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Issues And Challenges Of Corporate Governance In India

Corporate governance is the process of directing, managing, controlling, and holding organizations accountable to their shareholders. The issue of corporate governance has arisen in India mostly as a result of economic liberalization and deregulation of industry and business.

Many organizations have been compelled to tap worldwide financial markets as a result of the rapid speed of globalization, and as a result, they are facing more competition than ever before. Improved corporate governance standards are becoming increasingly important to governments and business executives.

Aim of corporate governance

The purpose of the corporate governance system is to achieve goals in order to meet the owners’ long-term strategic objectives. To ensure that the interests of employees are protected. To maintain strong relationships with guests and suppliers while considering the environment and the local community. All applicable legal and regulatory standards must be met.

By displaying the benefits of the pot’s success to stakeholders and employing corporate governance mechanisms intelligently and participating in results, an organization may drive all stakeholders to work toward the corporation’s goals. Good governance is beneficial to the company’s bottom line. To summarize, the Board’s primary goal should be to move the organization forward and maximize future value and shareholder wealth.

Issues in corporate governance
  1. Selection procedure and term of the board: – The most significant barrier for strong corporate governance in India is the selection mechanism used by Indian firms. A good mix of executive and non-executive directors, independent directors, and female directors is required by law. In India, most corporations merely comply on paper; board appointments are still made via word of mouth or referrals from fellow board members. Boards of directors are commonly nominated by friends and family of promoters and management.
  2. Performance evaluation of directors: – In January 2017, India’s capital markets regulator, SEBI, issued a ‘Guidance Note on Board Evaluation.’ Which covers all important components of board evaluation, such as the subject and procedure of evaluation, feedback to those being assessed, an action plan based on the evaluation process’s findings, disclosure to stakeholders, and the frequency and responsibility of board evaluation. However, in order to achieve the intended outcomes from performance evaluation, they must make the results public, and these disclosures may land the company in serious jeopardy.
  3. Missing independence of directors: – The election of independent directors was expected to be the most significant corporate governance change proposed by the Kumar Mangalam Committee on Corporate Governance in 1999. Independent directors, on the other hand, have struggled to create the intended impact. To date, most firms’ directors have been appointed at the promoters’ discretion, which is still debatable. It is vital to limit the promoter’s abilities in topics relating to independent directors in order to ensure actual success.
  4. Liability of stakeholders: – The Indian company act of 2013 stipulates that directors have responsibilities not just to the company and its shareholders, but also to other stakeholders and the environment. However, most boards try to minimize and avoid these sorts of accountability. It’s a good idea to compel the full board to attend general meetings so that stakeholders can ask questions of the board.
  5. The environment of mistrust: – Many scams, frauds, theft of public funds, and unethical activities have occurred in recent years, and investor and societal confidence has been eroded as a result of the questionable practices of senior executives and board members. The stock market, banks, financial institutions, businesses, and government offices are all affected. As a result, the corporate environment has become sceptical.
Challenges
  1. In all its transactions, a corporation should be fair and transparent to its stakeholders. In today’s globalized corporate world, where firms need to access global pools of cash and recruit and maintain good human capital from all over the world, this has become critical. A company will not be able to prosper until it accepts and exhibits ethical behaviour.
  2. What is Corporate Governance? It is a well-known fact that any organization’s ability to mobilize and deploy a variety of resources to achieve the planning process’ objectives is vital to its success.
  3. Business ethics are an issue of corporate governance. The law of values and principles that allows a person to select between right and wrong is referred to as ethics. Furthermore, ethical difficulties emerge when the parties involved have competing interests.
  4. It’s entirely likely that in the pursuit of the best possible financial or corporate results, there may be attempts to do things that are borderline or outright illegal. There’s also the possibility of grey regions when a behaviour isn’t unlawful yet unethical. This creates several ethical issues.
  5. Then we get to a moral dilemma in company management. It is possible to engage in legal yet unethical behaviour. In truth, tax planning activities frequently straddle the small line between the strictly legal and the plainly unethical.
Conclusion

Corporate governance in the public sector cannot be ignored, and it must therefore be embraced. In today’s competitive environment, innovation is essential for gaining a competitive advantage. Corporate Governance, on the other hand, should be welcomed because it has a lot to offer the government.

By Pragati Sengar