SUBJECT: BECG MODULE-5

What is corporate governance?

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent
management that can deliver the long-term success of the company.

Corporate governance is the system by which companies are directed and controlled. Boards of
directors are responsible for the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate
governance structure is in place.

The responsibilities of the board include setting the company’s strategic aims, providing the
leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and how it sets the
values of the company, and it is to be distinguished from the day to day operational management
of the company by full-time executives.

In the UK for listed companies corporate governance it is part of the legal system as the latest UK
Corporate Governance Code applies to accounting periods beginning on or after 1 January 2019
and,, applies to all companies with a premium listing of equity shares regardless of whether they
are incorporated in the UK or elsewhere.
But good governance can have wider impacts to the non listed sector because it is fundamentally
about improving transparency and accountability within existing systems. One of the interesting
developments in the last few years has been the way in which the ‘corporate’ governance label has
been used to describe governance and accountability issues beyond the corporate sector. This can
be confusing and misleading as UK Corporate Governance has been built and developed to deal
with the governance of listed company entities and not designed to cover all organisational types
that may have different accountability structures.

Theories of Corporate Governance

We will discuss the following theories of corporate governance:

• Agency Theory
• Stewardship Theory
• Resource Dependency Theory
• Stakeholder Theory
• Transaction Cost Theory
• Political Theory
Agency Theory

Agency theory defines the relationship between the principals (such as shareholders of company)
and agents (such as directors of company). According to this theory, the principals of the company
hire the agents to perform work. The principals delegate the work of running the business to the
directors or managers, who are agents of shareholders. The shareholders expect the agents to act
and make decisions in the best interest of principal. On the contrary, it is not necessary that agent
make decisions in the best interests of the principals. The agent may be succumbed to self-interest,
opportunistic behavior and fall short of expectations of the principal. The key feature of agency
theory is separation of ownership and control. The theory prescribes that people or employees are
held accountable in their tasks and responsibilities. Rewards and Punishments can be used to
correct the priorities of agents.

Stewardship Theory

The steward theory states that a steward protects and maximises shareholders wealth through firm
Performance. Stewards are company executives and managers working for the shareholders,
protects and make profits for the shareholders. The stewards are satisfied and motivated when
organizational success is attained. It stresses on the position of employees or executives to act
more autonomously so that the shareholders’ returns are maximized. The employees take
ownership of their jobs and work at them diligently.
Stakeholder Theory

Stakeholder theory incorporated the accountability of management to a broad range of

stakeholders. It states that managers in organizations have a network of relationships to serve –
this includes the suppliers, employees and business partners. The theory focuses on managerial
decision making and interests of all stakeholders have intrinsic value, and no sets of interests is
assumed to dominate the others

Resource Dependency Theory

The Resource Dependency Theory focuses on the role of board directors in providing access to
resources needed by the firm. It states that directors play an important role in providing or securing
essential resources to an organization through their linkages to the external environment. The
provision of resources enhances organizational functioning, firm’s performance and its survival.
The directors bring resources to the firm, such as information, skills, access to key constituents
such as suppliers, buyers, public policy makers, social groups as well as legitimacy. Directors can
be classified into four categories of insiders, business experts, support specialists and community
influentials.

Transaction Cost Theory

Transaction cost theory states that a company has number of contracts within the company itself
or with market through which it creates value for the company. There is cost associated with each
contract with external party; such cost is called transaction cost. If transaction cost of using the
market is higher, the company would undertake that transaction itself.

Political Theory

Political theory brings the approach of developing voting support from shareholders, rather by
purchasing voting power. It highlights the allocation of corporate power, profits and privileges are
determined via the governments’ favor

Corporate Governance in India

Introduction
Corporate Governance is a mechanism based on certain systems and principles by which a
company is governed. The governance ensures that a company is directed and controlled in a way
so as to achieve the goals and objectives which include providing benefits to the stakeholders like
shareholders, employees, suppliers, customers and society in the long term and adding value to the
company. It is actually conducted by the board of Directors and the concerned committees for the
benefit of stakeholders' company'. Corporate governance is all about balancing individual and
societal goals as well as economic and social goals.

Corporate Governance consists of:

1. Explicit and implicit contracts between the company and the stakeholders for distribution
of responsibilities, rights and rewards.
2. Procedures for reconciling the conflicting interests of stakeholders in accordance with their
duties, privileges and roles.
3. Procedures for proper supervision, control, and information that flows to serve as a system
of checks and balances.

