Explore the nuances of corporate governance in developed and developing countries, focusing on India. Discover the challenges, reforms, and impact on economic sustainability.
A Comparative Analysis of Corporate Governance Policies and Practices in Developed and Developing Countries, Especially emphasing INDIA
Abstract
Despite the 20th-century proliferation of management theory, management professions, and management curricula, corporate governance has not received the attention it deserves. Corporate governance is a defining feature of today’s economic era, which began in the 20th century and culminated in his 21st century. As a result of the high profile of many corporate crises, the term “corporate governance” has been incorporated into business rulebooks to ensure the long-term health of the economy. This was done to prevent shareholders and investors from being exploited for unethical business practices. Various types of corporate governance are used in many economies, each characterized by its own culture, environment, and other characteristics. When the desire for economic profit is the driving force behind the decisions of business leaders, the risk of regulatory boundaries being ignored or abused is high. Corporate governance is a key component of today’s economic reality, which is becoming more and more present in many countries around the world. In this paper he has two main purposes. The first is to develop a deeper understanding of corporate governance concepts through in-depth literature research and analysis of corporate governance frameworks. The second purpose of this paper is to examine the state of corporate governance in developed and developing countries of the world.
Page Contents
Introduction
Corporate governance has recently become an important topic in the practical and scientific literature. Year. Securing Competitiveness, Raising Capital, Securing Sustainability, and Fighting Corrupt companies in developing countries must ensure good governance Institution. How company is governed also determines its fate about the economy in general. Lack of funding threatens existence Companies that have the potential to severely impact the economy as a whole. Companies that cannot attract capital can stay completely outside international markets, but the economy may not benefit from globalization. Investors are interested in companies with good companies Governance. This is because, according to the OECD (1999), corporate governance specifies a distribution. Rights and obligations between various parties within the company. B. executives, Specify shareholders and other stakeholders, rules and procedures for their preparation Decisions regarding company affairs. In this way it also Company goals, measures to achieve these goals, and oversight are defined. Performance. Not only does this lead to inadequate corporate governance, not only scandals and company liquidations, but also financial crises and economic instability. Main advantages of Strong corporate governance. These include:
- improved access to capital and financial markets;
- higher accountability and transparency;
- stimulation of performance;
- protection of shareholders and their investment;
- reduces the incidence of corruption;
- enhancement of marketability of goods and services
The list illustrated above gives a general image of the most important benefits of good corporate governance. For developing countries, the problem of good corporate governance Development becomes more complicated because of the underdeveloped institutional Infrastructure. For this reason there is a need for a careful approach to governance restructuring. A weak or absent corporate governance can have the following consequences
- reduces the opportunities to attract sufficient capital, limits competitiveness and job Creation;
- has a negative impact on employees’ commitment;
- may lead to bankruptcy due to a lack of solid company strategy and leadership from the Board of directors;
- allows company managers and directors to follow their own interests at the expense of Shareholders, creditors, and other stakeholders;
- Excessive regulation that impacts private sector growth.
However, some scholars argue that different cultural, social, and economic conditions in developing countries require context-specific approaches to corporate governance. For example, some developing countries rely more on family-owned businesses or state-owned enterprises, which may require different governance mechanisms than publicly traded companies. Additionally, there is a growing awareness of the need to integrate environmental and social factors into corporate governance frameworks. This may be particularly relevant in developing countries where sustainability issues are acute.
Overall, this comparative study of corporate governance theories in developed and developing countries sheds light on the strengths, weaknesses, and diversity of corporate governance models around the world, with the aim of improving corporate accountability and sustainability. It has the potential to inform policy and practice. The differences in corporate governance practices between developed and developing countries highlight the complex interplay of legal, economic, social and cultural factors that shape business practices around the world.
Literature Review
The literature on corporate governance is very diverse. In the last few years alone, hundreds of articles and dozens of books have focused on corporate governance. The concept of corporate governance has taken on a clearer form in the European Union since 1997, when most countries introduced corporate governance codes. The impetus for the adoption of these codes was a financial scandal over the failure of British companies to list on the stock exchange. On the other hand, the Asian crisis of 1978 and the withdrawal of investors from Asia and Russia created problems for the international business community as a result of lack of investor confidence in corporate management. Principles of corporate governance developed by the OECD (Organization for Economic Co-operation and Development) provide concrete guidance for improving legal regulation. They develop practical proposals to attract the attention of stock exchange authorities, investors, and other pillars that have intervened in the company’s operations. Adapting corporate governance principles to ensure transparency, accountability and fair treatment of shareholders led to the development of the OECD Corporate Governance Principles. The principles of corporate governance aim to ensure the strategic direction of the company. The term corporate governance has many definitions. Different authors define this term differently depending on their point of view. Therefore, the following definition of corporate governance he can be divided into two categories.
