7 Aug

1) There is a limit to how much good corporate governance can be legislated.

In the Indian context, critically comment.

India has seen many cases of misgovernance of Corporate in recent past. Starting from Satyam to
recent Cairn India loan transfer to parent company on generous terms. Every time any incidence
happens SEBI and other governing bodies try to do a quick fix by making new rules and norms.
But, there is a limit on the corporate governance can be legislated for the following reasons
1. It wither away the business sentiments in the country
2. Creates more rules and more elaborate process which in turn will harm the nation ranking in the
places to do business
3. More expenditure in administration and tracking of incidences
4. New laws and at times amendment to existing laws
The Indian Companies should understand that a more sustainable business requires not only good
corporate governance but also stakeholders trust, specially, in recent past we have also seen that
the active participation of the stakeholders have stopped Maruti Suzuki Subsidiary Investment
model and Tata motors executive pay increment. The Companies act 2013 have made some
excellent provisions regarding Code of Professional Conduct for the independent director but
such measures, even though good, would add up to the existing legislation. As, it has been
suggested by the Narasimham Committee, the time has come that there should be a single
Unified Financial Code which can remove all the patch works.

2
nd
Answer

Corporate governance are set of standard that evolved with globalisation to check and ensure that corporate
dont betray the operational ethical standards causing loss to share holders.
The exposure of related party transactions as done by Cairn or huge remuneration of Tatas top executive
despite making loss has made corporate governance in Indian context an utmost necessity. Yet, the extent
of corporate governance is limited becasue :
(a) The institutional share holding in India is just 1/3rd compared to developed world where it exceeds
90%. It thus make checks and controls difficult.
(b) The low level of financial literacy of individual investors create enough space for manipulations.
(c) The electronic voting available to shareholders is used rarely by shareholders.
(d) The time alloted to general body meetings is a mere conformational stance.
(e) Regulation related to corporate governance are still in nascent stage with lots of hit and trail still going
on.
With the latest ammendment to company act a new trrust is given to corporate governance. Yet,
codification of these ethical standards have a limit. India Inc should be proactive rather than being coerced
to adopt corporate governance if they desire to expand global foot prints.
3
rd
Answer
Any legislation can only govern those things that are ecplicit. Those that are not explicit can be governed
only by a set of norms, that where ethics comes into play.
For example: Tax planning. A person or entity knows that he is using the loopholes in tax system to escape
tax yet his does so. Like in Voda fone case they dont violated any law but they shrewdly used the loop hole
to avoid taxes.
And yes electronic voting is legislated but can you force any share holder to vote mandatorily. This limits
the chech on corporate decisions.
We can fix GBM time duration but can we bring the competence in every share holders to take a rational
decision or to understand the complexities of balance sheet.
Thirldy no law is absolute but it evolves with the emerging scenario. Company act was established way
back but we keep on ammending it to bring greater degree of corporate governance and to ensure
customers intrest is protected.
Another example of why a legislation just serves partially to solve any problem( not related to this ques)
How many laws regarding womens safety has been made but are they able to check crime against women?
4
th
Answer
Uk follows the principled approch or comply and explain approach,while U.S.A. follows the statute or
rule basedapproach.India have adopted the hybrid of both these approaches by rule 49 of companies
act,As both the above approaches are deficient in some or the other way.
A company cant be dictated how to perform( after a limit) as it will reduce the profitability,independence
of the company and seriously hamper the growth of the same.Hence ,the committe of SEBI headed by
Mr.Godrej had prescribed some mandatory and some non-mandatory requirements for listing of the
companies on stock exchanges.The shareholders have some inalienable rights about the functioning of the
company in which they are investing.In India the holdings of institutional investors in the listed companies
are averaged very less than the same with respect to a company in Dow Jones(Whopping more than
90%).Hence there is this systemic limitation why the subjects cant be legislated further.Another point
that work ethics of the investee play a pivotal role in the functioning of the corporate.
SEBI as well as legislators have the roles of domain development as well as investor protection but when
there is excessive latter, it will hamper the growth of the corporate sector further and will further reduce
werthe business index of india.So the legislations work are on the edge of swords which have to protect
both the investors as well as investee that is why good corporate governance cant be legislated and done
away with.
5
th
Answer
It is often complained by Indian corporate, of dealing with multiple regulatories and excessive
regulation norms are diverting their focus from the business.
The recent incident of cairn India, where it has loaned$800 million to an unnamed group company
without disclosing this transaction its share holders and stock market and 2-G spectrum license
scam suggest that allegations are unsubstantial.
Government has added new clause 49 in Listing Agreement to the Indian Stock Exchange, which
requires company to seek shareholder approval for such transactionand corporate act,2013 to curb
such unethical activities. But the fact is there is a limit for such provisions because many of
clandestine transactions come out much later.
With rise in shareholder activism- like, Tata Motors decision to hike its top executives was back-
footed as shareholders disagreed on the grounds that company is making losses, similar activism
forced Suzuki corporation to modify its terms for a new plant in Gujarat. Shareholder activism
coupled with advent of proxy advisory firms can supplement the steps taken by government which
will effectively ensure good corporate governance.