Day 68 – Q 1. Recent cases of corruption have thrown a light on weak corporate governance in India. What is Corporate governance? What factors have lead to weak corporate governance scenario in India?
1. Recent cases of corruption have thrown a light on weak corporate governance in India. What is Corporate governance? What factors have lead to weak corporate governance scenario in India?
Introduction:
Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.
Body:
- The concept of corporate governance was given first by Cadbury committee in England
- Recent corruption cases like Chanda Kochar- Videocon case, IL&FS crisis, PNB fraud, Satyam scam have thrown a light on weak corporate governance in India.
Factors responsible for weak corporate governance:
- Nepotism in the management- It is common for friends and family of promoters (a uniquely Indian term for founders and controlling shareholders) and management to be appointed as board members.
- Performance Evaluation of Directors – Although performance evaluation of directors has been part of the existing legal framework in India, Evaluation is always a sensitive subject and public disclosures may run counter-productive.
- True Independence of Directors – Independent directors’ appointment is biggest concern in the corporate governance.
- The independence of promoter appointed independent directors is questionable as it is unlikely that they will stand-up for minority interests against the promoter.
- Removal of Independent Directors – In India there are instances of independent directors not siding with promoter decisions have not been taken well and they were removed from their position by promoters.
- Accountability to Stakeholders – Various general duties have been imposed on all directors, directors including independent directors have been complacent due to lack of enforcement action.
- Executive Compensation – Executive compensation is a contentious issue especially when subject to shareholder accountability.
- Risk Management – Indian companies certainly don’t have a clear idea about the risk management and predictions.
- Regulations- Either a stringent legal and regulatory regime that is difficult to follow or weak enforcement of laws and regulations.
Conclusion:
India has adopted international best practices, but their implementation, outside of their natural context, has remained problematic. It is high time that the recommendations of various committees like Uday Kotak Panel, Narayana Murthy committee and Kumarmangalam Birla committee be followed.
Best answer: Shri
