Corporate

Governance
Q.1) What are the factors affecting Corporate Governance? (400 words, 10 Marks)

“Corporate Governance should be done more through principles than rules”

Corporate governance broadly refers to the mechanisms, processes and relations by which
corporations are controlled and directed. Corporate governance includes the processes through
which corporations' objectives are set and pursued in the context of the social, regulatory and
market environment.

Corporate Governance is a dynamic practice consisting of internal control provisions and procedures
to manage a company. It affects and gets affected by a number of factors highlighted below,

1. Ownership Structure: Ownership structure has a major role to play in corporate governance. If the
Ownership is concentrated in few hands, then dominant shareholders would be able to take
decisions at their will. Example: Till 2014, all the oil companies were used to provide diesel and
petrol at a regulated price mechanism as per the decision of majority stakeholder i.e., the
Government of India. This decision of majority stakeholder not only affecting the financial positions
of these companies but also affecting the minority stakeholder.

2. Financial Structure: The financial structure will have implications on the corporate governance. If
company is more equity than debt, then all the decisions would have to be taken by consulting
shareholders which is good. But in case of large debt and low equity it might be possible for board to
take decisions in their interest and debtors might not like those decisions. Example: Kingfisher
Airlines, KLA, was another corporate fraud, which was first of its kind in the Airlines industry, which
ultimately led to fall of the empire of King of good times. The company resorted toborrowing funds
by all possible means, including related parties and pledge of Kingfisher brand by over-valuation of
brand value. This changed the financial structure of the company and given the chance to promoter
to siphon off 9000crore of public sector lenders.

3. Competency of Board of Directors: If board of directors does not understand the business then
they will not be able to fulfill their duties to the extent required. In such a case management would
be able to take decisions in their own interest rather than in the interest of the shareholders.
Example: Yahoo's board got rid of Terry Semel and drafted co-founder Jerry Yang to turn around the
Internet portal even though he'd never run a company before. Moreover, Yahoo Inc rejected
Microsoft Corp's unsolicited $41.6 billion takeover offer. Had Yahoo board have taken right decision,
it could have been the world’s most valuable company by now.

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4. Board independence: An independent board acts as watchdog for the company’s policies,
decisions, and performance. They act in the interest of the company and the interest of all
stakeholders. In absence of Independence of Board, Management may engage in malpractices.
Example: Cyrus Mistry who was dismissed as Tata Sons chairman by its board, alleged lack of
corporate governance and failure on the part independence of directors. Mistry alleged that Ratan
Tata regards Tata group as a fiefdom, and Independent Directors aren’t truly independent and
assertive. Mistry’s suggested that despite making losses of Rs1000 crore, Tata’s low-cost Nano has
not been shut down due to emotional reasons.

5. Role of Government and Regulatory Authorities: Government and regulatory authorities play an
especially important role in framing rules and regulations to enforce corporate governance.
Example: After a continuous chase by Market regulator SEBI, Unlisted conglomerate Sahara, one of
India’s biggest business groups was ordered by the Supreme Court of India to refund 174 billion
rupees raised by dubious means from 22 million small investors.

6. Transparency: Transparency is necessary for good corporate governance. Every company should
ensure that it distributes every information to shareholders which is relevant to them on time and
should be complete. Example: The high-profile corporate governance failure scams like the stock
market scam, the UTI scam, Ketan Parikh scam, Satyam scam, which were severely criticized by the
shareholders, called for a need to make corporate governance in India transparent.

The collapse of international giants likes Enron, World Com of the US and Xerox of Japan are said to
be due to the absence of good corporate governance and corrupt practices adopted by management
of these companies and their financial consulting firms. The failures of these multinational giants
bring out the importance of good corporate governance along with the factors affecting it.

