A Brief Overview of Corporate Governance Reforms in India

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Since the late 1990s, Indian regulators as well as industry representatives and companies have undertaken significant efforts to overhaul the country’s corporate governance. These reform initiatives have been revived or accelerated following the Satyam scandal of 2009. The current corporate governance regime in India straddles both voluntary and mandatory requirements: for listed companies, the vast majority of Clause 49 requirements are mandatory; it remains to be seen whether some of the more recent voluntary corporate governance measures will become mandatory for all companies through a comprehensive revision of the Companies Act. This report briefly outlines the process undertaken to reform India’s corporate governance laws. It also provides an overview of Clause 49, the pending corporate governance-related provisions in the Companies Bill (2009), and the MCA’s Corporate Governance Voluntary Guidelines (2009).

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... Still resulting from the corruption scandals and inspired by industry recommendations, by CII, the Ministry of Corporate Affairs has established a set of voluntary guidelines for corporate governance (Afsharipour, 2010). In more recent scenery, the Companies Act 2013 replaces the "National Advisory Committee on Accounting Standards" with "National Financial Reporting Authority". ...
... Column 4), and it should be justified by continue updating of Brazilian Corporate Governance Code against its Indian counterpart. The Brazilian Corporate Governance Code was updated four times, and the last revision was made in 2015, according toIBGC (2015), and the Indian Corporate Governance Code was two times updated with the last revision in 2009 according toAfsharipour (2010); thus, because of this delay, the Indian Corporate Governance Code should do not fully received the ISAR/UNCTAD recommendations about corporate governance practices information disclosure in 2009 (UNCTAD, 2009).The normative pressure in Brazil and South Africa is quasi equal (Table V, Column 4); however, the coercive pressure is quite different (Table V, Column 3). Although the indicators required by South African legislation about corporate governance practices information are higher than its Brazilian counterpart, the law enforcement is lower than its equal. ...
Purpose The study aims to analyze the level of the disclosure of corporate governance practices by the companies that belong to the BRICS (Brazil, Russia, India, China and South Africa) countries according to normative recommendations and coercive requirements considering the enforcement of laws and norms in the different legal systems and to explain it in the light of the institutional theory approach. Design/methodology/approach The practices disclosed by a sample of the 20 largest companies listed on the stock exchanges of each of the BRICS countries were analysed, and the 52 practices recommended by UNCTAD (2009) were used as a parameter. The corporate governance practices of the companies were confronted with the laws, rules and norms that require or recommend their adoption and disclosure. Findings China has 49 practices required by own national law in face of 52 recommended by UNCTAD/International Financial Reporting Standards (IFRS) followed by South Africa with 44, Russia with 33, Brazil with 28 and India with 24. Brazil has 47 practices recommended by own national governance code in face of 52 recommended by UNCTAD/Intergovernmental Working group of Experts on International Standards of Accounting and Reporting (ISAR), followed by Russia with 45, China with 44, South Africa with 41 and India with 22. It was found that Brazil has the higher median of number of companies disclosing corporate governance practices with 17, followed by India with 13, Russia with 11, South Africa and China with 7. Research limitations/implications This research shows that more studies are necessary using the institutional theory to investigate how the normative and coercive pressures influence the disclosure of corporate governance information considering the enforcement of laws and norms in the different legal systems. Practical implications The differences observed in this study about normative and coercive forces are presented as an opportunity in the legal sphere of some countries to implement mechanisms to increase their level of enforcement. Originality/value This research contributes to various audiences such as governmental institutions, professional associations, market institutions to better understand their role in the improvement of the adoption of corporate governance practices and disclosure of information related to it.
... It is evident that the existence of companies associated with business groups hinders the success (Afsharipour, (2011)). ...
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Exploiting the large exogenous variation in information disclosure after the 2000 introduction of the Clause 49 regulations in India, the present paper examines the impact of increased disclosure on financing choices of listed Indian firms. Clause 49 regulations necessitated domestic listed firms to disclose reliable information and were adopted by all by 2006. We use cross-listed Indian firms as control group because they remained largely unaffected by Clause 49. Using difference-in-difference estimates, we document that increased disclosure after adoption of Clause 49 had led to a significantly lower (higher) reliance on debt (equity) among treated domestic listed (relative to cross-listed) firms in the full sample. The share of bank loans also fell, indicating a growth of public debt after 2006 adoption. These effects were more pronounced after 2006 as processing costs of disclosed information as well as cost of capital fell only after every firm started disclosing. Important exceptions were the predominantly risk-averse largely family-owned firms affiliated to business groups, whose financing choices remained unaffected even after adoption of Clause 49 regulations.
