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CORPORATE GOVERNANCE AND CORPORATE LAW REFORM IN INDIA
Legal History of Corporate Governance in India Family owned business houses. India followed a particular style of governance, which suited their personal interests. The stakeholders considered them as acronyms of
competence and trust. Non-separation of ownership from the management
generated corruption in business
CORPORATE GOVERNANCE
SITUATION OF CORPORATE GOVERNANCE IN INDIA
1. Economic and Financial Reforms in India
With the increasing integration of world-economy under globalization, India has fundamentally altered its development strategy..
2. Corporate Law and Securities Exchange in India :-
The development of company law in India has so far followed the footsteps of English law with some exceptions.
CORPORATE GOVERNANCE
SITUATION OF CORPORATE GOVERNANCE IN INDIA CONTI……
3. Guidelines and Codes of Corporate Governance :-
In 1995, the Confederation of Indian Industry (CII) took a special initiative on corporate governance.
4. Structure of Corporate Ownership :- Family and Business Groups Ownership Institutional Shareholders:
CORPORATE GOVERNANCE
LEGAL AND INSTITUTIONAL REFORMS FOR CORPORATE GOVERNANCE IMPROVEMENT
As per clause 49 of the Listing Agreement the independent director has been defined as a non-executive director who does not have any pecuniary relationship or transactions with the company.
Evaluation of legal reform:- The salient features of the bill relating to Corporate
Governance, among others, were as follows: 1. Concept of independent director strengthened:2. Consolidation of group accounts: 3. Prescribing heavy penalties for duping investors
CORPORATE GOVERNANCE
Related Information on Corporate Governance
1. Enforcement of Accounting Standards :- During 2003, new international accounting
standards, guidance notes, auditing and assurance standards came into play.
2. Bankruptcy Law Reforms:-• India is unique in having a very large number of
sick companies.• The Industrial Disputes Act, 1947 makes it illegal to
close down an industry without the state government permission.
CORPORATE GOVERNANCE
CASE IN INDIA
SATYAM
Implications:
Due to lack of proper structure and control mechanism, the trust of India Inc. is at stake in the World Markets.
This is bound to have a cascading effect on the ongoing economic and financial turmoil globally
Transition economyPlan economy to market economyTraditional government to modern government
Social democracy traditionWeak law protection and strong implicit contractsTransition economy
Learning processHow to privatize SOEs?
Ideology lag
IN ABSENCE OF C.G
If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country suffer the consequences
The focus of CG“Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” (Shleifer and Vishny,1997)Protect investors and/or stakeholders’ interestsTo assure the inside controller to maximize firm value not at expense of any investor and/or stakeholder’s interests.
Why CG is important in China?
General Observations About Corporate Governance in China
government influences management appointment and corporation operations;
too much power is concentrated in the hands of a few shareholders; and
at times, a lack of accountability for corporate actions or omissions
China’s current corporate governance system
China has progressed relatively well in a short period of time and has adopted the idea of corporate governance into its ‘modern enterprise system’. The Chinese government has been making forceful efforts to tackle the flaws in China’s institutional framework, through the corporatization of SOEs, and the introduction of the CSRC to regulate the securities market and listed firms.
Development of corporate governance in China
Codes and guidelines: (A)Shanghai Stock Exchange, March 2000; (B)China Securities Regulatory
Commission(CSRC),January 2002;·Set up Independent Directors System in 2001;·Tighter reporting and disclosure
The new development of corporate governance in China
Shareholders action;Compulsory training for directors;Strong sanctions against violations on laws
and regulations, including public criticism.
The new development of corporate governance in China
CSRC developed the first Code of Corporate Governance for Chinese Listed Companies according to the OECD Principles of Corporate Governance.
The Code is mandatory for all listed companies to follow and will be melt into listing rules
BENEFITS OF CORPORATE GOVERNANCE
Improve access to capital and financial markets; Help to survive in an increasingly competitive
environment through mergers, acquisitions, partnerships, and risk reduction through asset diversification;
Leads to a better system of internal control, thus leading to greater accountability and better profit margins.
Increases the confidence of investors and potential partners to invest in or expand the company’s operations.