SSRN Id1958031

DRAFT-An overview of Corporate Governance Reforms in India
2011
An overview of Corporate Governance Reforms in India.

1. Evolution of Corporate Governance reforms in India: A chronological perspective
At the time of Independence in 1947 India had functioning stock markets, an active manufacturing sector, a fairly developed banking sector and also comparatively well developed, British-derived convention of corporate governance. However, from 1947 through 1991, the Indian government pursued markedly socialist policies when the state nationalized most banks and became the principal provider of both debt and equity capital for private firms. The government agencies that provided capital to private firms were evaluated based on the amount of capital invested rather than on their return on investment. Competition, especially foreign competition, was suppressed. Private providers of debt and equity capital faced serious obstacles in exercising oversight over managers due to long delays in judicial proceedings and difficulty in enforcing claims in bankruptcy. Public equity offerings could be made only at government-set prices. It was natural that in such an environment corporate governance deteriorated as, historically, there had been little emphasis on corporate governance mechanisms in India. Public companies in India were only required to comply with limited governance and disclosure standards enumerated in the Companies Act of 1956, the Listing Agreement, and the accounting standards set forth by the Institute of Chartered Accountants of India (ICAI) and prior to 1991, Indias corporate governance regime was particularly weak. Based on over 170 interviews with a very wide range of business representatives, including CEOs, nonexecutives, fund managers and audit firms, Banaji and Mody 1 highlighted the ineffectiveness of boards in Indian companies, the lack of transparency surrounding transactions within business groups, the divergence of Indian accounting practices from international standards, and the changing role of, and controversy surrounding, institutional shareholders. They found that respondents concurred on the failure of the board as an institution of governance in Indian companies, despite the large presence of non-executives and argued for more regulatory intervention with a much stronger definition of independence for directors. Faced with a fiscal crisis in 1991, the Indian Government responded by enacting a series of reforms aimed at general economic liberalization. The Securities and Exchange Board of India (SEBI) -- India's
1
Banaji,Jairus & Mody, Gautam( 2001); Corporate Governance & the Indian Private Sector, QEH working paper no 73 available at <http://www5.qeh.ox.ac.uk/RePEc/qeh/qehwps/73.pdf>
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securities market regulator was formed in 1992 and by the mid-1990s, the Indian economy was growing steadily, and Indian firms began to seek equity capital to finance expansion into the market spaces created by liberalization and the growth of outsourcing. Ever since its financial liberalization began in 1991, India has undergone significant Corporate Governance reforms The need for capital, amongst other things, led to Corporate Governance reform and many major Corporate Governance initiatives have been launched in India since the mid-1990s; most of these initiatives were focused on improving the governance climate in corporate India which was far from satisfactory. The first major initiative was by the Confederation of Indian Industry (CII), Indias largest industry and business association, which came up with the first voluntary code of corporate governance in 1998. More than a year before the onset of the East Asian crisis, CII had set up a committee to examine corporate governance issues, and recommend a voluntary code of best practices. The committee was driven by the conviction that good corporate governance was essential for Indian companies to access domestic as well as global capital at competitive rates. Drawing heavily from the Anglo-Saxon Model of Corporate Governance, CII drew up a voluntary Corporate Governance Code. The first draft of the code was prepared by April 1997, and the final document, Desirable Corporate Governance: A Code2, was publicly released in April 1998. The code was voluntary, contained detailed provisions, and focused on listed companies. The CII Code was a significant step forward for a country not then known for robust corporate governance standards. However, the CII Codes voluntary nature did not result in a broad overhaul of governance norms and practices by Indian companies. Although the CII Code was welcomed with much fanfare and even adopted by a few progressive companies, it was felt that under Indian conditions a statutory rather than a voluntary code would be far more purposive and meaningful, at least in respect of essential features of corporate governance3. Consequently, the second major corporate governance initiative in the country was undertaken by SEBI. In early 1999, it set up a committee under Kumar Mangalam Birla to promote and raise the standards of good corporate governance. The Birla Committee specifically placed an emphasis on independent directors in discussing board recommendations and made specific recommendations
2
The first formal initiative to develop and promote a corporate governance code for Indian corporate was taken by the Confederation of Indian Industry (CII) who, after detailed consultation among its members, released in April 1998 the final report entitled Desirable Corporate Governance: A Code( CII Code); available at <http://www.acgaasia.org/public/files/CII_code_1998.pdf>. 3 From the preface to the Report of the Committee Appointed by the SEBI on Corporate Governance under the Chairmanship of Shri Kumar Mangalam Birla (Birla Committee Report) available at <http://www.sebi.gov.in/commreport/corpgovhtml>.
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regarding board representation and independence. The Committee also recognized the importance of audit committees and made many specific recommendations regarding the function and constitution of board audit committees. Furthermore, the Committee made several recommendations regarding disclosure and transparency issues, in particular with respect to information to be provided to shareholders. Among other recommendations, the Birla Committee stated that a companys annual report to shareholders should contain a Management Discussion and Analysis (MD&A) section, modeled after annual reports issued by companies in the United States, and that companies should transmit certain information, such as quarterly reports and analyst presentations, to shareholders. Furthermore, with respect to
shareholder complaints, the Committee recommended that a board committee, chaired by a nonexecutive director, be formed to address grievances.
In early 2000, the SEBI board had accepted and ratified key recommendations of this committee, and these were incorporated into Clause 49 of the Listing Agreement of the Stock Exchanges. The Naresh Chandra committee4 was appointed in August 2002 by the Department of Company Affairs (DCA) under the Ministry of Finance and Company Affairs5 to examine various corporate governance issues. The Committee submitted its report in December 2002. It made recommendations in two key aspects of corporate governance: financial and non-financial disclosures and independent auditing and board oversight of management and made a series of recommendations regarding, among other matters, the grounds for disqualifying auditors from assignments, the type of non-audit services that auditors should be prohibited from performing, and the need for compulsory rotation of audit partners The fourth initiative on corporate governance in India is in the form of the recommendations of the Narayana Murthy committee6. The committee was set up by SEBI, under the chairmanship of Mr. N. R.
4
Following the corporate scandals of the US, the Department of Company Affairs (DCA), Government of India set up the Naresh Chandra Committee to examine various corporate governance issues; the report of the Committee is available at<http://www.nfcgindia.org/executive_summary.htm>. 5 The Department of Company Affairs under the Ministry of Finance was designated as a separate Ministry in 2004 to function under Minister of State with Independent Charge. The Ministry of Corporate Affairs (MCA) is primarily concerned with the administration of The Companies Act, 1956, other allied Acts and rules & regulations framed thereunder mainly for regulating the functioning of the corporate sector in accordance with law. 6 Securities and Exchange Board of India, Report of the SEBI Committee on Corporate Governance (Feb. 2003), available at http://www.sebi.gov.in/commreport/corpgov.pdf. (Narayana Murthy Committee Report). The need for a review of Clause 49 was in part triggered by events that occurred in the U.S. such as the collapse of Enron and WorldCom; see, Narayana Murthy Committee Report, at para. 1.6.1; Recent events worldwide, primarily in the United States, have renewed the emphasis on corporate governance. These events have highlighted the need for ethical governance and management, and for the need to look beyond mere systems and procedures. This will ensure compliance with corporate governance codes, in substance and not merely in form.
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Narayana Murthy, to review Clause 49, and suggest measures to improve corporate governance standards. Some of the major recommendations of the committee primarily related to audit committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, codes of conduct and financial disclosures. The Murthy Committee, like the Birla Committee, described the international developments as a factor that motivated reform and stated that recent failures of corporate governance, particularly in the United States, combined with the observations of Indias stock exchanges that compliance with Clause 49 up to that point had been uneven, recommended further reform. Like the Birla Committee, the Murthy Committee examined a range of corporate governance issues relating to corporate boards and audit committees, as well as disclosure to shareholders. The Murthy Committee focused heavily on the role and structure of corporate boards and strengthened the director independence definition in the then-existing Clause 49, particularly to address the role of insiders on Indian boards. For example, while the new definition actually encompassed the old, it also indicated, among other things, that the director cannot be related to promoters or management at the board level, or one below the board; an executive of the company in the preceding three years; be a supplier, service provider, or customer of the company; or a shareholder owning two percent or more of the company. The Murthy Committee also recommended that nominee directors (i.e., directors nominated by institutions, particularly financial institutions, with relationships with the company) be excluded from the definition of independent director, and be subject to the same responsibilities and liabilities applicable to any other director. In order to improve the function of boards, the Murthy Committee recommended that they should also receive training in the companys business model and quarterly reports on business risk and risk management strategies. The Murthy Committee also paid particular attention to the role and responsibilities of audit committees. It recommended that audit committees be composed of financially literate members, with at least one member having accounting or related financial management expertise. It provided a greater role for the audit committee as well. For example, the Murthy Committee recommendations promoted disclosure and approval of related party transactions by the audit committee. In addition, the committee stated that whistle-blowers must have access to the audit committee without first having to inform their supervisors, and that companies should annually affirm that they have not denied access to the audit committee or unfairly treated whistle-blowers generally. Although SEBI initially implemented Clause 49 in 2000 in response to the Birla Committees recommendations, Clause 49 reached its current form in response to the Murthy Committees recommendations. The Murthy Committees report was released on February 8, 2003. The intention
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was to incorporate its main recommendations into SEBIs Listing Agreement and there were many changes to Clause 49 as a result of the Murthy Report covering the areas of governance requirements with respect to corporate boards, audit committees, shareholder disclosure and CEO/CFO certification of internal controls which led transformation of the governance and disclosure standards of Indian public companies. In its present form, Clause 497 called Corporate Governance contains eight sections dealing with the Board of Directors, Audit Committee, Remuneration of Directors, Board Procedure, Management, Shareholders, Report on Corporate Governance, and Compliance respectively. The principal elements of Clause 49 include: Companies should have 50% outside (independent) directors if the CEO and Chairman are the same Person, and 30% outside directors if the firm has a non executive chairman, independence being defined with reference to the absence of any material, pecuniary relationship or transactions with the company, other than the directors remuneration, which in the judgment of the board may affect a directors independence of judgment. Companies shall have a qualified and independent audit committee with a majority of independent directors all with experience in financial matters. The CEO and CFO should certify the Companys financial statements and the adequacy of its internal controls; and Companies should provide disclosure similar to that required for firms cross-listed in Europe.
Firms that do not comply with Clause 49 can be de-listed and face financial penalties. In light of the Birla and Murthy Committees clear consideration of Anglo-American standards of governance; it is not surprising that Indias corporate governance reform effort should contain similar provisions to reform efforts outside of India that adopted such models. In its final report, the Birla Committee noted its dual reliance on international experiencesboth as an impetus for reform following high-profile financial reporting failures . . . in the developed economies, and as a model reform. Significantly, the Birla Committee singled out U.S. and U.K. corporate governance reports and codes, such as the Report of the Cadbury Committee, the Combined Code of the London Stock Exchange, and the Blue Ribbon Committee on Corporate Governance in the United States. The
7
Clause 49 of the Listing Agreement covers contains the guidelines on Corporate Governance for all Listed Companies and applies to all Listed Companies (or those that are seeking listing), except for very small companies (being those that have a paid-up capital of less than Rs. 30 million and net worth of less than Rs. 250 million throughout their history). While several requirements of Clause 49 are mandatory in nature, there are certain requirements (such as remuneration committee, training of board members and whistle blower policy) that are merely recommendatory in nature. See Securities and Exchange Board of India circular no. SEBI/CFD/DIL/CG/1/2004/12/10 dated Oct. 29, 2004, available at < http://www.sebi.gov.in/circulars/2004/cfdcir0104.pdf>.
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Committee even directly sought out the input of Sir Adrian Cadbury, chair of the Cadbury Committee commissioned by the London Stock Exchange, in addition to Indian business leaders. The Committee itself also included a representative of a U.S. consulting firm and a professor from the London Business School8. The current version of Clause 49 also reflects the report of the Murthy Committee. While this report did not explicitly cite to Anglo-American models of governance, it was clearly a reaction to events in the United States, particularly given the timing of the report, which followed just a few months after enactment of the Sarbanes-Oxley Act. Even though the Murthy Committee insisted that corporate governance frameworks are not exportable, and that India must find a model suited to its particular needs, Clause 49 in its final form nonetheless echoes reforms in the United States and the United Kingdom.9 There are striking similarities between Clause 49 and the leading Anglo-American corporate governance standards, in particular the Cadbury Report, the OECD Principles of Corporate Governance, and Sarbanes-Oxley. The similarities (although not a complete overlap) are particularly significant with respect to provisions applicable to the board of directors, disclosure to shareholders, and internal controls. While certain details differ, Clause 49 reflects a set of rules dominated by concerns about the conduct of boards and protection of shareholder rights. Indias corporate governance reform efforts did not cease after adoption of Clause 49. In parallel, the review and redrafting of the Companies Act, 1956 was taken up by the Ministry of Corporate Affairs (MCA) on the basis of a detailed consultative process and the Government constituted an Expert Committee on Company Law under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise on new Companies Bill. The Irani Committee10 was charged with evaluating the Indian Companies Act, with a focus on combining internationally accepted best practices in corporate governance
8
The Kumaramangalam Birla Committee included, as its members, Mr Rohit Bhagat, Country Head of Boston Consulting Group in India and Dr Sumantra Ghoshal, Professor of Strategic Management at the London Business School. 9 Varottil Umakanth; A Cautionary Tale of the Transplant effect on Indian Corporate Governance; National Law School of India Review 21(1) Nat. L. Sch. Ind. Rev. 1 (2009)]. While both the CII Code as well as the Kumar Mangalam Birla Committee Report expressly cautioned against borrowing concepts from other regimes, keeping in view the special circumstances that are applicable to the Indian corporate sector, nonetheless clear similarities do exist. However, due regard must be had to the fact that the recommendations of the various committees that advised SEBI on these issue would have undoubtedly been influenced by developments that were occurring throughout the world (but primarily in the U.S. and U.K.) during the period between 1998 and 2004 when the initial round of corporate governance reforms in India were underway. These include the sustained discussion surrounding the Cadbury Committee Report in the U.K. and the enactment of SOX in the U.S. Furthermore, as one commentator has observed, the similarities [of Indian corporate governance norms] with Sarbanes Oxley and other governance reforms around the globe should be obvious. George S. Geis, Can Independent Block holding Play Much of a Role in Indian Corporate Governance?, 3 Corp. Governance Law Rev. 283, 284 (2007). 10 Irani Jamshed J., Report of the Expert Committee to advise the Government on the new Company Law (2005), available at< http://www.primedirectors.com/pdf/ JJ%20Irani%20Report-MCA.pdf> ( Irani Report).
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with attention to the particular needs of the growing Indian economy. The Committee submitted its report to the Government on 31st May 2005. Unlike the two SEBI-appointed committees, the Irani Committee recognized that requirements of special or small companies be accounted for through a series of exemptions, such that new small businesses are not burdened with the same level of compliance cost as larger, established corporations. In keeping with this theme, the Irani Committee recommended a wider set of classifications for companies than just the public or private labels, as the committee believed that the binary system of classification was too narrow to account for the varying needs of companies with different sizes and resources. The Committees goal was to expand the system of classifications and exemptions to tailor compliance costs to needs, while maintaining sufficient regulatory stringency for large listed companies that access public capital. There were significant differences between the proposals contained in the Irani report and the requirements of Clause 49, particularly with respect to the board of directors. First, the requirements for independent directors were different in several respects. Clause 49 required that no independent director should have been an executive of the company in the preceding three financial years, while the Irani Committees recommendations weaken that requirement so that independent directors, along with their relatives, should not have been an employee of the company in any capacity only in the past single year. Similarly, while clause 49 prohibited an independent director from having served in any executive capacity in a statutory or internal auditing firm that has a material association with the company for the past three years, the Irani report recommended the same requirement for a period of one year only for independent directors and their relatives. The Irani Committee also recommended that a third of company directors be independent. In addition, whereas the Irani Committee recommended that no age limit be prescribed for independent directors, and remained silent on the issue of term limits for directors, the Murthy committee felt that both were necessary. The proposed Companies Bill, 2008 sought to enable the corporate sector in India to operate in a regulatory environment of best international practices that fosters entrepreneurship, investment. However, due to dissolution of the Fourteenth Lok Sabha, the Companies Bill, 2008 lapsed. Since the provisions of the Companies Bill, 2008, were broadly considered to be suitable for addressing various contemporary issues relating to corporate governance, including those which were recently noticed during the investigation into the affairs of some of the companies, the
