VOLUME 1 ISSUE 4

EXPLORING CORPORATE GOVERNANCE: By –PRASHANT YADAV & PALAK GUPTA

DECODING THE MYTHS IN REALITY

Abstract
Today, the corporate sector is growing on Not only internationally, but we have also
a large scale globally. Corporate studied and examined the status of
governance is an idea that has been corporate governance in India. We have
conceptualized by western countries where examined corporate governance before and
these practices have been developed after liberalization.
tremendously in the last few decades. In
Additionally, with the help of the reports
every corporate company, corporate
of various committees and organizations,
governance plays a vital role in the smooth
we have listed out all the issues and
functioning of that corporate company.
solutions. The Indian corporates need to
The practise of corporate governance is the
regard corporate governance as a survival
leading and primary condition for any
mechanism in the new economic
firm's smooth efficiency, but has corporate
environment. This manuscript has been
governance been successful?
concluded by the conclusion and
In this manuscript, we have deeply suggestions related to corporate
examined the term “Corporate governance nationally and internationally.
Governance”. We have also studied and
analyzed the status of corporate
KEYWORDS: Corporate Governance,
governance internationally with the help of Liberalization, Indian Corporates,
few case studies. We have also discussed Economical
the innovations made in corporate Environment, Shareholders

governance and its issues through various

case studies.

ISSN NO. 2582-8665 262. ©2021 National Journal for Legal Research and Innovative Ideas
 Introduction parliament, and Zilla Parishad. It is also
With the downfall of different versions of accountable to the courts.3
Worldcom's1 and Enrons,2 the corporate
This kind of transparency and
world has become unrecognizable in
accountability is not present in the
several countries. The question which
corporate sector. Although it is said that
comes to our mind is whether corporations
shareholders are the owners of the
are accountable to society in general and
company, it is only in name. Mostly, the
their shareholders. The disgraceful events
shareholders own the shares for a short
of criminal doings of corporations, frauds,
time. The main goal of shareholders is to
and scams have shattered the corporate
attain an appreciation of capital. When
governance’s myth built up over the past
their goal is achieved, they quit for greener
few years. Now, the ugly reality has
pastures. Therefore, in most cases,
surfaced.
shareholders are not owners; instead, they
Formerly, the main difference between the are investors.4
corporate sector and the government must
Subsequently, shareholders ignore the
be taken into consideration. The
working of the companies. Usually,
government owes accountability to people
shareholders go for off-loading the
to some extent. The functioning of the
company's shares, which is not performing
government is scrutinized in state
well, instead of asking queries in the
legislatures, municipal councils,
general meetings.5

3
Parliamentary scrutiny on the back burner,
Valerian Rodrigues, The Hindu, SEPTEMBER 26,

1
2020,https://www.thehindu.com/opinion/lead/pa
The WorldCom scandal was a major accounting
rliamentary-scrutiny-on-the-back-
scandal that came to light in the summer of 2002 at
burner/article32699224.ece
WorldCom, the USA's second largest long-distance
4
telephone company at the time. What Good Are Shareholders?, Justin Fox and Jay
2
The Enron scandal drew attention to accounting W. Lorsch, July–August 2012, Harward Business

and corporate fraud as its shareholders lost $74 Review, https://hbr.org/2012/07/what-good-are-

billion in the four years leading up to its shareholders

bankruptcy, and its employees lost billions in Shareholder, ADAM HAYES, Investopedia, Mar
pension benefits. Increased regulation and 22, 2021,
oversight have been enacted to help prevent https://www.investopedia.com/terms/s/sharehold
corporate scandals of Enron's magnitude. er.asp

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 This is the most effective weapon for All the discussions on corporate
assuring positive corporate behavior. governance should undoubtedly start with
Nevertheless, in these cases, a host of the Cadbury Committee Report.8 The
other businesses, small investors, and reasons why Cadbury Committee was set
employees who rely on them are known as up in the first place must be given a unique
losers. mention as they are as pertinent, or even
more alike, to today’s conditions.
The shareholders withdrawing from a
company is a remedy of the last resort for • The first reason was, many
bringing its management to the books. We unexpected failures took place in
need to find ways to set up early warning some of the major companies in the
signals of criminal wrongdoings and UK.
continuous and close mechanisms of
There was this feeling that the annual
systemic surveillance. Therefore, it is
reports were failing to give forewarning to
surprising that governance in many
companies which later failed.
companies turned into a subject matter of
discussion for the meetings last decade • The second reason was, there was a
only. matter at the low level of financial
reporting and incompetence of the
Rudimentary6 things, for instance,
auditors9in handing over
transaction rules of business which are an
safeguards that the users expected
element of all the government, are being
of financial information.
discussed only as a component of the code
of corporate governance and best
practices.7

8
The Committee on the Financial Aspects of
Corporate Governance, forever after known as the
6
Rudimentary means involving or limited to basic Cadbury Committee, was established in May 1991
principles. by the Financial Reporting Council, the London
7
Corporate Governance, JAMES CHEN, Feb 23, Stock Exchange, and the accountancy profession.
2021, 9
An auditor is a person authorized to review and
https://www.investopedia.com/terms/c/corporate verify the accuracy of financial records and ensure
governance.asp that companies comply with tax laws.

