ranking managers, out of corporate funds which is a property of shareholders and society. This factor necessitates corporate governance to restrict the ill-practices of top managements in the companies.
    
6. Investors' influence:
   Large corporate investors are becoming a challenge to the management of the company as they influence the decisions of the company. Corporate governance set the code to deal with such situations.
    
7. Globalization:
   Globalization made the communication and transport between countries so easy and frequent. Many Indian companies are listed with international stock exchange which also triggers the need for corporate governance in India to structure the companies at par with international level.
    
8. Efficiency of management:
   Hostile takeovers of corporations witnessed in several countries put a question mark on the efficiency of managements of take-over companies. Lack of efficient code of conduct for corporate managements points out to the need for corporate governance.

Importance of Corporate Governance in India

Corporate governance safeguards not only the management but also the interests of stakeholders and fosters the economic progress of India in the roaring economies of the world. A company that has good corporate governance experiences much higher level of confidence amongst the shareholders associated with that company.

Confident and independent directors contribute towards a positive outlook of the company in financial market which positively influences the share prices. Corporate Governance is one of the important criteria for foreign institutional investors to decide on which company to invest in.

Importance of corporate governance is stated below:

1. Good corporate governance ensures success and economic growth of a firm worldwide.
2. Strong corporate governance maintains investors' confidence in the financial market, as a result of which company can raise capital efficiently and effectively.
3. International flows of capital enable companies to access financing from a large pool of investors. If countries are to reap the full benefits of the global capital markets, and if they are to attract long-term capital, corporate governance arrangements must be credible and well understood across borders. The large inflows of foreign investment will contribute immensely to economic growth.
4. Properly structured governance lowers the capital cost.
5. The importance of good corporate governance lies in the fact that it will enable the corporate firms to attract capital and perform efficiently. Investors will be willing to invest in the companies with a good record of corporate governance.
6. New policy of liberalization and deregulation adopted in India in the year 1991, has given greater freedom to managements which should be prudently used to promote investors' interests. But there are several instances of corporate failures due to lack of transparency and disclosures and instances of falsification of accounts. This problem will only be overcome by a proper corporate governance.
7. A strong corporate governance is indispensable for a vibrant stock market. A healthy stock market is an important instrument for investors protection. Insider trading is a destruction of stock market. It means trading of shares of a company by insiders like directors, managers and other em­ployees of the company on the basis of information which is not known to outsiders of the company.
8. Corporate governance provides proper encouragement to the owners as well as managers to achieve objectives that are in the interest of stakeholders and the organization by.
9. It also minimizes wastages, corruption, risks and mismanagement.
10. It helps in brand formation and development of a company. Many studies in India and abroad has shown that foreign investors take notice of well- managed companies and respond positively to them. Capital flows from foreign institutional investors (FII) for investment in the capital market and foreign direct investment (FDI) in joint ventures with Indian corporate companies if they are convinced about the implementation of basic principles of good corporate governance.
11. It make sures an organization is managed in a manner that fits the best interests of all. Corporate governance is a means through which the company signals to the market that effective self-regulation is in place and that investors are safe to invest in their securities. Prohibiting inappropriate actions and self-regulation are effective means of creating shareholders value.
12. Officials of a corporate company take undue advantage at the expense of investors through insider tradings. It is a kind of fraud and one way of dealing with this problem is enacting legislation through corporate governance prohibiting such trading and enforcing criminal action against violators.

The collapse of international giants likes Enron[1] , WorldCom of the US[2] and Xerox of Japan[3] took place due to the absence of good corporate governance and corrupt practices adopted by management of these companies and their financial consulting firms.

Key Principles of Corporate Governance

Transparency
A principle of good governance is that stakeholders should be informed about the company's activities regarding its plans in the future and any risks involved in its business strategies.

• Transparency means openness by the company willing to provide clear information to shareholders and other stakeholders. For example, it refers to the openness to disclose financial performance figures which are truthful and accurate.
• Disclosing materials concerning the organization's performances and activities should be will timed and accurate to ensure that all investors have access to clear, factual information which reflects the financial, social and environmental position of the organization. A company should clarify the roles and responsibilities of the board and management to provide a level of accountability.
• Transparency ensures that stakeholders can have confidence in the decision-making and management processes of a company.