Narrow and broad definitions. These two categories are shown below. Narrowly defined corporate governance can be defined as the relationships between various stakeholders that determine the direction and performance of a company. The main stakeholders are (1) shareholders, (2) management, and (3) the board of directors (Monks and Minow, 2004). A broader definition was given by the Cadbury Commission in 1992. Corporate governance is defined as the system for managing and controlling an enterprise. Companies and organizations are regulated by a set of rules, regulations and decisions known as corporate governance. The company’s decision-making process includes shareholders, management, consumers, suppliers and investors. Its broad spectrum includes action planning, internal controls, performance measurement and corporate transparency. This includes disclosure of financial, operational and executive compensation information (both positive and negative) to promote fair investment. Washington, D.C. National Association of Corporate Directors (NACD) with more than 17,000 members, it promotes effective board leadership through education and networking[1]. Competent and committed board focused on “long-term wealth creation” and openness through disclosure of governance practices, deviations from best practice guidelines, and communication with investors The corporate governance system should be overseen. Directors should have diverse backgrounds, skills, experiences and perspectives to facilitate pre-achievement discussions in summary; there is no precise definition of corporate governance.
Developed country. Everything is based on stakeholder theory. Company interpretation Governance refers to a set of relationships, distribution rights, rules and economic sectors.
Corporate Governance Mechanism
Throughout history, we have seen countless examples of weak governance practices that have led to significant declines in market value. We saw it in 2001 during the highly publicized accounting scandal that wiped out Enron. In 2014, more than $2 billion in fines, penalties, and settlements were paid out after GM failed to heed a whistleblower’s warning about a faulty ignition switch. In recent times, Wells Fargo employees, customers and shareholders have all been affected by aggressive product cross-selling tactics and misleading surveys of brokerage customers about trading high-fee fixed income products. Increase. Corporate governance is basically a set of rules, practices and procedures that guide the oversight and control of a company through its board of directors and independent committees. It is about balancing the interests of the company’s stakeholders, including management, employees, suppliers, customers and communities, with the need to create value for shareholders/owners. A strong and proactive governance program is absolutely critical to a company’s continued financial health, growth and long-term success.
Corporate governance mechanisms and controls aim to mitigate inefficiencies caused by adverse selection and moral hazard. Below are his three main types of mechanics and controls.
Internal control management
Internal administrators manage review activities. Then take action to achieve your organization’s goals. Here are some examples:
- Internal control procedures and internal auditors:
These procedures are guidelines issued by the audit committee, board of directors, senior management, management, and other employees to help the company achieve its goals of reliable financial reporting, operational efficiency, and regulatory and legal compliance. We will reasonably assure you that we have achieved it. Internal auditors are employees who review the design and operation of an organization’s internal control procedures and the accuracy of financial reporting. Board Statement:
The Board protects invested capital through its powers to appoint and indemnify the highest authority. Regular committee meetings allow for the identification, discussion, and avoidance of potential issues, and fit different board structures in different companies.
- Balance of power:
The most basic balance of power requires that the president and treasurer be separate individuals, and power sharing also develops in companies where separate entities control and balance each other’s activities. A group proposes company-wide organizational change, another analyzes and rejects the change, and a third advocates for those outside of those groups.
- compensation:
Performance-linked compensation allows you to tie part of your salary to your own performance. This can be cash, in kind such as shares or stock options, or other benefits.
External governance management
External company management regulates the exercise of external shareholders through the organization. Here are some examples:
- Request and review performance data
- Mergers and Acquisitions
- government restrictions
- Declaration of Commitment
- medium pressure
- competition
- agency
- Acquisition
Linking Corporate Governance in developing and developed countries
Throughout history, we have seen countless examples of weak governance practices that have led to significant declines in market values. We saw it in 2001 during the highly publicized accounting scandal that wiped out Enron. In 2014, GM was paid more than $2 billion in fines, fines and settlements for failing to heed whistleblower warnings about ignition switch failures. Recently, aggressive product cross-selling tactics and misleading investigations of brokerage clients into trading high-yield fixed income products impacted all Wells Fargo employees, customers and shareholders. Gain. Corporate governance is basically the set of rules, practices and procedures that guide the oversight and control of a company through its board of directors and independent committees. It is about balancing the interests of the company’s stakeholders, including management, employees, suppliers, customers and the community, with the need to create value for shareholders/owners. A strong and proactive governance program is critical to a company’s continued financial health, growth and long-term success.