ISSN NO. 2582-8665 264. ©2021 National Journal for Legal Research and Innovative Ideas
 These factors were identified as the
looseness of accounting standards, which
served multiple choices, the cutthroat
pressures on both auditors and companies,
which made it troublesome for the auditors
to satisfy the demands of the boards, and
the absence of a clear framework of which
the control was kept by the directors under
review in their business.
• The third reason was that as far as
the boards were uptight, there were
criticisms that the board of
directors was paid more
remuneration than their substantial
corporate performance.10This was
for the very first time that this
committee gave a substance and
form to corporate governance.
In this regard, other efforts include
corporate governance principles adopted
by the UK, US, and the Organisation of
Economic Co-operation and Development
(OECD)11 and other countries. The latest is
10
Cadbury Report Was More Than A Product Of
Its Time, Sallie Pilot, Mondaq, 14 December 2017,
https://www.mondaq.com/uk/corporate-
governance/655504/cadbury-report-was-more-
than-a-product-of-its-time
11
The Organisation for Economic Co-operation
and Development (OECD) is an international
organisation that works to build better policies for
better lives.
ISSN NO. 2582-8665
a set of reforms proposed in May 2002 by
the New York Stock Exchange.12
The surveys of this matter in India have
recently originated. They include the
reports of the committee of the securities
and exchange board of India (SEBI)13 in
1999, the RBI consultative group of
directors of banks/financial institutions in
April 2002, the task force of the
confederation of Indian Industry (CII)14 in
April 1997 and advisory group of RBI in
March 2001.
Although there are some changes on
emphasis and variations, these reports
cover the grounds that are primarily
overlapped.
12
The New York Stock Exchange is an American
stock exchange in the Financial District of Lower
Manhattan in New York City. SEC, NYSE and
NASDAQ Propose Next Wave of Post-Enron
Reforms, SEC, NYSE AND NASDAQ PROPOSE
NEXT WAVE OF POST-ENRON REFORMS,
Dorsey & Whitney LLP, June 18, 2002,
https://www.dorsey.com/newsresources/publicati
ons/2002/06/sec-nyse-and-nasdaq-propose-next-
wave-of-postenr__
13
The Securities and Exchange Board of India is
the regulatory body for securities and commodity
market in India under the jurisdiction of Ministry of
Finance, Government of India.
14
The Confederation of Indian Industry (CII) is a
non-governmental trade association and advocacy
group based in New Delhi, India founded in 1895.
265. ©2021 National Journal for Legal Research and Innovative Ideas
 The areas covered consist of composition, financial statements from 1997 to 2000,
responsibilities, tenure of directors, the which would result in an increase in debt
liability of directors, access to information, of $ 628 million and a cumulative profit
committee on grievances of shareholders, reduction of $ 591 million.16
audit committee, nomination committee,
Since Enron collapsed, the stories doing
accounting standards and financial
the rounds include the fictional trading hall
reporting, auditor independence, and
built by spending half a million dollars to
matters regarding the application of
generate a passion amidst wide-eyed
corporate governance’s canons.
investors and could provide material for

Exploring International Exposure: dozens of Hollywood suspense thrillers!

Corporate Governance The Worldcom scam,17 which took place
An overall analysis of foreign countries
in 2002, is more prominent and audacious
demonstrates that corporate governance
than the Enron scam. It had an
leaves a desire even in the developed
overstatement of profits by $ 3.8 billion.
western countries despite a demanding
Additionally, the auditor was telling
degree of greater activism of institutional
everyone that the audit reports of the
investors and shareholders and a wholly
company could not be relied upon.18
developed institutional, regulatory and
legal framework.

The debacle of the great Enron

Corporation15 has demonstrated how
crucial it is that tenets of corporate
16
governance and code of best practices are Enron Scandal: The Fall of a Wall Street Darling,

meticulously followed to dodge a typical TROY SEGAL Investopedia, Jan 19, 2021,
https://www.investopedia.com/updates/enron-
punishment by the market. In November
scandal-summary/
2001, before the Enron scandal happened,
it declared that it would restate its annual 17
The WorldCom scandal was a major accounting
scandal that came to light in the summer of 2002 at
15
Enron Corporation was an American energy, WorldCom, the USA's second largest long-distance
commodities, and services company based in telephone company at the time.
18
Houston, Texas. It was founded by Kenneth Lay in The Rise and Fall of WorldCom, ADAM
1985 as a merger between Lay's Houston Natural HAYES, Investopedia, May 5, 2020,
Gas and Inter North, both relatively small regional https://www.investopedia.com/terms/w/worldco
companies. m.asp