Accountability
Corporate accountability refers to the obligation and responsibility to provide an explanation or reason for the company's actions and conduct such as:

• The board should present a balanced and understandable assessment of the company's position and prospects.
• The board is responsible for determining the nature and extent of the significant risks the company is willing to take.
• The board should maintain sound risk management and internal control systems.
• The board should establish formal and transparent arrangements for corporate reporting and risk management and for maintaining an appropriate relationship with the company's auditors.
• The board should communicate with stakeholders at regular intervals giving a fair, balanced and explicit analysis of how the company is achieving its business purpose.

Responsibility
The Board of Directors are given authority to act on behalf of the company. They should therefore accept full responsibility for the powers that it is given and the authority that it exercises. The Board of Directors are responsible for overseeing the management of the business, affairs of the company, appointing the chief executive and monitoring the performance of the company. In doing so, it is required to act in the best interests of the company.

Accountability goes hand in hand with responsibility. The Board of Directors should be made accountable to the stakeholders for the way in which the company has carried out its responsibilities.

Eight Codes of Corporate Governance

1. Governance Structure:
   All organizations should be headed by an effective board and all the responsibilities and accountabilities within the organisation should be clearly distinguished.
    
2. Structure of the Board and its Committees:
   The board should consist of appropriate combination of executive directors, independent directors and non-independent non-executive directors to prevent one individual or a small group of individuals from dominating the board's decision. The board's size and scale should be in proportion with the level of diversity of the organisation. Appropriate board committees may be formed to assist the board in effective performances to fulfil the duties.
    
3. Director's Appointment Procedure:
   There should be a formal, rigorous and transparent process for various activities like appointments, election, re-election of directors etc. Members for the board should be appointment on merit basis fulfilling objective criteria which should include skills, knowledge, experience, and independence for the benefits of the company. The board should ensure that a formal, rigorous and transparent procedure be in place for planning the succession of all key officeholders.
    
4. Directors' duties, remuneration and performance:
   Directors should be aware of their legal duties. They must observe and foster high ethical standards and a strong ethical culture in their organisation. Each director must be able to give sufficient time to discharge his or her duties effectively. Conflicts of interest should be disclosed and managed.
   
   The board of members is responsible for the governance of the organisation's information, information technology and information security. The board, committees and individual directors should be supplied with informations in a timely manner and in an appropriate form and quality. The performances of board members should be evaluated and be held accountable to appropriate stakeholders. The board should be transparent, fair and consistent in determining the remuneration policy for directors and senior executives.
    
5. Risk Governance and Internal Control:
   The board will be held responsible for risk governance. It must check the development and execution of a comprehensive and powerful system of risk management and also ensures the maintenance of a sound internal control system.
    
6. Reporting with Integrity:
   The board must present a fair, balanced and understandable assessment of the performances and outlook of organization's financial, environmental, social and governance position in its annual report and on its website.
    
7. Audit:
   All the organizations should consider having an effective and independent internal audit function that has the respect, confidence and cooperation of both the board and the management. The board should establish formal and transparent arrangements to appoint organisation's auditors and maintain an appropriate relationship with them.
    
8. Relations with Shareholders and other key Stakeholders:
   The board should be responsible for ensuring that an appropriate interchange and disclosure takes place between the organisation, its shareholders and other key stakeholders. The board should respect the interests of its shareholders and other key stakeholders within the context of its fundamental purpose.

Regulatory Framework for Corporate Governance in India

1. The Companies Act, 2013
   The new Companies Law[4] contains many provisions related to good corporate governance like Composition of Board of Directors, Admitting Woman Director, Admitting Independent Director, Directors Training and Evaluation, Constitution of Audit Committee, Internal Audit, Risk Management Committee, SFIO Purview, Subsidiaries Companies Management, Compliance center etc.
   
