This article has been written by Mr. Aditya Raj Pandey, a 2^nd Year BA LLB student from Symbiosis Law School, Hyderabad

CORPORATE GOVERNANCE

Corporate governance, not a new term or mechanism but still not so old like others. It is the set of rules, regulations and principles which is used by the companies to control or administer themselves and their day to day workings. The governance for managing anything in the world and the same is the situation with company’s or corporations. They also need some set of guidelines which govern them, direct them and also provides aid to them in order to achieve the goals set by themselves. Also, the need of the proper guidelines arises, because in the past few years, we saw numerous cases of frauds and scandals with different companies in our country. Therefore, with the primary motive to govern the company and also to protect the company from frauds and scandals, the corporate governance is an essential thing. Thus, all in all we can say that, it the mechanism based system which is cooperative in directing, controlling and administrating in any organization which in turn helps to achieve goals and objectives of the company and hence awards benefit to the company in one way or the other. Also, along with company’s profit and governance methods, it also helps in providing the rights and liberties and any type of benefits to stakeholders. 

Now, if we talk more about the India and the need of these rules and regulations, we can observe that we need these laws chiefly after two major scams or scandals namely, Satyam Computer Services and Harshad Mehta. Although from the very beginning the corporate sector of India is very much concerned about proper rules and legislations, but these two scams shuddered the whole corporate sector and hence created strong sensation of drafting and enforcing strict laws and acts. 

Corporate Governance primarily consist of legal agreements in between the company and stakeholder which can be of any nature, i.e. explicit or implicit and the same is done for distribution of 3R known as Responsibilities, Rights and Rewards, along with the methods for solving the conflicts or issues in between stakeholders and corporations in the manner prescribed, and, it also provides the proper procedure for control, information & supervision and thus, all of these creates and works as the system of check & balance. 

PRINCIPLES OF CORPORATE GOVERNANCE

There are some major principles of corporate governance, on which it is based and works. The principles are listed below: 

1. Transparency – For the good governance or for the company to excel, it is very much necessary to have transparency in the procedure of the company and all the shareholders and stakeholders should get clear information about the works of the particular organization. Transparency in the general senses means openness or clearness about any work or the procedure of the company. It is of utmost importance in today’s era because, it provides strength to the decision making process of shareholders and stakeholders. 
2. Responsibility – The BODs (Board of Directors) have all the power vested with them and hence they are the superior authority of any organization. But along with the great power, they have lots of responsibility on their plate and they have to abide all the responsibilities in order to effectively run the business make profit out of them. 
3. Accountability – Accountability here means the obligation and duty of the company or the board to provide the proper reason for the company’s action or conduct or any such issues. The board who runs and governs the company have the powers with themselves to take any decisions as such and along with it, they also sometimes have to take risk involving decisions and hence maintains internal control systems with risk management systems. 

NEED OF THE CORPORATE GOVERNANCE

Today, in the modern world, the company’s organization is changing rapidly and thus to cope up with the varying nature, we have some set of guidelines which is known by the name of corporate governance. Therefore, corporate governance not only protects the management but it also safeguards the rights and liberties of stakeholders along with providing aid to economic progress. An important point to note down here is that, those companies who have good corporate governance experiences top level of confidence and independence which helps company and indirectly director towards the positive and strong outlook in the national and international market. 

Apart from these, there are many other needs as well, which are listed below: 

1. The good corporate governance guarantees accomplishment and financial triumph of any corporation around the world. 
2. When there is strong corporate governance, then the confidence of investors increases a lot which subsequently helps the company in financial market. 
3. Corporate governance is required by the companies or firms because it gives the proper kind of encouragement to all the directors and positions holder and subsequently because of this they can achieve their goals easily and in short period of time. 
4. It also protects or safeguards the company’s and its interest from corruption, risks and various other mismanagements. 
5. Last but not the least, corporate governance managed the organization in such a manner that, it is in the interest of everyone and it also gives signal to the market that the particular organisation have their effective self regulation. 

FRAMEWORK OF THE CORPORATE GOVERNANCE

In, India there are around four to five laws which governs all the type of companies which existed within the territory of the country. 