According to the Cadbury Committee of U.K,

"Corporate governance is the system by which companies are directed and controlled."

Need for Corporate Governance in India

The need for corporate governance has emerged because of the increasing concerns about the
non-compliance of standards of financial reporting and accountability by boards of directors and
management of companies causing heavy losses to investors. Following are the needs for
corporate governance in India:

1. Changing Ownership Structure:

A corporate firm has lots of stakeholders with different attitudes towards corporate
affairs, corporate governance protects the stakeholders' right by implementing it through
its code of conduct. Today a company has a very large number of stakeholders spread all
over the nation and even the world and a majority of shareholders act unorganised with
an indifferent attitude towards corporate affairs. Maintaining a proper structure of a
corporate body requires a practical implementation of rules and regulations through a
code of conduct of corporate governance.

2. Social responsibility:
Society having greater expectations from corporate, they expect that corporates take care
of the environment, pollution, quality of goods and services, sustainable development etc.
Fulfilment of all these expectations is only possible with proper corporate governance.

3. Takeovers and Mergers:

Takeovers and mergers of corporate entities created lots of problems in the past. It affects
the right of various stakeholders in the company and creates a problem of chaos, this
factor also pushes the need of corporate governance in the country.

4. Confidence booster:
Corporate scams or frauds in the recent years of the past have shaken public confidence
in corporate management. The need for corporate governance is then crucial for reviving
investors' confidence in the corporate sector towards the economic development of
society.

5. Mismanagement and corruption:

It has been observed in both developing and developed economies that there has been a
great increase in the monetary payments and packages of top level corporate executives.
There is no justification for exorbitant payments to top ranking managers, out of
corporate funds which is a property of shareholders and society. This factor necessitates
corporate governance to restrict the ill-practices of top managements in the companies.

6. Investors' influence:
Large corporate investors are becoming a challenge to the management of the company
as they influence the decisions of the company. Corporate governance set the code to deal
with such situations.

7. Globalization:
Globalization made the communication and transport between countries so easy and
frequent. Many Indian companies are listed with international stock exchange which also
triggers the need for corporate governance in India to structure the companies at par with
international level.
 8. Efficiency of management:
Hostile takeovers of corporations witnessed in several countries put a question mark on
the efficiency of managements of take-over companies. Lack of efficient code of conduct
for corporate managements points out to the need for corporate governance.

Importance of Corporate Governance in India

Corporate governance safeguards not only the management but also the interests of stakeholders
and fosters the economic progress of India in the roaring economies of the world. A company
that has good corporate governance experiences much higher level of confidence amongst the
shareholders associated with that company.

Confident and independent directors contribute towards a positive outlook of the company in
financial market which positively influences the share prices. Corporate Governance is one of the
important criteria for foreign institutional investors to decide on which company to invest in.

Importance of corporate governance is stated below:

1. Good corporate governance ensures success and economic growth of a firm worldwide.
2. Strong corporate governance maintains investors' confidence in the financial market, as a
result of which company can raise capital efficiently and effectively.
3. International flows of capital enable companies to access financing from a large pool of
investors. If countries are to reap the full benefits of the global capital markets, and if
they are to attract long-term capital, corporate governance arrangements must be credible
and well understood across borders. The large inflows of foreign investment will
contribute immensely to economic growth.
4. Properly structured governance lowers the capital cost.
5. The importance of good corporate governance lies in the fact that it will enable the
corporate firms to attract capital and perform efficiently. Investors will be willing to
invest in the companies with a good record of corporate governance.
6. New policy of liberalization and deregulation adopted in India in the year 1991, has given
greater freedom to managements which should be prudently used to promote investors'
interests. But there are several instances of corporate failures due to lack of transparency
and disclosures and instances of falsification of accounts. This problem will only be
overcome by a proper corporate governance.
7. A strong corporate governance is indispensable for a vibrant stock market. A healthy
stock market is an important instrument for investors protection. Insider trading is a
destruction of stock market. It means trading of shares of a company by insiders like
directors, managers and other em�ployees of the company on the basis of information
which is not known to outsiders of the company.
8. Corporate governance provides proper encouragement to the owners as well as managers
to achieve objectives that are in the interest of stakeholders and the organization by.
 9. It also minimizes wastages, corruption, risks and mismanagement.
10. It helps in brand formation and development of a company. Many studies in India and
abroad has shown that foreign investors take notice of well- managed companies and
respond positively to them. Capital flows from foreign institutional investors (FII) for
investment in the capital market and foreign direct investment (FDI) in joint ventures
with Indian corporate companies if they are convinced about the implementation of basic
principles of good corporate governance.
11. It make sures an organization is managed in a manner that fits the best interests of all.
Corporate governance is a means through which the company signals to the market that
effective self-regulation is in place and that investors are safe to invest in their securities.
Prohibiting inappropriate actions and self-regulation are effective means of creating
shareholders value.
12. Officials of a corporate company take undue advantage at the expense of investors
through insider tradings. It is a kind of fraud and one way of dealing with this problem is
enacting legislation through corporate governance prohibiting such trading and enforcing
criminal action against violators.