   All such provisions of new Companies Law are instrumental in providing a good Corporate Governance structure. Few provisions are:
   
   • Section 134:
     It mandates to attach a report to every Financial statement by Board of Directors containing all the details of the matter including the statement containing director's responsibility.
   • Section 177:
     It requires Board of Directors of every listed company or any other class of committee to constitute an Audit Committee. It also provides the manner to constitute the committee.
   • Section 184:
     It mandates the Director disclose his interest in any company or companies, body corporate, firms, or other association of Individuals. The director is required to disclose any such interest at the first meeting of the board and if there is any change in the interest, then the first meeting will be held after such change.
      
2. Securities and Exchange Board of India (SEBI)
   SEBI is a regulatory authority established on April 12, 1992 with the main purpose of curbing the malpractices in the financial market and protecting the interest of its investors. Its main objective is to regulate the activities of Stock Exchange and to ensure the healthy development in the financial market. In order to ensure good corporate governance, SEBI came up with detailed norms of Corporate Governance.
   
   • As per the new rules, the companies are required to get shareholders approval for RPT (Related Party Transactions)[5], a provision for whistle blower mechanism, clear mandate to have at least one woman director in the Board and moreover it elaborated disclosures on pay packages.
      
   • Clause 35B of the Listing Agreement is being amended by the regulatory authority. Now as per the amended clause, Listed companies are required to provide the option of e-voting to its shareholders on all proposed or passed general meetings. Those who do not have access to e-voting facility, they should be entitled to cast their votes in writing on Postal Ballot[6]. The amended provision was needed so that the provisions of the listing agreement can be aligned with the provisions of Companies Act, 2013. By doing so, a closer step is provided to strengthen the Corporate Governance norms in India with respect to Listed companies.
      
   • Clause 49 of the Listing Agreement was also amended by SEBI in order to strengthen the Corporate Governance framework for Listed companies in India. The revised clause forbids the independent directors from being eligible for any kind of stock option. Whistle blower policy is also added in the revised clause whereby the directors and employees can report any unethical behavior, any fraud or if there is violation of Code of Conduct of the company.
     
     With the amended provision, Audit Committee is also enhanced, now it will include evaluation of risk management system, internal financial control and will keep a check on inter-corporate loans and investments. The amendment now requires all the companies to form a policy for the purpose of determination of 'material subsidiaries' and that will be published online.
      
3. Standard Listing Agreement of Stock Exchanges
   The Listing Agreement is the basic document which is executed between companies and the Stock Exchange when companies are listed on the stock exchange. The main purposes of the listing agreement are to ensure that companies are following good corporate governance. The Stock Exchange on behalf of the Security Exchange Board of India ensures that companies follow good corporate governance.
   
   The Listing Agreement comprises of 54 clauses stating corporate governance which listed companies have to follow and in case of failing to such, companies have to face disciplinary actions, suspension, and delisting of securities. The companies also have to make certain disclosures and act by the clauses of the agreement.
    
4. Accounting Standards issued by the ICAI
   ICAI stands for Institute of Chartered Accountants of India. It is a statutory body established by Chartered Accountants Act, 1949. It issues accounting standards for disclosure of financial information.
   
   • Section 129 of the Companies Act, 2013 states that financial statements of a company shall comply with the accounting standards notified under section 133 of the Act. It also states that the financial statement shall give true and fair view of the state of affairs of the company.
      
   • Section 133 states that Central government may prescribe the accounting standards as recommended by ICAI. Accounting standards are provided so that good corporate governance can be ensured in a company. Some accounting standards issued by ICAI are:
     
     • Disclosure of Accounting policies followed in preparation of Financial statement
     • Determination of values at which the inventories are carried in a financial statement,
     • Cash flow statements for assessing the ability of an enterprise in generating cash,
     • Standard to ensure that appropriate measurement bases are applied to provisions and contingent liability,
     • Standard prescribing accounting treatment of cost and revenue associated with construction contracts.
        
5. Secretarial standards issued by ICSI (Institute of Company Secretaries of India)
   It is an autonomous body constituted by the Company Secretaries Act, 1980. It is a body to regulate and develop the profession of Company Secretaries in India. It issues secretarial standards as per the provision of the Companies Act,2013.
   
   Section 118(10) of the Companies Act states that every company shall observe secretarial standards specified by Institute of Company Secretaries of India with respect to General and Board meetings.
   