ISSN NO. 2582-8665 266. ©2021 National Journal for Legal Research and Innovative Ideas
 Comroad,19 generated 2/3 of its revenue in Portugal were to disappear from the
the name of a hypothetical client in Hong planet”.22
Kong in 1998.20 The auditor did not verify
Surveys imply that Americans currently
the same. Well-known companies such as
appreciate politicians more than they do
Xerox, Cedant, and Waste Management
business leaders! The vehemence of the
have also lied to the investors.
reaction opposing business executives is
The person who created Worldcom, Bernie somewhat a reflection of how much the
Ebbers, was forced out in April 2002. A price of the shares of their company has
former chief executive of Sotheby’s, Diana fallen and the extent of personal greed.
‘Dede’ Brooks, narrowly missed jail as she
Americans are the only ones doing this.
was sentenced to house arrest. The fate
Europeans are doing are the same, which
was given to the former chairman of her,
can be figured out from the case of Jean-
Alfred Taubman.21
Marie Messier. The investors turned
The former chief executive officer, Jack against him due to minimal profits and a
Welch of General Electric, was the best 40% decrease in the price of shares.23
CEO for all one knows. He also saw his
These incidents have raised several
reputation come down. In 2000, GE’s
questions relating to the profession of
shares were valued at $60 per share. In
auditing, institutional arguments about its
2002, the price fell to $33. This brought
regulation and corporate governance.
down the value of the company to $268
billion. Washington post mentioned, “It's
like the worth of a whole year in Israel or

22
Speed, Simplicity, Self-Confidence: An
19
A navigation technology company in Germany. Interview with Jack Welch, Noel Tichy and Ram
20
ComRoad 'sales' were bogus, Liz Vaughan- Charan, Harvard Busniess Review, September–
Adams, Independent, 04 April 2014, October 1989, https://hbr.org/1989/09/speed-
https://www.independent.co.uk/news/business/n simplicity-self-confidence-an-interview-with-jack-
ews/comroad-sales-were-bogus-9237232.html welch
21 23
Dede Brooks gets house detention and Vivendi: a Big Question Mark Over Corporate
community service, ATG Reporter, Antiques Trade Integrity, Economics Times Online, Jul 12, 2002,
Gazette, 08 May 2002, https://economictimes.indiatimes.com/bad-
https://www.antiquestradegazette.com/news/200 company/vivendi-a-big-question-mark-over-
2/dede-brooks-gets-house-detention-and- corporate-
community-service/ integrity/articleshow/15755780.cms?from=mdr

ISSN NO. 2582-8665 267. ©2021 National Journal for Legal Research and Innovative Ideas
 American Institute of Certified Public A guilty verdict about obstruction of
Accountants (AICPA) is obligated to self- justice in a criminal case has shaken the
regulate all the accounting firms listed in habitually sedentary profession of
the US.24 accountant in the US.27

Several actions were taken against many • One question that needs to be
firms experiencing audit failure; neither considered is whether audit firms
the individuals nor the firms were left out. should provide other advisory
Despite this complicated system, chinks services to their clients. Andersen,
and various gaping holes have cropped up. for example, made $ 25 million in
According to Warren Buffett,25 the audit fees, $ 2 million less than his
fundamental issue is that auditors think consulting work.28
they are not working for the shareholders
According to a news report, the
but the management.26
Securities and Exchange Commission29
One of the Big Five accounting firms announced that Ernst and Young,
globally, Arthur Andersen, lost its another of the big five major
independent identity because of the Enron accounting firms, audited PeopleSoft's
Scandal. This firm was portrayed as a books while marketing and developing
lapdog rather than a watchdog by the
prosecution. Enron is defending itself from
criminal and civil suits in America.
27
Enron Scandal: The Fall of a Wall Street Darling,
TROY SEGAL Investopedia, Jan 19, 2021,
24
Professional Responsibilities, Writer at AICPA, https://www.investopedia.com/updates/enron-
AICPA, June 2013, 2012, scandal-summary/
https://www.aicpa.org/interestareas/personalfina 28
nron Audit Fee Raises Some Brows, Jerry Hirsch,
ncialplanning/resources/practicecenter/profession Los Angeles Times, 23rd Jan, 2002,
alresponsibilities.html https://www.latimes.com/archives/la-xpm-2002-
25
Warren Edward Buffett is an American investor, jan-23-mn-24324-story.html
business tycoon, philanthropist, and the chairman 29
The U.S. Securities and Exchange Commission is
and CEO of Berkshire Hathaway. a large independent agency of the United States
26
28 Lessons From Warren Buffett’s Annual federal government, created in the aftermath of the
Letters To Shareholders, Warren Buffett, CPG, Wall Street Crash of 1929 to protect investors and
March 10, 2021, the national banking system. The primary purpose
https://www.cbinsights.com/research/buffett- of the SEC is to enforce the law against market
berkshire-hathaway-shareholder-letters/ manipulation.