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Government decided to re-introduce the Companies Bill, 2008 as the Companies Bill, 2009 11, without any change except for the Bill year and the Republic year. However, passage of the bill has been deferred, and it is now expected that the Companies Bill will be further amended as a result of an August 2010 report by the Standing Committee on Finance of Parliament, which examined the 2009 bill in great detail. According to the Standing Committees report12, submitted to the Indian Parliament, the MCA has accepted that some of the matters included in the 2009 Voluntary Guidelines, should be included in a revised bill. These include the separation of the roles of chairman and chief executive; the attributes and tenure of independent directors; board evaluation; the appointment of auditors; and the rotation of audit partners and firms. In the meanwhile in January 2009, the Indian corporate community was rocked by a massive accounting scandal involving Satyam Computer Services (Satyam), one of Indias largest information technology companies. The Satyam scandal13 prompted quick action by the Indian government, including the arrest of several Satyam insiders and auditors, investigations by the MCA and SEBI, and substitution of the companys directors with government nominees. Satyams failures were many and systemicfrom a weak auditing process to ineffective board oversight to a leader intent on committing fraud. For corporate leaders, regulators, and politicians in India, as well as for foreign investors, this Enron moment demanded a reassessment of the countrys progress in corporate governance. As a consequence, Indias ranking in the CLSA Corporate Governance Watch 2010 slid from third to seventh in Asia. The CLSA report stated that India has failed to adequately address key local governance challenges such as the accountability of promoters (controlling shareholders), the reputation of related-party transactions, and the governance of the audit profession.14 Similar to their role in the first phase of corporate governance reforms, in the post-Satyam period, Indian corporate groups have once again advocated for reconsideration of Indias corporate governance rules and advocated for reforms. Shortly after news of the scandal broke, the CII began examining the corporate governance issues arising out of the Satyam scandal and in late 2009, the CII
11
The Companies Bill, 2009 was introduced in August 2009 in the Lok Sabha; available <http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Bill_2009_24Aug2009.pdf>.
12
at
The Standing Committee of the Parliament ( Standing Committee) Bill submitted its report to the Indian Parliament in August 2010; available at http://www.nfcgindia.org/pdf/21_Report_Companies_Bill-2009.pdf 13 At the end of 2008, India experienced a massive corporate governance scandal involving Satyam Computer Services (Satyam), one of Indias largest technology companies. The Satyam scandal has been described as Indias Enron. Indias Enron, ECONOMIST, Jan. 8, 2009,<http://www.economist.com/business/displaystory.cfm?story_id=12898777>. The companys founder and chairman, B. Ramalinga Raju, confessed to a $1.47 billion fraud on its balance sheet, which he and his brother, Satyams Managing Director, had disguised from the companys board, senior managers and auditors for several years 14 CLSA (September 2010). Corporate Governance Watch 2010: 65.
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task force put out recommendations on corporate governance reform15. In his foreword to the Task Force Report, Mr Venu Srinivasan, President of CII emphasized the unique nature of the Satyam scandal, noting that Satyam is a one-off incident -especially considering the size of the malfeasance. The overwhelming majority of corporate India is well run, well regulated and does business in a sound and legal manner. Despite its belief that most Indian corporations are well-run and comply with good corporate governance, the CII task force put forth important recommendations that attempted to strike a balance between over-regulation and promotion of strong corporate governance norms by recommending a series of voluntary reforms. In the preamble of this report, Mr Srinivasan reinforced this message: Large, highly visible and publicized corporate scandals often provoke legislative and regulatory actions. CII advocates caution against overregulation. It needs to be recognized that while the super-structure of corporate governance is built on laws and regulations, these cannot be anything more than a basic framework. Much of best-in-class corporate governance is voluntary - of companies taking conscious decisions of going beyond the mere letter of law. The spirit of this Task Force Report is to encourage better practices through voluntary adoption - based on a firm conviction that good corporate governance not only comes from within but also generates significantly greater reputational and stakeholder value when perceived to go beyond the rubric of law. Therefore, it is only natural that this report should focus on recommendations, which are being placed before corporate India for adopting voluntarily. It is the belief of CII that Indian Industry would respond spontaneously and help set standards, which would define global benchmarks in the medium term. In addition to the CII, a number of other corporate groups have joined the corporate governance dialogue. The National Association of Software and Services Companies (NASSCOM) also formed a Corporate Governance and Ethics Committee chaired by Mr. N. R. Narayana Murthy, one of the founders of Infosys and a leading figure in Indian corporate governance reforms. The Committee issued its recommendations in mid-2010, focusing on stakeholders in the company. The report emphasized recommendations relating to the audit committee and a whistleblower policy. The report also addressed improving shareholder rights. Additionally, the Institute of Company Secretaries of India (ICSI) has also put forth a series of corporate governance recommendations. SEBIs response to the Satyam scandal has been somewhat muted when compared to its earlier lead role in Indian corporate governance reforms in the prior years. In 2009, SEBI made several announcements regarding disclosure and accounting reforms that could result in changes to the Listing Agreement and in September 2009, the SEBI Committee on Disclosure and Accounting Standards published a discussion paper seeking public comment on several governance issues including the following;
15
The CII Task Force on Voluntary Governance was headed by Shri Naresh Chandra and submitted its report in November 2009; available at http://www.mca.gov.in/Ministry/latestnews/Draft_Report_NareshChandra_CII.pdf
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Appointment of the chief financial officer (CFO) by the audit committee after assessing the qualifications, experience and background of the candidate; Rotation of audit partners every five years; Voluntary adoption of International Financial Reporting Standards (IFRS); Interim disclosure of balance sheets (audited figures of major heads) on a half-yearly basis; and Streamlining of timelines for submission of various financial statements by listed entities as required under the Listing Agreement.
In early 201016, SEBI amended the Listing Agreement to add provisions related to the appointment of the CFO by the audit committee and some other matters related to financial disclosures. However, key proposals such as rotation of audit partners were not included in the amendment of the Listing Agreement. Inspired by industry recommendations, including the influential CII recommendations, in late 2009 the MCA released a set of voluntary guidelines for corporate governance. These Voluntary Guidelines17 address a myriad of corporate governance matters including:
Independence of the boards of directors; Responsibilities of the board, the audit committee, auditors, secretarial audits; and Mechanisms to encourage and protect whistle blowing.
Important provisions include: Issuance of a formal appointment letter to directors. Separation of the office of chairman and the CEO. Institution of a nomination committee for selection of directors. Limiting the number of companies in which an individual can become a director. Tenure and remuneration of directors. Training of directors. Performance evaluation of directors. Additional provisions for statutory auditors.
In his foreword to the voluntary guidelines, the Minister of State for Corporate Affairs, Salman Khurshid, explained the rationale of these voluntary guidelines18, The Ministry of Corporate Affairs has been working towards strengthening of the corporate governance framework through a two pronged strategy. Some aspects which needed to be incorporated in the law have been included in the Companies Bill, 2009 now
16
SEBI issued an amendment modifying some of the Listing conditions through a circular issued on April 5,2010; available at http://www.nseindia.com/content/equities/eq_sebi_circ_05042010.pdf 17 The Ministry of Corporate Affairs issued the Voluntary Corporate Governance guidelines in December 2009; available at http://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_Guidelines_2009_24dec2009.pdf 18 Id.
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under examination by Parliament. However, keeping in view the objective of encouraging the use of better practices through voluntary adoption, the Ministry has decided to draft a set of voluntary guidelines which not only serve as a benchmark for the corporate sector but also help them in achieving the highest standard of corporate governance. As we receive feedback from different quarters and gain experience from their adoption, the guidelines can be modified progressively. The MCA also indicated that the guidelines are a first step and that the option remains open to perhaps move to something more mandatory. In fact, certain voluntary aspects of the guidelines, such as the separation of the office of chairman and CEO, have now been recommended for enactment in the proposed amendment to the Companies Bill pending in Parliament. However, subsequent to the introduction of the Companies Bill, 2009 in the Lok Sabha, the Central Government received several suggestions for amendments in the said Bill from the various stakeholders and the Parliamentary Standing Committee on Finance who also made numerous recommendations in its report. The Central Government accepted, in general, the recommendations of the Standing Committee and also considered the suggestions received by it from various stakeholders and in view of the large number of amendments suggested to the Companies Bill, 2009, arising from the recommendations of the Parliamentary Standing Committee on Finance and suggestions of the stakeholders, decided to withdraw the Companies Bill, 2009 and introduce a fresh Bill incorporating the recommendations of Standing Committee and suggestions of the stakeholders. The revised Bill, namely, the Companies Bill, 201119 was introduced in the Lok Sabha on 14th December 2011; however the same was withdrawn by the Government on 22 nd December and sent back for consideration by the Standing Committee on Finance 20. Despite the seeming setback, the Companies Bill, 2011 is unlikely to face major obstacles or delays and is expected to be presented in Parliament in the forthcoming budget session21. The Companies Bill, 2011 incorporates several significant provisions for improving corporate governance in Indian companies; for instance it has proposed, for the first time in Company Law, the concept of an Independent Director. All listed companies are required to appoint independent directors with at least one-third of the Board of such companies comprising of independent directors. The Independent directors shall abide by a code provided in the Bill and hold office up to two consecutive terms with each term being up to five consecutive years. An independent director would be eligible for appointment in same company after cooling period of three years. Nominee director
19 20
Available at http://www.mca.gov.in/. As reported in http://articles.economictimes.indiatimes.com/2011-12-22/news/30546669_1_companies-billdevelopment-authority-bill-bjp-leaders, the opposition BJP leaders argued that since the government had consulted other stakeholders after the standing committee had given its report on the Companies Bill in August 2010, it should be sent back to the committee again. 21 Id.
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appointed by any institution, or in pursuance of any agreement, or appointed by any Government to represent its shareholding shall not be deemed to be an independent director and only an independent director can be appointed as alternate director to an independent director The new Bill requires that all resolutions in a meeting convened with a shorter notice should be ratified by at least one independent director which gives them an element of veto power. Various other clauses such as those on directors responsibility statements, statement of social responsibilities, and the directors responsibilities over financial controls, fraud, etc, will create a more transparent system through better disclosures. The new Bill also proposes that any undue gain made by a director by abusing his position will be disgorged and returned together with monetary fines. Other provisions that would lead to better corporate governance include closer regulation and monitoring of related-party transactions, consolidation of the accounts of all companies within the group, self-declaration of interests by directors along with disclosures of loans, investments and guarantees given for the businesses of subsidiary and associate companies. For the first time a provision has been made for class action suits and it is provided that specified number of members or specified number of depositors may file an application before the Tribunal on behalf of the members and depositors, if they are of the opinion that the management or control of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or creditors. The order passed by the Tribunal would be binding on the company and all its members. The enhanced investor protection framework, proposed in the Bill, will empower small shareholders who can restrain management from actions that they believe are detrimental to their interests or provide an option of exiting the company when they do not concur with proposals of the majority shareholders. The new Companies Bill, 2011 proposes structural and fundamental changes in the way companies would be governed in India and incorporates various lessons that have been learnt from the corporate scams of the recent years that highlighted the role and importance of good governance in organizations. A comprehensive study by Chakrabarti, Megginson, and Yadav 22 has traced the evolution of the Indian Corporate Governance system and examined how the system has both supported and held back Indias ascent to the top ranks of the worlds economies. They found that while on paper the framework of the countrys legal system provides some of the best investor protection in the world, enforcement is a major problem with slow, over-burdened courts and significant corruption. Furthermore, ownership remained concentrated and family business groups continue to be the
22
Chakrabarti, Rajesh, Yadav, Pradeep K. and Megginson, William L., Corporate Governance in India. Journal of Applied Corporate Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1012222
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dominant business model. However, Chakrabarti et al found that Corporate Governance in India did not compare unfavorably with any of the other major emerging economies: Brazil, China and Russia. Importantly, they found that the Corporate Governance landscape in the country has been changing fast over the past decade, particularly with the enactment of Sarbanes-Oxley type measures and legal changes to improve the enforceability of creditors rights. If this trend is maintained, they concluded that India should have the quality of corporate governance necessary to sustain its impressive current growth rates. A significant feature of the Corporate Governance reforms in India has been its voluntary nature and the active role played by public listed companies in improving Governance standards in India. CIIa non-government, not-for-profit, industry-led and industry-managed organization dominated by large public firmshas played an active role in the development of Indias corporate governance norms. The CII Code was heavily influenced by corporate governance standards found outside of India. Even though the CII Code initially notes that one system of corporate governance is not unambiguously better than others [;] . . . [therefore, it could not] design a code of corporate governance for Indian companies by mechanically importing one form or another23, nonetheless, it adopted at the outset the Anglo-American systems focus on shareholders and directors.
Another important aspect of corporate governance reforms in India has been the fact that the form in which corporate governance norms have been introduced in the Indian context has changed over time. Under the aegis of CII they were introduced as a voluntary matter to be adopted by companies, however, soon thereafter, they acquired mandatory status through Clause 49 of the Listing Agreement, as all companies (of a certain size) listed on stock exchanges were required to comply with these norms. Since then, Clause 49 has constituted the fulcrum of the corporate governance efforts in India, spearheaded by SEBI. More recently, however, there has been an effort to consolidate corporate governance norms (or at least some of them) into the Companies Act, 1956. Towards that end, the Companies Bill, 2009 does contain several aspects of corporate governance such as independent directors and audit committee that have hitherto been the mainstay of Clause 49. This represents a trend towards legislating on corporate governance rather than leaving it to the domain of the Listing Agreement. It also signifies the shift in corporate governance administration from SEBI, which oversees the implementation of Clause 49, towards the MCA, which administers the Companies Act.
23
CII Code, Supra. Refer note 2.
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In the above backdrop, the promulgation of the Voluntary Guidelines by the MCA sets two significant trends24. First, although the corporate governance efforts have been spearheaded by SEBI over the last decade, the more recent steps have been taken by the MCA. Apart from certain reforms pertaining to audit matters, SEBI has not taken any significant measures to reform corporate governance in the aftermath of the recent governance scandals. On the contrary, it is the MCA that has taken regulatory measures in the light of recommendations received from industrial and professional associations and also took the lead in settling the issues that rose as an aftermath of the Satyam scandal. Second, although the corporate governance efforts in India began on a voluntary basis, they soon acquired mandatory status through the adoption of Clause 49, which was further reinforced by the introduction of stringent penalties for violation of the norms. However the recently introduced Companies Bill, 2011 marks a reversal of the earlier approach, whereby there has been a preference to revert to a mandatory approach, as opposed to a more voluntary approach that was being encouraged with the notification of the voluntary corporate governance guidelines. In that sense, the corporate governance norms in India appear to have completed two full cycles of oscillating between the voluntary and the mandatory approaches.
2. Regulatory Framework for Corporate Governance in India and challenges in Enforcement.

