The study demonstrates that investors have begun to perceive company performance as a critical aspect when deciding to invest, particularly in light of the volatile climate in the capital market. Corporate governance generally thought to inspire, enhance, and retain investor trust by maintaining the continuing brand to increased productivity and expansion. Corporate governance has emerged as a critical issue for global markets, notably those in transition. Strong corporate governance is critical for emerging markets in order to establish the included, the private firms, which drive the powerful economic conversion to a business system, effective investment management, and development.
Introduction
Corporate governance is acknowledged as the system of rules, processes, and practices with the help of which the company is being guided and controlled. This depicts the way or pattern in which organizational work is being managed as well as the way through which decision associated with the same is taken at the workplace. It has been acknowledged that history has shown that there was a range of scams that have been affected the trust of investors and the general public towards the business organization as they feel that they could get cheated anytime[1]. This directly has affected the performance of the other businesses too in a negative manner. Here, for dealing with the same, the respective companies have taken the desired initiative in such a manner so that they do not fail to obtain the trust of the employees as well as investors.
Incorporation of corporate governance at the workplace is considered to be the best solution for the same which helps develop strong brand images of the company in the marketplace. This is also helpful in developing appropriate trust among the investor so that they do not keep themselves away from the company and keep investing in the same regularly[2]. The present research is being conducted on the legislative framework of corporate governance in India so that appropriate understanding on the same as well as required changes in the same can be acknowledged that will provide support in incorporating the desired changes within the same in an appropriate form. Considering the same, desired research aim, objectives, and questions have been developed and mentioned below in an appropriate form.
Literature Review
Concept of corporate governance
From the views expressed Studycafe. in (2018), it has been acknowledged that corporate governance is generally defined as the ways through which businesses operate their business and take decisions towards organizational benefits. This is also helpful in showing who is accountable for the organizational decisions and its outcome associated with the same[3]. Corporate governance in India is determined as the set of policies and processes as well as an internal control that is helpful for the companies in developing an appropriate framework that contributes to the execution of the operational activities of the company and dealing with the existing stakeholders like employees, government, customers, management team and other industry bodies. While executing corporate governance at the workplace businesses need to incorporate several principles. These principles are fairness, responsibility, accountability, and fairness. It can be said that businesses that follow all of these principles are easily able to attain success in the marketplace and also keep themselves away from legal issues. Along with this, corporate governance is also supportive for the companies in enhancing the sustainability of their employees at the workplace for a longer period.
Legislative frameworks of corporate governance in India
According to the views expressed by Thompson (2021), it has been assessed that the Indian government has become strict towards the functioning of the businesses after disclosing of Satyam scam[4]. To support the same, the Indian statutory framework has developed best practices associated with corporate governance. Here, some guidelines have been developed for the businesses as they have to follow them effectively in an appropriate form. The main corporate governance mechanism includes several regulations such as the companies’ act, 2013, standard listing agreement of stock exchanges.
Here, it can be further said that the Indian government has specified that the companies are required to follow certain guidelines which include a mandatory requirement for 1 resident director, compulsory to include a woman director in the boards. Along with this, the new companies Act, also mandates that companies are required to be prescribed companies to include the Audit Committee, stakeholder’s relationship committee, CSR (corporate social responsibility) committee, and stakeholder’s relationship committee. Apart from this, the listing agreement within the same applies to the listed companies. Here, it can be further said that according to clause 49, the main focus of the company is to check out several activities that are initiated by the companies the secure the interest of the shareholders. This clause 49 has been specifically developed for the board of directors, audit committee, CEO Certification, Disclosure Requirements, and report and compliance.