ISSN NO. 2582-8665 268. ©2021 National Journal for Legal Research and Innovative Ideas
 a software product with the help of that
company.30
• The second question is whether,
contrary to current practice, any
company that appoints its auditor
must be nominated
independent authority
auditor to have more independence
in doing his work. Such an
independent authority can also
make payment to the auditor.31
• The third question is of conflict of
interest. For instance,
employees of Arthur Andersen
were doing financial jobs in Enron.
According to one of the reports, blacklists
circulated Wall Street and the City of
London. One of them mentioned all the
companies whose CFO’s (Chief Financial
Officers) were recruited from the five
biggest accounting firms.
30
ERNST & YOUNG LLP, INITIAL DECISION
RELEASE NO. 249 ADMINISTRATIVE
PROCEEDING FILE NO. 3-10933, UNITED
STATES OF AMERICA Before the SECURITIES
AND EXCHANGE COMMISSION, April 16,
2004,
https://www.sec.gov/litigation/aljdec/id249bpm.h
tm
31
Ministry of Corporate Affairs V2, Ministry of
Corporate
Affairs,,https://www.mca.gov.in/MinistryV2/acco
unts+and+audit.html
ISSN NO. 2582-8665
Despite these setbacks, what must be noted
is that there have been significant
developments in corporate governance.
Michael Useem, a Wharton professor, said
that “If we look, 15 years ago, a chief
executive was not even capable of naming
by an
his shareholders. Today, the shareholders
for the
are on a first-name basis, including the
fund managers. Big managers are willing
to bite off the CEO’s head if they do not
see the results”.
Many European CEO’s have started giving
many shareholders more importance than earlier.
In the 1980s, the government ignored the
shareholders for coddling many industries
for saving jobs. Several companies
expanded, but their main focus was on
increasing revenue.
Jorma Ollila, who became the CEO of
Nokia in 1992, said that shareholder's
value was put on the shelf. He said that in
the 1980s, Nokia did not pay much heed to
the shareholders; during that time, the
company made several bad decisions that
cannot be justified under a more ethical
accountability system.32
32
Nokia: Where it all went wrong, by the man who
made it the world's biggest mobile company, Olli
Sulopuisto for Norse Code, ZD Net, November 12,
2013, https://www.zdnet.com/article/nokia-
where-it-all-went-wrong-by-the-man-who-made-
it-the-worlds-biggest-mobile-company/
269. ©2021 National Journal for Legal Research and Innovative Ideas
 Concurrently, it has been recognized that
Europe Inc has to figure out its way for
giving more returns to shareholders.
Europe has several attitudes and laws that
aim at protecting the companies and
employees from the atrocities of the
market. The companies have realized that
shareholder value is vital for the
competition. As someone has rightly said,
the returns of doing can be persuasive.
Daimler-Benz33 used the discipline of Wall
Street for cutting costs, selling divisions,
and boosting stock value so much that it
was capable of swallowing Chrysler in a
deal at the time when it was the most
prominent industrial takeover.34 Another
thing that should be considered is that any
person who contravenes the law in the US
is punished asap. This applies to everyone
neither the common criminals nor the
corporate executives are spared.
33
Daimler-Benz and DaimlerChrysler (commonly
known and referred to as Mercedes-Benz or simply
Daimler) is a German multinational automotive
corporation headquartered in Stuttgart, Baden-
Württemberg, Germany. It is one of the world's
leading car and truck manufacturers.
34
Cultural Differences Impact on Cross-Border
Mergers and Acquisitions Outcomes, Mohammad
Sayed, IUBH International University of Applied
SciencesCampusBerlinInternational Management
(MIM-120), 2019,
https://www.academia.edu/40826175/Cultural_Di
fferences_Impact_on_Cross_Border_Mergers_and
_Acquisitions_Outcomes
ISSN NO. 2582-8665
Exploring the words of Spritual
Anchors
Currently, spirituality is the buzzword of
the US. The thing about it to be realized is
that it has just become dominant.
America’s Corporations are in the middle
of a Damascus conversion. In 1999,
Davos's agenda consisted of discussions on
the future of meditation in a well-
developed economy and spiritual anchors
for the current millennium.35
Some interesting facts relating to corporate
governance were brought out by Lorsch
and MacIver. Two of them are:
• Directors are held liable by the
courts if they do not uphold the
rule of business judgment. Some of
the court decisions of Delaware
state that directors have a fiduciary
relationship with the shareholders
and corporations.
• The same persons hold the posts of
chairman and CEO in about 80%
of public companies in the US.
35
What changes to industry and society will 2021
bring? Here’s what business leaders say, Samantha
Sault, World Economic Fourm, 24 Jan 2021,
https://www.weforum.org/agenda/2021/01/davo
s-agenda-2021-better-business-future-of-work-
executives-diversity-inclusion-sustainability-
strategic-partners/
270. ©2021 National Journal for Legal Research and Innovative Ideas
 Even though directors are authorized to conferences or academic programs
manage the affairs of the corporation, on corporate governance to
actual power is much more than legal introduce them to the current
power. The most prominent power of scenario of how boards are
directors is group cohesion as CEOs of functioning.
several companies can tolerate • Another initiative taken by boards
unequivocal consensus of a unified is organizing formal orientation
36
board. programs for newly appointed
directors.38
In 1998, Ram Charan explained how
amendments had been made to the Wharton's Directors' Institute, Stanford
appreciation and strategy of corporate University and Harvard University are
governance in the US. He says that after so some of the Ivy League colleges for
many years of taking help from several upskilling the directors. An annually well-
shareholder organizations, pension fund planned strategy is also a new way for
growth and amendments in SEC introducing the directors to the nuances of
regulations, shareholders now know how corporate governance. An orientation
to raise their concerns. They have begun to program is organized by the Royal Bank of
speak frequently through letters, in the Canada for providing an overview of the
courtrooms, at annual meetings and financial services business environment.
37
through proxies. He also refers to the
The standards of sound corporate
following prominent developments:
governance are spiralling. Everyone is
• Boards of some companies have searching for boards who know how to
started sending their employees to govern effectively and how to increase the