   • Secretarial standard-1 on Meeting of the Board seeks to prescribe a set of principles for conducting meetings of Board of Directors. These principles are equally applicable to the meetings of committees as well. SS-1 principles are applicable to the Meeting of Board of Directors of all companies except one person company.
      
   • Secretarial standard-2 prescribes a set of principles for conducting and convening general meetings. This standard also deals with the procedure for conducting e-voting and postal ballot. SS-2 is applicable to all types of General meetings of all companies except one person company incorporated under the act. The principles in SS-2 are applicable mutatis-mutandis[7] to meetings of creditors and debenture holders. Moreover, it also prescribes that any meeting of members or creditors or debenture-holders of a company under the direction of CLB (Company Law Board), NCLT (National Company Law Tribunal) or any other authority shall be governed by the provisions of this standard.

Biggest Failures of Corporate Governance in India

1. Harshad Mehta Scam (1992)
   It is one of the most Technical Scam done with cleverness in the year 1992. The protagonist of the scam Harshad Mehta diverted bank funds worth Rs. 3500 crores to a group of stockbrokers. These funds were then put into the stock market selectively, causing it to surge to over 4500 points. The immediate impact of Harshad Mehta scam was sharp felt in share prices and indices. The market faced loss of 0.1 million crores in terms of market capitalization. This resulted in the postponing of sanctioning of Private sector Mutual Fund by SEBI. The Euro-Issues Planned by various companies were delayed due to the scam.
    
2. Ketan Parekh Scam (1999-2001)
   Ketan Parekh is described as Pied Piper of Dalal Street. His financing method was very simple, he used to buy a share when they traded at a low price and when the price was high enough he pledges to share with the bank as collateral for Funds. He also borrowed funds from various companies like HCFL. The amount involved in the scam was Rs.1500 crore.
   
   Impacts of the scam were:
   
   • One of the biggest falls in Bombay stock exchange- 700 points.
   • Short selling was banned for 6 months.
   • Options and future index derivatives were introduced.
      
3. Satyam Scam (2009)
   Satyam Scam took place in the year 2009 and it is regarded as "Debacle of Indian Financial System". It was one of the biggest accounting scandals where protagonist Ramalinga Raju accepted that he cooked up accounts of Satyam Computers and inflated Satyam computers bank balances and accounting entries including the amount of Rs. 8000 Crores.
    
4. PACL Scheme Scam (2015)
   It was the scam of Luring near 55 million investors by the technique of raising money against bogus allotment letters. The matter involved the alleged collection of about 450 billion rupees ($6.8 billion) from roughly 55 million investors across the country.
    
5. Saradha Chit Fund Scam(2013)
   It was one of the biggest Ponzi schemes about fake collective investments involving the amount of nearly Rs. 4000 crores led by Sudipta Sen. The chit fund ultimately collapsed leading to defaults after a crackdown by SEBI and the Reserve Bank of India. The default, apart from leaving small depositors high and dry, also led to 10 media terminals owned by Saradha being forced to wind up, leaving 1000 journalists jobless.

Panel of Experts
To curb the recurring issue of accounting scandals like above mentioned, a panel of experts was set up by SEBI.

This panel recommended:

1. Rotation of Audit Partners
2. Selection of CFO by the company's Audit Committee
3. Standardization of disclosure of earnings
4. Streamlining the submission of financial results.

Biggest Challenges in Corporate Governance In India

• Getting the board right:
  In India, it is a common practice that friends and family of promoters to be appointed as board members. But Innovative solutions are the need of the hour like rating board diversity and governance practices and publishing such results or using performance evaluation as a minimum benchmark for director appointment.
   
• Performance evaluation of directors:
  Although performance evaluation of directors has been part of the existing legal framework in India, but it's still an issue. To achieve the desired results on governance practices, there is often a call for results of performance evaluation to be shared in public. But corporate firms to avoid public scrutiny, negative feedback may not be shared by them sometimes.
   
• True Independence of Directors:
  Independent directors have hardly been able to make the desired impact in fifteen years till now as it Independent directors' appointment was supposed to be the biggest corporate governance reform. The independence of promoter appointed as independent directors is questionable as it is unlikely that they will stand-up for minority interests against the promoter.
   