Key Principles of Corporate Governance

Transparency
A principle of good governance is that stakeholders should be informed about the company's
activities regarding its plans in the future and any risks involved in its business strategies.

• Transparency means openness by the company willing to provide clear information to

shareholders and other stakeholders. For example, it refers to the openness to disclose
financial performance figures which are truthful and accurate.
• Disclosing materials concerning the organization's performances and activities should be
will timed and accurate to ensure that all investors have access to clear, factual
information which reflects the financial, social and environmental position of the
organization. A company should clarify the roles and responsibilities of the board and
management to provide a level of accountability.
• Transparency ensures that stakeholders can have confidence in the decision-making and
management processes of a company.

Accountability
Corporate accountability refers to the obligation and responsibility to provide an explanation or
reason for the company's actions and conduct such as:

• The board should present a balanced and understandable assessment of the company's
position and prospects.
• The board is responsible for determining the nature and extent of the significant risks the
company is willing to take.
• The board should maintain sound risk management and internal control systems.
 • The board should establish formal and transparent arrangements for corporate reporting
and risk management and for maintaining an appropriate relationship with the company's
auditors.
• The board should communicate with stakeholders at regular intervals giving a fair,
balanced and explicit analysis of how the company is achieving its business purpose.

Responsibility
The Board of Directors are given authority to act on behalf of the company. They should
therefore accept full responsibility for the powers that it is given and the authority that it
exercises. The Board of Directors are responsible for overseeing the management of the
business, affairs of the company, appointing the chief executive and monitoring the performance
of the company. In doing so, it is required to act in the best interests of the company.

Accountability goes hand in hand with responsibility. The Board of Directors should be made
accountable to the stakeholders for the way in which the company has carried out its
responsibilities.

WHAT IS GOOD CORPORATE GOVERNANCE?