... On the basis of the literature review carried out by us we believe that there is no software supported thematic analysis, atleast in corporate governance research, carried out in Indian context. (Afsharipour, 2010) gave a brief overview of corporate governance reforms in India. He notes that since the late 1990s, significant efforts have been taken by Indian regulators, as well as by Indian industry representatives and companies, to overhaul Indian corporate governance. ...
In this article we attempt to identify various themes in the corporate governance research carried out in Indian context. We used Nvivo 11 to perform thematic analysis. To avoid selection bias of literature review we used all the research articles published in 'Indian Journal of Corporate Governance' from 2008 to 2018. Using 66 research articles exclusively on Indian context we identified that corporate governance structures/mechanisms, ownership structure and board composition/independence were the most prominent themes.
Development of CG Codes and Regulations—Role of scams The chapter traces corporate governance movements beginning with the UK scams of Poly Peck, Maxwell and BCCI. Consequently, the first code on CG the “Financial Aspects of Corporate Governance” popularly known as Cadbury Report was framed in 1992. After the Cadbury Report, UK set up many committees (Greenbury, Hamley, Turnbull, Higgs, Smith) to examine different aspects of corporate governance and the code went through several changes to its present form.After the scams in UK and other parts of the world, regulators in various countries realized that there is a need to strengthen corporate governance regulations and began to develop codes. The Enron and WorldCom Scandals in USA led to the creation of the Sarbanes-Oxley Act in 2002. This brought corporate governance to the limelight and into the corporate boards.The Satyam fiasco forced India to revamp its Companies Act and create new regulation—the Listing Obligation and Disclosure Requirement (2015). Only after a fraud is unearthed, regulators react and try to close the loop hole. They never seem to proactively take preventive measures.KeywordsScamsFraudCadbury ReportSOXCompanies ActLODREnronMaxwellWorldComSatyam
Economic performance of a country, financial performance of its firms and probable growth are possible only with protection of its investors. In India, stronger investor protection evolved along with the evolution of corporate governance. Improved corporate governance practices disclose clear and concise financial information benefitting individual investors. The purpose of this study is to determine the perception of equity investors towards corporate disclosure quality in the backdrop of corporate governance reforms in India. Using a random sample of 428 equity investors and administering a structured questionnaire comprising eight characteristics of disclosure quality, the authors found that in the backdrop of corporate governance reforms, disclosures of companies listed in India are in accordance with the prescribed standards and rules, easily accessible, believable and are without any contradictions. However, the investors are not satisfied with the timeliness, completeness and clarity of the disclosed information. This study has implications for investors, corporates and policy makers.
Conference Paper
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The purpose of this paper is to study the corporate governance in preventing accounting errors and fraud and to Compare the Corporate Governance disclosure practices of Selected of Companies. For this study top two companies have been selected on the basis of net worth and market capitalization as on 31st march 2008. The sample size consists of two companies one from Public sector and one from Private sector. It is observed from the study that the theft of inventory, Assets are reducing every year which shows good sign for the success of corporate governance. On the other hand, frauds related to misappropriations of revenue collection, cash embezzlement are also decreases but fraud related to issuing of fake bank guarantee and non-deposit of EPF is Increases.
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The high-profile corporate governance (CG) failure scams (like the Stock Market scam, the UTI scam, Ketan Parikh scam, Satyam scam, etc.), which was severely criticized by the shareholders, called for a need to make CG in India transparent as it greatly affects the development of the country. The reporting of CG information is a fundamental theme of the „modern‟ corporate-regulatory system, which encompasses providing „governance‟ information to the public in a variety of ways. Reporting theory assumes the wide availability of information to users, increasing the level of corporate transparency and reducing information asymmetry common to the business environment. This study explores the voluntary CG Reporting practices of 50 corporations, over and above the mandatory requirements of Clause 49 of the Listing Agreement. In order to study the voluntary CG Reporting practices, a “content analysis” was done, and finally, a “CG Reporting” Index was prepared. We have primarily used „secondary‟ sources of information, both from the „Report on CG‟ and the „Annual Reports‟ for the financial year 2003-04 and 2004-05. As a part of voluntary CG reporting, a total of 40 items have been selected from the CG section of the Annual Reports and proxy forms. In order to provide a comparison „across‟ industries, corporations have been selected from four industries, viz., software, textiles, sugar and paper. Appropriate statistical tools and techniques have been applied for the analysis. It has been observed that “corporations are following less than 50 percent of the items of CG Reporting Index. Moreover, there is no significant difference among the reporting scores across the four industries.”