• Removal of Independent Directors:
  In most of the cases, the major issue in corporate governance arises as independent directors were easily removed from their positions by the promoters if they do not side with promoters' decisions. Under law, an independent director can be easily removed by promoters or majority shareholders.
   
• Accountability to Stakeholders:
  Indian company law, revamped in 2013, mandates that directors owe duties not only towards the company and shareholders but also towards the employees, community and for the protection of environment. Although, these general duties have been imposed on all directors, directors including independent directors but they disregard it easily due to lack of enforcement action.
   
• Executive Compensation:
  Executive compensation is a controversial issue especially when subjected to shareholder accountability. Companies have to offer competitive compensation to attract talent. However, such executive compensation needs to stand the test of stakeholders' scrutiny.
   
• Founders' Control and Succession Planning:
  In India, founders' ability to control the affairs of the company has the potential of derailing the entire corporate governance system. Unlike developed economies, in India, identity of the founder and the company is often merged.
   
• Risk Management:
  The board is only playing an oversight role on the affairs of a company, framing and implementing a risk management policy is necessary. In this context, Indian company law requires the board to include a statement in its report to the shareholders indicating development and implementation of risk management policy for the company.

Overcoming Existing Issues in Corporate Governance

In the issues mentioned above, to adapt to the standards and practices which are mentioned in various laws and guidelines its entire onus lies upon the directors of the companies. Other than the laws and norms prescribed by various institutions from time to time, the companies are also expected to act responsibly towards the society as a whole because the extent of corporates have been increased and they affect each and every citizen of the country either directly or indirectly.

The burden of corporate firms has already been reduced by the amendments done in various provisions by the regulating bodies. To curb the issues of corporate governance, it is also required that the stakeholders also participate in the decision making processes with the directors to make it a contributory job altogether.

Regulating authority has taken various steps to the issues of corporate sector in its governance and committees are formed by them for recommending solutions.

Committees for Resolving Issues in Corporate Governance

Various committees have been created all across the world for a good corporate governance covering major aspects:

Committees across the globe

Year	Name of the Committee	Area Covered
1992	Sir Adrian Cadbury Committee, UK	Financial Aspects of Corporate Governance
1994	Mervyn E. King's Committee, South Africa	Corporate Governance
1995	Greenbury Committee, UK	Independent Directors' Remuneration
1998	Hampel committee, UK	Combined Code of Best Practices
1999	Blue Ribbon Committee , US	Improving the Effectiveness of Corporate Audit Committee
1999	The Organisation for Economic Cooperation and Development (OECD)	Principles of Corporate Governance
1999	CACG	Principles for corporate Governance in Common Wealth
2003	Derek Higgs Committee , UK	Review of role of effectiveness of Non-executive Directors
2003	ASX Corporate governance council, Australia	Principles of Good Corporate governance and Best Practice Recommendations

Corporate Governance Committees in India

Year	Name of the Committee	Area Covered
1998	Confederation of Indian Industry (CII)	Desirable Corporate Governance -  A code
1999	Kumar Mangalam Birla Committee	Corporate Governance
2002	Naresh Chandra Committee	Corporate Audit and Governance
2003	N R Narayana Murthy Committee	Corporate Governance

Confederation of Indian Industry (CII) Initiative:

With the emergence of competitions in economies under the liberalized regime, concerns were raised regarding corporate governance practices in India. The process of 'restructuring the corporate governance framework' and development of a 'Code of Corporate Governance' was initiated by CII in 1996. A National Task Force was set up under the Chairmanship of Rahul Bajaj and presently he is the chairman of Bajaj Group. The Task force made a number of recommendations related to board constitution, role of non‐executive directors, role of audit committees and others. The committee submitted its Code in 1998.

National Code on Corporate Governance:

In 1999, government appointed a committee under the leadership of Kumar Mangalam Birla. The committee released a draft of India's first National Code on Corporate Governance for listed companies. In 2000, with the due approval of the Code by SEBI, it was implemented in stages in the following two years.

