Over the last decades, corporate governance is a topic of group discussion which cannot be avoided in corporate boardrooms. Heaps of get-togethers and different elements are considered dependable behind this certainty. In India, the most significant part of corporate administration is its guidelines and their bodies. These regulatory authorities seek organizations to keep a check on management policies and strategies for safeguarding stakeholder’s rights. Here a question arises, why do these regulatory bodies need to intervene in company’s management policies? Why make it required for the organizations to adhere to the guidelines structured and fused by the administrative chosen ones regardless of not having all the significant data to center upon. Although these rules must be designed with the best intention of providing adequate safety and protection to the stakeholders. It very well may be the opposite side if controllers receive offering inclination to one gathering of representatives over the other.
THE OBJECTIVES OF CORPORATE GOVERNANCE
Transparency in corporate governance is essential for the growth, profitability and stability of any business. The need for good corporate governance has intensified due to growing competition amongst businesses in all economic sectors at the national, as well as international level.
The Indian Companies Act, 2013 introduced some progressive and transparent processes which benefit stakeholders, directors as well as the management of companies. Investment advisory services and proxy firms provide concise information to the shareholders about these newly introduced processes and regulations, which aim to improve the corporate governance in India. Corporate advisory services are offered by advisory firms to efficiently manage the activities of companies to ensure stability and growth of the business, maintain the reputation and reliability for customers and clients. The top management that consists of the board of directors is responsible for governance. They must have effective control over affairs of the company in the interest of the company and minority shareholders. Corporate governance ensures strict and efficient application of management practices along with legal compliance in the continually changing business scenario in India. Corporate governance was guided by clause 49 of the Listing Agreement before introduction of the Companies Act of 2013.
WHY IS CORPORATE GOVERNANCE IMPORTANT IN INDIA?
A company that has good corporate governance has a much higher level of confidence amongst the shareholders associated with that company. Active and independent directors contribute towards a positive outlook of the company in the financial market, positively influencing share prices. Corporate Governance is one of the important criteria for foreign institutional investors to decide on which company to invest in. The corporate practices in India emphasize the functions of audit and finances that have legal, moral and ethical implications for the business and its impact on the shareholders. The Indian Companies Act of 2013 introduced innovative measures to appropriately balance legislative and regulatory reforms for the growth of the enterprise and to increase foreign investment, keeping in mind international practices. The rules and regulations are measures that increase the involvement of the shareholders in decision making and introduce transparency in corporate governance, which ultimately safeguards the interest of the society and shareholders. Corporate governance safeguards not only the management but the interests of the stakeholders as well and fosters the economic progress of India in the roaring economies of the world.
CORPORATE GOVERNANCE UNDER THE COMPANIES ACT, 2013
The Companies Act, 2013 spotlights on great corporate governance hones by expanding the parts and duties of the Board, securing investors’ enthusiasm, acquiring a revelation based administration and inherent prevention through self direction. The 2013 Act fundamentally changes the way companies are represented. The Act accommodates the accompanying arrangements:
a.) BOARD FUNCTIONING
- Appointment of Board:- The Companies Act, 2013 gives that an open and additionally a privately owned business can have a greatest of fifteen chiefs on the Board and naming in excess of fifteen executives would require endorsement of investors through an uncommon determination in the General Meeting. The Act makes it required for an organization to have least one executive who has remained in the nation for a time of 182 days in the past Calendar year.
- Disqualification of Directors:-The Companies Act, 2013 makes executives’ exclusion more stringent, incorporates more investigation around related gathering exchanges. The 2013Act incorporates the accompanying extra grounds of preclusion: (I) A man who has been sentenced an offense managing related gathering exchanges whenever amid the previous five years. (ii) The directorship in privately owned businesses has additionally been brought under the ambit of exclusion on ground for non documenting of yearly money related explanations or yearly returns for any persistent time of three years, or inability to compensate stores for over a year.
