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Corporate Governance In Listed Companies: From The Abyss Into The Sunshine

The 2017 World Bank ‘Doing Business’ report ranks India at the 13th place in terms of minority protection


The concept of corporate governance can be best described as a system of checks and balances within the corporate structure to facilitate long term value creation for stakeholders (and shareholders) due to the separation of ownership and management in companies. Sir Adrian Cadbury, in the UK Commission Report: Corporate Governance 1992 has correctly referred to ‘corporate governance’ being concerned with holding the balance between economic and social goals and between individual and communal goals. 

Evolution of Corporate Governance in India

The first reference to corporate governance in India’s legal framework can be found in the Companies Act, 1956. While our corporate governance norms have been developing over various years, the 2017 World Bank ‘Doing Business’ report ranks India at the 13th place in terms of minority protection, attesting to the progress made on this front in the recent years. 

The Satyam scandal in 2009, was a watershed moment in the history of governance regulation in India. Involving falsification of accounts by the top echelons of management and fraud of over 1 billion dollars, this scandal motivated the Government of India to enact the Companies Act, 2013 which introduced wide-ranging changes to India’s corporate governance framework.

The LODR Regulations

The enactment of the 2013 Act brought about a shift from a voluntary approach to an ultra-mandatory approach towards corporate governance, with detailed governance norms being included in the primary legislation itself. Thereafter, the Listing Agreement was replaced by the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), which dealt extensively with governance matters, replacing the regime under Clause 49 thereof. Based on core concepts of adequate, timely and accurate disclosures of material information to all stakeholders, equitable treatment of all shareholders, recognition of the role of all stakeholders in governance, effective board supervision of the management, the LODR Regulations prescribed standards of governance higher than that contained in the Companies Act, 2013, given that the interests of small, retail shareholders required additional protection from acts of the majority.

Kotak Committee Report, 2017: The Watershed Moment for India’s Corporate Governance Regime

Motivated by various developments across the globe in the realm of corporate governance and in continuation of its role as a proactive regulator, SEBI constituted a committee under the Chairmanship of Mr. Uday Kotak in June 2017 to suggest suitable policy and regulatory changes to enhance the efficiency of corporate governance norms for Indian listed entities (“Kotak Committee”). 

This committee submitted its report (“Report” or “Kotak Committee Report”) on October 5, 2017 recommending a plethora of regulatory changes to align Indian corporate governance norms with global best practices, while being premised on local business realities unique to India, such as the prevalence of large, concentrated shareholding blocks (as opposed to a dispersed shareholding pattern observed in few developed markets such as the USA), family-run businesses and “promoter-raj”. In light thereof, SEBI recently amended the LODR Regulations to incorporate certain recommendations of the Kotak Committee. These changes, inter alia, will have the effect of increasing transparency by means of:

Enhanced disclosure requirements (inter alia in respect of reasons for resignation of independent directors; proposed fees payable to the statutory auditor(s) along with terms of appointment and in case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor along with the rationale for such change; basis of recommendation for appointment including the details in relation to and credentials of the statutory auditor(s) proposed to be appointed, etc.)

Reshaping the institution of the Board of Directors (inter alia, by mandating separation of office of the Chairperson and the Managing Director for the top 500 listed companies by April 1, 2020; the requirement of one independent woman director for the top 500 listed entities by April 1, 2019 and the top 1000 listed entities by April 1, 2020 etc.)

Enhancing the role of committees of the Board of Directors

‘Down-streaming’ corporate governance to unlisted subsidiaries of listed companies by making secretarial audit mandatory for material unlisted subsidiaries incorporated in India and the mandatory appointment of an independent director of the listed parent company on the board of the material subsidiary incorporated outside India, etc.

Increasing shareholder participation and involvement by inter alia mandating webcast of annual general meetings of certain companies etc.


Corporate governance in India has indeed come a long way. While these developments will inevitably enhance the regulatory compliance burden on companies, this is undoubtedly an impressive array of measures when viewed from the lens of corporate governance. Gone are the days when investors (including shareholders) would shoot in the dark with respect to their investments, relying on hearsay and tip-offs from friends and family while praying that they are not taken for a ride by the promoters and management. In marked contrast, the Indian investor of today is sufficiently empowered by robust corporate governance norms to make informed decisions. With effective implementation of the evolving norms, the evolving next phase of corporate governance in India seems to be on a fitting course.


Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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corporate governance satyam scandal

Darshan Upadhyay

The author is a partner at Economic Laws Practice.

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