STRATEGY AND BUSINESS POLICY

BMN - 533

C O R P O R AT E G O V E R N A N C E
REFORMS IN CHINA AND INDIA
SUBMITTED TO
PROF. VINAY SHARMA

S U B M I T T E D B Y: G R O U P - 5
Team Members

Jasir CK Mandeep Antil Nikhil Vijay. K Rahul Hari Rainesius P. Dohling

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Rixon Joseph Shivam Chaudhary Udayachandran K Raje Gaurav Sanjay

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Corporate Governance

Weak governance practices often deter potential investors

Due to their growing significance in the global economy.

Importance: Improves access to capital & investor confidence

Local firms can benefit from increased investor confidence and access to
capital.

Foreign investors can benefit from increased growth and investment

opportunities.
Driving Forces Behind Corporate Governance
Reforms in China and India
Privatization and Globalization
• Adoption of International standards in
Corporate governance Privatization and globalization are the most
important factors for corporate governance
Extent of State Ownership reforms in China and India.
• In India, state ownership is found mostly in public
sector units (PSUs). Key difference is the extent of state
• In China, the government controls firms in almost ownership after privatization.
all strategically important industries.
View of Global Investors China and India are viewed differently by
• China is the world's leading manufacturer and global investors.
fastest growing consumer market.
• India is the world's most significant business
process and IT services provider.
Mode of FDI

Mode of FDI
• China-Primarily capital intensive
• India-Skill intensive
Evolution of Corporate Governance Reforms
-China
China's Company Law,
enacted in 1993 and amended
in 1999,
• Define two company types: limited
liability and joint-stock companies
• Establish responsibilities: shareholders,
directors, managers, and board of
supervisors
• Increase transparency and
accountability within businesses
• Promote economic development
through a stable business environment
The Securities Law of 1998
• Regulate capital market activities
• Prevent insider trading and
market manipulation
• Enhance investor protection
• Promote market stability
China Securities Regulatory
Commission (CSRC)
• Released its Code of Corporate
Governance for Listed Companies in
2002, aiming to align with international
standards by enhancing accounting
procedures, information disclosure, and
governance oversight.
• The code expanded shareholder rights,
mandated independent directors, and
introduced transparent procedures for
board selection and related-party
transactions.
Evolution of Corporate Governance Reforms
-India
Securities
Contracts
(Regulation) Act
and Depositories
Act. 1992
Enacted with the primary
intent to protect the interests
of investors in securities,
promote the development of,
and to regulate the securities
market, ensuring its fair and
efficient functioning.
National Financial Reporting
Authority
Naresh Chandra Committee
Birla Committee 2002
Recommendations,
2000
Companies Act
2013
Established in 2018 to
Focused on the relationship
recommend accounting &
between auditors and
auditing standards.
companies.
Increased accountability,
SEBI introduced the first formal independent audits, stricter
framework based on Birla related party transaction
Committee recommendations. regulations, and disclosure
mandates.
 Evolution of Corporate Governance Reforms
-India

Uday Kotak panel report

2017 Other Committees formed
TK Vishwanathan Committee
2018
Satyam Computers
Important Supreme Services Ltd. Fraud
Court Judgements (2009)
SEBI v.s Sahara (2012)
Challenges

• Regulatory bodies &
investors prioritize short-
term gains.
• Management & outside
directors lack alignment
with long-term goals.
• Satyam Computer
Services accounting
scandal (2009) exposed
lack of oversight and
focus on short-term gains
by management.
• Training programs
• Need for strong may not address
• State ownership & regulatory bodies, specific local needs.
family control affect courts & • Incentive structures
board effectiveness. independent & business culture
• Pyramidal structures analysts. need development.
& related-party • Transparency • The case of
transactions benefit improvements are Infrastructure
dominant crucial to combat Leasing & Financial
shareholders. corruption. Services (IL&FS)
• Recent ICICI merger • Weakness in Indian exemplifies this
with ICICISec judiciary like concern.
pendency of cases