Q.2) Has excessive profit seeking by corporates undermined the trust of public in the private
sector? Giving examples, examine the reasons for failure of corporate governance in India. (400
words, 10 Marks)

Private sector is largely driven by ‘profits’, which are important for sustainability of business
operations. However, with increasing instances of corporate frauds and crony capitalism, questions
have been raised on the mode of operations of the private sector. It has also been argued that such
illegal and unethical practices are traceable to the want of excess profits.

Manifestations of such practices include the Satyam scam, Enron Scandal, Financial Crises of 2008
whereby the public was misled for generating excess profits.

Many see the private sector being driven by self-interest without adequately acknowledging the
interest all stakeholders, especially consumers. India’s telecom sector is an example. While Jio’s
penetration has increased significantly over the years with extremely competitive tariffs, the quality
of service has left much to be desired with rising instances of call drops.

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This has meant that it is the consumers or the larger public which are at the receiving end.
Therefore, while profits are an important factor, it is the race for excessive profits and the
corresponding practices to earn those that has undermined the trust of the public in the private
sector.

Reasons for the failure of corporate governance in India

1. Most corporate governance abuses in India arise due to conflict between the majority and
minority shareholders. In India, boards are not as empowered as in several western economies and
since the board is subordinate to the shareholders, the will of the majority shareholders prevails.
Example: Till 2014, Government being the largest shareholder in Oil companies used to regulate the
Petrol and Diesel prices, the consequences of which were being born by the Oil companies.

2. There is still a lack of awareness about various issues pertaining to corporate governance, like,
quality and frequency of financial and managerial disclosure, compliance with the code of best
practice, roles and responsibilities of Board of Directors, shareholders rights, etc.

3. Collusion between companies and their accounting firms, non-compliance with standards, etc.
Example: IL&FS had defaulted on its debt obligations, triggering a liquidity crisis in the financial
services market. IL&FS and its subsidiaries owe ₹99,354 crore. The auditors, especially the “big
three"—EY, Deloitte and KPMG—are in the dock. Probe agencies are probing the role of auditors
that how they missed such a large misappropriation of funds by the management.

4. In India, family businesses constitute an important portion of corporate setup. Family control also
brings governance problems –which includes lack of checks and balances over executive decision-
making and behavior, and a lack of transparent reporting to the outside world.

5. The issues of enforcement of corporate governance norms also leave much to be desired. There
have been instances of substantial delay in the delivery of justice by Indian legal system. Example:
After a continuous and long chase of over 6 years by Market regulator SEBI, Unlisted conglomerate
Sahara, one of India’s biggest business groups was ordered by the Supreme Court of India to refund
174 billion rupees raised by dubious means from 22 million small investors.

Corporate governance is perhaps one of the most important differentiators of a business that has
impact on the profitability, growth and even sustainability of business. Sound corporate governance
is, therefore, crucial for sustained and robust growth which enhances the confidence of not just the
investors but the larger public as well. Therefore, there is a need for establishing clear principles of
corporate governance keeping in mind the welfare of all the stakeholders. This becomes important
as there is greater involvement of private sector in delivering essential services.

Q.3) What are the ethical issues with Corporate Governance in India? Also, discuss the importance
of ethically based corporate governance. (400 words, 10 Marks)

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Corporate governance refers to the way a corporation is governed and managed. The Organization
for Economic Co-operation and Development (OECD) defines corporate governance as ‘procedures
and processes according to which an organization is directed and controlled’. Negligence of business
ethics in corporate governance is a responsible factor for the failure of corporate. There have been
many instances of failure and scams in the corporate sector in India due to the absence of good
corporate governance.

Ethical issues with Corporate Governance in India

1. Concentration of powers: Ownership of corporations in India, is still held in a few hands. A single
shareholder or family controls a large group of companies. This leads to several governance related
challenges and has often led to poor decision making that harms company’s profits.

2. Conflict of Interest: The challenge of managers potentially enriching themselves at the cost of
shareholders. Example: Recent case of former ICICI head Chanda Kochhar approved a loan to
Videocon for quid pro quo deal for her husband.