The experience of developed countries shows that good corporate governance reduces risk, stimulates performance, improves access to capital markets, improves the marketability of goods and services, improves governance and enhances corporate value. Increase, making it easier for companies to obtain external funding. At low cost. For developing and emerging countries, the need for corporate governance goes beyond solving problems arising from the separation of ownership and control. Developing and emerging countries constantly face problems such as lack of property rights, abuse of minority shareholders, and breach of contract. However, for corporate governance measures to have a strong impact on the economy, it is necessary to build democratic and market-based institutions and legal systems.
Corporate governance reforms are happening in countries around the world, and perhaps Impact on global population. Developing countries are undergoing such reforms on a larger scale. Early attempts to promote mostly “development” and context defined by more recent development processes economic globalization. In this context, corporate governance reform (combined with liberalization) economic globalization-related reforms) is actually a third-party new development strategy country of the world. The most basic questions related to this situation are those of prospective customers. This new development model and whether alternatives should be considered. Reasonable answer to of course, these questions depend on the answers to many other questions. These include:
1) What the reforms actually entail, why they are being reformed, and What are their effects?
2) Prescriptive questions about what development is and what should be prioritized Responsibilities and rights held by various actors.
3) Strategic questions about outlook what strategies and tactics have been determined for success, and whether these outlooks may change as changes occur larger economic and political structures.
Providing detailed answers to these questions is obviously a difficult task.
It is beyond the scope of this volume. The works in this volume have a more limited purpose itself. They are a series of case studies from individual developing countries. All research Understand governance in its broadest sense, including not only board practices and structures, but the larger the set of factors that influence corporate decision-making includes, among others, financial markets, Banking system, industrial policy, labour relations, etc. Countries covered are all relatively large Country. These include the most pervasive and important representatives (India, Brazil, Mexico, Nigeria). Development strategy (import replaces industrialization), example (Korea) generally regarded as the most successful development strategy (export-oriented industrialization) as well as some less typical cases (China, South Africa). The main focus of all these cases Research is a descriptive analysis of the reforms being made, especially the issues related to Implementation of governance reforms. To a lesser extent, they also examined the impact of reforms, provide some suggestions on the normative responsibilities of the parties involved and where reforms are needed five further development. Business relations between developed and developing countries have improved as a result of the continued outsourcing of information technology needs from developed countries to developing countries. India’s IT outsourcing industry is currently worth over $150 billion and is growing at a rate of 12% per annum. Corporate governance failures, such as the cases of Enron[2] and Satyam[3], are the clearest examples of how corporate governance can fail in both developing and developed countries.
Board structures in developing and developed countries
Even in developed countries, board structures are becoming less relevant to the modern business environment. In both economies, many are in favour of splitting the roles of chairman and CEO between her two different positions. However, in the context of CEO succession planning, more and more companies in both countries are increasingly looking to the combination of board and CEO roles. These companies believe that combining roles will improve communication with shareholders, thereby reducing the potential for confusion and overlap in the roles of chairman and CEO.
Board representation of women and minorities in developing and developed countries
A more diverse and inclusive board should include more women and minorities, as well as independent directors with diverse backgrounds, perspectives and expertise. Fortune 500 companies with a high percentage of female directors achieve better financial results than those with a lower percentage of female directors. As a result of entrenched business practices, long working hours and the continued burden of childcare responsibilities on mothers’ shoulders, women and minorities are underrepresented in corporate boards and underrepresented in management positions. But companies in developing and developed countries are reluctant to say goodbye to male-dominated workplaces.
Position Of Corporate Governance In India
The concept of good governance is very old in India, dating back to the 3rd century BC. Return. Where Chanakya (his Vazir of Parliputra) developed his four royal duties of Raksha, Vriddhi, Palana and Yogaksema. Replacing the king of the state with the company CEO or board of directors, the principles of corporate governance are the protection of shareholders’ wealth (raksha), the increase of wealth through proper use of assets (vridhi), and the growth of wealth through profitable business. Related to maintenance (parana). , and most importantly the protection of shareholders’ interests (Yogakshema or protection).
Corporate governance did not enter the agenda of Indian companies until the early 1990s. Until then, no one had found a significant mention of this subject in any law book. System weaknesses such as poor stock market practices, boards with insufficient fiduciary duty, poor disclosure practices, lack of transparency and chronic capitalism call for reform and improved governance in India.
