The frequent corporate frauds and the resultant rise in NPAs of banks in India has become a routine affair in last few years. The corporate scam is not an isolated incident but a systemic failure of corporate Governance system in India. The essence of Corporate Governance is not only about doing right things but doing it in a right way! Corporate Governance has been in India since olden times but it was in a different form. During Vedic times, the kings used to appoint their ministers and used to have ethics, values, principles and laws to run their state. Today, the same concept has taken the form of ‘Corporate Governance’ having same rules, laws, ethics, values, and moral principles which helps in running corporate bodies in more effective way so that they, in the age of globalization, become global giants. The present article tries to focus on the concept of Corporate Governance in India and its relevant aspects.

Concept of Corporate Governance– Corporate governance is the system by which companies are directed and controlled. It encompasses the entire mechanics of the functioning of a company and attempts to put in place a system of checks and balances between the shareholders, directors, employees, auditor and the management. Corporate Governance is the way of directing the company in order to – secure all stakeholders’ interests; to comply with legal, regulatory and ethical requirements. It is about promoting corporate fairness, transparency and accountability. Corporate Governance basically lays down the framework for creating long-term confidence between the companies and the external providers of capital like banks.

Indian context- The modern concept of ‘Corporate Governance’ has been flourishing in India since the mid-1990s. The first voluntary code of Corporate Governance was initiated by CII (Confederation of Indian Industries) in year 1998. The journey of Corporate Governance reforms in India continued with Naresh Chandra Committee, Kumar Mangalam Birla committee & Narayana Murthy Committee in year 2002. The latest inclusion in the list of Corporate Governance reforms is the passage of Indian Companies Act 2013. Indian Companies Act, 2013 included various provisions focusing on ensuring Corporate Governance in Indian companies. Corporate social responsibility (CSR) rules, implemented in April 2014 under section 135 of the Companies Act, have generated a buzz for their innovative approach to social development and helping channelize the funds from companies towards developmental activities. CSR is a phenomenon wherein corporate organisations serve the interest of the society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. 2% CSR rule mandates the eligible companies to spend atleast 2% of their last three years average profit on CSR activities, in the geographical areas of their functioning.

The Companies Act, 2013 include the provision of overseeing of CSR activities by CSR committee comprising members from Board of Directors. The Indian Companies Act, 2013 also gives more powers to shareholders by involving them in policy decision making as well as empowering the women by making it mandatory to have atleast one woman Director in the Board of Directors of a company. The provision of Independent Directors would ensure the protection of interest of all the stakeholders, especially the minority stakeholders. The provision in Companies Act related to formation of an Audit Committee is an important step to ensure financial propriety in companies’ financial matters and is expected to perform the role of a watchdog. The Companies (Amendment) Act, 2017 introduced several amendments to improve corporate governance and ease of doing business in India while continuing to strengthen compliance and investor protection.

Corporate governance is vital to resilient and vibrant capital markets and is an important tool of investor protection. When an investor invests money in a corporation, he expects the board and management to act as ‘trustees’ & ensure the safety of their capital and get higher returns. Corporate Governance is an evolving concept in Indian context and its real success lies in not only passing the newer amendments in corporate laws but implementing it in true letter and spirit.

(The author of this article, Lt Col (Dr) Satish Dhage, is an ex Army officer and has been qualified for IPS (Indian Police Services) through IPS LCE 2012. Presently, he is Director, MGM Institute of Competitive Exams Aurangabad. For any queries or feedback, he can be contacted on email id : drsatishdhage@gmail.com)