As seen in the example above, corporate governance is not limited to ticking boxes to make sure
you remain within the guidelines of regulations such as the UK Corporate Governance Code,
issued by the Financial Reporting Council (FRC).
Good corporate governance understands the requirements, but also the reasons why they benefit
a business. It does not perform the bare legal minimum but uses the code to delve deeper into the
organisation’s operations in order to place itself in the best possible position from which to thrive.
Some of the elements of good corporate governance include:
• Having an effective board of directors that is collectively responsible for ensuring success in the
long term, led by a chair who is committed to continuous improvement
• A board that features a balance of competencies, experience, company knowledge and
independence
• Directors that are able to dedicate sufficient time to their responsibilities, receive a great
induction and have the opportunity to regularly update their skillset
• Regular evaluation of board performance as well as that of the individual directors and committees.
Good corporate governance can also be understood as transparent and ethical. Although hard to
quantify, this approach to governance is hugely important when balancing profitability with the
board’s duties to investors and other stakeholders.
WHAT ARE THE BENEFITS OF GOOD GOVERNANCE?
The benefits of good corporate governance are countless but we’ve rounded up the most important
ones below.
Compliance
The business carries out its functions in a manner that complies with the rules and regulations in
the regions in which it operates. This helps it avoid costly penalties and reputational damage.
Efficiency of process
Streamlining your organisational procedures allows you to look at your existing processes within
the business and find ways to make them more efficient.
Risk identification
If you can accurately identify risk factors, you can mitigate them before they become an issue.
This forward-thinking, strategic approach gives a real competitive edge.
Better decision making
Good governance gives top-level decision-makers the information they need to make quick and
effective choices.
Strong strategic planning
Access to vital information coupled with good internal communication lay the foundations of a
board that can create better business strategies.
Improved brand image
Good governance makes the organisation more desirable for talented new directors. As investors
pay more and more attention to ESG reporting, the ‘G’ in it, which stands for ‘governance’, is also
entering the spotlight. Nowadays, good governance is vital to attracting and retaining the right
shareholders. It can even make it less expensive to borrow capital, as companies with strong
governance, including robust financial management reporting, pose less of a risk to lenders.
HOW TO ACHIEVE GOOD CORPORATE GOVERNANCE
1. Balance board composition
If all board members have the same level of experience, with similar skill sets, you will not find
the diversity of opinion that is required to rigorously challenge the company’s strategy and ensure
it is watertight. Greater diversity on boards introduces new ways of thinking and creative methods
of solving problems, which prevent directors from resting on their laurels.
Board diversity is all about filling gaps in boardroom expertise to provide a broader range of
viewpoints and a fresh perspective using strategic succession planning.
Dowshan Humzah, director and chair of UK Advisory Board of Board Apprentice Global says:
“The Financial Reporting Council recognises that diverse board composition in respect of
protected characteristics (such as gender and race) is not on its own a guarantee.
“Diversity, inclusion and impact are just as much about difference as what I have termed POETS
(Perspective, Outlook, Experience, Thought, Sector & Social background), which, of course,
correlates closely to those with different protected and social characteristics. As a result, we need
boards to be more uncomfortable being comfortable – and comfortable with the uncomfortable.
More creative, non-linear and even oblique thinking is required to better balance our boards and
serve their end-users, citizens or beneficiaries.”
2. Evaluate the board regularly
A diverse board that works well on paper is one thing, but how they actually perform in real life
is another thing altogether. This is why regular evaluations are important. They help you track
progress over a period of time and understand where your own strengths lie as well as giving you
a good understanding of the areas that need improvement. One way to achieve this is
with Boardclic’s board evaluation tool that provides you with a benchmark against your own
performance and that of your competitors. This way you’ll know what ‘good corporate
governance’ means for your company and your industry.
Evaluations are mandatory in some jurisdictions, but they are also important, no matter what the
legislation mandates. They are critical to building sound corporate governance and stakeholder
value.
Open communication and transparency in the evaluation process breeds confidence and trust
within the company and helps you in your efforts to grow that diverse board of directors.
Evaluations should not be a tick-the-box exercise; they should feature candid, in-depth
conversations that give you real data to work with to instil a culture of continuous improvement.
3. Ensure director independence
Independence is desirable on a board that wants to break away from safe, conservative thinking.
Forward-looking boards need directors that are not afraid to think outside of the box, rather than
simply continue down the same road the company has always taken. It helps create innovation and
avoid stagnation.
In addition, independent directors are more likely to provide insights that benefit the shareholders,
given their different perspective on matters.
4. Ensure auditor independence
Undue influence over the work of audit committees and independent auditors is a concern in terms
of corporate governance. Investors need to know that they can trust the financial reporting that an
issuer makes, so independence is key to show that the reports are accurate and tell the true tale of
the company.
5. Be transparent
The previous point feeds into this one. Transparency is essential for good corporate governance.
The openness and willingness to share accurate, clear and easy-to-understand information with
stakeholders, including shareholders, breeds trust and solidifies a business’s reputation.
This means that organisations have to accurately report the bad news as well as the good. Trying
to avoid negative publicity only to be found out later is more damaging for a business and its
reputation. Full disclosure breeds integrity.
Create a plan of what you will share with shareholders and how often so that they can see that your
intention is to be as transparent as possible.
6. Define shareholder rights
Shareholders should know their rights when they invest in your business and you should ensure
that the rights you provide are backed up by your Articles of Association, constitution and
company bylaws.
Decide whether all shareholders have the same voting rights or whether different classes of
holdings have preference.
Can they approve certain transactions?
Can the board act without their approval?
Do you have policies for extraordinary transactions?
These are all issues you need to resolve before formalising shareholder rights and ensuring you
regularly review your policies.
7. Aim for long-term value creation
Although short-term wins look good and create opportunities for publicity, long-term value
creation should be the aim for a company with solid governance. A business that is committed to
sustainable growth is likely to be much less volatile than a company with its eye only on the short
term.
8. Manage risk proactively
Identifying risks is important, but taking a proactive approach to mitigate that risk before you face
it is the goal. Rather than attempting to weather the storm, it is better for the organisation to avoid
the storm completely.
A solid risk management process, an internal control framework and an up-to-date disaster
recovery plan are all key to achieving this aim.
9. Follow sustainability best practices
Sustainability and strategic management are increasingly intertwined in the corporate world, as
investors make their preferences heard. Major events such as Covid-19 and the climate crisis have
thrown into sharp relief the need for a sustainable outlook from issuers. Consumers have also
started to prefer shopping with businesses that boast sustainable practices.
In addition, there is increasing regulatory pressure for reporting of environmental, social and
corporate governance metrics, so issuers are advised to get ahead of the game and be prepared for
the upcoming ESG compliance legislation.
10. Document policies and procedures
There should be easy to access documentation of your policies and procedures relating to
shareholder rights, executive compensation, board meeting operation, the election of new directors
and more. This ensures transparency and consistency within the organisation.
EXAMPLES OF GOOD CORPORATE GOVERNANCE
Here are some companies that have achieved long-term success by upholding the principles of
good corporate governance and displaying ethical behaviour.
Company Good Governance Examples