3. Board directors: Independent directors were supposed to be the biggest corporate governance
reform. However, they have hardly been able to make the desired impact due to the passive role
played by them on board. The frequent removal of directors by promoters of the company is an
issue. This has not been addressed effectively yet, despite the strengthening of the regulations
regarding independent directors. Example: Yahoo's board got rid of Terry Semel and drafted co-
founder Jerry Yang to turn around the Internet portal even though he'd never run a company before.
Moreover, Yahoo Inc rejected Microsoft Corp's unsolicited $41.6 billion takeover offer. Had Yahoo
board have taken right decision, it could have been the world’s most valuable company by now.

4. Insider Trading: Corporate insiders like officers, directors and employees by the virtue of their
position have access to confidential information. Many misappropriate that information to reap
profits. SEBI lacks the thorough investigative mechanism and a vigilant approach due to which the
culprits are able to escape. In most of the cases, SEBI failed to produce evidence and corroborate its
stance before the court. Example: According to Corporate Governance Survey 2020by Local Circles,
Top three concerns of individual shareholders of publicly traded companies are accounting fraud,
selling of company assets without shareholder knowledge and insider trading. 82% individual
shareholders believe insider trading is prevalent is in publicly traded companies in India and 66%
individual shareholders believe insider trading in public companies takes place through
friends/family/agents of the beneficiary.

5. Noncompliance with disclosure norms: Noncompliance with disclosure norms is common in Indian
businesses with hardly any punitive action. While the Companies Act provides clear instructions for
maintaining and updating registers, in reality minority shareholders have often suffered from
irregularities in share transfers. Example: In order to ensure effective enforcement of continuous
disclosure obligations by issuers of listed debt securities, SEBI came out with uniform structure for
imposing fines for non-compliance with disclosure requirements. The fine ranging from ₹1,000-
50,000 per day could be levied for non-compliance with disclosure norms related to payment
obligations, non-submission of deviations in utilization of issue proceeds, and failure to obtain prior
approval of the bourses for any structural change.

Importance of ethically-based corporate governance:

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1. Profits: Ethical Corporate Governance helps in growing the reputation of a company and thus,
increase the profits. It leads to better relationships among stakeholders that enhances performance
of organizations.

2. Investment: Robust governance practices are imperative for companies to create positive
sentiment in the minds of investors and the public at large. An ethnically based corporate
governance leads to more trust in the organization and its work culture leading to more investors’
interest.

3. Employee’s motivation: Good corporate ethics improves the situations of the employee. It leads to
higher retention and better morale. It also leads to a more effective recruitment process, loyalty,
motivation, and productivity in the company.

4. Customer relationships: Customer relationships are also improved. Ethical governance increases
customer loyalty, enhances brand image, and cater to customers service and satisfaction. With
ethical business practices, complaints and issues of customers are solved transparently leading to
trust in the corporation.

5. Business performance: Good corporate ethics also enhances overall business performance,
particularly leading to improved competitive advantage through good governance, higher financial
returns, and better reputation.

Corporate governance is very essential for overall growth of the companies. Ethical culture can be
regarded as the insurance for successful business. So for good corporate governance ethics is
essential. It is every company’s moral duty to implement the ethical codes in their business.

4) What is Corporate Governance? Define its need and Principles.(400 words, 10 Marks)

Corporate governance broadly refers to the mechanisms, processes and relations by which
corporations are controlled and directed. Corporate governance includes the processes through
which corporations' objectives are set and pursued in the context of the social, regulatory and
market environment. Example: Infosys topped a poll on best practices in corporate governance
conducted by Asia money. Infosys ranked 1, across categories of ‘disclosure and transparency,
responsibilities of management and the board of directors, and shareholders' rights and equitable
treatment' for the FY 2020.

Corporate governance is needed for the following reasons,

1. Separation of Ownership from Management: A company is run by its managers. Corporate

governance ensures that managers work in the best interests of corporate owners (shareholders).