36
corporation's value. The quest has begun to
Position of Directors In A Company, Adv.
Vishnus, Legal Service India, SBN No: 978-81-
put the boards to work and release the
928510-1-3, 22nd July, 2014/16, boards' competitive power.
http://www.legalservicesindia.com/article/287/Po
sition-of-Directors-In-A-Company.html
37
Evaluating Pension Fund Investments Through
38
The Lens Of Good Corporate Governance, The Board of Directors: Composition, Structure,
Commissioner Luis A. Aguilar, U.S. SECURITIES Duties and Powers, Paul L Davies, OECD, 8th
AND EXCHANGE COMMISSION, June 27, December 2000,
2014, https://www.sec.gov/news/speech/2014- https://www.oecd.org/daf/ca/corporategovernanc
spch062714laahtm eprinciples/1857291.pdf

ISSN NO. 2582-8665 271. ©2021 National Journal for Legal Research and Innovative Ideas
 These tactics have notably
independent boards, adopting rules for
strengthening director involvement and
ditching anti-takeover defences.
In the US, it is very common to see that a
company's chief executive is being forced
to resign from the company he is heading
to just because of poor results. This is
something that is not seen in India. In
April 1999, Eckhard Pfeiffer, the chief
executive of Compaq
Corporation, was ousted as the first
quarter's profits were half than what was
expected. The Board of directors told him
that they wanted a new person to lead the
company. So, he resigned.39
The second annual listing of Fortune 500
on America’s worst board of directors
should also be referred. By paying, hiring
and paying the CEO, they destroy and
create infinite wealth. This is why several
institutional investors such as mutual funds
and pensions funds have started voting
against those directors who do not perform
well.
While assessing sound
governance, face value should not be
considered.
39
Winning Ways Through Corporate Govlernance,
Bain, Neville and David Band,
Business, London, Pg No: 172
ISSN NO. 2582-8665
created Colvin has indeed said where the directors
are selected for one whole year, where the
maximum age to be selected as a director
is 72 years, where there is an independent
director, where at least 2/3rd of directors
must be given independence – seems like a
model of sound corporate governance.
The next matter of concern is that CEOs of
America are paid excessive compensation.
According to Business Week, corporations
Computer earned 42 times more than factory workers
in America. This ratio doubled by 1990 to
85 times the factory worker's wage and
quintupled in 1998 to 419 times. If this
continues, in 2050, a CEO in America will
be earning more than 1,55,000 factory
workers.40
A recent survey was done by Smithers and
Co, a London-based economic advisor.
They re-calculated the profits of the 100
largest companies of the US by adjustment
in the value of the stock options of
executives. The survey implied that 11
firms suffered loss and 13 other earned
half profits of what was expected.41
corporate
40
CEO compensation has grown 940% since 1978:
Typical worker compensation has risen only 12%
during that time | Economic Policy Institute
41
Market Reports, Smithers,
Macmillan https://www.smithers.com/services/market-
reports
272. ©2021 National Journal for Legal Research and Innovative Ideas
 A question that comes up is whether
American companies must pay exorbitant
salaries to CEO because there is no
adequate number of executives in the US?
In other countries, companies do not pay
so much to CEOs and still motivate them.
When Daimler Benz acquired Chrysler, the
CEO of Chrysler, Robert Eaton, earned 8
times more than the CEO of Daimler Benz,
Juergen Schrempp.42
Earlier, non-executive directors were only
paid the sitting fees, which was very
minimal. But this practice has changed in
the past few years, and now, non-executive
directors are also paid exorbitant
emoluments. Additionally, they are given a
share in the profit, but it is subject to
certain limits. It is advantageous if these
payments are made partly by stock options
and partly by company stocks.43