Public companies in India have faced a fragmented regulatory structure. The Companies Act is administered by the Ministry of Corporate Affairs (MCA) and is currently enforced by the Company Law Board (CLB). The MCA, SEBI, and the stock exchanges share jurisdiction over listed companies, with the MCA being the primary government body charged with administering the Companies Act of 1956, while SEBI has served as the securities market regulator since 1992. As a part of Indias economic liberalization and the move toward further development of Indias capital markets, the central government established regulatory control over the stock markets through the formation of the SEBI. SEBI, which was originally established in 1988 as an advisory body, was granted authority to regulate the securities market under the Securities and Exchange
24
See Varrotil, Umakanth; Indias Corporate Governance Voluntary Guidelines2009: Rhetoric or reality? (2010) available at: http://ssrn.com/abstract=163482,1 for a detailed evaluation of the substance of the voluntary guidelines and whether a voluntary approach would deliver results in the Indian context. Also see. Afsharipour,Afra: A Brief Overview of Corporate Governance Reforms in India (December 2010), available at www.conferenceboard.org, for an overview and assessment of corporate governance reforms in India.
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Board of India Act of 1992 (SEBI Act)25. Through the passage of this Act, the Parliament established SEBI as an independent statutory authority, but required it to submit annual reports to the legislature. SEBI was envisioned to serve as a market oriented independent entity to regulate the securities market akin to the role of the Securities and Exchange Commission (SEC) in the United States In fact, the stated purpose of the agency is to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market. The realm of SEBIs statutory authority has also been the subject of heated debate and indeed some26 have raised doubts on whether SEBI make regulations in respect of matters that rightfully fall within the jurisdiction of the Department of Company Affairs. Taking a view that the original and revised versions of Clause 49 have been issued by SEBI in exercise of power conferred by Section 11(1) of the SEBI Act, 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1992, which reads as:' Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market, by such measures as it thinks fit,' they have taken a view that the power conferred to SEBI can only be exercised as a limited direction and does not empower SEBI to regulate the functioning of companies in a general way. SEBIs authority for carrying out its regulatory responsibilities has not always been clear and when Indian financial markets experienced massive share price rigging frauds in the early 1990s, SEBI was found not to have sufficient statutory power to carry out a full investigation of the frauds. 27 Accordingly, the SEBI Act was amended in order to grant it sufficient powers with respect to inspection, investigation, and enforcement, in line with the powers granted to the SEC in the United States. A contentious aspect of SEBIs power has been its authority to make rules and regulations. While SEBI has
25
The SEBI Act provides for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market in India; available at http://www.sebi.gov.in/acts/act15ac.pdf 26 T.N. Pandey, SEBI Move: Clause and Effect, Rediff.com, Dec. 29, 2003, available at http://www.rediff.com/money/2003/dec/29guest3.htm. See also Afsharipour, Afra: Corporate Governance Convergence: Lessons from the Indian Experience (2009); available at: http://ssrn.com/abstract=1413859 for a comprehensive coverage of the conflicting views between SEBI and the Ministry of Corporate Affairs. 27 The Securities and Exchange Board of India (Amendment) Act, 2002, amended the Securities and Exchanges Board of India Act, 1992 and enlarged its Board of Directors, besides conferring powers of search and seizure, with the approval of courts, and enhancing the fine for a better and hassle-free regulation of the capital market. The Act is also aimed at avoiding recurrence of scams and other malpractices in the capital market by building confidence of investors.
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made significant amendments to the Listing Agreement to substantially increase the responsibilities of listed companies, some have disputed that SEBI was ever granted the authority to impose additional governance rules in this fashion. Unlike the United States, where the SEC can point to the Sarbanes-Oxley Act as specifically conferring upon it the authority to prescribe rules to implement governance legislation, SEBI, on the other hand, cannot point to a similar piece of legislation to support imposition of the same requirements on Indian companies through Clause 49. Instead, SEBI must look to the basics of its own purpose, as given in the SEBI Act wherein authority is granted to specify, by regulations, the matters relating to issue of capital, transfer of securities and other matters incidental thereto . . . and the manner in which such matters shall be disclosed by the companies. 28 In addition, SEBI is granted broad authority to specify the requirements for listing and transfer of securities and other matters incidental thereto.29 SEBIs interpretation of its mandate as being broader than the words specifically mentioned in the SEBI Act and the consequent exercise of a broad authority led to an ongoing turf war with the MCA ever since its inception one that is not fully resolved even as yet. Ever since SEBIs creation in 1992, there have been simmering tensions between SEBI and the MCA which have stemmed in part from the reality that many of the regulatory responsibilities created by the various pieces of relevant legislation can be interpreted to lie in the jurisdiction of both these regulatory agencies. Whereas under the Companies Act, MCA is responsible for regulating all registered companies, under the SEBI Act, all listed companies fall under the authority of SEBI as well. While, on the record, both SEBI and MCA do not agree to the existence of any regulatory overlap, their respective actions, as reflected in the chronology of corporate governance reforms in India, reflects a jostling by both these agencies to occupy the pre-eminent position to regulate corporate governance in India. Shortly after adoption of the CII voluntary code, SEBI sprang into action to develop corporate governance standards for publicly listed companies. SEBIs response was, in part, due to the CIIs efforts to lobby SEBI to adopt mandatory governance reforms. SEBI appointed the Committee on Corporate Governance (the Birla Committee) on May 7, 1999 which included major industry representatives in India, including representatives from the CII and the All India Association of Industries; the committee was chaired by Kumar Mangalam Birla, Chairman of the Aditya Birla Group. The Birla Committees recommendations were primarily focused on improving the function
28 29
SEBI Act, Supra. Refer note 22. SEBI Act, Supra. Refer note 22.
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and structure of company boards and increasing disclosure to shareholders.
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SEBI implemented the Birla Committees sweeping proposed reforms less than five months later in February 2000. At that time, SEBI revised its Listing Agreement to incorporate the recommendations of the countrys new code on corporate governance. These rulescontained in Clause 49, a new section of the Listing Agreementtook effect in phases between 2000 and 2003. The reforms applied first to newly listed and large companies, then to smaller companies, and eventually to the vast majority of listed companies.
Following the addition of Clause 49 to the Listing Agreement, implemented by SEBI, the MCA responded by appointing its own separate committee (Naresh Chandra committee) to recommend corporate governance reforms to be incorporated into an amendment of the Companies Act which was charged with undertaking a wide-ranging examination of corporate auditing and independent directors, although its report focused primarily on auditing and disclosure matters. Recognizing the duality of role between SEBI and MCA, the Chandra Committee recommended greater consultations between SEBI and the MCA, noting that the overlap has adverse consequences . . . with investors, companies and other stakeholders falling between the cracks.30 It is interesting to note that the Naresh Chandra committee while examining the argument that SEBI needs to be given wider powers on the analogy of the US Securities Exchanges Commission (SEC) model, rejected the same on the basis that the situation in India is materially different from the US,The analogy is not on all fours, because the system in the USA is radically different. Company laws in the US are state subjects, and the state laws control companies. Due to the strong federal character of the American polity, there is a great variance in the administration of companies from state to state. For instance, some states do not even require that company accounts have to be audited by public accountants. As a result, the SEC has had to perform a central unifying legal and regulatory role for companies listed on the stock exchanges. Since, in India, company law is a Central subject, and there is uniformity across the country, it is probably not necessary for SEBI to have all of the powers of the SEC31. In any case, the Committee felt that there should be much greater consultations between the SEBI and the Department of Corporate Affairs prior to crafting materially significant laws and regulations
While the MCA believed that corporate regulation was its exclusive domain, SEBIs reform efforts clearly indicated its opposing view and SEBIs response to the Chandra Committee reflected this view. As its response to the Chandra committee, SEBI constituted another committee on corporate governance( Narayana Murthy committee) with terms of reference largely overlapping
30 31
Naresh Chandra Committee, Supra. Refer note 4. Id.
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those of the Chandra Committee, a move that was strongly opposed by MCA. 32 Some in the financial press viewed this clash as detrimental to governance reform efforts, arguing that with each organization proposing conflicting reforms, the efforts were slowed and businesses were left in a state of uncertainty. Despite much fanfare, the recommendations of the Chandra Committee did not result in legislative changes, although some of its recommendations were incorporated in the report put forth by the Murthy Committee. Close on the heels of the appointment of the Murthy Committee by SEBI and revision of Clause 49, the MCA again sprang into action to attempt to revise the Companies Act. In December 2004, the MCA convened the Irani Committee with the mandate to evaluate the Companies Act, with a focus on combining internationally accepted best practices in corporate governance with attention to the particular needs of the growing Indian economy. The Irani Committee concluded that the best approach to corporate governance in India would be to construct a single framework of governance provisions applying to all companies so that all companies would be required to comply with a uniform set of rules and perhaps, mirroring the views of the MCA, resisted the idea that the regulation of public companies should be handed over entirely to SEBI, and argued that the central government should play an important role with respect to corporate governance matters.33 These actions of the MCA were however fraught with tensions with SEBI which appeared to be unhelpful in any process to amend the Companies Act. The failure of SEBI and the MCA to work together has been especially evident in their difference in approaching the corporate governance framework in India. SEBI has avoided encouraging amendment of the Companies Act to include corporate governance related provisions and given the dynamic nature of the capital market and SEBIs need to remain flexible and responsive to changing situations, it has preferred to enact change through amendments to the Listing Agreement and through committees. However, the opposition from the MCA to the convening of these committees provides further evidence that the two
32
Afsharipour, Supra. Refer note 23. Since SEBIs creation in 1992, tensions have existed between SEBI and the Ministry of Corporate Affairs (MCA). The conflicts between SEBI and the MCA stem in part from the fact that many of the regulatory responsibilities created by the various pieces of relevant legislation are exercised concurrently by both of these regulatory agencies. 33 The newspaper article in a respected business newspaper, The Hindu Business Line- Narayana Murthy panel report on corporate governance is whistle blower policy practical? Available at http://www.thehindubusinessline.in/2003/04/08/stories/2003040802200400.htm is an example of the criticism that was commonly seen in the Indian financial press which raised several concerns from corporate India on the challenges in the practical implementation of the Narayana Murthy committee recommendations.
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agencies are simply not on the same page34.
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Despite various attempts by the MCA to amend the Companies Act, thus far Clause 49 remains the most significant corporate governance reform and established a new corporate governance regime. Like corporate governance standards in the United States and the United Kingdom, Indias corporate governance reforms followed a fiduciary and agency cost model. With a focus on the agency model of corporate governance, the Clause 49 reforms included detailed rules regarding the role and structure of the corporate board and internal controls. The Clause 49 reforms were phased in over several years, applying at first to larger entities and eventually to smaller listed companies. Eventually thousands of listed Indian public companies were required to comply with a new corporate governance regime. A major criticism regarding SEBIs attempts at governance reform involved its decision to reform the Listing Agreement rather than advocate for amendment of the Companies Act. SEBIs conflicts with the MCA led it to bypass the legislative route preferred by the MCA and attempt to regulate through the Listing Agreement. SEBI was criticized in particular for revising Clause 49 while many similar reforms were arguably included in then-pending legislation, the Companies (Amendment) Bill of 2003. In particular, some questioned why SEBI would resort to a hurried revision of Clause 49 when comparable reforms were being debated in Parliament. SEBIs actions were seen as creating unnecessary expenses and efforts for corporations in addition to appearing as attempts to undermine the MCA. The criticism grew sharper following withdrawal of the Companies (Amendment) Bill in 2003. Many, including both press35 and industry insiders, felt SEBI should have suspended its Clause 49 revisions until the reforms could be fully considered legislatively. Groups such as the Federation of Indian Commerce and Industry and the CII advocated that SEBI immediately withdraw the Clause 49 amendments. When SEBI instead seemed to self-validate its actions through the Murthy Committee, which endorsed many of SEBIs Clause 49 revisions, some questioned whether SEBIs rule-making jurisdiction even covered its actions. Viewing SEBI as having overstepped its authority, the press seemed to agree with the Chandra Committee that SEBI should only act through amendments to the Companies Act itself. Even the SEBI appointed Murthy Committee specifically, recommended that SEBI should work towards harmonizing the provisions of clause 49 of the Listing Agreement and those of the Companies Act, 1956.
34
Afsharipour, Supra. Refer note 23. Since SEBIs creation in 1992, tensions have arisen between SEBI and the Ministry of Corporate Affairs (MCA). The conflicts between SEBI and the MCA stem in part from the reality that many of the regulatory responsibilities created by the various pieces of relevant legislation are exercised concurrently by multiple regulatory agencies. 35 Afsharipour, Supra. Refer note 23.