2. Global Capital: In today’s global world, global capital flows in markets which are well regulated
and have high standards of efficiency and transparency. Good corporate governance gains credibility
and trust of global market players.

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3. Investor Protection: Investors are educated and enlightened of their rights. They want their rights
to be protected by companies in which they have invested money. Corporate governance is an
important tool that protects investors’ interests by improving efficiency of corporate enterprises.

4. Foreign Investments: Significant foreign institutional investment is taking place in India. These
investors expect companies to adopt globally acceptable practices of corporate

governance and well-developed capital markets. Demanding International Standards of corporate

governance and greater professionalism in management of Indian corporates substantiates the need
for good corporate governance.

5. Financial Reporting and Accountability: Good corporate governance ensures sound, transparent
and credible financial reporting and accountability to investors and lenders so that funds can be
raised from capital markets.

6. Banks and Financial Institutions: Banks and financial institutions give financial assistance to
companies. They are interested in financial soundness of companies financed by them. This can be
done through good corporate governance.

7. Globalization of Economy: The economy today is globalized. Integration of India with the world
economy demands that Indian industries should conform to the standards of international rules.
Corporate governance helps in doing this.

Principles of Corporate Governance

1. Rights and equitable treatment of shareholders: Organizations should respect the rights of
shareholders and help shareholders to exercise those rights. They can help shareholders exercise
their rights by openly and effectively communicating information and by encouraging shareholders
to participate in general meetings. Example: Normally 51% (majority shareholders) of the
shareholders need to vote in favor for any decision to be taken. But recently there has been a voice
which says that sometimes the rest of the 49% (minority shareholders) which may be small investors
are badly affected by the decision. Hence people have started demanding even among the minority
shareholders the voting should be done separately and 51% of the remaining 49% should vote in
favor for decision to be taken. Many companies are doing this as part of corporate governance. This
problem where management tries to take decision which might not be in favor of shareholders is an
example principal-agent problem.

2. Interests of other stakeholders: Organizations should recognize that they have legal, contractual,
social, and market driven obligations to non-shareholder stakeholders, including employees,
investors, creditors, suppliers, local communities, customers, and policy makers. Example: Some
companies have made Corporate Social Responsibility as part of their Corporate Governance. So,
they are thinking in interest of local communities.

3. Role and responsibilities of the board: The board needs sufficient relevant skills and understanding
to review and challenge management performance. It also needs adequate size and appropriate
levels of independence and commitment.

4. Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing

corporate officers and board members. Organizations should develop a

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code of conduct for their directors and executives that promotes ethical and responsible decision
making. Example: Many companies have implemented policies on sexual harassment as part of
corporate governance.

5. Disclosure and transparency: Organizations should clarify and make publicly known the roles and
responsibilities of board and management to provide stakeholders with a level of accountability.
They should also implement procedures to independently verify and safeguard the integrity of the
company's financial reporting. Disclosure of material matters concerning the organization should be
timely and balanced to ensure that all investors have access to clear, factual information.

6. Environment-Friendly Policies: An organization should not aim growth at the cost of the
environment and human health. It is especially important that policies of the company are
environment friendly.

Good Corporate Governance standards are essential to ensure significant value enhancement to all
the stakeholders of a company, including the minority shareholders, the government and the
economy. India has always stood at the top in protecting the interests of minority shareholders and
this has been attributed to positive corporate governance norms that have been put in place by the
government and SEBI.

Q.5) Discuss the salient features of corporate governance in India?

"Corporate Governance is about promoting corporate fairness, transparency and accountability" - J

Wolfensohn

Corporate governance broadly refers to the mechanisms, processes and relations by which
corporations are controlled and directed. Corporate governance includes the processes through
which corporations' objectives are set and pursued in the context of the social, regulatory and
market environment. Example: Infosys topped a poll on best practices in

corporate governance conducted by Asia money. Infosys ranked 1, across categories of ‘disclosure
and transparency, responsibilities of management and the board of directors, and shareholders'
rights and equitable treatment' for the FY 2020.