The only way of ensuring that directors get The first will become an incentive for
independence is that companies should them in ensuring that the company will try
adopt the US Council of Institutional its best to perform well in the stock
Investors standard of board independence exchange. The second will help in creating
for the nomination, audit and a stake for the company’s directors. Some
compensation committees. According to companies in the US have started
the US Council, an independent director is undertaking a periodical evaluation of the
the one whose directorship consists of her CEO's works in the absence of the CEO in
or his connection to the company. the meeting. They also have begun holding
Additionally, directors should use their board meetings without the CEO; this
discretion and judgment for opposing the helps to get a much more independent
appointment of new directors for the view of various important matters.
compensation committee who have a
strong financial, social or personal
relationship with several executives of top
43
Non-executive directors: MCA sets annual
companies.
remuneration limits for firms in red, KR Srivats,
Business Line, March 19, 2021
42
Daimler-Chrysler Merger: A Cultural Mismatch?, https://www.thehindubusinessline.com/companie

Daimler Chrysler CEO, IBS Center for s/mca-sets-annual-remuneration-limits-for-firms-

Management Research, May 24, 1999, in-
https://www.icmrindia.org/free%20resources/cas red/article34111464.ece#:~:text=In%20the%20cas
estudies/Business%20Strategy%20freecasestudyp e%20of%20firms,250%20crore%2C%20the%20limi
1.htm t%20is

ISSN NO. 2582-8665 273. ©2021 National Journal for Legal Research and Innovative Ideas
 Irregulaties and Ray of Improvement
As discussed above, corporate governance
needs to get attention from the
stakeholders in the countries. Talking
about India, the reality is that it is far from
corporate governance principles, which is
advocated by several committees and tasks
forced earlier. It will be wrong if we
assume or say that “What is good for
Tata's or Ambani's is also good for India.”
Propagating a highly misleading and self-
serving view that economic liberalization
gives freedom to defy the laws of the land
with impunity. We have observed that it
weakens the case for liberalization and all
the economic reforms. It is relevant to
understand that the total number of trade
industries and other trade delegations
globally has urged India to look upon open
transport policies of the new investment.
The question that arises was even if the
Indian Industries were setting up all the
ventures globally that we cannot accept
such a dispensation from the host country.
Another issue that came was regarding the
differentiation between economic crimes
and other crimes.
If we look at the law, then there can't be
any such distinction. If any difference is to
be made, then the persons involved in the
economic crimes must get treated more
harshly than other criminals as they keep
ISSN NO. 2582-8665
their financial and political clout and other
things. We can say that there was a long
way to go in creating a socially responsible
and responsive corporate sector for the
country. When this happens, the demands
from all the leaders of the industry for a
permissive dispensation will cease.
If a choice is to be made between the rule
of law and economic liberalization, we as a
country will have to opt for the Rule of
Law. We need to remember that all the
shareholders are also the stakeholders.
Observing and studying all these
perspectives, we can clearly say that
corporate governance is in the infancy
stage in India.
The non-executive chairman of Omnicon
India Marketing Advisory Services Pvt.
Ltd, Keki Dadiseth, once said while
delivering a speech under the auspices of
the Forum of Free Enterprise on October
24, 1997, in Mumbai that corporate
governance in its broadest sense is almost
like a trusteeship.
He has cautioned us that the corporate
governance model cannot be confined to
only the rules and regulations like the
committees and the number of non-
executive directors in India.
274. ©2021 National Journal for Legal Research and Innovative Ideas
 The software creating the corporate
governance must be harmful as the
conspiracy, and the corporation's culture
will know and do on its own what is right.
This reports clearly states that a country
having an immense talent of professionals
doesn't have a large pool of committed
non-executive directors. The fact is that
the pool hasn't come into the corporate
world is because the Indian Companies do
not search for such people and instead
choose the comfortable riskless option of
selecting non-executive directors. The
issue regarding auditing various
shortcomings irregularities and the
management is much severe in India as
they are in the U.S. and elsewhere.
A study done by Global Data Services
showed that many companies had viewed
the profits regarding their accounts for the
year, but other companies covered as many
as about overstated their profits. Another
report of the Social Audit Committee said
that there had been various instances of
corporates submitting themselves to such a
special audit.
The nominee directors do not generally
intervene even in matters involving larger
public interests. For instance, when the
Ambani’s were making a clandestine bid
to takeover Larson and Taubro, then at that
time, one of the nominee directors said to
ISSN NO. 2582-8665
an international newspaper that "We're not
heard to be even breathing, leave aside
opposing the move". If the nominee had
worked on the boards, the financial
institutions and banks would be owning far
fewer NPAs than they currently have.
The manner of selection of the nominee
directors is far beyond satisfactory. It isn't
much surprising that the RBI consultative
group of directors recommended back in
the year that directors’ due diligence of
every bank should be done regarding their
suitability for the post. While selecting the
board of directors of public sector banks,
the government should follow some rules.
However, the transparency of the selection
of directors has remained a mystery. There
are various recommendations in the reports
of corporate governance, and all that have
been much unexceptional. However, there
has been a difference in the opinions.
Exploring Indian Exposure:
Corporate Governance
The Indian corporate sector chanted a new
mantra of economic liberalization and
globalization, and for that, all the sectors
of the society set themselves to overcome
these challenges. But they found it difficult
when it comes to its affairs. They used to
do with the old mindset. In this reference,
there were recommendations from the
Taxman, Report of the Working Group on
Companies Act, 1956, 1997.
275. ©2021 National Journal for Legal Research and Innovative Ideas
 These reports were discussed in a seminar Lakh.45 Corporates even offer to make this
organized by the CII and the other Apex payment upfront. The regulation is one of
Chambers of Commerce and Industry. the factors which makes us worry.