Worldwide, the presence of independent directors on the board of listed companies is seen as an integral element of a company’s corporate governance process and has become a pre requisite for good governance. Consequently, in the recent years, governance reforms in India have increasingly pinned hope, as well as responsibility, on independent directors to achieve higher standards of governance in organizations.Unlike the Anglo Saxon world, where the key corporate governance challenge is disciplining the management and making it accountable to the distributed shareholders, the central challenge in corporate governance in India is that of disciplining the dominant shareholder(s) and protecting the interest of the minority shareholders. Therefore independent directors, in Indian business organizations, can become effective only when their appointment process is outside the influence of the dominant shareholders.This paper examines the current state of corporate boards among the S&P CNX 500 companies in India and reviews the impact of the changes that have been introduced in the recently amended Companies Act, 2013 and the suggestions in the consultative paper issued by SEBI on revisions to clause 49 of the Listing agreement dealing with corporate governance. While, with the recent changes, significant steps have been taken to strengthen the role of independent directors on the board of listed companies, the process for the appointment of independent directors needs to be further strengthened so as to improve board effectiveness in listed companies.
Unlike the central governance issue in the Anglo Saxon world, which is essentially that of disciplining management that may stop being accountable to the owners, who are dispersed shareholders, the central challenge in corporate governance in India is that of disciplining the dominant shareholder and in protecting the interest of the minority shareholders. Other forms of domination, besides family ownership, such as domination by government or a foreign group also exist in Indian organizations; additionally, often promoters of companies exercise influence that is disproportionate to their actual shareholding.Our study finds that differences in the nature of the dominating shareholder result in significant differences in the firm’s corporate governance characteristics. Furthermore, while the corporate governance parameters do not have any significant impact on the firm’s performance, the nature of the dominating shareholder significantly impacts the firm’s performance
Corporate Governance is the relationship between corporate managers, directors and the capital providers, who save and invest their capital to earn money in form of dividend, interest or gain. Shareholders of the company appoint Board of Directors to fulfill their objectives aligned with the corporate objectives. Board of Directors appoints key managers for implementing corporate strategies. Corporate objectives are attained with the series of actions of the directors & managers. Capital & other necessary resources are provided by shareholders and other stakeholders to the company to fulfill the common objectives. It entails responsibility of corporate managers towards investors, society & environment that provides valuable resources to the corporation in achieving their objectives. Good corporate governance practices ensure that the board of directors is accountable for the pursuit of corporate objectives to enhance wealth of corporation and that the corporation itself conforms to the law and regulations in form & spirit. This paper identifies who are the levers of corporate governance and then investigates the powers of those levers, which influences the quality of corporate governance in corporate India. We critically analyze the effectiveness of Indian legal framework to ensure good corporate governance practices. The actors who can influence the quality of corporate governance are depicted in Chart-1 classified into (i) Internal: including shareholders, independent directors, audit & nomination committee and (ii) External: including auditors, Registrar of Companies, stock exchanges, Security Exchange Board of India and the Competition Commission of India.
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The goal of this Article is two-fold: (i) to identify the rationale for the emergence of independent directors by tracing their evolution in the U.S. and the U.K. where they originated; and (ii) to examine the transplantation of that concept into India with a view to evaluating the effectiveness of independent directors in that country. This Article finds that there are significant differences in the corporate ownership structures and legal systems between the countries of origin of independent directors on the one hand and India on the other. Due to the diffused shareholding structures in the U.S. and the U.K., the independent directors were ushered into corporate governance norms in those countries in order to operate as a monitoring mechanism over managers in the interest of shareholders. Each stage in the evolution of board independence bears testimony to this fact. However, a transplantation of the concept to a country such as India without placing emphasis on local corporate structures and associated factors is likely to produce unintended results and outcomes that are less than desirable. This Article finds that due to the concentrated ownership structures in Indian companies, it is the minority shareholders who require the protection of corporate governance norms from actions of the controlling shareholders. Board independence, in the form it originated, does not provide a solution to this problem. While this Article is skeptical about the effectiveness of board independence in India, it suggests reforms to embolden independent directors that may empower them to play a more meaningful role in corporate governance.
