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Corporate Governance Essay

5813 words - 24 pages

Corporate Governance in India : Post- Satyam the way ahead: What needs to be done ?
TITLE : Corporate Governance in India : Post – Satyam the way ahead : What needs to be done?


Corporate governance has been a topic of hot debate in developed countries like U.K. & U.S.A. for the last two decades. With the opening up of economies, it has also been a concern for developing country like India. This is because opening up of economies has changed the scenario of Indian market i.e. on one hand, it has made the world market accessible to the Indian ...view middle of the document...

Second reason is the setting up of World Trade Organisation (WTO) as a means of promoting globalisation. Globalisation involves the movement of four economic parameters namely financial capital in terms of money invested in the capital markets, physical capital in terms of plant & machinery, financial capital in terms of money invested in the Foreign Direct Investment (FDI) & labour moving across national borders. According to Vittal, N., the pace of movement of the financial capital has grown because of the world becoming a global village .
The historical development of Indian corporate laws are marked with many interesting contrasts. For example at independence, India inherited one of the world’s poorest economies but it had a factory sector which accounted for a tenth of the national product. India also had four functioning stock markets and a banking system which had well-developed lending norms & recovery procedure.[ Goswami, O. (2002) ]
Corporate development in India was marked by the managing agency system, which contributed to the birth of dispersed equity ownership & also gave rise to the practice of management enjoying controlling rights disproportionately greater than their stock ownership. [ Goswami, O. (2002) ]
The enactment of 1951 Industries (Development & Regulation) Act & the 1956 Industrial Policy Resolution marked the beginning of a regime & culture of protection, licensing & red tape that encouraged corruption & stilted the growth of the Indian corporate sector. Soon, corruption, nepotism & inefficiency became the hallmark of Indian corporate sector. [Chakrabarty, R., Megginson, W. & Yadav, P. (2007)]
The corporate bankruptcy & reorganisation system was also not free from problems. In this regard, we should consider the SICA or the Sick Industrial Companies Act 1985 & the Board for Industrial & Financial Reconstruction (BIFR) . According to SICA, a company is declared ‘sick’ only when its entire net worth has been eroded & it has been referred to BIFR. The BIFR usually took over 2 years on average just to reach a decision with respect to the companies. Only a few companies emerged successfully from the BIFR & the legal process on average took more than 10 years by which the assets of the company were virtually worthless. Thus, protection of the creditors’ rights existed only in paper & the bankruptcy process was featured among the worst in the World Bank survey on business climate. [ Goswami, O. (2002) ]
Again, although the Companies Act provided clear instruction for maintaining & updating share registers but in reality minority shareholders often suffered from irregularities in share transfers & registrations .For example, there were cases where the rights of the minority shareholders were compromised by the management’s private...

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