In the U.S., since July 1978, the audit The moment you try to take action against
committee has been vogue when the any powerful corporates, you should see
companies listed on the New York how they try to browbeat you through
Exchange were mandatorily supposed to various means. The ordeal of the
establish committees that must have Telecommunication Regulatory Authority
independent directors. While studying the of India (TRAI)46 has constantly been
Indian context, we found out that a few distressing the government for abolishing
issues have come into action. The first is the old authority altogether when it is
the need for credible and robust regulatory found that it was too independent and
bodies and mechanisms, but the record on enacting the new law for the
this behalf is far away from satisfactory. reconstruction. In between these processes,
The powers of the U.S. Securities and the powers of the TRAI were also whittled
Exchange Commission and Securities and down.47
Exchange Board of India are very
The Electricity Regulatory Commission
similar.44
(ERC's)48 was earlier established in the
SEBI has been much ineffective as a centre.
market regulator that right now, it doesn't
even have the power of search and seizure.
The maximum penalty which the 45
SEBI – Securities and Exchange Board of India,
Securities and Exchange Board of India Cleartax, Apr 27, 2021, https://cleartax.in/s/sebi
46
(SEBI) can impose on whosoever The Telecom Regulatory Authority of India is a
statutory body set up by the Government of India
manipulates the market is the sum of Rs. 5
under section 3 of the Telecom Regulatory
Authority of India Act, 1997. It is the regulator of
the telecommunications sector in India.
44
Non-executive directors: MCA sets annual 47
History of Telecom Regulatory Authority of
remuneration limits for firms in red, KR Srivats, India, Telecom Regulatory Authority of India,
Business Line, March 19, 2021, https://www.trai.gov.in/about-us/history
https://www.business- 48
Central Electricity Regulatory Commission, a
standard.com/article/economy-policy/sebi-has- key regulator of power sector in India, is a statutory
greater-powers-than-us-sec- body functioning with quasi-judicial status under
109102600040_1.html sec – 76 of the Electricity Act 2003.

ISSN NO. 2582-8665 276. ©2021 National Journal for Legal Research and Innovative Ideas
 The states have handled for no better but The import duty tax on the Paraxylene in
with a considerable number of giving vent which the Reliance Market shares about
to the power utilities in private and public 98% hiked, and if we look, then for other
sectors. In few states, it was criticized. In products, the duty is 25%.52 Here, if we
the ERC Act, the government has taken observe, these figures and factors clearly
down the powers to provide directives to show the absence of the government's
the ERC's matters of Public Policy.49 concern in the typical consumer. There is a
need to bring down the import duties on all
The Acquisition of Indian Petro Chemical
the petrochemical products of up to 10 -
Corporation (IPCL)50 by Reliance
15%.
Industries (RIL) has raised few significant
fears about the monopoly in the While one rule is applied, and if the
petrochemical sector. It has a stranglehold merger & acquisitions are perfect in the
with its share of 67% of the markets of private sector, why should they not be
such products. Products like the permitted for the cash-rich oi and the
Pparaxylene will have about 98% share in petrochemical companies in the public
the local market.51 The main thing which is sector? It is indeed considered that there is
needed to be worried about is that the a demand for a level playing field in the
import duties on all other products have public sector company.
been reduced substantially with the
The government is trying to put forth that
intervention of Reliance Industries.
the monopoly isn't bad, but what is terrible
For ethylene, PVC, polypropylene, and is the abuse, but right now, if we look,
propylene, it is as high as 35%. there isn't any law available that protects
the consumer against such abuse. The
49
Electricity Regulation in India, Trilegal,
Competition Bill directs the Competition
Lexology, November 6 2018,
https://www.lexology.com/library/detail.aspx?g=7
Commission of India to consider many

2d8a27b-af85-4a0e-ab46-dc4928a6d4f9 factors to determine whether there would

50
Indian Petrochemicals Corporation Limited be an adverse effect on the competition.
(IPCL) was a Central Public Sector Unit and the
petrochemicals company in India.
51 52
Indian Petrochemicals Corporation Ltd. The Reliance gets 26% stake in IPCL, The Times of
Economic Times, Marketssss, 12 May, 2021, India, May 18, 2002,
https://economictimes.indiatimes.com/indian- https://timesofindia.indiatimes.com/business/indi
petrochemicals-corporation- a-business/reliance-gets-26-stake-in-
ltd/infocompanyhistory/companyid-11955.cms ipcl/articleshow/13288904.cms