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It also recommended that major differences between the requirements under clause 49 and the provisions of the Companies Act, 1956 should be identified and noted that, SEBI should then recommend to the Government that the provisions of the Companies Act, 1956 be changed to bring it in line with the requirements of the Listing Agreement36. The differences between SEBI and the MCA on the issue of jurisdiction continue to even this day. The Standing Parliamentary Committee 37 reviewing the Companies Bill 2009 received a formal representation from SEBI which expressed the view that the Companies Bill, 2009 has sought to reduce the jurisdiction of SEBI, as it restricted their regulatory powers and proposed that while all the matters in respect of unlisted companies may be dealt with by the Central Government through rules, in respect of listed companies they may be dealt with by SEBI through Regulations, as is the position now. It was their plea that the provisions in respect of specified matters, irrespective of the chapters they are located, may be dealt with by SEBI or Government as the case may be, which would remove regulatory gaps, overlaps and inconsistencies in regulation. When the Committee took up this issue of regulatory overlap concerning SEBI with the Ministry of Corporate Affairs, they explained38 that they have tried to provide basic/broad principles in respect of corporate governance in the main Act, leaving the other regulatory aspects to the sectoral regulator for improvement and articulation. In this regard, they have also cited the observations of the Irani Committee;Perception in some quarters as to the need to demarcate the respective jurisdictions of Ministry of Company Affairs (MCA) and SEBI has come to our notice. In our view, this perception is misplaced. In so far as, the legal framework is concerned, the Central Government is represented through a Ministry which would be required to exercise the sovereign function and discharge the responsibility of the State in corporate regulation. SEBI, on the other hand, is a capital markets regulator having distinct responsibilities in regulation of the conduct of intermediaries capital market and interaction between entities seeking to raise and invest in capital. We do not subscribe to the view that corporates seeking access to capital need to be liberated from their responsibilities under all other laws of the land and, thereby the oversight by the State, and be subjected to exclusive control and supervision of a specific regulator. Corporates have to function as economic persons within the Union of India in a manner that contributes to the social and economic well being of the country as a whole and as such must be subject to the laws pronounced by the Parliament for the welfare of its citizens. Corporate Governance goes far beyond access to capital. Taking a narrow view of Corporate Governance as limited to public issue of capital and the processes that follow would be to the detriment of corporate entities themselves. Equally, the capital market regulator has to play a
36 37
NarayanaMurthy Committee, Supra. Refer note 6. Standing Committee, Supra. Refer note 12. 38 Id.
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central role in public access to capital by the companies and must have the necessary space to develop suitable frameworks in tune with the fluidity of the capital markets. To our mind, with the substantive law being compiled to reflect the core governing principles of corporate operations and separation of procedural aspects, it would be possible for the Regulator to provide the framework of rules for its domain consistent with the law. Such rules would be complementary to the legislated framework and there would be no overlap or conflict of jurisdiction between regulatory bodies. We therefore recommend a harmonious construction for operation of the State and regulatory agencies set up by it39. In its final report, the Standing Committee recognized the problem arising from an overlap of jurisdictions between the SEBI and MCA and gave their view that the Government, while providing for minimum benchmarks in the Companies Bill, should allow sectoral regulators like SEBI to exercise their designated jurisdiction through a more detailed regulatory regime, to be decided by them according to circumstances. Referring to a similar case of jurisdictional overlap between the RBI and the MCA, the Committee suggested that it needs to be articulated appropriately in the Bill that only if the Special Act is silent on any aspect, the Companies Act will prevail. Further, if both are silent, requisite provisions can be included in the Special Act itself. The status-quo in this regard may therefore be maintained and the same suitably clarified in the Bill. This will thus ensure that there is no jurisdictional overlap or conflict in the governing statute or rules framed there under. Clause 24 of the new Companies Bill,201140 seeks to provide that issue and transfer of securities and non-payment of dividend by listed companies or those companies which intend to get their securities listed shall be administered by the SEBI and in other cases shall be administered by Central Government. Furthermore, by focusing on issues such as Enhanced Accountability on the part of Companies, Additional Disclosure Norms, Audit Accountability, Protection for Minority Shareholders, Investor Protection, Serious Fraud Investigation Office (SFIO) in the new Companies Bill, 2011 the MCA proposes to re establish its primacy in taking the lead in respect of Corporate Governance reforms in India. However, despite the fact that Clause 49 requirements have been in place for listed companies since 2006, compliance remains a mixed bag. Compliance of Clause 49 is reported by listed companies themselves and under Clause 49; companies must submit a quarterly report, signed by the CEO or the Compliance officer, to stock exchanges within fifteen days from the close of quarter. Moreover, the companys annual report must contain a separate section on corporate governance.
39 40
Id. Supra.,Note 18.
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An early study by Gupta & Parua41 attempted to find out the degree of compliance of the CG codes by private sector Indian companies listed in BSE. Data regarding 1245 companies for the year 2004-2005 was taken for the study from the CG report (which is included in Annual Report) of these companies and twenty one codes (19 mandatory and 2 non-mandatory) were selected for study. Compliance rate of CG codes was first tested individual company-wise. Further, mean compliance rate (taking into account all the companies under the study) and the variation among the companies from the mean compliance rate were also tested. It was observed that more than 70% of the sample companies comply with 80% or more of the codes. In respect of code-wise compliance rate, the compliance rate is greater than 80% in respect of 17 codes. Almost all the companies had compliance rate which is significant even at 1% level. Despite their finding that the average compliance rates of the CG codes by the companies was satisfactory, Gupta and Parua stated that nothing more should be concluded from the findings other than that the financial reporting practice of the Indian companies, in general, mostly follows the CG codes contained in clause 49. According to them in order to make a true conclusion on CG practice, more efforts should be put in to find out whether such compliances are merely on paper or are practiced with right earnest. However, to pierce the veil of theoretical compliance and to find out the very intention and honesty with which these codes are complied is, no doubt, a very difficult job. To date, companies listed on the NSE, which has grown rapidly in the past several years, have more fully complied with Clause 49 regulations than have BSE-listed companies As of December 31, 2009, 88 of the companies listed on the NSE, or approximately 6%, have failed to submit Clause 49 compliance reports, while 1103 of the companies listed on the BSE have failed to submit Clause 49 corporate governance reports42. While the general trend has been for companies to comply (at least in form) with the requirements of Clause 49, there have been significant obstacles to the implementation of these norms and to their acceptability within the Indian corporate ecosystem. To begin with, there was considerable resistance to the stringent corporate governance norms even prior to their enactment in a detailed form. For instance, although detailed revisions to Clause 49 (such as strengthening the definition of independence of directors) were introduced in 2004, it was met with cold reception from Indian industry, due to which the implementation of the revisions had to be postponed several times until they were finally mandated to take effect from January 1, 2006. Even thereafter, the enforcement of Clause 49 by SEBI has been without tremendous
41
Gupta, Arindam and Parua, Anupam. An Enquiry into Compliance of Corporate Governance Codes By the Private Sector Indian Companies (December 18, 2006). 10th Indian Institute of Capital Markets Conference Paper. Available at <SSRN: http://ssrn.com/abstract=962001> 42 Afsharipour, Supra. Refer note 21.
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success. Curiously enough, government companies are found to be the gravest violators of Clause 49. In a string of cases, SEBI initiated action in 2007 against several government companies for noncompliance of Clause49 which were subsequently dropped by SEBI43. This episode may likely have deleterious consequences on corporate governance reforms in India. Compliance or otherwise of corporate governance norms by government companies has an important signaling effect. Strict adherence to these norms by government companies may persuade others to follow as well. But, when government companies violate the norms with impunity, it is bound to trigger negative consequences in the market-place thereby making implementation of corporate governance norms a more arduous task. Even among non-government companies, there have been inadequacies in strict compliance with the basic requirements of corporate governance set forth in Clause 49. For instance, over a thousand companies did not file their corporate governance compliance reports for the quarter ended September 30, 200844. Although this is a blatant violation of the listing agreement, there is no evidence of stringent action having been taken by SEBI or the stock exchanges against such companies. Such implementation failures raise important questions as to the acceptability of transplanted concepts of corporate governance in the Indian context. The poor enforcement of the corporate governance reforms in India despite substantive corporate law reforms has been analyzed by Khanna45 who has attempted to find an answer to the paradox of foreign institutional investors(FIIs) increasing their presence and interest in the Indian stock markets when reforms were enacted but not immediately enforced. He has argued that given the high returns available in India, FIIs may have thought that the need for enforcement was not pressing initially (as the chance of insider diversion may not be high at that time), but could become so in the next few years when the market eventually cooled down. Thus, enacting the law in the beginning was attractive because then it would be available once the chance of diversion increased. Once FIIs started coming to India other investors also increased their investments in Indian firms. As the number of investors swelled,
43
Afsharipour, Supra. Refer note 21. As documented by Afsharipour, the Public Sector Undertakings (PSUs) majority owned by the Government of India- have also resisted reform. The PSUs have argued that their non-compliance is due to the allegedly onerous independent director requirements of Clause 49. According to many PSU leaders, while they recognize the need for more independent directors, the process for appointments takes significantly more time than private company appointments because the government must appoint these directors. SEBI Chairman M. Damodaran has suggested the government is dragging its heels in appointing independent directors because it does not want to lose control over PSU companies 44 Id. 45 Khanna, Vikramaditya, Law Enforcement and Stock Market Development: Evidence from India (January 2009). Paper prepared for the Law and Economy in India Project at the Center on Democracy, Development, and The Rule of Law. Freeman Spogli Institute for International Studies Stanford University; available at <http://cddrl.stanford.edu>.
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this fueled the growth of the Indian markets, while simultaneously creating the constituency that would seek active enforcement w hen a downturn eventually comes and the chances of diversion increase. Khannas 46 analysis suggests that enforcement is important to the growth of stock markets, but active civil enforcement of corporate laws may not always be critical to their initial development. Of course, he cautions that continued weak enforcement is likely to undermine a stock market, but early on strong civil enforcement of corporate law may not always be essential. Indeed, this has been the experience of many countries when their stock markets were developing47. The recent pleadings(filed in January 2010) in the United States District Court, Southern District of New York48 on the matter relating to the fraud in the erstwhile Satyam Computer Services49, where six lead plaintiffs and eight consolidated plaintiffs were looking to claim damages from the 14 defendants and seven consolidated defendants including Satyam, auditors PwC and others, has thrown up some very interesting and relevant issues not only as regards the lack of confidence in the potential of adequate delivery by the Indian judicial system but also opened up a debate on whether the current regulatory framework in India is adequate to enable shareholders to recover their just dues. This case was filed in the US District Court, Southern District of New York on behalf of investors who had purchased or otherwise acquired Satyams American Depository Shares (ADS) listed on the New York Stock Exchange; and investors residing in the United States who purchased or otherwise acquired Satyam common stock on the National Stock Exchange of India or the Bombay Stock Exchange. In their pleadings50, the plaintiffs submitted declarations of two prominent Indian securities law experts: Sandeep Parekh51, former Executive Director of SEBI and Professor Vikramaditya Khanna 52 of the University of Michigan Law School, one of the foremost experts in the United States on the Indian
46 47
Id. Id. Khanna has pointed to studies that have shown similar features in the early development of the stock markets in the UK and the USA. 48 A concise summary of the case and the pleadings before the United States District Court, Southern District of New York can (Satyam - case in the USA) be accessed at <http://www.legallyindia.com/201102181822/Analysis/exclusivesatyams-settled-us-class-action-had-no-recourse-in-india>. 49 Satyam, Supra. Refer Note 14. 50 Memorandum of Law (Memorandum) filed by the Lead Plaintiffs in their opposition to the motion filed by the Defendants to dismiss the case before the United States District Court, Southern District of New York can be accessed at <http://f.lgly.in/download/Satyam-plaintiffs.pdf>. 51 Deposition filed by Sandeep Parekh (Parekh Deposition) as an expert witness on behalf of the Plaintiffs can be accessed at <http://f.lgly.in/download/Satyam-Parekh.PDF>. 52 Deposition filed by Vikramaditya Khanna( Khanna Deposition) as an expert witness on behalf of the Plaintiffs can be accessed at< http://f.lgly.in/download/Satyam-Khanna.pdf>.
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legal system who filed individual affidavits detailing the reasons that Indian courts cannot redress the harm done to the Class plaintiffs and why India itself does not provide a viable alternative forum for Class members claims. In their depositions 53, among other things, Sandeep Parekh and Vikramaditya Khanna explained that: The substantive laws of India provide no means of individual or class recovery for private investors in securities fraud matters because the civil courts in India are barred from hearing such cases where, as here, SEBI is empowered to act; Even if it did provide a substantive means of recovery, Indian law provides no viable class action mechanism under which investors claims can be litigated; and Indian law does not recognize the fraud-on-the-market presumption of reliance in private civil actions, so that, even if a substantive means of recovery and a viable class action mechanism both existed under Indian law, investors would still be required to demonstrate individual reliance, thus effectively depriving the vast majority of Class members of any prospect of relief. Khanna stated in his declaration54 that, The lengthy delays in the Indian Judicial System would leave plaintiff shareholders with effectively no recovery even assuming, arguendo; there might be a potential cause of action. Quoting statistics provided by the Supreme Court of India that gave a birds eye view of the backlog of civil cases in the Andhra Pradesh High Court he stated, For the quarter beginning October 1, 2007, the Andhra Pradesh High Court had 132,943 civil cases pending and, by June 30, 2009 (i.e., within 1 year and 9 months), there were 154,765 civil cases pending. That is roughly a 16% increase in suits pending in less than 2 years. Further, there are currently 49 sanctioned positions for judges in the Andhra Pradesh High Court of which only approximately 30 are filled. This means that the average caseload each judge was carrying was 4,431 cases as of October 2007 and by end of June 2009, the average caseload was 5,159 cases. The judicial backlog is thus getting worse as seen so far from the results in 2009 (i.e., the average caseload each judge is now carrying is 5,159 civil cases). If we include criminal cases, the figures get worse and there are about 5,862 criminal and civil cases per judge as of June 30, 2009 Given the unprecedented magnitude of the Satyam fraud and the nature of the relevant jurisdictional and other issues, he added that a suit in India related to the Satyam fraud would almost certainly be appealed to the Andhra Pradesh High Court where as the figures above indicate it would be subject to extensive delays.