1. Companies Act, 2013 – The new companies law have the several sets of provisions which is related to or which provides good corporate governance. Such provisions are Section 134 which makes the Board of directors mandatory to attach every financial statement report that contains the responsibility of the director, Section 177 provides for the provision to make an audit committee by the board of directors of listed companies and Section 184 contains the provision that makes director mandatory to reveal his interest in the company or any other firms as such in the first meeting itself.  
2. Securities and Exchange Board of India – Established on the 12^th Day of April 1992 with the motive to restrict and restrain the malpractices in the financial markets. SEBI primarily regulated the stock market and to maintain the good governance, it comes up with the several models and norms. Some of the norms are: (a) The amended Clause 35B of the Listing Agreement provides that, the option of e voting should be provided to all the shareholder for general meetings. This amendment is made to tally the listing agreement with the Companies Act 2013 provision. (b) The amended Clause 49 strengthen the Corporate Governance by forbidding the individual directors from being eligible for any type of stock options. Audit committee is also enhanced and now it evaluates management system, control financial system and also checks the loan and investments made in the company. At last, we can say that SEBI provides the guidelines that protects the investors in the market.
3. ICAI Accounting standards – Section 129 of companies’ act says that the financial statement should be in compliance with standards of accounting under section 133. 

Section 133 also states that the financial statement should show proper view of state of affairs of the company.  

4. Standards Listing Agreements and Secretarial Standards are the two other frameworks for corporate governance. 

All in all, we can say that Indian Corporate Governance framework chiefly focused on – shareholders protection, board of directors’ liability in taking the decisions of the company, disclosure of financial and managerial reports to shareholders and maintaining the corporate social responsibility.   

 ISSUES IN CORPORATE GOVERNANCE

We know that, if anything or any laws have pros then cons are also present in it. The same applies in the case of corporate governance rules in India. Although, we have so many advantages of corporate governance but it can not be effectively implemented or enacted if the issues associated with it will not eradicated by us. Today, in any business or corporation which is owned by particular family, then the family have the biggest impact on the decision making procedure and other important works of the company. Sometimes this is not beneficial and corporate governance failed during this period and hence it causes loss to companies. Also, the same situation comes during the selection of board members of the company. In order to have proper control and effective control on corporations, the family members takes place many positions and the rest one are generally assigned to family friends or distant relatives. This all shows that the particular family wants to have control over the business and in order to achieve the same, they did these activities which severely affect the companies growth and development in market. Along with all these, the Kumar Mangalam committee suggested the idea of independent director appointment which is the biggest reform ever in the history of corporate governance, but this idea barley succeeded because these directors would not able to take proper control and hence make effective impact over the organization. Also, an independent directors can be removed easily by other position holders or majority shareholders, if they don’t agree with the directions or decisions of the promoter’s. Along with all these, there are some more challenges as well which is relate to transparency and data privacy of any particular company. The major drawback in the clause is that, it did not defined which type of information can be disclosed and circulated among the general public. Therefore, all of these are the major issues which is related to corporate governance and hence creates hinderance in the proper application of the rules and regulations in the company.   

CONCLUDING REMARK

Corporate governance is one of the most crucial thing in today’s era as with the changing world the structure of the company’s changes and hence in order to function properly every company requires certain sets of rules and regulations on which they work and produce benefit out of the same. Although there are so many advantages of this governance for Indian companies and companies of the world as well but there are various drawbacks as well which hinders the growth and development of company in one way or other. Thus, in order to effectively implement corporate governance we need some amendments or changes and that too in reference with transparency, data protection and independent directors. 

REFRENCES 

1. Corporate Governance in India – Evolution and Challenges, Mamta Sawakar, IJCRT, Vol. 6 Issue 2, 2018
2. Corporate Governance in India: Issues and Importance, Robin, IJRAR, Vo. 6 Issue 1, 2019. 
3. Corporate Governance in India – Why is it so critical?, blog, preschool, IMS initiative
4. Corporate Governance in India, Priyanshi, legal Services India, e journal. 
5. Corporate Governance in India, blog, ecgi. 

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