Both the Security Trade Board of India (SEBI) and the Government of India Ministry of Enterprises (MCA) have played key roles, with various reforms implemented through various means, Corporate Governance Committee, Some of them are listed below
- Confederation of Indian Industry (CII):
The Federation of Indian Industries was established in 1995 as a task force under the esteemed businessman Rahul Baja. In April 1998, CII issued a code called Good Corporate Governance. He tackled various aspects of corporate governance and was the first to criticize and propose dilution of nominated directors.
- Kumar Mangalam Birla Commission Report
Although the CII Code was well received by the corporate sector and some progressive companies adopted it, it was felt that a statutory code made more sense in the Indian context than a voluntary code. rice field .As a result, the Securities and Exchange Board of India (SEBI) took the second major initiative, establishing a commission in 1999 chaired by Kumar Mangalam Birla to promote good corporate governance standards. And improved. In early 2000, the SEBI Board accepted and ratified the main recommendations of this Commission, which were incorporated into the Commission.
Clause – Clause 49 of the Stock Exchange Listing Agreement
- Corporate Affairs Division (DCA)
In May 2000, the Corporate Affairs Administration (DCA) formed an extensive study group chaired by Dr. P.L. DCA Director Sanjeev Reddy. The group was tasked with the difficult task of considering how to “manage the concept of corporate excellence in a sustainable way”. In November 2000, the Group’s Task Force on Corporate Excellence announced a series of initiatives to raise governance standards for all Indian companies. Created a report with recommendations for
- Naresh Chandra Commission Report:
In August 2002, a committee chaired by Naresh Chandra was set up by the Ministry of Finance and Business Affairs to review and recommend legislative changes affecting, among other things, the relationship between accountants and clients and the role of independent directors. The committee made recommendations on her two key aspects of corporate governance. Financial and non-financial information, and independent audits and management oversight.
- 2002 Narayana-Murthy Commission Report
SEBI has set up a committee chaired by Ms Narayana Murthy to review the implementation of the Corporate Governance Code by listed companies and issue revised Section 49. Some of the Committee’s key recommendations primarily relate to the Audit Committee, Audit Reports and Independent Directors, Inter-Party Transactions, Risk Management, Directorships and Director Remuneration, Codes of Conduct, and Financial Disclosures. After liberalization, SEBI developed Article 49 of the Listing Agreement dealing with corporate governance and seriously overhauled the system. Section 49 of the Indian Stock Exchange Listing Agreement is effective from 31 December 2005. It includes the following mandatory requirements:
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- Board independence: A public company’s board of directors must have a minimum number of independent directors.
- Examination Board: Listed companies are required to have at least three board audit committees. A director, those two-thirds of her must be independent.
- Disclosure: Publicly traded companies are required to provide various financial and other disclosures on a regular basis. Ensuring transparency is important.
- Iran Commission JJ Report
The Companies Act 1956 was enacted in 1950 on the recommendation of the Baba Commission. It aims to consolidate existing company law and create a new foundation for operating companies in an independent India. When this law came into force in 1956, it repealed the Companies Act 1913. As the corporate sector has grown along with the Indian economy and has been amended 24 times since 1956, the need for rationalization of this law has been felt at times. The major changes to the law were made by the Companies (Amendment) Act 1998 after taking into account the recommendations of the Sachar Commission, followed by the Companies (Amendment) Bill 2003 of 1999, 2000, 2002 and finally 2003. Further modified by Women’s Committee, according to R.D.’s report. After a slow start in 1980, India embarked on an economic reform program in her 1990s and felt the need for a major overhaul of the Companies Act, 1956. Therefore, the government took a new initiative in this regard and in December 2004 set up a committee chaired by Dr. JJ Irani was tasked with advising the government on proposed changes to the Companies Act, 1956.
Issues And Challenges Of Corporate Governance In India
- Board selection process and tenure:
The Indian company selection process is the biggest challenge to good corporate governance. The law requires a healthy mix of executive and non-executive directors, independent directors and female directors. Most Indian companies tend to comply only on paper. Board appointments will continue to be by word of mouth or by recommendation from Board members. It is common for promoters and management to appoint friends and family members to their boards.
- Performance evaluation of directors:
His SEBI, India’s capital market regulator, issued a ‘Guidance Note on Board Evaluation’ in January 2017. These include all key aspects of a board review, including the subject and process of the review, feedback to reviewers, action plans based on the results of the review process, disclosures to stakeholders, and the frequency and responsibilities of board reviews. Covers. However, in order to achieve the desired performance appraisal goals, appraisal results must be made public, and such disclosure can cause major problems for the company.