53 54
Memorandum, Supra. Refer Note 44. Khanna Deposition, Supra. Refer Note 46.
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Sandeep Parekh55, argued on behalf of the plaintiff shareholders that, not only, as private parties have no right to sue to recover damages resulting from the Satyam fraud under Indian statutory or common law because the Indian civil courts have no power to hear disputes where, as in this case, SEBI is empowered to act, but also that the Satyam investors would not be able to use the representative action procedure to recover damages because Indian law bars their substantive claims in civil court and the representative action is only a procedural mechanism that cannot create any substantive rights. Elaborating, Parekh56 stated that Indian civil courts have no authority to preside over cases where their jurisdiction is explicitly or implicitly barred by statute and cited the Bombay High Court case of Kesha Appliances v Royal Holdings Services Ltd 2006, Indian securities law is one of the areas in which the civil courts' jurisdiction has been barred by statute. Specifically, the statutes empowering SEBI to act in the area of securities and securities fraud, bar the civil courts from exercising jurisdiction over such matters. Thus, according to Parekh, common law rights, such as rights under the tort of deceit (or claims of damages under that tort), cannot be heard or enforced by civil courts. In addition, only SEBI could initiate actions in response to violations of the statutory provisions and the cause of action of shareholders is barred under the SEBI Act by express provision. Furthermore, Parekh57 added that any penalties collected by SEBI related to the Satyam fraud would not go to shareholders of Satyam under Indian securities law and, unlike the Fair Fund introduced in the United States; penalty amounts collected by SEBI go to the Consolidated Fund of India. He concluded that even if SEBI imposed monetary penalties against the various persons alleged to be a part of the fraud, Satyam shareholders cannot expect any relief from such action. So in effect while SEBI could initiate an order of disgorgement under its remedial implied powers, and that disgorgement amounts could, in theory, be given to the investors of securities fraud. However, to date SEBI has taken no action seeking disgorgement, even from Ramalinga Raju and others who directly profited from the fraud, and there is no reason to believe that any such disgorgement action will be taken by SEBI for the benefit of Satyam investors. Moreover, a disgorgement action would not recover damages for Satyam shareholders. In their pleadings, the defendants filed a deposition from the former Chief Justice of the Supreme Court of India, Aziz M Ahmadi58 stating that the Satyam matter would be expedited through the slowmoving courts in India because of its national importance and in his sworn statement, filed on behalf
55 56
Parekh Deposition, Supra. Refer Note 45. Id. 57 Id. 58 Deposition filed by Aziz M Ahmadi ( Ahmadi Deposition) as an expert witness on behalf of the Defendants can be accessed at <http://f.lgly.in/download/Satyam-Ahmadi.pdf>.
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of PwC, Ahmadi59 stated that the Andhra Pradesh High Court has already approved the establishment of a fast-track court for the trial of Satyam founder B. Ramalinga Raju and the other accused. Because the litigation initiated by the Lead Plaintiffs also deals squarely with the alleged Satyam fraud, which will be the focus of the said trial, I believe that the Indian Government could readily be persuaded to create a fast-track court for this case upon its transfer to India. Ahmadi60 added that, Even if such a fast-track tribunal were not created the court in India would be sensitive to promptly hear a case of such magnitude and importance, involving numerous persons who have borne the brunt of the alleged fraud of such great monetary scale. Therefore, the argument of delay in India courts should not deter the Lead Plaintiffs from proceeding with the case in India. On the contentious issue of whether Indian courts could hear class action securities fraud, Ahmadi61 by contrast, in his deposition swore that Indian law could provide redress in the case of securities fraud under common law tort principles. A fraud action may proceed against corporate entities based on common law theories of vicarious liability such as agency and alter ego liability. If the Lead Plaintiffs are able to prove their allegation in an Indian court, they would be entitled to appropriate redress. Thus persons who suffered on account of the alleged fraudulent acts of commission and omission of the defendants would even be entitled to initiate a class action-representative law suit in a competent court in India situated in the State of Andhra Pradesh in the district where the fraud was practiced or the cause of action arose under Order I Rule 8, CPC []. The persons initiating such action, for and on behalf of and for the benefit of all such persons, must have a locus standi, that is, an individual stake in the claim to be redressed along with several others. The Lead Plaintiffs, therefore, have an adequate remedy to initiate action in India. Such action could be initiated against the company or its officers; the cause title should clear reflect that the action is a representative action. It is relevant to point out that in their depositions both Khanna 62 and Parekh63, had separately pointed that because they could not bring their claims in Indian civil courts, some Satyam investors had already tried and failed to bring an action before a quasi-judicial body, the National Consumer Disputes Redressal Commission (NCRDC) which was established by the Consumer Protection Act 1986 to provide for summary redressal of consumer disputes related to the provisions of goods and services. Specifically, an investor association, called the Midas Touch Investor Association, attempted to file a suit before the NCDRC seeking damages based on the fraud at Sat yam, but these claims were dismissed reportedly because other government agencies were already investigating the matter and because the NCDRC lacks the infrastructure to handle the claims of Satyam investors. The investor association appealed directly to India's Supreme Court, which dismissed the appeal as withdrawn and
59 60
Id. Id. 61 Id. 62 Khanna Deposition, Supra. Refer Note 46. 63 Parekh Deposition, Supra. Refer Note 45.
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pointed out to the dismissal of the Midas Touch claim as clear evidence that there is no right of action for private parties in India who have been injured by the Sat yam fraud. In February 2011, the class action suit was part settled for US $ 125 mil64 by one of the defendants (Mahindra Satyam representing the erstwhile Satyam Computer Services) with the erstwhile US based shareholders of Satyam who had filed the class action suit. In a separate development, in April 2010 Satyam Computer Services Ltd and its former auditor PricewaterhouseCoopers agreed to pay a combined $17.5 million to settle U.S. probes into the accounting fraud that had become India's biggest corporate scandal. As per the settlement announced on 4th April 201065, Mahindra Satyam Ltd would pay $10 million to settle U.S. Securities and Exchange Commission charges that it had fraudulently inflated revenue, income and cash balances by more than $1 billion over five years. Separately, India-based affiliates of PwC agreed to pay $7.5 million in a record settlement of related charges by the SEC and the Public Company Accounting Oversight Board (PCAOB). The SEC called its $6 million accord with five PwC affiliates its largest involving a foreign-based accounting firm, while for the PCAOB the $1.5 million payment by two of those affiliates represents its largest civil money penalty. The PCAOB-registered firms of PricewaterhouseCoopers International Limited (PwC IL) that settled included Price Waterhouse, Bangalore (PW Bangalore), Lovelock & Lewes (Lovelock), Price Waterhouse & Co., Bangalore, Price Waterhouse, Calcutta, and Price Waterhouse & Co., Calcutta. In addition to the penalty, the Board imposed significant limitations and undertakings related to the firms' audit activities, required the appointment of an independent monitor, and censured the firms. Subsequently on April 27, 2010 Price Waterhouse Bangalore, PricewaterhouseCoopers Private Limited, and Lovelock & Lewes (PW India firms) and PwC U.S. and PwC International agreed to settle the New York securities class action suit for a $25.5 million settlement66. An interesting feature of the settlement is that it resolves only the claims against the company (Satyam) and the various PwC entities leaving all of the companys former directors and offices in the lawsuit. These individuals include not only the companys former Chairman and founder and his family members who were at the center of the scandal, but also the various outside individuals who were serving on the companys board while the alleged fraud was going on. The suggestion seems to be
64
As reported on 11th February 2011 on <http://www.legallyindia.com/201102181822/Analysis/exclusive-satyamssettled-us-class-action-had-no-recourse-in-india>. 65 The formal announcement by the Public Company Accounting Oversight Board( PCAOB) can be accessed at http://pcaobus.org/News/Releases/Pages/04052011_DisciplinaryOrders.aspx 66 Refer to the news story The Grand Illusion: PwC Settles Satyam U.S. Class Action Claims in Forbes.com available at; http://www.forbes.com/sites/francinemckenna/2011/05/06/the-grand-illusion-pwc-settles-satyam-u-s-class-actionclaims/
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that the current company management is prepared to leave all of the former board members hanging out there on their own67. Another interesting component of the settlement is the composition of the settlement class to which the parties stipulated as part of the settlement. The class includes not only investors who bought the companys American Depositary Shares on the NYSE, but also U.S. residents who bought ordinary company shares on Indian stock exchanges notwithstanding the decision in light of the U.S. Supreme Courts holding in Morrison v. National Australia Bank, on whether the U.S.-based investors who purchased their shares on the Indian exchange actually have claims they can be asserted under U.S. securities laws. Indeed, as some observers68 have pointed out the settlement stipulation expressly notes that the defendants had supplemented their pending motions to dismiss, seeking in reliance on Morrison to dismiss the claim of the U.S. residents who purchased their shares on the Indian exchanges. Furthermore, in recognition of the hurdles that such investors face, the settlement agreement provides that the U.S. investors who bought their shares on the Indian exchange will not receive the same proportion of compensation as the ADS investors. The proceedings in the United States District Court, Southern District of New York on the Satyam issue threw up a number of issues as regards the enforceability of claims of overseas investors on account of failures of corporate governance in India. Since the dispute between Satyam and its US based investors was resolved through a court approved mediation process we do not have a definitive answer to the legal issues that had been raised before the court and will have to wait for more time before complex issues, such as those listed below, are comprehensively resolved; 1. Do aggrieved shareholders have any rights under Indian civil laws or are remedies available only under the SEBI Act? 2. Can aggrieved shareholders, seeking relief on account of corporate mis-governance, expect to receive substantive relief under the SEBI Act? 3. Given the inordinate delays that endemic in Indian courts can aggrieved foreign shareholders seek to resolve their disputes in alternative forums outside of India? 4. Can foreign shareholders who bought shares, in Indian exchanges, in Indian companies also seek to settle in alternative forums outside of India? However, in stark contrast to the relatively quick settlement in the US court, the Securities and Exchange Board of Indias (SEBI) multiple investigations into Satyam and Price Waterhouse, the Indian
67
Refer to the post Satyam agrees to pay 125 million to settle securities suit posted by Kevin La Croix at The D & O Diary available at http://www.dandodiary.com/2011/02/articles/securities-litigation/satyam-agrees-to-pay-125million-to-settle-securities-suit/ for a comprehensive analysis of the Satyam settlement. 68 Id.
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arm of PricewaterhouseCoopers (PwC), continue to be work-in-progress69. In August, the Bombay high court ruled that SEBI has the power to investigate the role of PwC in the fraud, but the audit firm appealed to the Securities Appellate Tribunal, where the matter is pending. A second SEBI case against the individual PwC auditors involved is pending in the Bombay high court itself. And Satyams former chairman is yet to respond to a show-cause notice from the regulator. SEBI is clear it wants to take action against PwC and it has refused to consider a settlement. Meanwhile, it is not clear what Indias ministry of corporate affairs (MCA), which spearheaded the investigation against the fraud at Satyam, is doing either70. The ability of Indian investors to take either Satyam or PwC to court is also limited because the current Companies Act doesnt have any clear provisionsregarding class action suits.Neither Sebi nor Companies Act clearly defines a class action suit, said an official at Midas Touch Investors Association, which tried the legal route to get recompense for the Satyam investors71. Furthermore, Indias apex body of audit firms, The Institute of Chartered Accountants of India (ICAI) has done nothing against PwC because it only has powers to take action against individuals and not against firms72. As a result, the Satyam case is all but resolved in the US, while almost nothing has happened in India, where losses on account of the fraud are certain to have been higher. None of these investors has received compensation73.
69
Refer to the news item, Satyams local investors wait for recompense posted on May 6,2011 at livemint.com available at http://www.livemint.com/2011/05/05230014/Satyam8217s-local-investors.html?atype=tp 70 Id. As reported in the News item in livemint.com, Ved Jain, a government-appointed director on the board of Maytas Infra, a former associate of Satyam and Past President of the Institute of Chartered Accountants of India (ICAI) when the Satyam fraud surfaced said Thus far, MCA has not initiated any action which will give Satyams investors a right to claim money they have lost. 71 Id. As reported in the news item published in livemint.com, Virendra Jain, founder of Midas Touch, added that even the new Companies Bill, pending approval by Parliament, does not provide for a class action suit. The Bill, while having paragraphs titled class action, deals mostly with oppression and mismanagement by companies and its promoters, said Jain. He added, what Midas had recommended to MCA that there should be clearly defined provisions for compensation. This is what the Standing Committee (of the Parliament), which evaluated the Bill, has also suggested, Jain added. The MCA official insisted that the new legislation would make class action suits possible 72 Id. As reported in the news item published in livemint.com, ICAI has asked MCA for powers to investigate firms and will likely get them through an amendment to the ICAI Act, according to Amarjit Chopra, past president of ICAI and one of the authors of a report on strengthening audit regulation that the institute put out after the events at Satyam came to light. We still have to hear from the ministry, he added. 73 Id. As reported in livemint.com, most mutual fund houses Mint spoke to werent too keen to discuss Satyam. All of them appear to have moved on. An executive at one said the fund house didnt take legal recourse because it would have taken a long time for the case to be settled. An executive at a second fund house said the Satyam fraud coincided with a choppy period in the market when funds lost around 60% of their equity assets. An executive at a third fund house said a suit would have hurt funds and fund managers, who would have had to disclose the losses made on their investments in Satyam. None of the three wanted to be identified.
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Meanwhile, the proceedings against B Ramalinga Raju, erstwhile Chairman of Satyam and his associates, before the designated fast court in Hyderabad74 continue to plod on with no clear end in sight. The proceedings at the various forums in India will undoubtedly be watched with keen interest as they will set the precedent for future direction on the adequacy and enforceability of corporate governance reforms in India.
3. Key Issues in Corporate Governance in India

