ASSIGNMENT ON :-

“Effect of corporate governance on

organizational performance in india’s
insurance industry”

Name – Abhishek Kumar Gautam

Corporate governance on organizational performance of
insurance companies in India.
 The general business structures of the companies allow
the managers to run the business under the guidance of
the board members who in turn is answerable to
shareholders of the company. Managers look into day to
day business where as board will oversee manager’s job
periodically with reference to set agreed goal and policy
guidelines.
 The share holders have right to select director which
ensures that most powerful directors are also answerable
to the shareholder. However, in Indian scenario a typical
organizational structure is often observed when the major
share holder also act as a board member and manager.
 A company runs on the basis of perpetual succession to
satisfy each and every stakeholder. The illustrative list of
such stakeholder shall include customer, supplier,
employee, manager, share holder, Government. Each and
every party or stakeholder has one thing in common, that
they have economic interest in a company.
 To satisfy their economic interest all the stakeholder gets
into any or different kind of contractual or economic
linkage with a company as permitted under the law. This
economic interest could be fulfilled lawfully or unlawfully
and also can be fulfilled in a biased way so to impair the
due benefit of other deserving stakeholder.
 Ethical satisfaction of different economic interests is
guided by either by set rules which encompass broad act
 (Example : income tax act in relation to Govt), company
culture and practice (Example :Rewarding effective
employee) or specific contracts (Example: Purchase
agreement in relation to customer) in first part together
with existence of supervisory body confirming the
company action is in line with the Act ,culture or contract
in second part and transparency providing the scope to
review by any stakeholder in the  third part.
 Corporate governance is the continuous process of
maximizing shareholders equity ensuring fairness to all
other stakeholders including employee,
supplier, distributer, customer, banker, Government,
project effected people etc. Corporate governance is a
precondition for long-term success of an organization. This
not only encompass the for profit companies but also
include benevolent institution like nonprofit trust,
educational institute like universities, administrative
bodies of game or cultural activity
 Corporate governance is more important in the financial
sector because financial companies act as intermediaries
between investor and borrower. Failure of these
companies to govern their business in a morally expected
way would have long lasting impact on economy forcing it
to contract. Insurance sector is a subclass in financial
sector. The insurance sector in India is regulated by IRDAI
(Insurance Regulatory and Development Authority of
India).
  Corporate governance in insurance sector is guided by the
corporate governance guideline issued by IRDAI. IRDAI
issued comprehensive Corporate Governance Guidelines
on 18.05.2016 which will be applicable on insurance
companies from FY 2016-17.
 The revised guidelines cover the broadly covers Corporate
Governance practices, appointment of MD/ CEO and other
Key Management Persons (KMPs) and the appointment of
statutory auditors of insurers. The guidelines also
contemplate to oversee the compliance position in regard
to the adherence of corporate governance guidelines.
 Those Corporate Governance requirements of companies
which were listed in the Stock Exchanges wad guided by
the requisite compliance to Clause 49 of Listing Agreement
of the Stock Exchanges. The Indian insurance companies
are not listed in stock exchanges till date but IRDAI advised
insurers to familiarize themselves with Corporate
Governance structures and requirements appropriate for
listed entities.

The IRDAI guideline squarely put the responsibility of good governance

upon the board of insurance company where as IRDA will also oversee
the maintenance of the stipulations in this regard. These guidelines are
additional to the related provisions of the Companies Act, 2013 and any
other laws or regulations framed there under. Where the requirements
of these guidelines are in conflict with other rules or guideline as per
statute the stricter guideline shall be followed.
  Overall Governance structure
 Constitution of Board of Directors
 Broad tasks of BOD.
 Control Functions to be exercised by board
 Formation of different mandatory committee and their function
 Disclosures requirement
 Outsourcing policy guideline
 Relationship with stakeholders
 Reporting to IRDAI for compliance
 Whistle blowing policy
 Evaluation of Board of Directors including Independent Directors

Recommendations :-
 Every insurance firm should properly define corporate governance
and its mechanisms and implement them effectively in order to
reach the firm’s long-term goals, build stakeholders’ confidence
and generate positive investment flows.
 The recent financial crisis has had enormous impacts on the
economy, leading to major problems in insurance companies.
Therefore, an insurance company should focus on good corporate
governance that will build a stable foundation for recovering from
this crisis.
 Regarding future line of research, efforts should be put at
increasing the sample size, the corporate governance variables,
and the time frame in order to have more accurate and reliable
results.
 More importantly, the empirical literature indicates a sample
selection bias in favor of very big firms. It is hereby suggested that
attention should be devoted to the study of small- and medium-
scale firms. This is because these firms account for at least 90% of
the total number of firms in the world.