Are Indian businesses serious about corporate governance?

Submitted By :Shaurya DeepFSB2013002357

Submitted to :Prof. Vinayak S. Khanvalkar

Content

Topics Page No.

Introduction 3

Current Situation 4

Taking Corporate Governance seriously 5

Conclusion 6

2

Introduction

In my opinion , Good corporate governance is characterised by a firm’s commitment and

adoption of moral practices across its entire value chain and altogether of its dealings with a

wide cluster of stakeholders encompassing workers, customers, vendors, regulators and

shareholders (including the minority shareholders), in both sensible and dangerous times.

To achieve this, sure checks and practices need to be whole-heartedly embraced and brought

into thought.

The issues of governance, responsibleness and transparency within the affairs of the

corporate, additionally as about the rights of shareholders and role of Board of directors have

not been of utmost importance as it is nowadays. The corporate governance has taken a centre

stage within the Board room discussions.

India has become one among the quickest rising nations to have aligned itself with the

international trends in corporate Governance. As a result, Indian firms have increasingly been

able to access to newer and bigger markets round the world; additionally as able to acquire

more businesses.

The response of the govt. and regulators has conjointly been praiseworthily quick to satisfy

the challenges of corporate delinquency.

But, because the world environment changing unendingly, there's a larger want of adopting

and sustaining sensible corporate governance practices for value creation and building

companies of the long run.

3

Current Situation

Recent events in India have placed the spotlight on corporate governance practices of Indian

firms.

A key side that's being debated within the corridors of India inc. is whether or not we'd like

major regulative changes to boost corporate governance, or whether or not improved

standards of company governance might be achieved through adoption of principle-based

standards of conduct.

India Inc. has usually been proactive in promulgating company governance laws. In doing

therefore, a decent balance has been achieved i.e. headway has been created, in terms of

helping make sure that laws don't seem to be stifling our entrepreneurial initiatives.

From a strictly regulative stance, India compares favourably with most other developing and

Asian economies as so much as its corporate governance rules are involved.

Increasing shareowner policy and demanding disclosure needs under the new companies Act

have helped India improve its corporate governance score. Whereas the score has improved 3

percentage points to fifty four in 2014 from 2012,

India's rank has remained seventh on the 11-nation list topped by Hong Kong, a CLSA report

has aforementioned.

**CLSA (Credit Lyonnais Securities Asia) is Asia's leading equity brokers and investment

groups focused on institutional broking, investment banking and asset management to

corporate and institutional clients around the world.

Why Indian businesses are taking corporate governance seriously?

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India has recently witnessed a series of corruption and bribery scandals – from the allocation

of telecommunication licenses and coal blocks to the newer allegations of kick-backs in a

multi-million dollar chopper procured contract etc. This has not solely dampened capitalist

sentiment however has conjointly raised questions about India’s standing as a leading

developing economy.

It's been 5 years to the Satyam scandal and also the IT Index is up over three hundred %. On

the surface, this means that all is well with the Indian IT sector. Till a few years agone, the

overall perception was that the world had comparatively cleaner promoters, sturdy and clear

accounts, and sound corporate governance practices. However, an analysis by leading

brokerage compass Capital proves this theory wrong.

In a report titled 'The Underbelly of Indian IT', Ambit, in fact, says it's the best sector to

fudge accounts, given its for the most part services-led nature which it depends on business-

to-business (B2B) transactions that don't lend themselves to the sanity checks that that may

be done that one can do in industrial sectors. The brokerage has questioned corporate

governance practices at a number of India's high Indian IT companies, including at Infosys,

that has historically been hailed as a beacon of excellent corporate governance. However, IT

biggies- TCS, Wipro and HCL Tech- didn't feature on the list.

But all isn't dangerous there are numerous different firms that are paving way for the sensible

corporate governance practices and that they are increasing in good numbers that shows that

Indian businesses are serious about corporate governance.

For example per CLSA's report, the common theme among India's massive company houses

like Tata Motors, Tata Steel and Hindalco Industries has been an improvement in revealing

standards.

They currently give higher disclosures on their foreign unit’s jaguar Land Rover, Tata Steel

Europe and Novelis. Tata Steel and Hindalco have conjointly redoubled the quantity of

independent directors on their boards. Drug companies’ lupin and Dr Reddy's Laboratories,

too, have witnessed a rise in their score as they too have inducted a lot of independent

directors.

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Tata Steel has been given the prestigious certificate of recognition by the Institute of firms

Secretaries of India (ICSI) recently for its excellence in corporate Governance. it is a

recognition that identifies the company's corporate governance philosophy that emphasises in

adopting the 'best practices' that are followed within the space of corporate Governance

across numerous geographies.

Practice of corporate governance has progressed in a very huge way in Indian firms. There

are many firms that created proactive initiatives in introducing sensible governance norms

and standards even before these became necessary.

The philosophy of corporate Governance at Tata Steel is an integral a part of the expansion

strategy and reinforces our vision in complete transparency and responsibleness in all the

transactions, so as to guard the interests of its stakeholders. Similarly, sensible governance in

Tata Power is ruled by “Leadership with Trust” a principle that has been in observe since

long; whereas Tata Motors began Tata Business Excellence Model and also the Tata Code of

Conduct.

Also for example, in its company governance report, Wipro, mentions concerning some of

the pioneering efforts created by it in setting sensible governance standards such as;

instituting stock possession, constitution of sub-committees of the Board of administrators for

Audit, compensation and benefits and preparation of consolidated monetary statements.

Ranbaxy voluntarily adopted many best practices in sensible governance that included;

majority independent directors within the composition of the board, constitution of board

committees for oversight and steering regarding key selections and soundness of deciding

processes connected with the functioning of the company, timely dissemination of knowledge

to shareholders and a code of conduct.

A few firms have conjointly shown awareness of surroundings protection, social

responsibilities and also the explanation for upliftment and social development and that they

have deeply committed themselves to it. The big example of such an organization is of

Deepak Fertilizers and Petrochemicals Corporation limited that conjointly bagged awards for

the corporate social responsibility.

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Conclusion

I believe that one of the reasons most often put forward for the level of corruption and bribery

in India is its legal and regulative regime. A number of the key laws date back over fifty

years and haven't kept pace with the dynamic contours of the economy. additionally, social

control through the court system takes many years and, therefore, isn't looked as if it would

act as a deterrent to wrongdoing.

As a result of the constant media attention on corruption and policy displayed by the upper

judiciary, the govt. is taking steps toward reform. One such vital reform, which matches to

the core of corporate governance problems, is India’s new companies’ law.

Hence, within the years to come, corporate governance can become even a lot relevant and a

surge in lot of acceptable practice worldwide. This is often simply evident from the assorted

activities undertaken by several firms in framing and implementing codes of conduct and

honest business practices; following a lot of stringent norms for monetary and non-financial

disclosures, as mandated by law; accepting higher and applicable accounting standards;

implementing tax reforms coupled with deregulation and competition; etc.

However, ill-chosen application of corporate governance needs can adversely affect the link

amongst participants of the governance system. As homeowners of equity, institutional

investors are progressively demanding a decisive role in company governance. workers and

different stakeholders conjointly play a very important role in contributing to the future

success and performance of the corporation.

Thus, it's necessary to use governance practices in a very right manner for higher growth of

an organization and more and more Indian businesses are paying attention towards its

application as well as encouraging other companies as well to follow such beat practices.

Hence Indian businesses are in fact, taking the concept of corporate governance seriously

now.

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