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CGBE Assignment

Corporate governance issues in India include board composition, founder control and succession planning, data privacy, and approach to corporate social responsibility. For board composition, India requires diversity including at least one woman director, but appointments are often still based on personal connections rather than merit. Founder control also remains strong in India with limited succession planning. Data privacy and protection is another key issue that boards must prioritize. Additionally, India has legislated corporate social responsibility requirements that boards must oversee. Overall, while structural changes have improved governance, cultural and compliance challenges remain to fully realize reforms in practice.

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Himanshu Goenka
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64 views5 pages

CGBE Assignment

Corporate governance issues in India include board composition, founder control and succession planning, data privacy, and approach to corporate social responsibility. For board composition, India requires diversity including at least one woman director, but appointments are often still based on personal connections rather than merit. Founder control also remains strong in India with limited succession planning. Data privacy and protection is another key issue that boards must prioritize. Additionally, India has legislated corporate social responsibility requirements that boards must oversee. Overall, while structural changes have improved governance, cultural and compliance challenges remain to fully realize reforms in practice.

Uploaded by

Himanshu Goenka
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Discuss some of the most prominent issue of corporate governance.

Discuss the relevance of these issues with particular reference to the


Indian Corporate Sector.

Corporate governance is the structure of rules, practices, and processes used to


direct and manage a company. Bad corporate governance can create and develop
doubt on a company's reliability, integrity, and transparency, which can impact its
financial health and may also affect the goodwill of the company.

Some of the relevance of these issues with particular reference to the Indian
Corporate Sector is as follows:-

 The correct mix of executive and non-executive members

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The board and its role as the cornerstone for good corporate governance. To this
end, the law requires a healthy mix of executive and non-executive directors and
appointment of at least one woman director for diversity. There is no doubt that a
capable, diverse and active board would, to large extent, improve governance
standards of a company. The challenge lies in ingraining governance in corporate
cultures so that there is improving compliance "in spirit". Most companies in India
tend to only comply on paper; board appointments are still by way of "word of
mouth". It is common for friends and family of promoters (a uniquely Indian term
for founders and controlling shareholders) and management to be appointed as
board members. Innovative solutions are the need of the hour - for instance, rating
board diversity and governance practices and publishing such results or using
performance evaluation as a minimum benchmark for director appointment

 The control of Founders and Succession Planning

In India, founders' ability to control the affairs of the company has the potential of
derailing the entire corporate governance system. Unlike developed economies, in
India, identity of the founder and the company is often merged. The founders,
irrespective of their legal position, continue to exercise significant influence over
the key business decisions of companies and fail to acknowledge the need for
succession planning. From a governance and business continuity perspective, it is
best if founders chalk out a succession plan and implement it. Family owned
Indian companies suffer an inherent inhibition to let go of control. The best way to
tackle with this is widen the shareholder base - as PE and other institutional
investors pump in capital, founders are forced to think about a succession plan and
step away with dignity.

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 The key concern of Privacy and Data Protection.

As a key aspect of risk management, privacy and data protection is an important


governance issue. In this era of digitalization, a sound understanding of the
fundamentals of cyber security must be expected from every director. Good
governance will be only achieved if executives are able to engage and understand
the specialists in their firm. The board must assess the potential risk of handling
data and take steps to ensure such data is protected from potential misuse. The
board must invest a reasonable amount of time and money in order ensures the
goal of data protection is achieved.

 Board's Approach to Corporate Social Responsibility (CSR)

India is one of the few countries which has legislated on CSR. Companies meeting
specified thresholds are required to constitute a CSR committee from within the
board. This committee then frames a CSR policy and recommends spending on
CSR activities based on such policy. Companies are required to spend at least 2%
of the average net profits of last three financial years. For companies who fail to
meet the CSR spend, the boards of such companies are required to disclose reasons
for such failure in the board's report. During the last year, companies which failed
to comply received notices from the ministry of corporate affairs asking for
reasons why they did not incur CSR spend and in some cases questioning the
reasons disclosed for not spending. In these circumstances, increased effort and
seriousness by the board towards CSR is necessary. CSR projects should be

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managed by board with as much interest and vigor as any other business project of
the company.

Conclusion

As far as structural and regulatory changes are concerned, India has witnessed
several enactments - the Companies Act, 2013 and SEBI's listing obligations and
disclosure requirements regulations, which have contributed significantly in
strengthening governance norms and in increasing accountability by way of
disclosures. Interestingly, these changes have been inspired by the Anglo-Saxon
model of corporate governance, which is probably one of the key reasons behind
current practices of corporate governance not achieving the desired level of
fruition. For achieving desired results, it is important that regulatory measures are
modeled based on the practices and business environment in India. To state the
obvious, this should be coupled with the board and the promoters' embracing such
reforms - in form and spirit.

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