Corporate Governance : The Indian Capital Market Law and International Standards

In recent years, the Indian economy has undergone a number of reforms, resulting in a more market-oriented economy. Particularly after the Government of India has taken steps towards liberalization and Globalization of the economy, the size of Indian Corporate is becoming much bigger and accordingly the expectations of various stakeholders are also increasing, which can be satisfied only by good Corporate Governance. Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide guidelines as to how the company can be directed, or controlled such that it can fulfill its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. The management of the company hence assumes the role of a trustee for all the others. Recent corporate scandals have eroded investor trust to some extent in corporate reporting. To reduce corporate malfeasance and protect investors, Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and Revised Clause 49 of Stock Exchange Listing Agreement were promulgated by the regulators in the Unites States and India, respectively. These legislations defined a new system of checks and balances to rebuild investor confidence. The whole corporate governance issue is popping its head up again after the pandemonium over the sordid Satyam-Maytas business. Much has been written, debated and blogged over the proposed $1.6-billion merger between the two companies, but one can bet his last dollar that the last word has not been spoken yet. The governments in Delhi, the regulators in Mumbai, the shareholders in New York have all jumped in and expect some more fireworks over the next few weeks. It is in this context that Corporate Governance has become the most debatable issue today. The Article analyses the difference in the Indian Capital Market Law and the International Standards of Corporate Governance. Part I of this article begins with a brief insight into the Indian and International Standard of Corporate Governance. Part II of this Article outlines some key developments in Indian Corporate Governance by way of background. Part III of this paper discusses the Clause 49 - the heart of Corporate Governance in India and the Sarbanes Oxley Act of the United States. It also analyses the problem with the Indian Legal System in this context. It also provides a brief of all the Indian Committee reports so far in the area of Corporate Governance. Part IV discusses the recommendation of the Cadbury Committee Report and Higgs Report. It throws light on the plausible reasons for the recent failure of governance in several US companies and contrasts that with the position existing under Indian Corporate Law (much of which predates 49). Part V concludes with some recent trends in Corporate Governance in India, US and UK and the Impact of all these Reports and regulations in Corporate Governance