Major challenges that emerge in the implication of corporate governance legislative framework in India
According to the views of the problems that are faced by the corporate governance legislative of India are as follows:
1. Accountability to stakeholders
Increased responsibilities and accountability for independent directors must go hand in hand with their empowerment. In this regard, the Indian company law, states that directors have responsibilities not just to the company and its shareholders, but also to its employees, community, and environment. Despite the fact that all directors are subject to these wide responsibilities, due to a lack of enforcement action, directors, particularly independent directors, have grown complacent[5]. To enhance accountability, requiring the complete board to be present during general meetings might be a good idea, allowing stakeholders to interact with the board and ask questions.
2. Risk Management
Large firms are monitored in real-time by business and national news organisations. Because the board’s role is restricted to overseeing a company’s operations, defining and implementing a risk management plan is critical. In this regard, Indian company law mandates the board of directors to provide a statement in its annual report to shareholders explaining the risk management policy’s creation and execution. The company’s risk management systems have to be evaluated by the independent directors. These are the challenges that are faced by corporate governance.
Ways through which challenges of corporate governance can be overcome
Based on the information stated by Boardroom Advisors (2021), it has been assessed that there is a range of issues that have been faced by business organizations in the implication of corporate governance at the workplace. Here, business organizations are required to take several initiatives so that they can take desired initiative towards reducing the challenges. The main challenge towards corporate governance includes risk management and accountability to stakeholders[6]. For overcoming these challenges, the respective businesses are required to focus on following all regulatory acts so that they do not get affected by any of the external issues faced by the company at the workplace. Along with this, compliance with the legislative activities business organizations is required to focus on developing their understanding of every activity so that they do not get involved in the unethical activity in any manner. Technique, also known as inductive reasoning, begins with facts and concludes with hypotheses based on them. This is the most appropriate method that was employed in the study.
Role of audit’s commission
According to Pillai (2017), the audit commission’s job is inextricably linked to the panel’s monitoring role and assignment to several committees. It serves as an accountability mechanism for transparency, potent anti as well as risk evaluation procedures, as well as effective Institutional as well as Independent Audit activities for revenue recognition. According to Segment 177 of the Company Law, 2013, interpret with Rule 6 of both the Industries (Meetings of Board and also its Authority) Regulations, 2014, so each publicly traded company as well as all other major corporations with a compensated amount of Rs. 10 crores upwards of; or profitability of Rs. 100 crore or maybe more; or excellent loans, bank loans, debt instruments, or deposits surpassed Rs.50 Crores or maybe more should have an Auditor. Outstanding debt, borrowings, debt instruments, or cash reserves of Rs.50 Crores or maybe more must therefore have an Internal Auditors comprised of not just under three directors and a certain multitude of other filmmakers as the Board may ascertain, with 2 different of both the complete and utter number of supporters being director of the company other than handling or full-time executives.
If a firm wants institutional investors to participate, it must convincingly improve the performance of its governance characteristics. As a result, Indian firms must embrace best practices including the OECD Corporate Governance, which serve as a worldwide standard[7]. In nations such as India, where business ownership remains heavily concentrated, it is critical that all shareholders, particularly domestically and abroad fund managers, are fairly represented.
According to Khan and Banerji (2016), a code of conduct establishes a set of standards that form a benchmark for all people who engage in the organisation and exists entirely to demonstrate appropriate conduct by both the individual involved. For the very first period, the Naresh Chandra Committee advised that businesses create organizational rules of behaviour[8]. The Narayana Murthy Committee’s Report also advised that a company a code of conduct establishes a set of standards that form a benchmark for all people who engage in the organisation and exists entirely to demonstrate appropriate conduct by both the individual involved[9]. For the very first period, the businesses create organizational rules of behaviour.