Features of corporate governance

1. Transparency: This means that the Board of Directors must release all relevant information to the
stakeholders. They must show all the necessary financial and operational data to the stakeholders.
They must not hide any important information or maintain any secrecy. Example: The high-profile
corporate governance failure scams like the stock market scam, the UTI scam, Ketan Parikh scam,
Satyam scam, which were severely criticized by the shareholders, called for a need to make
corporate governance in India transparent.

2. Protection of Shareholders' Rights: The Board of Directors must protect the rights of the
stakeholders. They must protect all the stakeholders, especially the minority stakeholders. Example:
Some companies have made Corporate Social Responsibility as part of their Corporate Governance.
So, they are thinking in interest of local communities and protection of stakeholder, especially the
minority stakeholders.

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3. More Powers to CEO: The CEO must be given more powers so that he can approve the company’s
plans and strategies independently.

4. Accountability: The CEO and the Board of Directors must be made accountable for their actions to
the stakeholders and to the entire society. Example: Someone who epitomizes Accountability
principle is American businessman, successful investor and dedicated philanthropist, Warren Buffet.
Since his childhood, Buffet has held himself accountable for not only his successes and failures, but
for everything in between.

5. Based on Ethics: Corporate governance is based on ethics, moral principles and values. So, the
Board of directors must avoid unfair practices, cheating, exploitation, etc. Example: A recent study
by Harvard law, indicates that the issue of potential sexual misconduct at the companies has been
rising significantly. To resolve this issue, many companies have implemented policies on sexual
harassment as part of corporate governance.

6. Universal Application: Corporate governance has universal application. That is, it is used by
companies all over the world. It is given a legal recognition in many countries. All companies must
use corporate governance voluntarily.

7. Systematic: Corporate governance is very systematic. It is based on laws, procedures, practices,

rules, etc. All these laws are made to increase the wealth of the shareholders and to protect the
rights of all the stakeholders of the company.

Corporate governance encompasses systems and procedures designed to structure authority,

balance responsibility and provide accountability to stakeholders at all levels. Fundamentally,
corporate governance is about harmonizing success with sustainability. Management literature have
shown that corporate Governance is a set of ideas, innovation,

creativity, thinking having certain ethics, values, principles which gives direction and shape to its
people, personnel and possessors of companies and help them to succeed in global market.

Q.6) “Corporate Governance and Corporate Social Responsibility are the twins to shine a corporate
entity” — Discuss.

Answer

Business has a responsibility beyond its basic responsibility to its shareholders, a responsibility to a
broader constituency that includes its key stakeholders: customers, employee, NGOs, government -
the people of the communities in which it operates.

Corporate Governance is a widest control mechanism within which a company takes it management
decisions whereas CSR is the ethical behavior of a company towards society and thus both are
important for a company in their own way.

Good corporate governance is vital for the prosperity of an economy. Some of the key aspects of its
importance are as following,

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1. To enhance corporate sustainability: Good corporate governance will ensure that the board of
directors meet regularly, retain control over the business and are clear in the division of their
responsibilities. The board members act in the best interest of the shareholders. It helps build trust
in the organization and enhances its sustainability in the long run. Moreover, good corporate
governance helps in reducing frauds and scandals which leads to public confidence and national
prestige. Example: Tata Group of companies continues to be one of the biggest conglomerates even
after 150 years of its existence.

2. Shareholders activism is valued and encouraged: Shareholders enjoy the right to participate in the
governance and receive fair treatment from the management and board. Stakeholder’s rights are
delineated and communicated. Shareholders are regularly apprised and sensitized about the
company affairs. Example: Recently,

Reliance’s Industries virtually conducted its 43rd Annual General Board meeting and important
decision regarding the company’s future growth aspect were shared with Shareholders.

