Indian Corporate Sector Has to Reform, Perform & Transform to Benefit Country & People

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SEBI defined corporate governance as ‘acceptance by management of inalienable rights of shareholders as true owners of corporation & of their own role as trustees on behalf of shareholders’ .

Indian Corporate Sector
  • Indian corporates need to reform, perform & transform to open new vistas of global opportunities benefitting country & its people.
  • Corporate Governance is one key element in improving economic efficiency & growth as well as enhancing investor՚s confidence.
  • From Kautilya of ancient Mauryan Kingdom to modern corporate empires, issues of governance have always engaged attention of rulers & other stakeholders.
  • Stakeholders of corporate governance need to draw right lessons for transforming our corporate governance norms at par w/best in world.
  • Adherence to good corporate governance practices will help companies improve confidence of domestic investors, reduce cost of capital, enable good functioning of financial markets & ultimately induce more stable sources of finance.

Constituents and Aspects of Corporate Governance

  • Shareholders, Board of Directors & managements are key constituents of corporate governance.
  • 3 major aspects of corporate governance are accountability, transparency & equal treatment of all shareholders.

Private Sector Economy

  • Private Sector՚s contribution to growth of Indian economy has become fastest growing economy & well poised to achieve GDP growth rate of 7.3 % in 2018 - 19.
  • World Bank said economic activity began to stabilize since August last year & expected to clock growth rate of 6.7 % in 2018.
  • Corporate Sectors has potential to reach US $ 1 trillion by 2025, w/India ′ s turning into attractive destination for foreign investments & govt. ′ s push to manufacturing sector thru ′ Make in India ′ programme.

Increasing Agri Income

  • Govt. has taken many initiatives w/view to doubling income of farmers by 2022 w/over 58 % of rural households dependent on agriculture.
  • Biggest challenge is to bridge urban-rural divide & corporate sector should play bigger role in closing this gap, particularly in education, health & skill development sectors.


  • India՚s corporate governance standards & laws are based on Anglo-Saxon Model & taking queue from Sarbanes Oxley Act of USA, even as operational contexts are vastly diff. from one another.
  • Corporate governance norms kept evolving since Confederation of Indian industry (CII) 1stcame out w/Desirable Corporate Governance: A Code in 1998.
  • Incorporation of Clause 49 of Listing Agreement of Stock Exchanges by SEBI based on recommendations of Birla Committee is considered landmark reform in corporate governance.
  • In USA, shareholding pattern is well dispersed. Corporate sector is subset of larger socio-economic ecosystem.

Issues in Corporate Governance

  • India՚s distinctive corporate governance issues originate from high % of family owned companies.
  • In our country more than 1 ⁄ 3rd of companies are controlled by one or more family members in concert w/one another.
  • This is important corporate governance issue to be resolved in such way that family funds & corporate funds are not seen as same as was revealed in some cases recently.
  • Retail investors are more concerned about material financial gains on their shareholdings instead seeking to be active participants in influencing affairs of company.
  • There is issue of majority & minority shareholders w/former controlling companies & not always guided by interests & concerns of minority shareholders.
  • During listing under Clause 49 is said to be major governance reform, ease w/which Independent Directors can be removed by ordinary resolution is subverting aims of provision.
  • Other corporate governance issues that need to be addressed include putting in place effective succession planning, implication of cross holdings, ensuring risk management strategies & Board of Directors acting as agents of shareholders instead of discharging their duties as company՚s fiduciaries.

CSR Norms

  • Corporate Social Responsibility (CSR) norm is laudable initiative.
  • It has responsibility of corporations towards larger society.

Sweet Philosophy for Higher Corporate Governance

Vice President Venkaiah Naidu has suggest Sweet Philosophy for higher corporate governance. It means:

  • Segregation of ownership and control
  • Wealth creation of which profits will be a by product
  • Efficiency of decision-making and resource use
  • Ethical and environmental commitments
  • Transparency through accountability

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