Maintaining the organization’s approach towards increased productivity and expansion, effective corporate governance encourages, builds, and retains investor trust. It is believed that strong corporate governance optimises stockholders’ benefits over the long term which has an influence on the expansion as well as the sustainability of businesses and governments. In today’s world, sound corporate governance principles are critical for the stability of organisations and must guarantee that the requirements and interests of all stockholders are taken into consideration in a reasonable and responsible way. It must be ingrained in the existing objectives first from top to the bottom. FII investment in the stock markets might be interpreted as an increase in allotted in Indian enterprises. Gross FII portfolio increased from $2.7 billion in FY 1996 to $ 166.2 billion in Fiscal 2013. Businesses must adhere to the CG20 practises in order to even have company shares published on trading platforms. Businesses should also observe the relevant country’s internal control rules and regulations in order to be having their shares offered on overseas stock markets.
According to Saha and Roy (2016), the most significant impediment to corporate governance in India seems to be the traditional domination of large stakeholders, which is governed by particular families. The entrepreneurs are the major stockholders, and their ownership is split over various friends and family[10]. As the majority shareholder, the founders can move assets across group firms and implement appropriate share parcels of land. There seem to be no appropriate laws and regulations to dealing with minority interests, notwithstanding measures in the recently enacted Company Law, 2013. Another significant problem in Indian corporations is the question of board independence. Independent directors are just an integral component of any governance practices change groups. These are appointed by the leading stockholders, as well as the number of investors of India’s top business are either individuals or families. They usually pick friends or associates to serve as independent directors. Several studies have demonstrated that executive directors are unsuccessful in Indian firms. Corporate do not strictly adhere to corporate governance principles, and examples of loutish behaviour are common. This may be proof of recent fraud.
Conclusion
It can be concluded that the backed by big shareholders who may influence decisions over governance practices is a serious concern. The present financial system Investing in advanced governance structures do not provide obvious results, but they do assist practitioners in appraisal and resources mobilizing. Nevertheless, the influence of excellent governance may be seen in rich nations. India has a shaky monitoring program and a plethora of authorities. Corporate scandals provide enough justification for this occurrence. India lacks experts and strategic leadership individuals who can serve on companies as individual advisory directors. Even despite the fact that research studies inside the domain of financial regulation have been developing, and certain institutions such as the ICSSR as well as the Department of Finance have undertaken some measures to encourage study on this topic, an empirical examination is still lacking. Communities for the establishment of important institutions, namely private firms, are which promote the effective capitalist conversion to a business system, efficient financial distribution, and development.
Bibliography
BoardroomAdvisor, ‘What Is Corporate Governance? Issues And Structure In The Boardroom’ (Boardroom Advisors, 2021) <https://boardroomadvisors.co/challenges/corporate-governance/>
Clear, ‘Corporate Governance – Principles, Advantages, And Disadvantages’ (Cleartax.in, 2021) https://cleartax.in/s/corporate-governance
Clouse M, and Grove H, ‘THE ROLE OF RISK MANAGEMENT IN CORPORATE GOVERNANCE: GUIDELINES AND APPLICATIONS’ (Virtus InterPress, 2017) https://virtusinterpress.org/THE-ROLE-OF-RISK-MANAGEMENT-IN.html
Deloitte, ‘Corporate Governance In India – Practices, Framework | Deloitte India’ (Deloitte India, 2021) <https://www2.deloitte.com/in/en/pages/risk/articles/governance-101.html>