The Committee made its primary objective to view corporate Governance from the perspective of the investors and shareholders and to prepare a Code conducive to the Corporate Environment of India. The shareholders, the Board of Directors and the Management were identified by the committee as the three important constituents of Corporate Governance and focused mainly on the roles and responsibilities as well as the rights of each of these constituents as far as the good governance is concerned.

Kumar Mangalam Birla Committee:

In 1999, SEBI set up a committee under the Chairmanship of Kumar Mangalam Birla to suggest suitable recommendations for the Listing Agreement of Companies with their Stock Exchanges to improve the existing standards of Corporate Governance in the listed companies. The committee paid much attention to role and composition of the Board of directors, disclosure laws and share transfers.

Acknowledging that accountability, transparency and equal treatment of all stakeholders are the key elements of corporate governance. The Committee evolved a Code of Governance in the context of the prevailing conditions in the capital market. The Code was accepted in 2000 by SEBI and incorporated into a new Clause 49, which was inserted into the Listing Agreement of Companies with their Stock Exchanges.

Clause 49 (2000) of the Listing Agreement

In February 2000, the SEBI revised its Listing Agreement to incorporate the recommendations of the country's new code on corporate governance, introduced by the Birla Committee. These rules comprising a new section, Clause 49 of the listing Agreements were circulated by SEBI through its circular dated February 21, 2000. It took effect in phases over a period from 2002 to 2003. All the listed companies with a paid up capital of Rs. 3 crores and above or net worth of Rs. 25 crores or more at any time during the life of the company as of March 31, 2003 were governed by these principles.

RBI Advisory Group headed by Dr. R H Patil

This group recommended some more codes and principles of private sector companies including consolidation of accounts incorporating performance of subsidiaries, criteria of independent directors and disclosures to SEBI in the year 2001.

N R Narayan Murthy Committee
In 2002, SEBI formed another committee under the Chairmanship of N R Narayan Murthy, the then Chief Mentor of Infosys Technologies Ltd. to further streamline the provisions of Clause 49. Based on the recommendations of the Committee, SEBI revised some sections of the Clause in August 2003 and later once again after further deliberations in December 2003. SEBI published a revised Clause 49, relating to corporate governance, which set forth a schedule for newly listed companies and those already listed to comply with the revisions. Major changes in the Clause included amendments /additions to provisions relating definition of independent directors, strengthening the responsibility of Audit Committees and requiring Boards to adopt a formal Code of Conduct.

In January 2006, SEBI issued some further clarifications on Clause 49. Further amendments were made in some of the provisions of the Clause in July 2007 which dealt with quarterly reporting.

Revised Provisions under Clause 49 of the Listing Agreement

In its final form, Clause 49 of the Listing Agreement covered the following provisions regarding corporate governance by listed companies:

• Mandatory Provisions:
  
  1. Board of Directors: Composition of the Board, Definition of Independent directors and proportion of Independent Directors in the total board strength, Compensation of non-executive directors and disclosures, Board meetings, Information to be made available to the Board, membership of Board level committees by the directors and Code of Conduct II.
  2. Audit Committee: Its constitution, its meetings, role, powers and review of information,
  3. Subsidiary companies: Number of subsidiaries, review of financial statements of the subsidiaries by the holding company, transactions of the listed holding company with the subsidiaries and other related disclosures.
  4. Disclosures: These include a series of mandatory disclosures like basis of Related Party Transactions, Accounting treatment, Risk management, Utilization of proceeds of public issues, Remuneration of Directors, Management Discussion and Analysis Report in the company's Annual Report, setting up of Shareholders/Investors Grievances committee and other items to be reported to the shareholders.
  5. CEO/CFO Certification: This certification relates to the review of financial statements and cash flow statements by the CFO, compliance with existing accounting standards, laws and regulations, responsibility for maintaining internal controls, etc
  6. Separate Section in the Company's Annual Report on Corporate Governance.
  7. Compliance certificate from Auditors or practicing Company Secretaries.
      
