2 CORPORATE GOVERNANCE AND CORPORATE LAW REFORM IN INDIA Legal History of Corporate Governance in IndiaFamily owned business houses.India followed a particular style of governance, whichsuited their personal interests.The stakeholders considered them as acronyms of competence and trust.Non-separation of ownership from the management generated corruption in businessCORPORATE GOVERNANCE
3 SITUATION OF CORPORATE GOVERNANCE IN INDIA 1. Economic and Financial Reforms in IndiaWith the increasing integration of world-economy under globalization, India has fundamentally altered its development strategy..2. Corporate Law and Securities Exchange in India :-The development of company law in India has so far followed the footsteps of English law with some exceptions.CORPORATE GOVERNANCE
4 SITUATION OF CORPORATE GOVERNANCE IN INDIA CONTI…… 3. Guidelines and Codes of Corporate Governance :-In 1995, the Confederation of Indian Industry (CII) took a special initiative on corporate governance.4. Structure of Corporate Ownership :-Family and Business Groups OwnershipInstitutional Shareholders:CORPORATE GOVERNANCE
5 LEGAL AND INSTITUTIONAL REFORMS FOR CORPORATE GOVERNANCE IMPROVEMENT As per clause 49 of the Listing Agreement the independent director has been defined as a non-executive director who does not have any pecuniary relationship or transactions with the company.Evaluation of legal reform:-The salient features of the bill relating to Corporate Governance, among others, were as follows:1. Concept of independent director strengthened:2. Consolidation of group accounts:3. Prescribing heavy penalties for duping investorsCORPORATE GOVERNANCE
6 Related Information on Corporate Governance Enforcement of Accounting Standards :-During 2003, new international accounting standards, guidance notes, auditing and assurance standards came into play.Bankruptcy Law Reforms:-India is unique in having a very large number of sick companies.The Industrial Disputes Act, 1947 makes it illegal to close down an industry without the state government permission.
7 CASE IN INDIA SATYAM Implications: Due to lack of proper structure and control mechanism, the trust of India Inc. is at stake in the World Markets.This is bound to have a cascading effect on the ongoing economic and financial turmoil globally
11 Back Ground Transition economy Plan economy to market economy Traditional government to modern governmentSocial democracy traditionWeak law protection and strong implicit contractsLearning processHow to privatize SOEs?Ideology lag
12 IN ABSENCE OF C.GIf a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country suffer the consequences
13 Why CG is important in China? The focus of CG“Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” (Shleifer and Vishny,1997）Protect investors and/or stakeholders’ interestsTo assure the inside controller to maximize firm value not at expense of any investor and/or stakeholder’s interests.
14 General Observations About Corporate Governance in China government influences management appointment and corporation operations;too much power is concentrated in the hands of a few shareholders; andat times, a lack of accountability for corporate actions or omissions
15 China’s current corporate governance system China has progressed relatively well in a short period of time and has adopted the idea of corporate governance into its ‘modern enterprise system’. The Chinese government has been making forceful efforts to tackle the flaws in China’s institutional framework, through the corporatization of SOEs, and the introduction of the CSRC to regulate the securities market and listed firms.
16 Development of corporate governance in China Codes and guidelines:(A)Shanghai Stock Exchange, March 2000;(B)China Securities Regulatory Commission(CSRC),January 2002;·Set up Independent Directors System in 2001;·Tighter reporting and disclosure
17 The new development of corporate governance in China Shareholders action;Compulsory training for directors;Strong sanctions against violations on laws and regulations, including public criticism.
18 The new development of corporate governance in China CSRC developed the first Code of Corporate Governance for Chinese Listed Companies according to the OECD Principles of Corporate Governance.The Code is mandatory for all listed companies to follow and will be melt into listing rules
19 BENEFITS OF CORPORATE GOVERNANCE Improve access to capital and financial markets;Help to survive in an increasingly competitive environment through mergers, acquisitions, partnerships, and risk reduction through asset diversification;Leads to a better system of internal control, thus leading to greater accountability and better profit margins.Increases the confidence of investors and potential partners to invest in or expand the company’s operations.
20 PRINCIPLES OF CORPORATE GOVERNANCE Rights and equitable treatment of shareholders.Interests of other stakeholders.Role and responsibilities of the board.Integrity and ethical behavior.Disclosure and transparency