- Number of Directorship:-According to the provision of the Companies Act, 2013, a man can’t turn into an executive in excess of 20 companies rather than 15 as gave in the Companies Act 1956 and out of this 20, he can’t be chief of in excess of 10 open companies.
b.) COMMITTEES OF BOARD
- Audit Committee:- Section 177 of the Companies Act, 2013 makes review panels compulsory for recorded companies and other recommended classes of companies. The Act gives that review panel should comprise of least of three chiefs with independent executives framing dominant part.
- Nomination and Remuneration Committee:- Section 177 of the Companies Act, 2013 makes review boards compulsory for recorded companies and other recommended classes of companies. The Act gives that review panel should comprise of least of three executives with independent chiefs framing dominant part.
- The Corporate Social Responsibility (CSR) Committee:-The Act gives that an organization meeting certain conditions ought to constitute a Corporate Social Responsibility Committee of the Board, comprising of least of three executives. The CSR Committee should comprise of at least one independent executive. The CSR advisory group should plan and screen CSR strategies and talk about the same in the Board’s report. Board needs to endorse CSR strategy and reveal the substance in the board report and place it on the organization site.
- Stakeholders Relationship Committee:- The Act ensures all security holders notwithstanding value speculators. It requires that an organization with in excess of 1000 investors, debenture holders, store holders and other security holders whenever amid the monetary year should constitute a Stakeholders Relationship Committee.
REVIEWS ON GOVERNANCE MECHANISMS IMPACT ON CORPORATE WORLD
According to Desai (2000), corporate governance of a firm must follow certain things. There must be proper guidelines to be issued concerning with minimum capital and amendments of a number of auditors, there must be proper delegation of responsibilities among the board members of a company, there must be proper implications towards SEBI rules and regulations adoption. The other two authors have given their viewpoints concerning with few parameters of corporate governance. Dwivedi and Jain (2005) have given their focus on board meetings, board size, shareholdings of foreign and institutional investors in their study.
Around 350 Indian listed companies from the period of 1997-2001 had been taken by the authors of their research study. Tuteja (2006) has given their stress more on Board of the structure of the company. Around 100 Indian companies were studied for the research purpose concerning with structure of corporate management. Further, he concluded that chief executive officer was the higher in authorities and responsibilities under the Board of Directors team. Having followed by new rules and policies related to corporate governance, non-executive directors were higher in power in comparison to company boards.
A conventionally lot of researches have been done concerning with Corporate governance mechanisms. Narayanaswamy, R. et al, 2012, has given a brief outline in this governance concept. He has mentioned in his research about the contribution of major events to the practices of corporate governance since economic deregulations in 1991. He has provided further implications as well concerning with accounting practices to be adopted for Indian corporate governance. Due to advanced changes in the corporate world, Indian industries are now adopting new modern technologies, harnessing new innovations in their product policies in accordance with new corporate governance policies.
Generally speaking, corporate governance is an inevitable topic for companies nowadays. Investors are more aware of the governance significance on the firms’ performance. A good corporate governance builds up stakeholders’ confidence and helps them in keeping their interests safe. This concept is also an important concept for foreign investors as well. It keeps investors well versed about the various plans and policies, rules and regulations about the company. Overall we concluded here that corporate governance is the key to introducing accountability, flexibility, and transparency in decision making, and other measures of the company which not only fosters in safeguarding the stakeholder’s interest but also reflects a positive picture of the financial performance of the company. Ultimately it helps in enhancing the economic progress of the country as well. Under the companies Act, 2013, with regards to the better Corporate.
Good corporate governance goes past tenets and controls that the Government can set up. It should originate from inside, which would empower the association to set up profitable association with its inward clients and enduring business association with its outside clients. The genuine onus of accomplishing wanted levels of corporate governance lies with corporation themselves and not in outside measures.
Author Details: Jeba Mondal (Presidency University , Bangalore)
The views of the author are personal only. (if any)