The drinks company is renowned for its good governance, including:

Diageo
• A comprehensive board diversity policy
• Clear presentation of remuneration policy
 • Promotion of a Code of Business Conduct

The insurance company’s governance efforts include:

Aviva
• Transparent reporting of board evaluations
• Clear process for onboarding new directors

The aerospace business shows strong governance performance, including:

GKN
• Codes of Ethics for employees, contractors and the supply chain
• Promoting a culture of fair competition

OECD PRINCIPLES:-

The main areas of the OECD Principles

I. Ensuring the basis for an effective corporate governance framework The corporate governance
framework should promote transparent and efficient markets, be consistent with the rule of law
and clearly articulate the division of responsibilities among different supervisory, regulatory and
enforcement authorities.

II. The rights of shareholders and key ownership functions The corporate governance framework
should protect and facilitate the exercise of shareholders’ rights.

III. The equitable treatment of shareholders The corporate governance framework should ensure
the equitable treatment of all shareholders, including minority and foreign shareholders. All
shareholders should have the opportunity to obtain effective redress for violation of their rights.

IV. The role of stakeholders in corporate governance The corporate governance framework should
recognise the rights of stakeholders established by law or through mutual agreements and
encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and
the sustainability of financially sound enterprises.

V. Disclosure and transparency The corporate governance framework should ensure that timely
and accurate disclosure is made on all material matters regarding the corporation, including the
financial situation, performance, ownership, and governance of the company.

VI. The responsibilities of the board The corporate governance framework should ensure the
strategic guidance of the company, the effective monitoring of management by the board, and the
board’s accountability to the company and the shareholders.

What Is the Sarbanes-Oxley (SOX) Act of 2002?

The Sarbanes-Oxley Act of 2002 is a law the U.S. Congress passed on July 30 of that year to help
protect investors from fraudulent financial reporting by corporations.1 Also known as the SOX
Act of 2002 and the Corporate Responsibility Act of 2002, it mandated strict reforms to existing
securities regulations and imposed tough new penalties on lawbreakers.

The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s
involving publicly traded companies such as Enron Corporation, Tyco International plc, and
WorldCom.2 The high-profile frauds shook investor confidence in the trustworthiness of
corporate financial statements and led many to demand an overhaul of decades-old regulatory
standards.

Understanding the Sarbanes-Oxley (SOX) Act

The rules and enforcement policies outlined in the Sarbanes-Oxley Act of 2002 amended or
supplemented existing laws dealing with security regulation, including the Securities Exchange
Act of 1934 and other laws enforced by the Securities and Exchange Commission (SEC).5 The
new law set out reforms and additions in four principal areas:

1. Corporate responsibility
2. Increased criminal punishment
3. Accounting regulation
4. New protections

Major Provisions of the Sarbanes-Oxley (SOX) Act of 2002

The Sarbanes-Oxley Act of 2002 is a complex and lengthy piece of legislation. Three of its key
provisions are commonly referred to by their section numbers: Section 302, Section 404, and
Section 802.1

Section 302 of the SOX Act of 2002 mandates that senior corporate officers personally certify
in writing that the company's financial statements "comply with SEC disclosure requirements and
fairly present in all material aspects the operations and financial condition of the issuer." Officers
who sign off on financial statements that they know to be inaccurate are subject to criminal
penalties, including prison terms.