ISSN NO. 2582-8665 277. ©2021 National Journal for Legal Research and Innovative Ideas
 Among all the listed factors is the level of
the competition through the imports
available in the market. These were the
significant issues concerning the auditors
of the company. There are issues relating
to the Credit Rating Agencies, such as
their accountability and transparency.
Crisil has downgraded BPL's issue in
about 12 stages from A to D or by the
default category in one shot.53
In the case of the statutory auditors, the
management of the company getting itself
credit-rated pays off the credit rating
agency while the rating itself is for the
benefit of the investors, which often makes
a significant impact on the independence
of the agency. The RBI and SEBI must
evolve all kinds of proper mechanisms to
ensure that all the credit rating agencies
aren't laid down to the investors.
The issues of considerable salaries in the
corporate sector have become relevant in
India and other countries.
53
CRISIL’s ratings and rating scales, Wazeem M A,
CRISIL A Glo Company, September 2019,
https://www.crisil.com/mnt/winshare/Ratings/Sec
torMethodology/MethodologyDocs/criteria/Under
standing%20CRISILs%20Ratings%20and%20Rating
%20Scales.pdf
ISSN NO. 2582-8665
If we look into the history, then Dhirubhai
Ambani drew a salary of Rs. Crore Per
Annum in the year 2000 - 2001, which was
followed by his two sons Anil Ambani and
Mukesh Ambani of Rs. 7.13 crore each.
Azim Premji of Wipro salary was near Rs.
and a 4.28 crore in 2002, which has
gradually increased. In recent times, if we
look, then India has many multi-
millionaires & billionaires.54
The only difference between Indian and
the U.S. is that India is a developing
country inhabited by rich people. There is
no public showing by the shareholders and
the stakeholders against such huge
exorbitant salaries in other countries. In
1996, the Times of India published an
article in its editorial that said the recent
spate of exposes involving well-known
business groups or companies like
54
Dhirubhai Ambani is highest paid Indian CEO at
Rs 8.9 cr, The Finiancial Express, READ TO
READ, Feb 4 2002,
https://www.financialexpress.com/archive/dhirub
hai-ambani-is-highest-paid-indian-ceo-at-rs-89-
cr/36610/#:~:text=Mr%20Dhirubhai%20Ambani%2
0tops%20the,home%20in%20the%20previous%20
year.
278. ©2021 National Journal for Legal Research and Innovative Ideas
 Shaw Wallace, Videocon, Jindal, Torrent, essential to reduce Corporate Crimes. Still,
ITC, Reliance etc., have once again there must be sufficient conditions such as
brought into focus the issue of corporate a more vigilant regulatory system must
governance.55 When every institution is accomplish them.
coming under scrutiny for lack of ethics
Greater activism by the shareholders and
and transparency, the corporate sector
the stakeholders will bring out good
cannot hope to remain untouched.
corporate governance. The punishment
Indeed, the spate of recent exposes can plays a vital role in disciplining the
only be the tip of an enormous iceberg of company, but this, in India, will take time.
wrong-doing and corporate The companies have to figure out that
misgovernance. Reliance's Mukesh corporate governance isn't an impediment.
Ambani was not off the mark when he Still, it is necessary for survival in the new
recently drew attention to systemic environment of economic liberalization
corruption instead of petty corruption. For and globalization, as we can see how tough
every fall from virtue", Past them, the the competition is.
Ambani said an official statement that
If we compare the Indian financial
"Millions can be offered when billions can
institutions, we can observe that the
be made".56
increasing number of foreign portfolio
This statement was considered poignant. It investors may raise their demand for better
is genuinely be considered that corporate governance. There isn't any
deregulation and liberalization are reason why Indian Investors and
shareholders should be denied the same
55
Need for a Good Competition Law,
level of transparency and disclosures that
Chakravarthy, Tlhe Economic Times, May 31st,
the Indian companies follow. In the entire
2002, https://www.itcportal.com/about-
itc/profile/history-and-evolution.aspx corporate sector, transparency plays a vital
https://www.business- role in other sections of the economy.
standard.com/article/companies/shaw-wallace-in-
ub-fold-for-rs-1-300-cr-105032201007_1.html
56
Mukesh Ambani Profile, The Economic Times,
11th May, 2020,
https://economictimes.indiatimes.com/panache/p
anache-people-101/mukesh-
ambani/profileshow/79551066.cms

ISSN NO. 2582-8665 279. ©2021 National Journal for Legal Research and Innovative Ideas
 Conclusion
It is indeed said that the corporate world
has become people's priority. Each
shareholder is the owner of the company.
As discussed above, the discussions on
corporate governance should undoubtedly
start with the Cadbury Committee Report.
While comparing the Indian financial
sector, we can look upon that the
increasing number of foreign portfolio
investors may raise their demand for better
corporate governance.

It turns out that free markets are not free-

for-all markets. While corporate
governance's contours are not impeccable
in the west, there are at least institutional,
regulatory and legal frameworks for
corporations and corporates with a critical
degree of activism of institutional
investors and shareholders. It's high time
now that corporates in India do something
about governance issues not as an
impediment or irritant but as a crucial
mechanism and tool for surviving in the
constantly changing economic
environment.

ISSN NO. 2582-8665 280. ©2021 National Journal for Legal Research and Innovative Ideas