Corporate Governance and Compliance – India

Corporate governance is the set of processes, customs, policies, laws and institutions that affect the way in which a corporation is directed, managed or controlled. Corporate governance also includes the relationships between the many stakeholders involved and the objectives by which the corporation is governed. The main stakeholders are shareholders, management and the board of directors. Other interested parties include employees, customers, creditors, suppliers, regulators, and the community at large.

Corporate governance has become an important both in India and globally. Stakeholder expectations are extremely high and scrutiny from regulators and investors incredibly strict. As a consequence, Indian companies are proactively implementing measures for the same. Looking ahead, one of the most important challenges for Board members is building a foundation of trust with management, the investment community, regulatory agencies and the public. The stakes are high and the margin for error is low, and as new standards emerge, one thing remains clear: the onus for adopting sound governance practices has fallen squarely on corporate directors and officers.

My favorite is one from Harvard Business School. He found that “ethically-based” companies increased their bottom line by 756 percent, versus just 1 percent for profit-first companies. My message today is that principled economic behavior is a long-term investment in the security of nations. The world cannot afford economic misconduct. Now multinational corporations everywhere to take the world to the next frontier of globalization, through principled codes of conduct that reinforce the rule of law. Not just the letter of the law, not just minimal compliance with some basic code. But instead, something that will really make a difference! Principle-based codes of conduct that respond first to the moral foundations that underpin all rights. Principle-based codes of conduct that set objective and measurable standards. Principle-based codes of conduct that use independent monitoring and require transparent communication with the public.

Essential Principles of Corporate Governance:

o Discipline in operations

o Transparency in transactions and disclosures

o Responsibility to shareholders

o Responsibility for the action of the company

or Social Responsibility

o Improve group dynamics and take advantage of individual talents

o Improve early warning mechanisms for critical risks

o Mitigate liability exposure

o Build credibility and trust with stakeholders

o Incorporate sustainability as a corporate value

What is the Satyam fiasco about?

For me, the Satyam case is a typical example of fraud that is extremely difficult to detect and prevent. The president of Satyam diligently hatched a scheme to defraud his shareholders and gain advantage for himself.

There is sufficient law to deal with this type of economic and corporate governance crime. In a global environment, the principles are important because the rules cannot cover all situations, however, there are the following observations that encourage non-compliance in India:

Businesses never take non-compliance seriously, as there is a minimal penalty for non-compliance.

Minimum penalty of a few hundred rupees

Most non-compliance offenses can be aggravated by paying the fine.

The government department has the appropriate expertise or manpower to detect non-compliance.

The prosecutor’s office also does not have an expert who specializes in this type of expertise, which is why most offenders cannot be prosecuted.

Lack of political will

Typical Indian attitude that is “chalta hai”


Strong punishment, that is, life imprisonment for offenders.

There must be a specialized investigative agency and be allowed to hire the best professionals.

More power for independent directors and they should be allowed to hire the professional to explain the company’s record/accounts.

Effective and continuous training for all employees

The whistleblowing policy will be mandatory for all companies

Principled conduct of multinational corporations is absolutely essential to sowing the seeds of stability and prosperity for all. Multinational corporations account for one third of the world’s Gross Domestic Product and two thirds of world trade. Multinationals can be a powerful influence for good, especially in countries whose governments lack a strong tradition of democracy and the rule of law. Therefore, it is no longer enough for multinational corporations to simply do what is legal. In all cases, multinational corporations must do the right thing, through their conduct, not just their words.

In a speech titled “Globalization’s Next Frontier: Principled Codes of Conduct that Enhance the Rule of Law,” Parrett told world ethics and business leaders, and representatives of non-governmental organizations (NGOs) and institutions academics that globalization and world security itself could be jeopardized unless multinational corporations engage in ethical conduct that adheres to values ​​and principles rather than simply written law.

Indian legislators feel the need to determine the merits of encouraging a principled approach (as in the case of the combined code in the UK) to compliance, where the nature, size and complexities of a business govern the compliance and disclosures. rather than a standard rules-based approach to universal compliance (as in the US). Companies in India should have the flexibility to determine those aspects that are practical to comply with and others where they can provide logical and adequate explanations for non-compliance. This will allow them to demonstrate their true intent to comply, where practical, and to make transparent disclosures in other cases.

In India, the guidelines for corporate governance are provided in clause 49 of the listing agreement and also in various sections of the Companies Act. Industry experts are of the opinion that once appointed, the performance and contributions of these directors should be objectively monitored and evaluated with peer reviews serving as a means of such evaluations. A stronger corporate governance framework is needed to prevent financial frauds like those of Satyam. There is a need to strengthen regulators and company laws to improve corporate governance, by corporate ministry. A new Companies Bill, which is pending in Parliament, would tighten regulation for auditors. The new bill seeks to revamp archaic laws to help India’s growing corporate sector adopt international best practices and make company boards and senior management more accountable.

What has to be noted is that adequate safeguards are provided in India in the form of various laws, but the stipulated penalty is comparatively low and therefore wrongdoers do not fear punishment. Only if the penalties to be imposed are made more stringent and it acts as a deterrent, can such frauds be expected to be controlled in the future. Furthermore, there is no experience of the enforcement authorities to detect and cure Economic Crimes. It is necessary to create a separate body to examine the issues and implement the laws and other provisions to reduce such crimes. There is also a lack of political willpower to curb such crimes, with politicians taking a lenient view and leaving the investigation and other vital steps in the hands of the CBI, which is not a body created to specifically deal with such white collar crimes. Unless there is sufficient reason for the scoundrels to be afraid of criminal provisions that send a chill down their spines. Such offenses will continue to occur and we will continue to think about ways to address them.

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