Corporate Governance and Value Creation: Indian Experience

Corporate Governance and Value Creation: Indian Experience

Neeta Baporikar (Namibia University of Science and Technology, Namibia & Doctoral Guide, University of Pune, India)
DOI: 10.4018/IJABIM.2016040104
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Abstract

Corporate governance is a complex issue, the focal point of which is the exercise of power. The power has limits, however, imposed by both legislation and contracts. Also, even if the overarching power belongs to the shareholders, residual power cannot be exercised to the detriment of the rights of the other stakeholders. Because the governance system and resulting structures have a major influence on the decision-making processes within a company, financial analysts must understand the governance mechanisms. Moreover, in the business world today, corporate governance is a factor in competitiveness that is as important as the quality of a company's human resources, its know-how, and its innovation capacity. Through in-depth literature review and contextual analysis the aim of this paper is to under the corporate governance perspective and also to review for understanding the corporate governance and value creation experience from India.
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Introduction

Corporate leaders should practice good corporate citizenship not merely for the sake of complying with rules and regulations in order to avoid fines—or worse, prison—but to create value for their shareholders (Baporikar, N., 2015a). The silver lining in the dark cloud of corporate misconduct is the intense focus on corporate governance by board members, corporate managers, policymakers, media and especially, investors. The well-publicized scandals at Enron Corporation, Tyco International, and WorldCom/MCI, latter Satyam and Shraddha Chit Funds together with transgressions within the asset management, insurance, and securities industries, have brought back the focus on the issue of corporate governance.

India, though not much adversely affected by the global financial crisis has been unnerved by the largest corporate accounting scandal at Satyam Computers Limited. According to an estimate shareholder and investors have lost not less than $2.8 billion (Tellis, 2009). It is now well understood that corporate misconduct has very unpleasant consequences, not only for those who perpetrate the misdeeds but also for employees and shareholders whose jobs and wealth are destroyed thereby leading to decline in value creation for the individual stakeholder and society at large. Hence, the term ‘corporate governance’ though only two decades old, has evolved with the incorporation of modern day business structure albeit in latent form (Singh & Kumar, 2009). Recent Satyam fraud further gives some evidence that dominant shareholders and some employees were involved in insider trading (Singh, Kumar & Uzma, 2010). Satyam- Maytas deal resulting in exposure of Satyam scandal is a typical example (Sharma, 2011) of not only poor corporate governance but also of negative value creation. Over the past two decades, there has been a sea change in Indian corporate governance. The chronological development can be seen below:

  • 1996: Confederation of Indian Industry’ (CII) CG Task Force

  • 1998: CII Code

  • 1999: Security and Exchange Board of India (SEBI) Appointed Birla Committee

  • 2000: Enactment of Clause 49

  • 2002: SEBI Appointed Murthy Committee

  • 2002: MCA Appointed Chandra Committee

  • 2003: Companies Bill (2003) Considered

  • 2004: MCA Appointed Irani Committee and Clause 49 Amended

  • 2006: Clause 49 Amendments Implemented

  • 2008: Companies Bill (2008) Considered

  • 2009: Satyam Scandal, Companies Bill, Considered MCA Voluntary and CCI CG Guidelines

  • 2010: NASSCOM CG Recommendations and Listing Agreement Amended

  • 2013: Companies Act

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