Goel P, ‘(PDF) Implications Of Corporate Governance On Financial Performance: An Analytical Review Of Governance And Social Reporting Reforms In India’ (ResearchGate, 2018) https://www.researchgate.net/publication/328777352_Implications_of_corporate_governance_on_financial_performance_an_analytical_review_of_governance_and_social_reporting_reforms_in_India
Khan M, and Banerji A, ‘Corporate Governance And Foreign Investment In India’ (2016) 9 Indian Journal of Corporate Governance https://journals.sagepub.com/doi/abs/10.1177/0974686216635786?journalCode=ijca
Mosunova N (Russianlawjournal.org, 2021) <https://www.russianlawjournal.org/jour/article/download/27/23> accessed 2 November 2021
Natalya Mosunova (Russianlawjournal.org, 2021) https://www.russianlawjournal.org/jour/article/download/27/23
Pillai K, ‘Corporate Social Responsibility In India: A Journey From Corporate Philanthropy To Governance Mandate’ (2017) 10 Indian Journal of Corporate Governance https://journals.sagepub.com/doi/abs/10.1177/0974686217735924
Protiviti, ‘Corporate Governance & Implications | Protiviti – India’ (Protiviti.com, 2021) https://www.protiviti.com/IN-en/insights/changing-corporate-governance-landscape-implications
Raghunath S (Gnits.ac.in, 2021) <https://www.gnits.ac.in/sites/default/files/pics/ece/econtent/rmipr/Module1-ResearchMethodology.pdf> accessed 2 November 2021
Saha S, and Roy M, ‘Quality Control Framework For Statutory Audit Of Financial Statements: A Comparative Study Of USA, UK And India’ (2016) 9 Indian Journal of Corporate Governance https://www.researchgate.net/publication/312108341_Quality_Control_Framework_for_Statutory_Audit_of_Financial_Statements_A_Comparative_Study_of_USA_UK_and_India
StudyCafe, ‘Corporate Governance : Importance And Role Of Corporate Governance’ (Studycafe.in, 2018) <https://studycafe.in/corporate-governance-44307.html>
Talathi R, ‘Corporate Governance In India: Concept, Needs And Principles’ (Your Article Library, 2021) https://www.yourarticlelibrary.com/business/corporate-governance-business/corporate-governance-in-india-concept-needs-and-principles/69978
Thompson J, ‘Corporate Governance Issues & Challenges’ (Bizfluent, 2021) <https://bizfluent.com/info-7863014-corporate-governance-issues-challenges.html>
*****
[1] Deloitte, ‘Corporate Governance In India – Practices, Framework | Deloitte India’ (Deloitte India, 2021) https://www2.deloitte.com/in/en/pages/risk/articles/governance-101.html
[2] Raksha Talathi, ‘Corporate Governance In India: Concept, Needs And Principles’ (Your Article Library, 2021) https://www.yourarticlelibrary.com/business/corporate-governance-business/corporate-governance-in-india-concept-needs-and-principles/69978
[3] StudyCafe, ‘Corporate Governance : Importance And Role Of Corporate Governance’ (Studycafe.in, 2018) <https://studycafe.in/corporate-governance-44307.html>
[4] Jayne Thompson, ‘Corporate Governance Issues & Challenges’ (Bizfluent, 2021) <https://bizfluent.com/info-7863014-corporate-governance-issues-challenges.html>
[5] Clear, ‘Corporate Governance – Principles, Advantages, And Disadvantages’ (Cleartax.in, 2021) https://cleartax.in/s/corporate-governance
[6] BoardroomAdvisor, ‘What Is Corporate Governance? Issues And Structure In The Boardroom’ (Boardroom Advisors, 2021) <https://boardroomadvisors.co/challenges/corporate-governance/>
[7] K. R. Pillai, ‘Corporate Social Responsibility In India: A Journey From Corporate Philanthropy To Governance Mandate’ (2017) 10 Indian Journal of Corporate Governance <https://journals.sagepub.com/doi/abs/10.1177/0974686217735924>.
[8] Mohammad Iftekhar Khan and Amit Banerji, ‘Corporate Governance And Foreign Investment In India’ (2016) 9 Indian Journal of Corporate Governance <https://journals.sagepub.com/doi/abs/10.1177/0974686216635786?journalCode=ijca>.
[10] Siddhartha Sankar Saha and Mitrendu Narayan Roy, ‘Quality Control Framework For Statutory Audit Of Financial Statements: A Comparative Study Of USA, UK And India’ (2016) 9 Indian Journal of Corporate Governance <https://www.researchgate.net/publication/312108341_Quality_Control_Framework_for_Statutory_Audit_of_Financial_Statements_A_Comparative_Study_of_USA_UK_and_India>.
Author Bio