Jayanth Varma 75 has argued that the Corporate Governance problems in India are very different from those found in the Anglo Saxon World and would need a different model for Corporate Governance, which has a significant external focus. The governance issue in the US or the UK is essentially that of disciplining the management who has ceased to be effectively accountable to the owners. As against this the problem in the Indian corporate sector (be it the public sector, the multinationals or the Indian private sector) is that of disciplining the dominant shareholder, who is the principal Block holder, and of protecting the minority shareholders. This distinguishing feature in the Indian Corporate environment is very different from the US Corporate structure where corporations usually have very dispersed shareholding and the separation between ownership and management is for real. Similarly the European and Japanese models of Corporate Governance that are based on the role of large Interest Groups with common interest in an organization also does not find a parallel in India. According to Varma, in the Indian context it is not possible to resolve the conflict between the dominant shareholder and the minority shareholders76 One can in principle visualize an effective Board which can discipline the management. At least in theory, management exercises only such powers as are delegated to it by the Board. But, how can one, even in theory, envisage a Board that can discipline the dominant shareholders from whom the Board derives all its powers? Some of the most glaring abuses of Corporate Governance in India have been defended on the principle of shareholder democracy since they have been sanctioned by resolutions of the general body of shareholders. The Board is indeed powerless to prevent such abuses. It is indeed self evident that the remedies against these abuses can lie only outside the company itself.
74
A Special Court, headed by an Additional Chief Metropolitan Magistrate, has been set up in Hyderabad in 2009 for a speedy trial of the Satyam Computers fraud case. According to the prosecuting agency (the Central Bureau of Investigation), there are 433 witnesses, 1532 documents and 62 material objects in the case. The charge sheet itself runs into about 65,000 pages. Refer to <http://www.financialexpress.com/news/ap-govt-to-set-up-special-court-forsatyam-case/534889/0>. 75 Varma, Jayanth Rama, (1997); Corporate Governance in India: Disciplining the Dominant Shareholder, IIMB Management Review Dec 1997, 9(4), 5-18 available at <http://www.iimahd.ernet.in/~jrvarma/papers/iimbr9-4.pdf> 76 Ibid.
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Family managed organizations dominate the Private Sector in Indian Business and family as the dominant form of ownership is most common among Indian organizations. Giving the BMA Golden Jubilee Lecture at Mumbai in December 2004 Rahul Bajaj, the head of one of the largest business families in India, pointed out77, Of the 100 private sector companies in India with market capitalization of over Rs. 1,000 Crores, in my assessment about 75 are family managed, 18 are subsidiaries of MNCs and 7 are managed by professionals. One can quibble about the numbers, but the overwhelming fact is of family management. Extolling the values of Family Managed Companies, Bajaj78 goes on to add, Family managements bring some valuable things to the company. First, a deep commitment to the company. They are not in a hurry to make money from the company. Secondly, they are able to take a long term view of the company, because quarterly results do not materially affect them. Their shareholding is for keeps and not for trading. Thirdly, there is much less jockeying within their companies. Relationships are stable. A similar view is held by Adi Godrej79, Chairman of The Godrej Group and past Chairman of CII's National Council of Family Business who, in an article written in 2005, extolled the virtues of family businesses in India (and elsewhere) and stated that such businesses have several inherent advantages that provide them with unique strengths such as a high level of trust that lowers transaction costs and is a source of significant competitive advantage to a family business. He also believed that such companies are nimble and quick to react and also use information as a source of advantage. However, recent developments in Indian Business have clearly bought to the forefront the negative impact arising from the role of the Family as a Dominant Shareholder particularly when there is a conflict of interest between the majority shareholder and the minority shareholders. The sordid saga of poor Corporate Governance at Reliance, which came into limelight because of the dispute between the two Ambani brothers -Anil and Mukesh, has been very well documented by Dalal. 80 According to Dalal81 , through a letter in early January 2005 to the Finance Ministry, Anil Ambani then the Vice Chairman and Managing Director of Reliance Industries Limited (RIL), wanted the Finance Ministry to investigate through the Securities & Exchange Board of India (SEBI), a number of issues
77 78
The full speech of Rahul Bajaj can be accessed at<lhttp://www.bajajauto.com/download/chaimanspeechbma.pdf> Id. 79 The views of Adi Gorej are contained in his article that appeared in Business Today in its January 16, 2005 issue and can be accessed at < http://archives.digitaltoday.in/businesstoday/20050116/columns7.html>. 80 Among others, business journalist Sucheta Dalal (Dalal) has written extensively on the well known fallout between the Ambani brothers which exposed the weakness of Corporate Governance in one of Indias largest companies Reliance Industries Ltd. Refer to her post on Is Reliance rewriting rules of Corporate Governance available at <http://www.suchetadalal.com/?id=5b03611d-4726-ba29492e7e5c217f&base=sub_sections_content&f&t=Is+Reliance+rewriting+rules+of+corp+governance> and Whats Governance to do with it available at < http://www.suchetadalal.com/?id=69df756f-5f5c-d212492e7e1a86f2&base=sub_sections_content&f&t=What's+governance+got+to+do+with+it%3F> 81 Id.
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ostensibly in order to protect the integrity of the capital market and the interests of RILs 30 lakh investors. Firstly, he alleged that RILs statutory public announcement of the share buyback on December 29, 2004 failed to reveal that SEBI is investigating insider trading and price manipulation of Reliance shares before the buyback and that the two major stock exchanges are investigating compliance with listing norms. Secondly, he alleged that RIL failed to reveal the fact that SEBI is investigating a complaint by S. Gurumurthy into the ownership and financing of a web of 400 f companies who own RIL shares. Interestingly, Anil Ambani claimed that these investigations are in progress.. A third issue raised by Anil Ambani was that two unknown individuals are reported to be in control of the 29 per cent promoter stake in RIL valued at Rs 20,000 crore. He further said the buyback would increase the RIL promoter holding by a further 2 per cent using Rs 3,000 crore of shareholders funds and that there is a major public controversy over the classification of a 12 per cent stake in RIL valued at Rs 10,000 which actually belong to RILs 30 lakh investors and not the promoters. As per Dalal82, Anil Ambanis final point was that Major issues of ownership, management, corporate governance, transparency and disclosure in RIL have publicly surfaced in relation to transactions between RIL and Reliance Infocomm which were not disclosed in the advertisement. Dalal83 also pointed out that subsequent revelations about a series of friends and corporate entities who seem to have acquired Reliance Infocomm shares at Re 1 each have also raised serious questions about why the publicly listed company ended up paying a much higher price for its Rs 12,000 crore investment and questioned whether RIL shareholders have been badly short-changed in the process Not only were these grave charges of mis-governance against one of the largest Indian Companies, Dalal84 points out that ironically they were levied against a Company that had been showered with awards of Corporate Excellence (Institute of Company Secretaries) in 2003 and Corporate and Social Responsibility awards (Golden Peacock, by the Institute of Directors) in 2004 and which, ironically, coincided with the period when these misdemeanors had actually taken place! In addition to the corporate governance issues arising from the dominant family holding in the Indian business companies, there exists an additional complexity on account of the promoter control in Indian companies85. Promoters (who may not be holding controlling shares) usually exercise significant influence on matters involving their companies, even though such companies are listed on stock exchanges and hence have public shareholders. Indian law confers some distinct roles for promoters which largely holds good even for companies where such shareholders only have a small percentage holdings in companies.
82 83
Id. Id. 84 Id. 85 Varottil, Supra. Refer Note 9.
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Typically, in India, a business endeavor starts as proprietorship or partnership or closely-held limited company. But when the growth occurs and attainment of large scale becomes imperative for survival, the closely held business house has to approach market to raise equity capital through IPO (Initial Public Offering) route. This is the first stage at which the diffusion of ownership occurs. Subsequently, it goes for further issue of share capital depending upon fund requirement for capital investment and other factors like choice of capital structure, signaling impact of a new issue and such factors. The owners of the closely held company taking it to the stage of IPO are designated as Promoters in the Indian context and are considered insiders till they dilute their stake through disposal of their holding in the secondary market. Persons or bodies other than the Promoters, having investment in the share capital, are called Non-Promoter or Non-Promoter shareholders. According to the market regulator SEBI, a Promoter has been defined as a person or persons who are in overall control of the company or persons, who are instrumental in the formulation of a plan or program pursuant to which the securities are offered to the public and those named in the prospectus as promoters 86. A director/officer of the issuer or a person acting merely in their professional capacity is not to be included in the definition of the Promoter. Indian law and regulation require that for the sake of protection of the interest of the investing community at the initial stage of going public, Promoters should have substantial stake in the company. The shareholding interest of the Promoters must not be less than 20% of post-issue share capital. Even in a subsequent issue, the Promoters shall either participate to the extent of 20% of proposed issue or ensure share holding to the extent of 20% of post issue capital. Moreover, the minimum Promoters contribution must be locked in for a minimum of 3 years. The requirement of minimum Promoters contribution shall not be applicable if a company remains listed for 3 years and above in a stock exchange and has track record of payment of dividend for at least 3 immediately preceding years. Subject to these restrictions, the fraction of shares held by the Promoters (and Non-Promoters) would be determined by interplay of various economic factors. By definition, in Indian context, Promoters are in control over the resources of the company even though they may not be the majority shareholders and would have superior information about the affairs of the company than the Non-Promoters. As a corollary, in an organization, Promoters and Non-Promoters are two distinct groups that are likely to have diverse interest. Usually, Promoters are instrumental in the formulation of a plan or program pursuant to which the securities are offered to
86
The importance of the position emanates in the context of public offerings of securities, where the role of key persons involved in control of the company is in possession of material information that is to be disclosed to investors to enable them to take an informed investment decision. As Varottil, Supra.Refer Note 9, has suggested the excessive importance given to the role of Promoter would arguably inhibit any transition from controlling shareholding in companies (i.e., the insider system) to diffused shareholding (i.e., the outsider system) so as to engender board-drivenprofessionally-managed companies since any requirement, that statutorily forces a promoter to bring in specific investment amounts or maintain specific shareholding, would necessarily perpetrate the unfortunate reality of keeping the listed companies in the hands of the promoters.
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the public whereas Non Promoters arrive on the scene after IPO and, conceivably, represent diffuse ownership. If Promoters or Promoter Group keep majority shareholding in the post IPO scenario, it means concentrated share holding pattern and management is likely remain in the hands of the Promoters and /or their family members whereas if substantial shareholding is in the hands of NonPromoters (diffused ownership), then management is likely to be in the hands of the independent professional managers. The Satyam episode87 illustrated a scenario where a company with minimal promoter shareholding could still be subject to considerable influence by its promoters, thereby requiring a resolution of the agency problems between controlling shareholders and minority shareholders even though such problems were not normally expected to arise at the low shareholding levels of the managing group. On January 7, 2009 the Chairman of Satyam Computer Services, B. Ramalinga Raju, admitted that there had been a systematic inflation of cash on the companys balance sheet over a period of some seven years amounting to almost $1.5 billion. Ironically, at Satyam, the Raju family, who were the promoters of Satyam, held only about 5% shares around the time when the Chairmans confession was made. A company with 5% promoter shareholding will usually be considered as belonging to the outsider model in terms of diffused shareholding, and hence would require the correction of agency problems between shareholders and managers 88. However, despite the gradual decrease in controlling shareholders percentage holdings, the concept of promoter under Indian regulations made the distinction between an insider-type company and outsider-type company somewhat hazy in this context and the Raju family, as promoters, continued to wield significant powers in the management of the company despite a drastic drop in their shareholdings over the last few years. Furthermore, at Satyam, the diffused nature of the remaining shareholding of the company helped the promoter group to consolidate and exercise power that was disproportionate to their voting rights; while the institutional shareholders collectively held a total of 60% shares as of Dec. 31, 2008 in Satyam, the highest individual shareholding of an institutional shareholder was only 3.76% 89 . Shah90 believes that companies where controlling shareholders hold limited stakes could be particularly vulnerable to corporate governance failures and states: The incentive for theft [in such
87 88
Satyam, Supra. Refer Note 14. Varottil, Supra. Refer Note 9. 89 Varottil, Supra.Refer Note9.However, as pointed out by Varottil, it would be cumbersome to obtain the exact amount of voting shares held by the promoters as large parts of those shares were pledged to lenders and those pledges were enforced by the lenders during the few months surrounding the revelation of misstatements in Satyams financial information, thereby, possibly bringing the promoter holdings down to negligible levels at the time when the knowledge of the scam became public.
90
Shah, Ajay, Getting the right architecture for corporate governance, 13th January,2009, Financial Express available at <http://www.mayin.org/ajayshah/MEDIA/2009/ushaped.html>
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cases] is the greatest: there is a great temptation for a CEO who owns 8% of a company to make a grab for 100% of the cash flow. Further, promoters who are in the twilight zone of control, i.e., where they hold shares less than that required to comfortably exercise control over the company, have perverse incentive to keep the corporate performance and stock price of the company at high levels so as to thwart any attempted takeover of the company. Ramalinga Raju of Satyam referred to this dilemma in his confessional letter post the scam, As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten. 91 The Satyam case clearly demonstrates the inability of the existing corporate governance norms in India to deal with corporate governance failures in family-controlled companies, even where the level of promoter shareholding is relatively low. Future governance reforms need to address vulnerabilities of promoters with minority shareholding who are in effective control of managements in such companies that lie at the cusp of insider and outsider systems. While the role of a family group as a Dominant Shareholder is widely known and reported, some researchers have also pointed out to the presence of other groups of Dominant Shareholders in India. Varma 92 has pointed out that the problem of the dominant shareholder arises in three large categories of Indian companies. First are the public sector units (PSUs) where the government is the dominant (in fact, majority) shareholder and the general public holds a minority stake (often as little as 20%). Second are the multinational companies (MNCs) where the foreign parent is the dominant (in most cases, majority) shareholder. Third are the Indian business groups where the promoters (together with their friends and relatives) are the dominant shareholders with large minority stakes, government owned financial institutions hold a comparable stake, and the balance is held by the general public. The governance problems posed by the dominant shareholders in these three categories of companies are slightly different. The other two categories of Dominant Shareholders, besides Business Families, have also used their dominance in the organization to force decisions that are, at times, against the interest of the minority shareholders. The recent case of the PSU Oil Companies not being allowed to increase the price of oil products in line with the changes in the international crude prices is an example of how the Indian Government has taken advantage of its dominance to force decision that are not in line with the interest of the Minority Shareholders. As reported recently in The Wall Street Journal 93 having pledged
91
On January 7,2009 B. Ramalinga Raju, Chairman of Satyam wrote a letter to the Board of Directors of Satyam rhat was marked to the Chairman of SEBI and all the Stock Exchanges where he made a public confession of the fraud committed at Satyam; available at <http://lastbull.com/ramalinga-raju%E2%80%99s-letter-to-the-board-of-directorsand-sebi/> 92 Varma, Supra. Refer Note 61. 93 Refer to <http://online.wsj.com/article/SB10001424052702303635604576391533489590182.html> for the news item published in The Wall Street Journal on June18, 2011.
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fiscal discipline in the current year's budget, the Indian Government was counting on a meaningful deregulation of retail fuel prices and had freed up gasoline prices last year and said it would remove the cap on diesel as well, making this one of the most significant reforms expected from New Delhi this year.
However, with inflation becoming a major political issue and higher fuel prices leading to the risk evoking strong protests, from both corporate lobbies and voters, and facing a backlash for a series of corruption charges against high-ranking ministers a scheduled meeting of ministers, which was to decide on the deregulation of diesel and cooking fuel, was postponed indefinitely. So the listed oil companies like Indian Oil, Bharat Petroleum Corp. and Hindustan Petroleum Corp., which had the Government of India as the dominant shareholder, are in a fix and are losing substantial amounts each day. Although institutional shareholders (particularly foreign institutional investors) are beginning to hold significant number of shares in Indian listed companies, they have refrained from exercising any significant influence over corporate decision making. Over a period of time, the culture of institutional shareholders always blindly voting with the promoter was established, Ajay Shah.94 Exercising corporate governance functions is a new idea for most institutional investors in India and while at present, not all of them may have the staff or skill to do this effectively and may not have played this role but, as Satyam has reminded them, they have to start playing this role in their own self interest. Elsewhere, in Chile and Brazil in particular, it has been argued that concentrated structures or economic groups are prone to create opportunities for minority shareholder expropriation, especially when the controlling shareholders of these groups exercise control through complex mechanisms such as pyramid schemes, cross-holdings and dual class shares. In those cases, the Agency problem is exacerbated because, on the one hand, ownership concentration insulates the Dominant Shareholder from any challenges to corporate control, and on the other hand, control is executed by a shareholder that holds a relatively small fraction of the cash-flow rights, Khanna and Palepu95. They found that as is the case in many countries - Canada, France, Germany, Japan, Italy, Sweden - concentrated ownership was a ubiquitous feature of the Indian private sector over the past seven decades. However, unlike in most countries, in India the identity of the primary families responsible for the concentrated ownership has changed dramatically over time. Based on their research Khanna and Palepu concluded that it did not appear that concentrated ownership in India was entirely associated with the ills that the literature has ascribed to it in
94
Shah, Supra. Refer Note 76.
95
Khanna, Tarun and Palepu, Krishna, Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups (October 1996). Available at SSRN: <http://ssrn.com/abstract=7985 or doi:10.2139/ssrn.7985>
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emerging markets96. On the other hand, they felt that if the concentrated owners are not exclusively, or even primarily, engaged in rent-seeking and entry-deterring behavior, concentrated ownership may not be inimical to competition. Indeed, as a response to competition, they argued that at least some Indian families have consistently tried to leverage internal markets for capital and talent inherent in business group structures to launch new ventures in environments where external factor markets are deficient. In the process they have either failed hence the turnover in identity or reinvented themselves. An important observation of Khanna and Palepu97 was that concentrated ownership was a result, rather than a cause, of inefficiencies in markets. Even in the low capital-intensity, relatively unregulated setting of the Indian software industry, they found that concentrated ownership persisted in a privately successful and socially useful way. This kind of evidence has supported a more favorable view of conglomerates in emerging economies sustaining that economic groups are a natural and efficient way for firms to deal with imperfect capital markets, poor institutions, corruption and other imperfections that plague emerging economies. In this context, economic groups arise in order to fill the voids left by (or to take advantage of) poor institutions98. Some researchers have also pointed out that the structures, institutions, and legal framework of corporate governance are developed and administered by individuals whose behaviors are shaped by cultural and personal concepts such as hope, ambition, greed, fear as well as by the social ethos in which they live and work. A situation of conflict is likely to arise when these influences do not conform to the regulatory prescriptions of what is considered to be good corporate governance in other cultures and these individuals are asked to conform to alien corporate governance norms. Pratip Kar99 has explored the dynamics of culture and corporate governance in India by calling attention to three areas where the clash between the Indian cultural ethos and the Anglo Saxon norms for good governance are strongest: relatedparty transactions, the promoters or large shareholders actions, and the boards nominations, deliberations, and effectiveness and has suggested that western best practices need to be suitably adapted to be in line with the Indian cultural sensitivities on these areas. The Companies Bill, 2011 takes the concept of board independence to another level altogether as it spends two sections (Section 149 and 150) to deal with Independent Directors. This has no doubt emanated from the extensive debate on independent directors that emerged in the wake of recent corporate scandals. The definition of an ID has been considerably tightened and the definition now not only includes positive attributes of independence every Independent Director is also required to declare
96 97
Id. Id. 98 Claessens, Stijn & Fan, Joseph P.H.; Corporate Governance in Asia: A Survey, International Review of Finance,( 2002) 99 Kar, Pratip; Culture and Corporate Governance Principles in India: Reconcilable Clashes? Available at;<http://www.ifc.org/ifcext/cgf.nsf/Content/PSO_23_Pratip>
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that he or she meets the criteria of independence.
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To counter one of the key criticisms of the current regime for Independent Directors that they are appointed like any other director, thereby leaving Promoters with tremendous influence in determining their appointment, the new Companies Bill, 2011 contemplates a nomination and remuneration committee mandatory which is a departure from clause 49 that does not mandate a nomination committee. The committee is required to consider candidates for appointment as IDs and to recommend them to the board. This brings about greater objectivity to the Independent Director Nomination process, at least to some extent. However, the Bill does not go to the full extent of providing greater participation by minority shareholders in the Independent Director Appointment process through methods such as cumulative voting or proportionate representation, which continue to be optional for companies to adopt rather than a mandatory requirement. Furthermore, in order to ensure that Independent Directors maintain their independence and do not become too familiar with the management and promoters, minimum tenure requirements have been prescribed. The initial term shall be 5 years, following which further appointment of the director would require a special resolution of the shareholders. However, the total tenure shall not exceed 2 consecutive terms. While the new Companies Bill, 2011 expressly disallows Independent Directors from obtaining stock options is companies as excessively remunerating the IDs could impinge upon their independence, these provisions could leave little room for companies to attract the required talent by remunerating directors for the services they provide. While the guidelines that set out the role, functions and duties of Independent Directors and incidental provisions relating to their appointment, resignation and evaluation introduce clarity in the role, they are extremely prescriptive in nature and may make the role of Independent Directors quite onerous. On one hand this may enhance the level of monitoring of listed companies, which is crucial for corporate governance, while on the other hand it could instill fear in the minds of potential Independent Directors that may dissuade them from taking up the position. In order to balance the extensive nature of functions and obligations imposed on Independent Directors, the new Companies Bill, 2011 seeks to limit their liability to matters directly relatable to them and limits their liability to only in respect of acts of omission or commission by a company which had occurred with his knowledge, attributable through board processes, and with his consent or connivance or where he had not acted diligently. While it is useful to provide a limitation of liability clause, much would depend on the manner in which this is interpreted by courts based on the specific facts and circumstances of individual cases.
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Overall while several concerns regarding board independence have been addressed in the new Companies Bill, 2011 and the intention is quite noble, implementation could give rise to difficulties. The scandals that rocked the India corporate sphere in the last 2 or 3 years and assumed significant political overtones, seem to have resulted in excessive reaction in terms of detailing every single governance norm concerning Independent Directors in the new legislation itself. While such detailed prescriptive legislation may address some immediate problems, it could also result in a great amount of rigidity and may not be the right way to evolve corporate governance norms which need to be dynamic in nature and could require periodic reconfiguration to keep pace with the changing business climate. Usually, while the basic governance framework is dealt with by statute, the details are dealt with codes (norms) of conduct that are more flexible in nature and the attempt to detail out the new governance structure may be self limiting. Given the prior experience and the enormous difficulties in amending company legislation in India, any future changes in the governance norms that may be required is likely to be as cumbersome and the question remains whether the current corporate governance reform has been a knee-jerk reaction to recent corporate scandals that may turn out to be a straight jacket in the future and adversely impact genuine businesses during times ahead.
4. Impact of Governance Reforms on Corporate India