3. Continuous flow of information and feedback: Good Governance not only improves information
flow between management and boards for an efficient functioning but also enable a channel for
feedback from customers, clients and Shareholders which help a company to matchup with the
market requirements. Example: Hindustan Unilever Co., the most valuable FMCG in India has kept
pace with changing times and consumer preferences cause of its efficient sharing of information and
incorporation of continuous feedback not only from shareholder and employees but also the
consumers and clients.

4. Improve gender equity and diversity: Good corporate governance is also required for regular and
proper gender sensitization of the employee so as to develop a healthy and participatory work
culture. It helps break glass ceiling and diversifies board membership. Example: L’Oreal is known for
its best corporate governance practices and is also a Pioneer in term of gender equality. L’Oréal is
regularly audited to obtain the GEEIS (Gender Equality European and International Standard) in 23
countries and EDGE (Economic Dividends for Gender Equality) certifications in 7 countries.

5. Enhances goodwill of the company: Adhering to disclosure norms, regular updating of records,
regulatory requirements like taking care of minority, good governance enhances goodwill of the
company. Example: Infosys has maintained the value of 'Walk the Talk' and gained the respect of its
stakeholders.

Importance of Corporate social responsibility in an organization

Being a good corporate citizen means that companies not only be internally well governed and but
also being part of society and using resources from society, companies need to be externally
responsible as well.

Thus, Corporate Social Responsibility is also important for and organization and can enhance its
image in the following ways.

1. Improved public image: This is crucial, as consumers assess your public image when deciding
whether to buy from you. Something simple, like staff members volunteering an hour a week at a
charity, shows that you’re a brand committed to helping others. As a result, you’ll appear much
more favorable to consumers. Example: About 66% of Tata Group revenue goes to philanthropic
activities which have hugely enhanced the public image of the group.

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2. Increased brand awareness and recognition.: If you’re committed to ethical practices, this news
will spread. More people will therefore hear about your brand,

which creates an increased brand awareness. Example: Ultra tech cements is making a name for
itself through its CSR initiative of building model Villages.

3. An advantage over competitors: By embracing CSR, you stand out from competitors in your
industry. You establish yourself as a company committed to going one step further by considering
social and environmental factors. Example: Patanjali has become a renowned name in FMCG and is
using its profits towards charity and social welfare which provides it an advantage from its
competitors.

4. Increased customer engagement: If you’re using sustainable systems, you should shout it from the
rooftops. Post it on your social media channels and create a story out of your efforts. Furthermore,
you should show your efforts to local media outlets in the hope they’ll give it some coverage.
Customers will follow this and engage with your brand and operations. Example: Most modern day
FMCG use CSR as promotional activity to engage with customers. A lot of promotional ads are being
done “Like Dabur Vatika Salutes Female Cancer Survivors #BraveandBeautiful.”

According to experts, socially responsible companies demonstrate greater stability in their benefits
in times of economic crisis than those funds whose sole aim is profit. It seems that the moral and
economic values linked to CSR provide balance and robustness to the system, as well as temper the
incentive to maximize profits as the sole objective.

Q.6) What are the various mechanisms of Corporate Governance? (600 words, 15 Marks)

A certain set of authorities and responsibilities which have an influential power on management
decisions and eliminates the managers’ discretionary space is termed as corporate governance
mechanisms.

These mechanisms act as a controlling tool for creating a balance between principals and agents cost
and further ensures in safeguarding the interests of stakeholders.

Various mechanisms of Corporate Governance

Basically, two types of mechanisms, internal and external, revolve around the corporate governance
depending upon the influence and relative importance of these tools. The mechanisms are as
following,

Internal mechanisms are the ways and methods used by the firms which help the management in
enhancing the value of shareholders. The constituents of internal mechanisms include,

1. Monitoring by Board of Directors

Board of directors are legally accountable for the decisions they make on behalf of their firm and
therefore monitor and control the corporate governance of the company. Example: The board
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exercise control through monitoring and reviewing corporate strategy, major plans of action, risk
policy, annual budgets and business plans, corporate performance etc.

