1. Introduction
Corporate Governance refers to the framework of rules, practices, and processes by which a company is directed and controlled. It balances the interests of a company’s many stakeholders — shareholders, management, customers, suppliers, financiers, government, and the community.
Contents
1. Introduction2. Objectives of Corporate Governance3. Key Principles of Corporate Governance4. Regulatory Framework in IndiaA. Companies Act, 2013 – Key ProvisionsB. SEBI (LODR) Regulations, 20155. Composition of Board – SEBI Norms6. Mandatory Committees (as per SEBI LODR)A. Audit CommitteeB. Nomination & Remuneration CommitteeC. Stakeholders Relationship CommitteeD. Risk Management Committee7. Corporate Governance Report (Reg. 34(3))8. Role of Independent Directors9. Recent Developments10. Challenges in Corporate Governance11. Landmark Cases12. Conclusion
In India, corporate governance is primarily regulated by:
- Companies Act, 2013
- SEBI (LODR) Regulations, 2015
- Various listing guidelines and circulars issued by SEBI
2. Objectives of Corporate Governance
- Ensure transparency and accountability
- Promote ethical business practices
- Protect shareholders’ rights, especially minority shareholders
- Enhance investor confidence
- Prevent corporate frauds and mismanagement
- Promote long-term value creation
3. Key Principles of Corporate Governance
- Fairness: Equitable treatment of all shareholders
- Accountability: Board and management answerable for their actions
- Responsibility: Clear roles and duties of directors
- Transparency: Full and timely disclosure of material facts
4. Regulatory Framework in India
A. Companies Act, 2013 – Key Provisions
- Section 149: Composition of the Board, including independent directors
- Section 177: Audit Committee
- Section 178: Nomination and Remuneration Committee
- Section 134: Board’s report and responsibility statement
- Section 135: Corporate Social Responsibility (CSR)
B. SEBI (LODR) Regulations, 2015
Applies to listed entities and covers:
| Regulation | Subject |
|---|---|
| Reg. 17 | Composition of the Board of Directors |
| Reg. 18 | Audit Committee |
| Reg. 19 | Nomination & Remuneration Committee |
| Reg. 20 | Stakeholders Relationship Committee |
| Reg. 21 | Risk Management Committee |
| Reg. 25–27 | Obligations of Independent Directors |
| Reg. 30 | Disclosure of Material Events |
| Schedule II | Corporate Governance Requirements |
5. Composition of Board – SEBI Norms
- At least 50% non-executive directors
- At least 1 woman director
- For top 1000 listed entities (by market cap): Chairperson to be non-executive and not related to CEO/MD
- Independent Directors:
- 1/3rd of the Board if Chairperson is non-executive
- 1/2 if Chairperson is executive
6. Mandatory Committees (as per SEBI LODR)
A. Audit Committee
- Minimum 3 directors, majority independent
- Oversee financial reporting and audit process
B. Nomination & Remuneration Committee
- Recommend appointments and remuneration of directors
C. Stakeholders Relationship Committee
- Resolve grievances of shareholders, debenture holders, etc.
D. Risk Management Committee
- Mandatory for top 1000 listed companies
7. Corporate Governance Report (Reg. 34(3))
Listed companies are required to submit a corporate governance report as part of the Annual Report, including:
- Board composition
- Details of committees
- Disclosures on remuneration
- Related party transactions
- Compliance certificate by auditor/PCS
8. Role of Independent Directors
- Safeguard interest of stakeholders
- Provide unbiased judgment
- Audit Committee, NRC, and risk committees rely on their input
- Required to meet separately at least once a year (Reg. 25(3))
9. Recent Developments
- SEBI’s enhanced disclosure norms: ESG reporting, sustainability disclosures (BRSR)
- SEBI’s stricter norms on related party transactions (RPTs)
- Compulsory split of CMD role (later made voluntary)
10. Challenges in Corporate Governance
- Promoter dominance in board decisions
- Lack of true independence of directors
- Insider trading and RPT misuse
- Compliance as a formality, not a practice
11. Landmark Cases
- Satyam Scam (2009): Failure of governance led to India’s largest corporate fraud; resulted in overhaul of board regulations
- Tata-Mistry Dispute: Highlighted boardroom challenges and lack of clear dispute resolution framework
- IL&FS Crisis: Raised questions on oversight by board and regulators
12. Conclusion
Corporate Governance is vital for the sustainable growth of businesses and the protection of investor interests. With increasing scrutiny from regulators and investors, companies must go beyond compliance and adopt value-driven governance practices.