Moodys and ICRA surveyed certain corporate governance practices of 32 Indian companies in 16 prominent family groups, covering a broad cross-section of Indian industry 100 and found that although a few notable companies are leading the way in emphasizing the importance of good governance and adopting global best practice, important governance issues persist. These potentially have negative credit implications, and typically effect issues not (or only partially) covered by regulations including leadership transition, transparency on ownership/control and related-party transactions, and independence of directors. The lack of board nomination sub-committees in most of the companies surveyed suggested that succession planning is not fully deliberated with appropriate involvement of independent directors. Lack of clarity on ownership and the financial position of non-listed familycontrolled holding companies (which may have raised significant amounts of debt to fund the group) were also identified as material credit weaknesses. Although the surveyed group was not excessively
100
Moodys-ICRA Corporate Finance; Corporate Governance and Related Credit Issues for Indian Family-Controlled Companies(2007); Summary of the report is available at <http://articles.economictimes.indiatimes.com/2007-10-22/news/27677048_1_corporategovernance-ambani-brothers-companies>.
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leveraged, in general the prospect remained of higher leverage as families try to avoid losing control while they implemented their often aggressive growth plans. The survey also found that despite regulations regarding independent board directors, families retained significant control over listed companies and sometimes appeared to be acting primarily for the benefit of their group or family. As such, the difficulty in ascertaining the true independence of directors was a big corporate governance challenge. Drawing from their overview of Indian Corporate Governance practices, based primarily on a 2006 survey of 370 Indian public listed companies, Balasubramanian, Black and Khanna101 also found that there is a cross-sectional relationship between measures of Governance and measures of the Firms performance and found evidence of a positive relationship for an overall Governance index and for indices covering Shareholder rights and disclosure. In a study carried out over 40 companies during the period 2000-01 to 2002-03, to study the effect of governance variables on market valuations, Mani and Sridharan102 also found that superior governance practices result in better valuations. Using only balance sheet information from 4 selected sectors of the Indian industry, Mukherjee & Ghosh103 analyzed the efficacy of Corporate Governance. Their findings, by and large, painted a disappointing picture with the overall conclusion that Corporate Governance was still in a very nascent stage in the Indian industry. The authors found that decision and policy making was still taken mostly as a routine matter and among the institutional investors also it seemed that the foreign institutional investors are the most consistent in stock picking whereas the performance of the domestic institutional investors was sporadic and volatile, at best. They also found serious shortcoming on the part of the capital market in not being able to enforce better governance on the part of the directors or performance on the part of the managers.
101
Balasubramanian, Bala N., Black, Bernard S. and Khanna, Vikramaditya S., Firm-Level Corporate Governance in Emerging Markets: A Case Study of India (July 2, 2008). ECGI - Law Working Paper 119/2009; 2nd Annual Conference on Empirical Legal Studies Paper; U of Michigan Law & Economics, Olin Working Paper 08-011; U of Texas Law, Law and Econ Research Paper No. 87; Northwestern Law & Econ Research Paper No. 09-14. Available at SSRN: <http://ssrn.com/abstract=992529>. 102 Mani, G.V. and Sreedhran, Revathy,(2004); Better Corporate Governance Pays , Insight, CRISIL Ratings, Vol II- No. 9, June 2004. Available at <http://www.crisil.com/Ratings/Commentary/CommentaryDocs/better-corporate-governancepays_june-04.pdf>. 103 Mukherjee, Diganta & Ghosh, Tejomoy, An Analysis of Corporate Performance and Governance in India: Study of Some Selected Industries; Discussion Paper 04-19,available at <http://www.isid.ac.in/~pu/dispapers/dp04-19.pdf>
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Two more empirical studies on the impact of corporate governance reforms in India on corporate performance are quite noteworthy. In the first, an event study, Black and Khanna study104 the impact of corporate governance reforms reflected by the formation of the Kumar Mangalam Birla Committee and find that over a 2-day event window around May 7, 1999, the share prices of large firms, to which the corporate governance reforms were then intended to apply, rose by roughly 4% relative to other small firms, thereby signaling the investors expectations that corporate governance reforms will increase market value of firms. The second study by Dharmapala and Khanna105 acknowledged the importance of enforcement in corporate governance reform and studied the impact of the introduction of Section 23E to the Securities Contracts (Regulation) Act, 1956 in 2004 that imposed large penalties of Rs. 25 crores for non-compliance with the Listing Agreement that also includes Clause 49 containing the corporate governance norms. Using a sample of over 4000 firms during the 1998-2006 period, this study revealed a large and statistically significant positive effect (amounting to over 10% of firm value) of the Clause 49 reforms in combination with the 2004 sanctions106. As compared to the first study which explored the effects of the announcement of governance reforms on firm value, the second study examined the longer-term effects of governance reforms on firm value. It began with Clause 49 (of the stock exchange listing agreement for publicly-traded corporations) which was introduced in India in 2000 and mandated greater board independence, enhanced disclosure requirements, and increased the power of audit committees for affected firms. Since Clause 49 did not apply to all listed firms, the researchers could analyze the response of a treatment groups (firms subject to Clause 49) and compare the same with a control groups (firms not subject to Clause 49). Furthermore, other attributes of the governance reforms in India permitted Dharmapala and Khanna to engage in further important analyses. Because Clause 49 was framed as a change to the listing agreement, the initial penalty for violations was delisting. However, in 2004, Indias securities laws were amended to introduce larger financial and criminal penalties for violations of Clause 49 on individuals and firms. The introduction of these more severe sanctions was quite separate in time from the dates on which firms became subject to the new rules and provided an opportunity to not only test the effects of the substantive law on firm value, but also to test independently for the effects of changes in sanctions
104
Khanna, Vikramaditya S. and Black, Bernard S., Can Corporate Governance Reforms Increase Firms' Market Values? Evidence from India. Journal of Empirical Legal Studies, (Vol. 4, 2007); ECGI - Finance Working Paper No. 159/2007; U of Michigan Law & Economics, Olin Working Paper No. 07-002; University of Texas Law, Law and Econ Research Paper No. 86; 1st Annual Conference on Empirical Legal Studies; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: <http://ssrn.com/abstract=914440> 105 Dharmapala, Dhammika and Khanna, Vikramaditya S., Corporate Governance, Enforcement, and Firm Value: Evidence from India (June 23, 2011). U of Michigan Law & Economics, Olin Working Paper No. 08-005; 3rd Annual Conference on Empirical Legal Studies Papers. Available at SSRN: <http://ssrn.com/abstract=1105732> 106 Id.
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and enforcement.
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These studies indicate a positive impact of corporate governance reforms in the market place, and are extremely useful in setting the agenda for further empirical debate in the Indian context; however, they need to be treated with some caution. The first study by Black and Khanna was around an event date i.e May 7, 1999 when an important announcement regarding corporate governance reforms was made by SEBI when they announced the setting up of the Kumarmangalam Birla Committee which was mandated with the task of proposing corporate governance reforms. It has been argued that the date chosen for the event study, i.e., May 7, 1999, could have been premature as the information about the details of the specific corporate governance reforms could not be said to have filtered through the corporate system so as to affect the stock price. While the study can be said to confirm the desire and expectation of Indian firms to submit themselves to greater measures of corporate governance in the future, difficulty arises on account of the fact that the precise details of the reforms could not have been factored in at such an early stage and hence these study does not affirm the acceptability (or otherwise) of the specific concepts of corporate governance that were to be incorporated and which were subsequently introduced only after the Kumarmangalam Birla Committee issued its recommendations many months later. Acceptability of enhanced corporate governance as a general concept is one thing while the assimilation of the detailed norms is yet another. While the second study by Dharmapala and Khanna shows a positive correlation between the introduction of stringent enforcement norms and the companies market value, in the Indian context, merely having the law on the statute books does not necessarily result in effective enforcement as inadequate enforcement machinery and overburdened court system make enforcement cumbersome in practice. There is ample discussion in existing literature about these problems that plague law enforcement in India107. Hence, the evidence pertaining to the success of implementation of corporate governance reforms should lie in whether violations have been successfully prosecuted or not and not in merely whether or not penalties have been specified in the statute which at the least may require a lot of time in enforcing and at the worst could even be unenforceable.
Another important study carried out by Bhattacharya, Raychaudhuri and Rao108 empirically examined the
107
See Afsharipour, Afra, The Promise and Challenges of India's Corporate Governance Reforms (July 14, 2010). Indian Journal of Law & Economics, Vol. 1, No. 1, p. 33, 2010 ; UC Davis Legal Studies Research Paper No. 223. Available at SSRN:< http://ssrn.com/abstract=1640249> for an excellent report on the enforcement challenges faced in the implementation of Corporate Governance Reforms in India. 108 Bhattacharyya, Asish K., Raychaudhuri, Ajitava and Vivek Rao, Sadhalaxmi, Economic Consequences of'Regulation on Corporate Governance': Evidence from India. Available at SSRN: <http://ssrn.com/abstract=640842 or doi:10.2139/ssrn.64084>
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economic impact of SEBI Regulations on the mandatory disclosure of information and change in corporate governance mechanism of Indian listed Companies. This study used the timeline of the formation of the Kumar Mangalam Birla Committee and implementation of its recommendation to identify the pre-regulation period and post-regulation period and observe the impact of the new regulations on an experimental group (companies that were impacted by the new regulations and conforming to it) in the pre regulation and post regulation period and compare that with the cost of capital of a control group (companies that were not impacted by the new regulations). The pre-regulation period was taken from 1st June 1998 to 31st May 1999 and the postregulation period from 1st June 2001 to 31st May 2002. The result from the study provide evidence of a significant reduction in beta for the experimental group, where beta was used as surrogate for the cost of equity capital and is consistent with the notion that increased information and better corporate governance mechanism would reduce the cost of equity capital for the companies. George Geis109 has examined the proposition that mutual funds, institutional investors, and other share block holders (the Warren Buffets of the world) could conceivably guard against abusive behavior by monitoring a firms activities and examined the proposition whether block holding can be an effective antidote against dysfunctional governance. He concluded that while this idea has some theoretical merit, the present ownership structure of Indias public firms does not yet lend itself to an independent block holding strategy. To make his point, he empirically examined how stock ownership at fifty large public companies on the National Stock Exchange of India (the S&P CNX Nifty) is split between insiders, the Indian government, and independent investors and his analysis suggested that many (but not all) firms currently lack enough of an outside shareholder presence to provide a meaningful governance counterbalance and has concluded that while share block holding and investor vigilance may indeed have a significant role to play in effective Indian corporate governance, it will likely take some time before reform efforts in this area generate much impact.
109
Geis, George S., Can Independent Block holding really play much of a role in Indian Corporate Governance? (September, 24 2008). Corporate Governance Law Review, Vol. 3, No. 3, 2007. Available at SSRN: <http://ssrn.com/abstract=1273172>
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5. Future Direction for Corporate Governance Reforms and Research.