Section 404 of the SOX Act of 2002 requires that management and auditors establish internal
controls and reporting methods to ensure the adequacy of those controls. Some critics of the law
have complained that the requirements in Section 404 can have a negative impact on publicly
traded companies because it's often expensive to establish and maintain the necessary internal
controls.

Section 802 of the SOX Act of 2002 contains the three rules that affect recordkeeping. The first
deals with destruction and falsification of records. The second strictly defines the retention period
for storing records. The third rule outlines the specific business records that companies need to
store, which includes electronic communications.

Besides the financial side of a business, such as audits, accuracy, and controls, the SOX Act of
2002 also outlines requirements for information technology (IT) departments regarding electronic
records. The act does not specify a set of business practices in this regard but instead defines
which company records need to be kept on file and for how long. The standards outlined in the
SOX Act of 2002 do not specify how a business should store its records, just that it's the company
IT department's responsibility to store them.

SEBI INTIATIVES:-

Founded in 1988, the Securities and Exchange Board of India (SEBI) has the role to protect
investors and regulate the financial market. SEBI initiatives in corporate governance are
based on the Securities and Exchange Board of India Act and aim to prevent fraudulent
practices. The organization is responsible for enforcing rules and regulations to promote orderly
development in the stock market. As an investor, you must comply with these rules and follow
the code of conduct.

What Is SEBI?

The Indian securities market is one of the most trusted in the world. However, things haven't
always been this way. Back in the '80s, everyone was trying to find loopholes in the system and
get rich through fraudulent schemes. Today, this market is tightly regulated by the Securities and
Exchange Board of India, whose role is to prohibit unfair trade practices and protect investors'
interests, among other functions.

The organization became autonomous and got the statutory status in 1992. Soon, it has
emerged as the regulator of stock markets in India, overseeing the activities of investors,
securities issuers and market intermediaries. SEBI is also responsible for carrying out investor
awareness and training programs and regulating major transactions. Furthermore, it monitors
credit rating agencies, custodians, bankers, brokers and other financial market players.

Several departments exist within SEBI, including but not limited to the Corporation Finance
Department (CFD), the Legal Affairs Department, the Market Regulation Department and the
Office of International Affairs. The CFD, for example, oversees all matters related to corporate
governance and accounting standards. The Office of Investor Assistance and Education (OIAE),
on the other hand, handles investors' complaints, such as those related to the transfer of shares.

SEBI Guidelines for Corporate Governance

Corporate governance encompasses the mechanisms, rules and practices by which companies
are operated and controlled. It aims to mitigate conflicts of interest between shareholders and
promote ethical decision-making, transparency and integrity at the executive level. The role of
SEBI in corporate governance is to ensure these rules are implemented and followed by all
parties.

For example, the organization ensures that companies issuing securities use fair practices and
disclose relevant information to the shareholders. It also regulates takeovers, listing
agreements of stock exchanges, corporate restructurings and more. SEBI guidelines for corporate
governance are designed to provide a safe, transparent environment for investors and prohibit
fraudulent or unfair practices, like insider trading.

The role of SEBI in ensuring ethical standards among corporations became even more important
in 2018 when the organization imposed additional compliance conditions. For instance, big
firms will be required to have at least one woman independent director and separate chairpersons
and CEOs. Furthermore, listed companies must disclose related-party transactions and hold a
specific number of annual general meetings. SEBI initiatives in corporate governance are largely
based on the recommendations made by the Kotak committee in March 2018 and aim to
enhance transparency.

Key Functions of SEBI

In addition to its role in corporate governance, SEBI has protective, regulatory and
developmental functions. The organization protects investors by prohibiting malpractices
related to securities and promoting fair trade practices. Additionally, it aims to educate them on
money management, trading and finances in general.

Its regulatory functions have the role to ensure that corporations and financial intermediaries
alike follow its guidelines and code of conduct. The end goal is to keep the financial market
running smoothly.

The developmental functions of SEBI aim to promote computerized trading and modernize
the market infrastructure. These initiatives have led to a reduction in fraud and unfair
practices. For example, the organization requires companies that buy or sell stocks to register
for a dematerialization (Demat) account online, which helps reduce bureaucracy and simplifies
the process of holding investments. The Demat system allows traders to work from anywhere
and mitigates the risks associated with paper shares, such as trading delays or thefts.