2. Board Committees:

The different board Committees, which audits the members of the Board of Directors for the
execution of their duties, receives audit reports from the Accounting Auditor, also act as an internal
control mechanism. Moreover, people with no special relationship with the company and who are
highly independent are appointed as members of these committees to enhance the supervisory
function of the company’s business management, and its transparency and objectivity. Example:
committee for Auditing, Nomination & Remuneration Committee and Risk Management Committee.

3. Internal audits and robust policies

Regular internal audits carried out by auditors employed by the organization in order to assess the
health of governance processes, operational health and financial reporting also act as an internal
control mechanism.

Robust internal control policies should also be implemented to ensure that the company lives up to
its obligations to investors, stakeholders, employees, the environment, the government and the
public at large. Example: IL&FS had defaulted on its debt obligations, triggering a liquidity crisis in the
financial services market. IL&FS and its subsidiaries owe ₹99,354 crore. The auditors, especially the
“big three"—EY, Deloitte and KPMG—are in the dock. Probe agencies are probing the role of
auditors that how they missed such a large misappropriation of funds by the management.

4. Proper Balance of power:

A separation of powers and responsibilities between management groups ensures that there’s a
proper system of checks and balances is in place, with one group implementing policies and another
ensuring that these are implemented and functioning in the right manner. For example, President be
a different person from the Treasurer.

5. Monitoring by large shareholders and other stakeholders

Individuals and institutions that have large shareholdings (and financial institutions such as banks
who are creditors) have the right to monitor the performance of the management, acting as an
effective internal control measure. Moreover, Small Shareholders too have a voice in the
organization through a representative in the Board of director.

Sometimes internal mechanism lacks in itself while performing the best for the company. This time
external factors play a vital role in controlling the corporate governance mechanism of the business
firm. The constituents of external governance mechanism include,

1. The Financial Market:

Stock market plays a significant role in firm’s ups and downs. A well-developed financial market act
as a place where companies with bad corporate governance can be overtaken by better companies.
This results in replacement of bad managers. So, in this way bad corporate governance is punished.

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Example: Tata Steel has acquired Bhushan Steel (BSL) through its wholly owned subsidiary Bamnipal
Steel Ltd (BNL) through a resolution under the Insolvency and Bankruptcy Code (IBC).

2. The Market of Goods and Services

Competition is another factor which acts as an external control mechanism for the business firm. If
the society does not like the products and services offered by a business firm, then it becomes
natural that their business starts declining and further it may lead to a reduction in the profit’s ratio
of the business firm. Thus, company needs to adopt timely researchers and survey in order to tap
the resources in accordance with the market requirements. Example: Reliance Jio has shaken up
India’s telecom industry with its cheap services and to stay in competition Idea and Vodafone
merged in order to tap the resources in accordance with the market requirements.

3. Monitoring and Enforcement Agencies

No matter how much the regulations and laws are made, there will always be defaulters. We as
humans has a tendency of not complying with the regulations till the time, they are enforced
through implementing agencies which instill fear of being exposed. Example: Government of India
has set up the Serious Fraud Investigation Office (SFIO) in the Ministry of Company Affairs (MCA)
with an objective to undertake the investigations under the provisions of the Companies Act, 1956
for corporate frauds.

4. Media and Society Pressure

Any wrongdoing is highlighted in media and prevent people from indulging in wrong practices.
Society can make sure that bad corporate governance is badly rejected through rejection of the
products of that group, people resigning from jobs of that company etc. Sucheta Dalal had exposed
Harshad Mehta's 1992 Securities scam amounting up to Rs 1000 crore. Mehta was considered
superstar of the Indian stock market until the journalist shone light on his scams and was eventually
banished from the stock market.

Corporate governance is an inevitable topic for companies nowadays. Investors are more aware of
the governance significance on the firms’ performance. A good corporate governance not only builds
up stakeholders’ confidence and helps them in keeping their interests safe but also helps in
enhancing the economic progress of the country as well.

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