Underdeveloped Shortage of
Lack of Incentives Power of the External Qualified
Dominant Monitoring Independent
Shareholder Systems: Directors
Implications

For Firms Entering These Markets

Be aware of challenges and take
proactive measures (e.g., international
arbitration).
A

For Research
B
Re-evaluate governance frameworks,
study institutional co-evolution, and
consider sociological factors.
Ethical Challenges associated

Selection & Term of Board:

Misused selection process & term length
can lead to instability or complacency.
(e.g., Tata-Mistry fallout)
Removal of Independent Directors:
Protecting independent directors who raise
concerns or dissent. (e.g., Fortis Healthcare
director removal)

Performance Evaluation:
Ensuring a transparent and objective
evaluation process for director performance.
(e.g., SEBI mandating criteria disclosure)

Liability Toward Stakeholders:

Prioritizing promoters/management
Missing Director Independence:
over stakeholder interests. (e.g.,
Close ties between directors and IL&FS crisis)
promoters/management can compromise
independence. (e.g., ICICI Bank
controversy)
Ethical Challenges associated

Founder/Promoter's Role: Conflict of Interest:

Balancing founder vision with
transparency and potential conflicts.
(e.g., SEBI mandating disclosure for
promoter-chairmen)
Preventing managers from enriching
themselves at shareholder expense. (e.g.,
SEBI mandating related party transaction
disclosures)

Transparency & Data Protection:

Ensuring data protection and transparency in
corporate practices. (e.g., RBI's data
protection directives)

Weak Boards:
Lack of diversity in board experience
Business Structure & Internal Conflicts:
and background. (e.g., SEBI
Maintaining a clear structure and resolving mandating at least one woman
internal conflicts. (e.g., IndiGo Airlines board director)
spat)
Reforms Needed in Corporate Governance
Strengthening Board Independence:
More independent directors for unbiased perspectives.
Regular board & director performance assessments.
Example: Infosys' strong board structure with a majority
of independent directors
01 02
Effective Risk Management:
Dedicated committee to identify, assess,
and manage risks.
Conduct regular risk assessments to stay
ahead of emerging issues.
Enhancing Transparency & Disclosure Empowering Shareholders:
Rigorous financial reporting for accurate &
Encourage proxy advisory services for
timely information.
informed voting.
Disclosure of non-financial info (ESG factors) for
Promote shareholder activism for board &
holistic view.
management accountability.
Example: Tata Sons' history of transparency and
adherence to governance norms.
03 04 05
Ethical Conduct & Compliance:
Comprehensive code of ethics outlining
expected behavior.
Robust whistleblower mechanism for
reporting unethical practices.
Reforms Needed in Corporate Governance
Executive Compensation Policies:
Align executive compensation with company
performance (sustainable growth).
Clearly disclose executive compensation
structures for accountability.
06 07
Regulatory Compliance:
Regular audits to ensure compliance with
all relevant laws and regulations.
Corporate Social Responsibility Board Training & Development:
(CSR):
Ongoing training for board members on
Integrate CSR practices and disclose trends, regulations, and best practices.
activities for societal well-being.
Develop a robust succession plan for key
leadership positions.
08 09 10
Engagement with Stakeholders:
Foster open communication with stakeholders (shareholders,
employees, customers).
Actively seek & consider stakeholder feedback to address concerns.
Conclusion
• Corporate governance reforms in China and India aim to align with global standards
amidst challenges like dominant shareholder influences and implementation hurdles.

• Lack of incentives for comprehensive reform and the power dynamics from state and
family ownership continue to pose significant challenges.

• The effectiveness of governance reforms is hindered by an underdeveloped external

monitoring system and a scarcity of qualified independent directors.

• Both nations present a unique context for governance, requiring nuanced, context-
specific approaches to overcome institutional and cultural barriers.

• The evolution of corporate governance in these countries underscores the critical

balance between global integration and local adaptation, offering insights and
opportunities for stakeholders.
Thank You