• Non-Mandatory provisions
  These included provisions regarding the following:
  
  1. Tenure of Independent directors.
  2. Constitution of the Remuneration Committee.
  3. Declaration of Half yearly Financial Performance including summary of significant events to be sent to shareholders' residences.
  4. Progression towards a regime of Unqualified Financial Statements.
  5. Training of Board members in the business model and risk profile of business parameters of the company including their responsibilities.
  6. Evaluation of Non‐executive Board member.
  7. Whistle Blower Policy
      

Proxy Services for Corporate Governance Evaluation

A proxy firm plays many roles like a proxy advisor, proxy voting agency, vote service provider or shareholder voting research provider and so on. It provides services to shareholders also to institutional investors to vote their shares at shareholder meetings of listed companies.

The services provided by them include agenda translation, provision of vote management software, voting policy development, company research, and vote administration including vote execution. Not all firms provide voting recommendations and those that do may simply execute client voting instructions.

Some of the Proxy firms in global network are:

1. Egan-Jones Proxy Services (USA
2. Glass, Lewis & Co (USA)
3. In Govern Research Services (INDIA)
4. Institutional Investor Advisory Services India Limited (IiAS) (INDIA)
5. Institutional Shareholder Services (USA)
6. Stakeholders Empowerment Services (SES) (INDIA)
    

Proxy Firms Controversy

In 2013, the US Securities and Exchange Commission charged fine of ISS $300,000 to Rockville, Md.-based proxy adviser Institutional Shareholder Services (ISS) for failing to safeguard the confidential proxy voting information of clients participating in a number of significant proxy contests. Since then the role of proxy firms has come under considerable scrutiny.
 

Corporate Governance Rating

Rating practices of corporate governance and value creation for its Stakeholders is being carried out by leading Rating Agencies like CRISIL. These types of rating helps the companies by providing unbiased evaluation of the company's corporate governance practices. It is carried out by an outsider reputed agency and an appropriate Rating Certificate is given to the company for their performances.

The Company can use this certificate for raising finance from the market as well as from foreign investors. This results in allocating resources in a better way and enhancing investor's confidence in the company. The basis for rating a company for its corporate governance practices is the company's compliance with SEBI Revised Clause 49 of the Listing Agreement with the Stock Exchanges and also the manner in which the various norms are fulfilled.

Comments on Corporate Governance

Certain useful comments on the concept of corporate governance are given below:

• Corporate governance is more than a company's administration. It refers to fair, efficient and transparent functioning of the corporate management system.
• Corporate governance refers to a code of conduct to which the Board of Directors must abide by while running the corporate enterprise.
• Corporate governance refers to a set of systems, procedures and practices which ensure that the company is managed in the best interest of all corporate stakeholders.

References:

1. Enron Scandal: The Fall of a Wall Street, Enron's shares were worth $90.75. When it declared bankruptcy on December 2, 2001, they were trading at $0.26 [Enron Corp. scandal - https://www.investopedia.com/updates/enron-scandal-summary/
2. WorldCom exaggerated profits by around $3 billion in 2001 and $797 in Q1 2002, and reported a profit of $1.4 billion instead of a net loss. It filed for bankruptcy on July 21, 2002. [WorldCom scandal] - https://www.investopedia.com/terms/w/worldcom.asp
3. Xerox overstated its revenues for the past five years by almost $2bn (£1.3bn). [xerox scandal] - https://www.theguardian.com/business/2002/jun/29/2
4. The Companies Act 2013 enacted by the Parliament of India on 12 September, 2013 contains 98 sections. - http://ebook.mca.gov.in/default.aspx
5. A related-party transaction (RPT) is a business deal or arrangement between two parties who are joined by a preexisting special relationship.
6. A postal ballot is a system of voting in which person send their votes by post when they cannot be present.
7. Used when comparing two or more things to say that although changes will be necessary in order to take account of different situations, the basic point remains the same.

Also Read:

1. Corporate Governance in India
2. DVR and Corporate Governance
3. Growth of Corporate Governance in the Era of scams
4. An Analysis On Corporate Governance Laws In India
5. Role of Proxy Advisory Firms In Corporate Governance
6. Corporate governance is a system of best management practice
7. Corporate Governance Issues Regarding Remuneration of Executive Directors in India
8. Understanding the Concept of Corporate Governance in the Light of Companies Bill 2009
9. Key Issues And Challenges Of Corporate Governance And Ethics: Analysis Of Yes Bank And PNB Scam