The predominant role of the Dominant shareholder in the context of Indian business organizations has often led to a huge debate on what is the right model that needs to be adopted for corporate governance reforms in India and on whether governance based on self regulation and voluntary compliance would give the same results here as it has given in the Anglo-Saxon world. Corporate governance systems can be distinguished according to the degree of ownership concentration and the identity of controlling shareholders110. While some systems are characterized by widely dispersed ownership (outsider systems),others tend to be characterized by concentrated ownership (insider systems) where the controlling shareholder may be an individual, family holding, bloc alliance, or financial institution and other corporations acting either directly or through a holding company or via cross holdings. Therefore, two of the basic models of conflict that can occur in corporate governance are, firstly, the conflict between controlling managers and outside widely dispersed shareholders and, secondly, the conflict between inside controlling shareholders and outside minority shareholders. While the interface between management and dispersed shareholders has been an extensively studied aspect of corporate governance research, especially in the Anglo Saxon world, the consequence of conflict between large controlling shareholders and weak minority shareholders, typical in the Indian business environment, is much less well understood. Like in most emerging economies, Indian Companies are linked in some way or another to an economic group or conglomerate that exercises control over the firm and over a large fraction of its shares. As a consequence, in the Indian business environment the focus in corporate governance needs to shift away from the standard agency problem between managers and dispersed shareholders and instead focus more closely to the relationship between minority and majority shareholders. While post 1991, there has been a sustained effort on the part of the Indian regulators to strengthen corporate governance norms, however these have been strongly influenced by developments that have occurred in other parts of the world, particularly the Sarbanes-Oxley Act in the U.S. and the Cadbury Committee Report in the U.K. Researchers like Varrotil111 have questioned whether the policies adopted by the Indian regulators are appropriate in the local context and adequate to meet the challenges or whether they require some mid-course correction to take into account the local factors. Given the significant difference in the Indian business context which is so different from the Anglo Saxon world, Varottil has made the following two assertions; a. The broad features of the Indian corporate governance norms have been transplanted from other
110 111
Varottil, Supra. Refer Note 9. Varottil, Supra. Refer Note 9.
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jurisdictions such as the U.S. and U.K. that follow the outsider model of corporate governance. Those norms are not likely to be suitable for addressing governance problems in India, where issues in governance primarily arise from the insider model; and, b. The collapse of several leading financial institutions in the US and the UK provide evidence, at least anecdotal in nature, that the corporate governance norms followed in the U.S. and U.K. have not been effective in preventing large-scale corporate governance failures. Hence it is natural for questions to be raised about the efficacy of the anglo saxon model in the Indian context. Furthermore, as the Satyam112 episode has demonstrated, the expectation that companies would transition from the insider model to the outsider model through a steady dilution of shareholding by the controlling shareholders is also not guaranteed as, in India, even minority shareholders could continue to exercise control without majority ownership. Given the past history in India associated with the concept and the role of the promoter, there is a need to provide mechanisms to tackle undue control by promoters who may exercise disproportionate control even with limited shareholding, because in India the transition to an outsider model of control, which is more amenable to the anglo saxon model of governance, cannot be expected to happen automatically with dilution of shareholding by the majority shareholder. Like in the western world, investor activism needs to find a more entrenched position in the Indian corporate milieu and while this has not happened as yet there are signs that activist investors in India are slowing beginning to emerge. Over time institutional shareholders would start to effectively monitor and sometimes agitate against inefficient boards and managements and also help shape general corporate governance norms and coalitions of institutional investors would emerge who would adopt an activist role in companies. The current absence of these checks and balances in the Indian context confers unhindered powers to controlling shareholders or promoters (including eventhose with limited shareholding percentages) to wield significant influence over corporate decision making. There is a need to support and strengthen this movement with policy changes and supporting regulation. Furthermore, as we have seen earlier, while a number of measures have been implemented aimed at improving corporate governance in India, public enforcement of laws continues to be weak and protection on paper often does not translate into actual protection. Based on a review of Indias corporate governance experience, Afsharipour poignantly identifies the lessons113 : It becomes clear that even with attentive crafting of detailed corporate governance rules by a group of elites with a deep understanding of corporate governance standards around the world, the reform process is useless
112 113
Stayam, Supra.Refer Note 14. Afsharipour, Supra. Refer Note 23.
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if an effective infrastructure for enforcement and implementation is not in place. Thus, the corporate governance reform process must account of these limitations in the crafting of new standards..In fact, introducing formal rules into a system where there is an inadequate infrastructure to support the implementation and enforcement of such rules may mean that these rules have little chance of succeeding. While, undoubtedly, all steps must be taken to strengthen enforcement, the situation is unlikely to change drastically in the short term. There is a need to re-examine the enforcement framework to explore what alternative mechanisms, to public enforcement of law, exist and to work towards strengthening them as well while we focus on improving the legal delivery system. Berglof and Claessens 114 had developed a broad framework to help explain enforcement and provided a typology of different forms of enforcement mechanisms and have classified enforcement mechanisms into three categories : first, private ordering initiatives, which they define as transactions that take place in the absence of laws and courts or other public enforcement institutions; second, private enforcement of the law which occurs when private agents avail themselves of the framework defined by law or regulations to punish violations from contracts, using the courts to adjudicate and the state to enforce the final judgment and; third, public enforcement which involves the enforcement and prosecution of the law by the government. Enforcement mechanisms rely on the efficacy of certain institutions belonging to the state and the market -although to varying degrees. While private ordering mechanisms are often dependent on the efficacy of markets, public enforcement mechanisms are almost entirely dependent on state institutions for their efficacy, and private enforcement mechanisms fall somewhere in between. Where either of these institutions are absent, or are limited in their effectiveness, the effectiveness of the related enforcement mechanism will correspondingly suffer Given the current poor record of public enforcement of law in India, some researchers like Ravi Bhardwaj115 have suggested that there should be a focus on greater reliance on private ordering and private enforcement mechanisms to bring about better corporate governance. Indeed, as far back as 1999, Varma116 had suggested that the key to better corporate governance in India lies, primarily, in a more efficient and vibrant capital market. He had stated that, over a period of
114
Berglf, Erik and Claessens, Stijn, Enforcement and Corporate Governance (September 2004). World Bank Policy Research Working Paper No. 3409. Available at SSRN: http://ssrn.com/abstract=625286 115 Bhardwaj, Hari, Corporate Governance in India: Towards a More Holistic Approach (June 3, 2011). Oxford Student Legal Studies Paper No. 04/2011. Available at SSRN: http://ssrn.com/abstract=1899512 116 Varma, Supra. Refer Note 61.
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time, it is possible that Indian corporate structures may approach the Anglo-American pattern of near complete separation of management and ownership and, only at that stage, India too would have to grapple with governance issues like empowerment of the board vis a vis the management. However, until then, the issues which dominate the Anglo-American literature on corporate governance are of peripheral relevance to India and had suggested that the key to corporate governance reforms in India lie in strengthening its capital markets. To summarize, the key features that distinguish the environment for corporate governance in India are as below;
The traditional Anglo Saxon Model of Corporate Governance has limited applicability in India as the Indian Corporate structure is characterized by the presence of the Dominant Shareholder. In the Indian context, Corporate Governance has as its primary role the protection of the Minority Shareholder(s) as opposed to harmonizing the interest of the Owners (Shareholders) and Managers in the Firm. In India, the Dominant Shareholder is not restricted to Family owned Corporations only. The State also plays the role of a Dominant Shareholder by virtue of its holding controlling shares in many Public Sector undertakings. Furthermore, there is also the small but significant presence of Multi National Corporations (MNCs) who have a controlling role in some Indian Companies. Corporate mis-governance gets highlighted only in cases when disputes arise within the Dominant Shareholder Group as was evidenced in the fall out between the Ambani brothers in their dispute over the ownership of Reliance Industries Limited. Till such time they are together, the Dominant Shareholders continue to expropriate the interests of the Minority Shareholders by using their controlling shareholding to force through shareholder resolutions under the guise of shareholder democracy and corporate mis-governance is usually swept under the carpet. The current corporate governance measures based on rule based compliance( with clause 49 of the Listing Agreement) have failed in India as they have focused more on form than on content. The fact that companies like Satyam and Reliance received coveted awards for good governance in a period when, as it was subsequently found, they had a period of very poor governance is a strong indictment of the current measures used to define Good Governance in India. As in the rest of the world, Corporate Governance practices in India have been impacted and shaped by the external regulatory framework in which the organizations function and which is characterized by poor enforcement of law. Rather than continue to lament on the poor public enforcement of law (which is not likely to change in the near term) the key to better corporate governance may lie in and private ordering initiatives and in private enforcement of law.
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Clearly the complexities to the corporate governance issues in India are multi dimensional which are compounded by the fact that not only do we have a less than complete understanding of the basic issues and policy makers have transplanted an alien concept which is unsuitable to address the basic problem but also we have very poor implementation of rules and regulations. As a result, the good intent reflected on the statute books and in the regulations usually does not get converted into concrete action on the ground. Indias experience of two decades with corporate governance reforms has raised a number of questions, such as, How well are Indias companies being governed?, Why have there been failures?, What were the regulators doing, could they have prevented the failures?, What must be done to ensure that directors abide by best practice? etc. Forming answers to these questions require an understanding of the peculiarities of the Indian business environment, its legal traditions, cultural heritage, and social structure all of which would have an influence on the effectiveness of its corporate governance system. While there are no quick and ready answers to the above questions some broad directions are emerging which point to the future direction for corporate governance reforms. However, there is also a need for greater research in this area as only when we have the right answers to these questions would we have the solution that will guide the future corporate governance reforms in India. According to Varrotil117, the current focus in corporate governance reforms in India has been on various requirements of corporate governance, such as independent directors, audit committee and CEO/CFO certification, which originated in the context of the outsider model. Replicating these features in India, which are based on the insider model for corporate governance, is unlikely to give the desired results as they do not address the root cause of poor corporate governance in India. Adequate attention has not been paid to the efficacy of the current approach and concepts that were devised for one business context are sought to be fitted into another business context to address the corporate governance issues in that context and have resulted in a mismatch. There is a serious perception gap in understanding the theoretical underpinnings of Indian corporate governance issues and hence the underlying issues require careful reconsideration. Varrotil118 makes the case that the source for strengthening Indian corporate governance lies within and seeking out other systems of corporate governance to emulate will only lead to further incongruity with the traditional business systems and practices that are prevalent in India. All efforts of transplantation of concepts that are intrinsically alien to the Indian context would unnecessarily add to
117 118
Varottil, Supra.Refer Note 9. Id.
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the eclecticism that persists in Indian corporate governance. While the empirical evidence on the impact of corporate governance reforms in India is promising, the anecdotal evidence is less optimistic and calls for the need to evolve a model of governance that resonates well with Indian business values and practices from the standpoint of economic, social, and political factors119. To address the corporate governance challenges that are specific to the Indian business context, Varrotil120 has suggested some changes to Indian corporate governance norms such as improving the external audit process by eliminating or mitigating the influence of the controlling shareholders and reducing their authority to influence the appointment, remuneration and control of auditors; appointing independent directors through a larger democratic process that involves close (and inclusive) participation by minority shareholders; expound the role of the independent directors on boards in insider systems and clearly elucidate the constituencies they ought to protect, i.e., including the minority shareholders; diluting the concept of promoter under law so as to enable a transition of companies from the insider model to the outsider model involving professionally managed companies; consider the imposition of fiduciary duties on controlling shareholders in insider systems (such as India) where such duties do not exist under current law or are otherwise inadequate; and encouraging large investors (such as financial institutions) who are not controlling shareholders or promoters to take up a more activist role in corporate governance of Indian companies so as to protect the rights of minority shareholders; as a corollary, enhance the robustness of remedies available to minority shareholders, particularly against conduct involving oppression or mismanagement. However, despite an understanding of the deficiencies in the current corporate governance model and the recognition of the need to develop more India centric governance reforms, we need to tread with caution in recommending changes as we no longer have the luxury of time on our side as there is the need for further research to fully understand the underlying issues that affect corporate governance in India as only that would help to evolve the right framework that is appropriate to the Indian situation and ethos. Some of the areas for further research and discussions have been identified as below; a. Greater and focused research is required to understand the specific problem between controlling shareholders and minority shareholders, that is prevalent in the Indian context, and to develop academic literature as well as develop suitable regulatory solutions to deal with this problem. In the insider system, prevalent in India, the essential role of corporate governance norms should be to remove the governance systems from the purview of controlling shareholders and place the firms governance systems outside their influence. In other words, the corporate governance systems ought
119 120
Id. Id.
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to be zealously guarded against any capture of these systems by the managing shareholder, even if such shareholders do not hold the controlling interest in the company, and the primary purpose of governance systems, in India, ought to be to protect the interests of the minority shareholders against the actions of the controlling shareholders. b. Another challenge in researching good Governance has been that it is not easy to clearly quantify what good Governance is; traditionally, researchers have assessed the quality of Governance indirectly, by measuring adherence or compliance to certain actions which are expected to lead to good Governance. Unfortunately there is no unanimity among researchers on what the underlying parameters that define and impact Corporate Governance in organizations, are. Therefore, the robustness of such indirect measures of Corporate Governance would be dependent upon how accurately such indirect measures are able to map good governance. A better understanding of the underlying factors that impact Corporate Governance in the Indian context would help evolve solutions that are specific and appropriate to Indian companies. c. While Regulators, including in India, have sought to implement good governance in public listed companies by ensuring compliance to a good governance code, some researchers121 have suggested that this approach suffers from a basic shortcoming as the impact of many key governance arrangements depend considerably on companies ownership structure and measures that protect outside investors in a company without a controlling shareholder are often irrelevant or even harmful as compared to measures that aim for investor protection in companies with a controlling shareholder, and vice versa. Consequently, norms for good governance that are implicitly assumed to be adopted through the adoption of a uniform corporate governance code that would apply to all public listed companies( such as those proposed in India through the adherence to clause 49 requirement) are bound to fail in delivering the expected results with all the publicly listed companies. It has been argued 122 that companies that depart from best practices in corporate governance (as may be mandated by regulators) because of genuine circumstances actually outperform all others and cannot be considered to be badly-governed at all
121
Bebchuk, Lucian A. and Hamdani, Assaf, The Elusive Quest for Global Governance Standards (2009). University of Pennsylvania Law Review, Vol. 157, pp. 1263-1317, 2009; Harvard Law and Economics Discussion Paper No. 633. Available at SSRN: http://ssrn.com/abstract=1374331.
122
Arcot, Sridhar and Bruno, Valentina Giulia, One Size Does Not Fit All, After All: Evidence from Corporate Governance (January 15, 2007). 1st Annual Conference on Empirical Legal Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=887947 .
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and, on the contrary, mechanical adherence to best practice does not always lead to superior performance. This calls for further research, going forward, to understand how useful the quest for a uniform governance standard (adopted by the implementation of a uniform governance code)is and whether it is more appropriate to replace it by an effort to develop and implement separate frameworks for ensuring good governance in companies with differing characteristics such as with and without a controlling shareholder and the need to have flexibility in developing corporate governance regulations which can cater to the diversity in the company characteristics123.
d. Most of the existing research work is based on a one way causal model of relationship between Corporate Governance and Corporate Performance and has ignored the possibility of a two way relationship that may exist between Corporate Performance and Corporate Governance. Researchers like Sanjai Bhagat124 have postulated that Corporate Performance and Corporate Governance may be endogenously related i.e. the causality may exist both ways. Therefore, newer models based on an endogenous relationship between corporate governance and corporate performance need to be developed as studies that ignore such a two way relationship may lead to misleading conclusions regarding causality between corporate governance and corporate performance. e. Some studies125, especially in the emerging economies, have commented on the influence that the nature of Ownership of the organization has on the efficacy of its Corporate Governance structure, particularly in the backdrop of a weak regulatory framework. A possibility therefore exists that, in India, the nature of dominant ownership (i.e whether a company is privately held/is a public sector undertaking/ is a foreign owned company/ is widely held) could be a moderating variable which would impact the way Corporate Governance affects Corporate Performance and the appropriate governance framework in the Indian context may have to be tweaked in line with the nature of the dominant share ownership.
Therefore, it would augur well if the Indian corporate governance debate were to transcend beyond
123
Khanna, Vikramaditya S., Corporate Governance Ratings: One Score, Two Scores, or More? (2009). University of Pennsylvania Law Review Pennumbra, Vol. 39, p. 51, 2009; University of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 10-024. Available at SSRN: http://ssrn.com/abstract=1690573. 124 Bhagat, Sanjai and Bolton, Brian;Corporate Governance And Firm Performance (April,2007). Available at http://leeds-faculty.colorado.edu/Bhagat/GovernancePerformance-JCF-June2008.pdf 125 Porta, Rafel La, Lopez-de-Silanes, Florencio & Shleifer, Andrei; Corporate Ownership Around the World (oct 1998); The Journal of Finance, Vol. 54, No. 2. (Apr., 1999), pp. 471-517
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conventional wisdom to take into account the distinctive Indian factors that are characteristic of the business environment here and to take into account its past history and culture, rather than to live in the hope that concepts developed in the US and UK, that had been developed to address the agency problems between shareholders and managers, would be quite appropriate to solve the problems that arise in corporate governance in India. Indeed, corporate governance reforms in India are now at an interesting crossroad and the future developments in reforms implementation, during the current decade, will decide how effective would the corporate governance reforms be in India.
Santosh Pande
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DRAFT-An overview of Corporate Governance Reforms in India

An overview of Corporate Governance Reforms in India.

Electronic copy available at: http://ssrn.com/abstract=1958031

DRAFT-An overview of Corporate Governance Reforms in India

Electronic copy available at: http://ssrn.com/abstract=1958031

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

CII Code, Supra. Refer note 2.

DRAFT-An overview of Corporate Governance Reforms in India

2. Regulatory Framework for Corporate Governance in India and challenges in Enforcement.

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

Naresh Chandra Committee, Supra. Refer note 4. Id.

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

Id. Supra.,Note 18.

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

3. Key Issues in Corporate Governance in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

Id. Id. 84 Id. 85 Varottil, Supra. Refer Note 9.

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

Shah, Supra. Refer Note 76.

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

4. Impact of Governance Reforms on Corporate India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India

5. Future Direction for Corporate Governance Reforms and Research.

Varottil, Supra. Refer Note 9. Varottil, Supra. Refer Note 9.

DRAFT-An overview of Corporate Governance Reforms in India

Stayam, Supra.Refer Note 14. Afsharipour, Supra. Refer Note 23.

DRAFT-An overview of Corporate Governance Reforms in India

DRAFT-An overview of Corporate Governance Reforms in India