We provide an overview of Indian corporate governance practices, based primarily on responses to a 2006 survey of 370 Indian public companies. Compliance with legal norms is reasonably high in most areas, but not complete. We identify areas where Indian corporate governance is relatively strong and weak, and areas where regulation might usefully be either relaxed or strengthened. On the whole, Indian corporate governance rules appear appropriate for larger companies, but could use some strengthening in the area of related party transactions, and some relaxation for smaller companies. Executive compensation is low by U.S. standards and is not currently a problem area. We also examine whether there is a cross-sectional relationship between measures of governance and measures of firm performance and find evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. We find an overall association, which is stronger for more profitable firms and firms with stronger growth opportunities. A subindex for shareholder rights is individually significant, but subindices for board structure (board independence and committee structure), disclosure, board procedure, and related party transactions are not significant. The non-results for board structure contrast to other recent studies, and suggest that India's legal requirements are sufficiently strict so that overcompliance does not produce valuation gains.
During the last decade, there has been a sustained effort on the part of the Indian regulators to strengthen corporate governance norms. This has been strongly influenced by developments that occurred in other parts of the world, particularly the Sarbanes-Oxley Act in the U.S. and the Cadbury Committee Report in the U.K. This study reflects upon whether the policies adopted by the Indian regulators are adequate or whether they require some mid-course correction. With that in mind, this Article adopts a revisionist approach with the help of two simple assertions, develops those further and leaves some food for thought leading to possible further detailed normative research. The twin assertions are: (i) the broad features of the Indian corporate governance norms have been transplanted from other jurisdictions such as the U.S. and U.K. that follow the "outsider" model of corporate governance, and hence those norms are not likely to be suitable for implementation in addressing governance problems in India, which follows the "insider" model; and (ii) recent events involving the collapse of several leading financial institutions provide evidence, at least anecdotal in nature, that the corporate governance norms followed in the U.S. and U.K. have not been effective in preventing large-scale corporate governance failures, thereby raising questions about the efficacy of that model in the Indian context. Through these assertions, this Article makes the case that the source for strengthening Indian corporate governance lies within. Seeking out other systems of corporate governance to emulate will only lead to further incongruity with the traditional business systems and practices that are replete in India, and unnecessarily add to the eclecticism that persists in Indian corporate governance. While the empirical evidence on the impact of corporate governance reforms in India is promising, the anecdotal evidence is less optimistic and the recent accounting irregularities at Satyam Computers bear testimony to that fact. This Article calls for a model of governance that resonates well with Indian business values and practices from the standpoint of economic, social, and political factors.
  • J Jamshed
  • Irani
Jamshed J. Irani et al., Expert Committee on Company Law, Report of the Expert Committee to Advise the Government on the New Company Law 3 (2005), available at JJ%20Irani%20Report-MCA.pdf.
Fifteenth Lok Sabha, The Companies Bill
37 See Standing Committee on Finance (2009-2010), Fifteenth Lok Sabha, The Companies Bill, 2009, Twenty-First Report (August 2010).
Report of the CII Task Force on Corporate Governance 2
  • See Naresh
See Naresh Chandra, Report of the CII Task Force on Corporate Governance 2 (November 2009), available at Ministry/latestnews/Draft_Report_NareshChandra_CII.pdf [hereinafter CII 2009 Report].
See Securities and Exchange Board of India, Circular No. CIR), available at www.
  • Listing The
  • Agreement
the Listing Agreement. See Securities and Exchange Board of India, Circular No. CIR/CFD/DIL/1/2010 (Apr. 5, 2010), available at www.
55 PSUs are state-owned enterprises and represent the Indian government's socialist policies prior to 1991 See Lawrence Sáez & Joy Yang, The Deregulation of State-Owned Enterprises in India and China
55 PSUs are state-owned enterprises and represent the Indian government's socialist policies prior to 1991. See Lawrence Sáez & Joy Yang, The Deregulation of State-Owned Enterprises in India and China, 43 Comp. Econ. Stud. 69, 76 (2001).
available at content/us/fact2009sec3.pdf. 60 See Directors Database
NSE, Listing of Securities 38 (2009), available at content/us/fact2009sec3.pdf. 60 See Directors Database,; V. Venkateswara Rao, Clause 49: Needed, better compliance, Business Line, May 27, 2009.
See The Securities Laws (Amendment) Act
See The Securities Laws (Amendment) Act, 2004 § 11, No. 1, Acts of Parliament, 2005, available at asp?tfnm=200501.
SEBI passed a series of orders involving several government companies, viz
69 During October and November 2008, SEBI passed a series of orders involving several government companies, viz. NTPC Limited (8
all available at
  • November
November), all available at