 India has been ranked in the seventh place in terms of corporate governance score in

Asia Pacific region, says a report by global brokerage firm CLSA.

 Corporate governance is defined as “the system by which companies are directed and
controlled”.
 The separation of ownership and control in corporations with dispersed ownership
structure highlights the agency issue due to conflict between agents (managers) and
principals (shareholders).
 Corporate governance issues in India are, however, due to a different agency problem
that arises on account of the conflict between dominant and minority shareholders.
Therefore, the corporate governance mechanism in India should focus on
safeguarding minority shareholders from expropriation by dominant shareholders
 Corporate Governance is essentially all about how corporations are directed,
managed, controlled and held accountable to their shareholders.
 The objective of any corporate governance system is to simultaneously improve
corporate performance and accountability as a means of attracting financial and
human resources on the best possible terms and of preventing corporate failure.
 In recent times, corporate governance has received increased attention because of
high-profile scandals involving abuse of corporate power and, in some cases, alleged
criminal activity by corporate officers.
 An integral part of an effective corporate governance regime includes provisions for
civil or criminal prosecution of individuals who conduct unethical or illegal acts in the
name of the enterprise.
 Corporate governance and financial regulation in India was generally considered quite
poor until the economic reforms of the early 1990s. The Securities and Exchange
Board of India (SEBI) was established in 1992 by an act of Parliament, and SEBI was
given the job of regulating stock exchanges, brokers, fraudulent trade practices, and
other areas of corporate activity.
 As its power grew over the decade, SEBI started to play a much more active role in
setting minimum standards for corporate behavior.
 In addition, a voluntary code of corporate governance was developed by the
Confederation of Indian Industry (CII), a group of well-regarded Indian firms.
 Clause 49 of the Listing Agreement to the Indian stock exchange came into effect
from 31 December 2005. It was formulated for the improvement of corporate
governance in all listed companies. Clause 49 of Listing Agreements, as currently in
effect, includes the following key requirements:
 Board Independence: Boards of directors of listed companies must have a minimum
number of independent directors. Where the Chairman is an executive or a promoter
or related to a promoter or a senior official, then at least one-half the board should
comprise independent directors.
 In other cases, independent directors should constitute at least one third of the board
size.
Audit Committees: Listed companies must have audit committees of the board with a
 minimum of three directors, two-thirds of whom must be independent. In addition, the
roles and responsibilities of the audit committee are to be specified in detail.
 Disclosure: Listed companies must periodically make various disclosures regarding
financial and other matters to ensure transparency.
 CEO/CFO certification of internal controls: The CEO and CFO of listed companies
must (a) certify that the financial statements are fair and (b) accept responsibility for
internal controls.
 Annual Reports: Annual reports of listed companies must carry status reports.
 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 and
protecting the minority shareholders. Aboard which is accountable to the owners
would only be one which is accountable to the dominant shareholder; it would not
make the governance problem any easier to solve. Clearly, the problem of corporate
governance abuses by the dominant shareholder can be solved only by forces outside
the company itself.

The essential features of the bill:

 Concept of One Person Company (OPC limited) introduced by Companies Bill,

2011 through Clause 2(62).
 In Clause 2(85) of Companies Bill, 2011, Small companies have been defined by
fixing maximum paid-up share capital not exceeding Rs. 50 Lakhs and such
companies will be required to follow less stringent regulatory provisions.
 In Clause 18 of Companies Bill, 2011, the proper provision for Conversion of
Companies already registered has been introduced.
 In Clause 7(1)(b) of Companies Bill, 2011, A provision has been made regarding
declaration to the effect that all the requirements of the Act in respect of
registration and matters precedent or incidental thereto have been complied with.
Company Secretaries continue to be recognized for the purpose of giving this
declaration.
 Introduction of e-governance: Another important feature added by Companies
Bill, 2011 in corporate practice is formal introduction of much awaited concept of
E-Governance. After the introduction of E-Governance companies can maintain
its statutory registers in electronic mode and hold its board meetings through
video conferencing.

COMPANIES BILL 2011 AND ITS IMPACT ON CORPORATE GOVERNANCE

 The Companies Bill, 2011, is contemporary in concept and broad in its sweep. It
should stimulate business to gain critical mass and efficiency.
 Financial or corporate restructuring, takeover of companies, merger inter-se
foreign companies and Indian companies are covered.
  Where public interest is involved, greater transparency is prescribed. The process
has been simplified for small companies. It still makes no provisions for migration
of companies.
 The NCLT, a specialized body, will both sanction and supervise implementation.
It will truly be a change agent.
 In all matters, the NCLT orders can now specifically prescribe measures for
dissenting persons; for allotment in tune with the FDI policy; adjustment of past
capital registration fee paid; and for abatement of any charges on assets.
 A non-obstante clause to order for transfer of tenancies and leases held by the
transferor company; as also order for a reasonable uniform stamp duty throughout
India to be paid to the state governments is urgently needed.

CONCLUSION

 In short, the key to better corporate governance in India today lies in a more efficient
and vibrant capital market. Over a period of time, it is possible that Indian corporate
structures may approach the Anglo-American pattern of near complete separation of
management and ownership. At that stage, India too would have to grapple with
governance issues like empowerment of the board. Until then, these issues which
dominate the Anglo-American literature on corporate governance are of peripheral
relevance to India