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CORPORATE GOVERNANCE: AN INDIAN OVERVIEW- I

It was in 1990’s when India opened its doors to the world. Since then India is the one of the largest growing economy in the world. Despite of opportunities there had been a significant rise in financial frauds which resulted Indian government to enact stringent laws. In 1998 the Confederation of Indian Industries (CII) published a desirable code of Corporate Governance (herein after referred as CG) which some companies’ adopted. In 2000 under the chairmanship of Mr. Kumar Mangalam Birla Committee set up by Securities Exchange Board of India (SEBI) introduced ‘Clause 49’ in listing agreement to promote Corporate Governance. Since then various amendments have been made. SEBI in October 2004 further introduced various amendments in the said clause. The revised Clause 49 came into the force wef 01 January 2006.

Today corporate governance is looked upon as a distinctive brand and benchmark in the profile of Corporate Excellence. In India the issue of Corporate Governance has issued lot of importance.

Meaning

Corporate Governance primarily focuses on complete transparency, integrity, and accountability of the management with an increasingly greater focus on investor protection and public intrest.

According to Sir Adrian Cadbury CG is “exercise of power in a responsible way”.

Corporate Governance is the system by which companies are directed and governed by the management in the best intrest of the stakeholders and others ensuring better management, greater transparency and timely financial reporting.

In brief CG is not just having various committees but ensuring that the suggestion given by that are transparent benefiting not only shareholders but also the stakeholders. The 3 aspect of corporate governance includes accountability, transparency, and equality of treatment for all stakeholders.

World Overview

United Kingdom

UK was the first country to adopt the CG Principles in the year 1990. The Combined Code on Corporate Governance (Revised 2008) issued by financial Reporting Council, London deals with CG issues.

United States of America

Financial scandals in many of US companies like Enron, World com, Global Crossing resulted US Congress to pass ‘Accounting Industry Reform Act-2002’ widely known as Sarbanes Oxley Act and changes in New York Stock Exchange Listing Rules.

Germany

In Germany CG is followed through a code known as Cromme Code 2002. The code was further amended in 2009.

In the next part we will discuss about features of Corporate Governance in India & Clause 49A of listing Agreement.

CORPORATE GOVERNANCE & INFOSYS

“There are those who will tell you that business and ethics cannot stand together. In the short run it might appear that companies pay a price for adhering to values while their competitors get ahead in a short time frame, but in long run people would to distinguish between the grain and chaff. Those that don’t subscribe to values will fall by the way side; those that subscribe to values will last the course and will set benchmarks”
- M. Damodaran
Former Chairman, SEBI

Corporate governance and Infoysis have some common. It is the Infosys mentor Mr. N. R Narayana Murty who was the chairman of a Committee on Corporate Governance constituted by SEBI.

Every listed company on any recognized stock exchange is required to have listing agreement with stock exchange. SEBI is implementing corporate governance through the listing agreement as given in Clause 49.

Infosys’s corporate governance policy is based on the following principles:

Satisfy the sprit of law and not just the letter of law. Corporate governance standard should go beyond the law.

Be transparent and maintain a high degree of disclosure levels. When in doubts, disclose.

Make clear distinction between personal convenience and corporate resources.

Communicate externally, in a truthful manner, about how the company is running internally.

Comply with the laws in all the countries in which the company operates.

Have a simple and transparent corporate structure driven solely by business needs.

Management is trustee of the shareholder’s capital and not the owner.