Corporate Governance forms Pillars of Transparency and Accountability 

Corporate governance is a key factor in shaping the ethical standards and success of companies worldwide. In India, the approach to corporate governance has evolved, aiming to meet global standards for transparency, accountability, and ethical responsibility. This article explores corporate governance in India, focusing on its core principles, key components, recent developments, and the ethical issues companies face. 

It refers to the systems and processes by which companies are directed and controlled. It ensures businesses act in the best interests of all stakeholders—shareholders, employees, and the wider community. At its core, governance is about accountability, aiming to prevent misconduct, promote transparency, and align corporate actions with ethical and legal standards. 

Principles of Corporate Governance 

1. Fairness: Treating shareholders, employees, and stakeholders with equal respect. 

2. Transparency: Providing clear, accurate financial and operational information to help stakeholders make informed decisions. 

3. Responsibility: Ensuring the board’s actions align with the company’s long-term goals and managing risks. 

4. Accountability: Holding leadership accountable for decisions and performance. 

The Four Ps of Corporate Governance—People, Purpose, Processes, and Practices—capture the essence of effective governance, balancing leadership, strategic goals, and accountability in a global business environment. 

Legal Regulations for Corporate Governance in India 

The Companies Act, 2013 is the principal legislation governing corporate affairs in India. It includes provisions that directly impact corporate governance, such as: 

• The Act mandates the composition of the board of directors, requiring a certain number of independent directors based on the company’s size and type. It also defines their roles, powers, and duties. 

• Independent directors must not have any material relationship with the company, ensuring unbiased decision-making. The Act specifies the appointment, tenure, and removal processes for independent directors. 

• Companies are required to disclose their financial status, transactions, and related-party dealings in detail to provide transparency to shareholders and the public. 

• The Act mandates the establishment of audit committees and regular audits to enhance accountability in financial reporting. 

SEBI plays a significant role in regulating corporate governance, particularly for listed companies. It has introduced several frameworks and regulations aimed at improving corporate governance practices, including: 

• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: These regulations mandate that listed companies disclose detailed financial and non-financial information. The requirements include disclosures on the composition of the board, related-party transactions, and compliance with corporate social responsibility (CSR) norms. 

Judicial Oversight 

In the wake of the infamous Satyam fraud¹, where the company’s founder was caught manipulating financial statements, the Supreme Court of India emphasized the need for a stringent corporate governance structure, particularly highlighting the role of the board of directors in overseeing the integrity of financial reporting.  

The SEBI v. Sahara India² case dealt with the protection of investor interests, focusing on transparency and accountability. The Supreme Court ruled that Sahara’s practices of raising funds through unregistered securities violated regulations governing public offerings.  

In Narayana Murthy v. S. Gopalakrishnan³, Narayana Murthy, one of the founders of Infosys, challenged the re-election of directors who had failed to act in the company’s best interest. The Supreme Court’s ruling reaffirmed that independent directors must exercise their powers with due diligence and accountability, and companies should adhere to good governance practices even if these practices conflict with the interests of certain stakeholders. 

Conclusion 

The evolving landscape of corporate governance requires consistent monitoring and adaptation to align with global standards. Legal frameworks, such as the Companies Act and SEBI’s regulations, play a crucial role in ensuring transparency and accountability. However, for sustainable growth and investor confidence, these regulations must be complemented by a shift in organizational culture towards greater ethical responsibility. Continuous engagement with global best practices and periodic judicial interventions, as seen in landmark rulings, will further strengthen India’s corporate governance framework, promoting long-term economic stability and trust.