- Lack of director independence:
The appointment of independent directors would be the largest corporate governance reform by the Kumar Mangalam Corporate Governance Committee in 1999. In practice, however, independent directors have rarely achieved the expected effect. So far, the appointment of directors in most companies remains at the discretion of the founders, so there are still questions. To be truly successful, the promoter’s authority must be limited in matters relating to independent directors.
- Removal of independent directors:
By law, independent directors can be easily removed by the founder or controlling shareholder. If the independent director does not support the promoter’s decision, the promoter will remove that person from his position. In order to save their posts, directors must work in the interest of the organizer. To solve this problem, SEBL’s International Advisory Board has proposed greater transparency in the appointment and removal of directors.
- Responsibilities to Stakeholders:
The Companies Act of India, 2013 stipulates that directors have duties not only to the company and its shareholders, but also to other stakeholders and to the protection of the environment. But in general, boards try to limit and distance this kind of accountability. We recommend that the entire board request her attendance at the AGM so that stakeholders have an opportunity to ask questions to the board.
- Distrust Environment :
In recent years, there have been many cases of fraud, fraud, embezzlement of public funds and corruption, and questionable practices of key executives and boards of directors have undermined investor and public confidence. This happens in stock markets, banks, financial institutions, corporations and government agencies. This made the business environment questionable.
Conclusion
This research article provides an overview of the transparency and oversight of corporate governance models used in both developing countries and economies that have already reached a certain level of economic development. This research was conducted with limited resources, such as time and money, and has only scratched the surface of the problem. Further research on this topic may be done in the future. Strengthening the relationship between developed and developing countries require further research on this topic. This research article is necessary to support businesses moving between the two economies. The findings in this research article show that there are significant differences between the corporate governance models used in developing countries and those used in developed countries, due to differences in cultural norms and business environments. Apart from a few factors, there are significant differences in governance between developing and developed countries. These factors include the presence of women and minorities on the board, full disclosure and certification of financial statements, the governance structure of the board, and the presence of independent directors on the board. Businesses should be aware of such different economies. Since the concept of liberalization emerged in India in 1991, there have been constant fraud cases, pointing to the need for corporate governance. There were Harshad Mehta Scam, Ketan Parikh Scam, UTI Scam, Vanishing Company Scam, Bhansali Scam, etc. Minimal.
Corporate governance and ethical behaviour have many benefits. First and foremost, it helps create his image of a good brand for the company. Brand image increases loyalty, increased loyalty increases employee engagement, and employee engagement leads to more creative employees.
In today’s competitive environment, creativity is essential to gaining a competitive advantage. Corporate governance in the public sector is inevitable and must therefore be realized. However, corporate he governance should be adopted as it brings many benefits to the public sector. Good corporate governance, good government and good business go hand in hand. When good corporate governance is achieved, Indian companies shine brighter than the rest of the world. Since the emergence of the concept of liberalization in India after 1991, the frequent occurrence of fraud has underscored the need for corporate oversight. Harshad Mehta Scam, Ketan Parikh Scam, UTI Scam, Vanishing Company Scam, Bhansali Scam, etc. At least while it still exists.
Corporate governance and ethical behaviour have many benefits. First, it helps build a great brand image for your company. Brand image increases loyalty, strong loyalty increases employee engagement, and employee commitment makes employees more creative. In today’s competitive environment, creativity is essential to gaining a competitive edge. Since corporate governance in the public sector is inevitable, be embraced But corporate governance should be embraced because it has so much to offer society. sector. Good corporate governance, good government and good business go hand in hand.
References
https://ijclp.com/comparative-analysis-of-corporate-governance-laws-and-practices-in-developing-and-developed-economies/#_ftn2.
https://ijcrt.org/papers/IJCRT1893330.pdf.
https://www.researchgate.net/publication/343765849_Corporate_governance_in_India_A_systematic_review_and_synthesis_for_future_research.
http://dspace.mirror.hmlibrary.ac.in:8084/jspui/bitstream/123456789/1578/1/3%20A%20STUDY%20OF%20CORPORATE%20GOVERNANCE%20PRACTICES%20IN%20INDIA.pdf.
[1] Pallak Bhandari,Corporate Governance, US Bryant Digital Repository, JULY 19,2022
[2] Corporate Governance Failure : The Case of Enron and parliament
[3] J.P Singh Naveen Shrivastav, Shigufta hena, Satyam Fiasco, Corporate Governance failure
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Submitted by: Neelvi Rai, University Of Petroleum And Energy Studies, School Of Law, Semester VI
Under the supervision of: Prof. Partha Pratim Mitra
Author Bio
