Corporate Governance: The Transformation Theory

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By M.C. Linthoingambee

The new Governor of the Central Bank has taken control, and with it comes a lot of hope for better governance in the India’s overall economy with all fingers crossed. With more and more youths running thrifts over corporate jobs, the private sector undertakes the public sector in the job hunt for the first year income earners. Going to the rear end of the last years of graduating, everyone faces indecision to seek for a job under the wings of the public sector although the number of attempts for the Civil Service Exams increases each year over fold. We see more and more youngsters sowing the seeds of becoming huge wage earners in the private wings. And so, we are marked with the authenticity of the private games thereby we welcome Corporate Governance for further elaborations.

In the daybreak of the 21st century, the success of a particular organization depends widely on the particular system of governance undertaken for that work force. While upholding the basis of a growing market economy it is our duty to bind ourselves by certain rules and regulations to better the lives of the society as a whole through a body corporate. The burgeoning economic growth that corporate India witnessed since the 1990s brought to the forefront the need for Indian companies to adopt corporate governance practices and standards, which are consistent with international principles. Industry groups, notably the Confederation of Indian Industries (CII), spearheaded the move to bring corporate governance issues to the attention of Indian companies and also led to the introduction of legislative reforms prescribing the manner in which Indian companies could implement effective corporate governance mechanisms. And this is why the introduction to the system of Corporate Governance is a great necessity and thus it in turn, structures itself as the striving force for the developing economy with its versatility making it a power house behind every success stories.  Corporate Governance has gained a lot of importance and momentum the world over. 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 short Corporate Governance is about promoting corporate fairness, transparency and accountability.

Seeking an efficient collaboration to upholding the use of resources is a major confrontation in this system. As far as the legislative authority is in order, the Indian Companies Act is followed and administered by the Securities and Exchange Board of India (SEBI) with due significances from the Ministry of Corporate Affairs (MCA), Company Law Board (CLB), whilst regulating guidelines from the Reserve Bank of India (RBI) and the Insurance Regulatory Development Authority (IRDA) collectively. But the main recipient of a standing ovation is the SEBI without whose regard Corporate Governance would still be limited to story books as a result of corporate crimes and frauds which are made visible to the public in certainty.

Today, SEBI has also taken steps of introducing and conducting the system of independent directors in its Clause 49 of its listing agreements mainly to enhance the investors’ investment and thereby it per quotes and states: “While the extent of responsibility of an independent director may differ from that of an executive director, an independent director has a duty of care. This duty calls for exercise of independent judgment with reasonable care, diligence and skill which should be reasonably exercised by a prudent person with the knowledge, skill and experience which may reasonably be expected of a director in his position.

The main aim today to promote more and more confidence in the market using this segment however its clean nature is overshadowed with the wide release of corporate frauds wherein it still becomes a debatable issue. It has most recently been debated after the corporate fraud by Satyam founder and Chairman Ramalinga Raju. With the decision to buy stakes in Maytas Properties and Infrastructure for $1.3 billion we oversaw the rear of a trouble. This particular deal was called off owing to major discontentment on the part of shareholders and plummeting share-price. Till date, it is considered one of the largest corporate frauds in India, Raju confessed to his crimes. Ironically, Satyam had earlier received the Golden Peacock Global Award for Excellence in Corporate Governance in September 2008 but it was stripped off soon after Raju`s confession.

Corporate Governance is essentially all about how corporations are directed, managed, controlled and held accountable to their shareholders therefore in the midst; it is our duty to ensure for the simultaneous improvement of corporate performance and accountability as a means of attracting human resources to a financially stable arena with the agenda of preventing corporate failure. India has become one of the fastest emerging nations to have aligned itself with the international trends in Corporate Governance. As a result, Indian companies have increasingly been able to access to newer and larger markets around the world; as well as able to acquire more businesses. It is true that the `corporate governance` has no unique structure or design and is largely considered ambiguous and it lacks awareness on various fronts. But it is still a system toddling to walk beyond the safety net of awareness and reaching for a goal to stand freely on its own accord as that India becomes one of the emerging market economies on all fronts.

(M.C. Linthoingambee is an undergraduate pursuing B.Com. LL.B(H). An avid blogger, poet, a seasonal artist and a foodie, she is also a life member to the Indian Society of the Red Cross.)

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