Corporate Governance : Scope and Legal Framework

CORPORATE GOVERNANCE
MEANING
Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions. It is, in essence, a toolkit that enables management and the board to deal more effectively with the challenges of running a company.

1. By Dr.M.Devaki Assistant Professor Sri Ramakrishna College of Arts & Science (Autonomous) Coimbatore – 641 006 Corporate Governance

2. Corporate Governance CORPORATE GOVERNANCE T he act of the company that is used to cater to the actions and affairs of the company Large Company or Group Corporate Governance is a set of rules that is used to govern the actions of the company. It ensures that the work of the company is running smoothly, the company achieves its objectives, and provides benefits to its shareholders, employees, and workers.  The company caters to the needs of society with the help of certain activities without hampering their employees.

3. Meaning Corporate Governance acts as a focal point and governs the company to follow transparency, accountability, fairness, proper responsibility, and risk management. It creates a set of rules that helps the company properly supervise, and control the actions of the company. Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions. It is, in essence, a toolkit that enables management and the board to deal more effectively with the challenges of running a company.

4. SCOPE OF CORPORATE GOVERNANCE IN INDIA The scope of Corporate Governance in India includes collecting processes, procedures, & provisions through which the company operates & controls. It refers to the mechanism by which an organization manages and directs its affairs. Business ethics play a vital role in Corporate Governance & it is the substantial factor influencing Corporate Governance. The ideal model of Corporate Governance excels on the globally accepted principles of corporate Governance. As per the ideal model, the company conducts its business as per the stakeholder’s desire to reap profits. Board of Directors (BODs) and other associated committees are accountable for running the company and maintaining a balance between individual and societal goals, and social goals, and economic goals.

5. If the corporate governance of the company is proper it will ultimately lead to better economic growth and more success rate. Better corporate governance helps in getting the confidence of the investor which will ultimately help the company in raising and acquiring the capital fast and effectively. It also lowers the cost of the capital that is required for investment. It also helps in increasing the share price of the company. Proper corporate governance help in attaining efficiency and also minimizes mismanagement, risk, and corruption. It plays in building up the goodwill of the corporation. It helps in managing and running the operations in the organization according to the interest of all of its stakeholders.

6. 1.Accountability 2.Fairness 3.Transparency 4.Independence 5. Compliance with rules 1. Accountability Accountability means a situation in which any person is responsible and needs to give a satisfactory reason for anything wrong in work. Corporate governance makes accountability.  (a) Accountability ensures that working management i.e. Managers, Employees is responsible to the Board Of Directors (BOD). (b) Further, Accountability Ensure that the BOD is accountable to shareholders if anything bad happens.

7. 2. Fairness   (a) Corporate governance (CG) protects the rights of Shareholders.  (b) CG treat all shareholders equally including minorities   (c) Provides effective redressal for any violations i.e Customer care 3. Transparency   CG makes ensure timely, accurate disclosure on all material matters of the company including the financial situation, performance, ownership. 4. Independence    (a) CG makes procedures, rules, and structures in place to minimize or avoid conflicts of interest    (b) CG appoints Independent Directors and Advisers i.e. to take the free decision from the influence of others 5 . Compliance with rules  (a)CG ensures compliance with all the laws and code of spirit.    (b) Corporate governance is necessary to meet the requirement of SEBI for listed companies

8. FURTHER SCOPE Brings Honesty & Transparency Access Foreign Capital Protection of Investor Fairness In Financial Reporting and accountability Improves shareholder Communication Increases Goodwill and market reputation Enhancing Company Valuation

9. LEGAL FRAMEWORKS OF CORPORATE GOVERNANCE Corporate governance involves the laws, procedures, practices, rules etc. In order to ensure good corporate governance in India many regulatory frameworks are introduced. The Companies Act, 2013 The new Companies Law contains many provisions related to good corporate governance like Composition of Board of Directors, Admitting Woman Director, Admitting Independent Director, Directors Training and Evaluation, Constitution of Audit Committee, Internal Audit, Risk Management Committee, SFIO Purview, Subsidiaries Companies  Management, Compliance center etc.

10. All such provisions of new Company Law are instrumental in providing a good Corporate Governance structure. Section 134 , attach a report to every Financial statement by Board of Directors. Section 177 , which requires Board of Directors of every listed company or any other class of committee to constitute an Audit Committee. Section 184 , which mandates the Director disclose his interest in any company or companies, body corporate, firms, or other association of Individuals. The director is required to disclose any such interest at the first meeting of the board and if there is any change in the interest then the first meeting held after such change.

11. Securities and Exchange Board of India (SEBI) guidelines  SEBI is a regulatory authority established on April 12, 1992. SEBI was established with the main purpose of curbing the malpractices and protecting the interest of its investors. Its main objective is to regulate the activities of Stock Exchange and at the same time ensuring the healthy development in the financial market. In order to ensure good corporate governance SEBI came up with detailed Corporate Governance Norms. As per the new rules the companies are required to get shareholders approval for RPT (Related Party Transactions), it established whistle blower mechanism, clear mandate to have at least one woman director in the Board and moreover it elaborated disclosures on pay packages.

12. Clause 35B of the Listing Agreement is being amended by the regulatory authority. Now as per the amended clause, Listed companies are required to provide the option of e-voting to its shareholders on all proposed or passed at general meetings. Those who do not have access to e-voting facility, they should be provided to cast their votes in writing on Postal Ballot. Clause 49 of the Listing Agreement was also amended by SEBI in order to strengthen the Corporate Governance framework for Listed companies in India. The revised clause forbids the independent directors from being eligible for any kind of stock option.

13. SEBI also Implemented Various Regulations for Effective Working of the Companies , few of these Regulations are as follows SEBI (Issue of Capital and Disclosure Requirements) regulation, 2009. SEBI (Listing obligations and Disclosure  Requirements), 2015. SEBI (Prohibition of Insider Trading) Regulations,2015 . SEBI came up with many other regulations like Regulation on Fraudulent and Unfair Trade Practices, Regulations on Substantial Acquisition of Shares and Takeovers, Issue of Sweat Equity etc.

14. Standard Listing Agreement of Stock Exchanges Accounting standards issued by the ICAI (Institute of Chartered Accountants of India ) ICAI is a statutory body established by Chartered Accountants Act, 1949 . It issues accounting standards for disclosure of financial information . Section 129 of the Companies Act, 2013 states that financial statements of a company shall comply with the accounting standards notified under section 133 of the Act. Secretarial standards issued by ICSI (Institute of Company Secretaries of India ) It is an autonomous body constituted by the Company Secretaries Act, 1980. It is a body to regulate and develop the profession of Company Secretaries in India. It issues secretarial standards as per the provision of the Companies Act,2013. Secretarial standard-1 on Meeting of the Board seeks to prescribe a set of principles for conducting meetings of Board of Directors . Secretarial standard-2 prescribes a set of principles for conducting and convening general meetings. This standard also deals with the procedure for conducting e-voting and postal ballot.

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