Chanakya IAS Academy Blog

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Corporate governance: Focus on SEBI

The exit of Vishal Sikka as the chief of multinational IT giant Infosys brings forth the issue of corporate governance yet again. Market participants said the capital markets regulator, the Securities and Exchange Board of India (SEBI), need to intervene in such matters to protect the interest of retail investors.

Three-tier governing system for companies proposed:

  • A supervisory board should be constituted that would lay down the framework for the functioning of the board of directors. The supervisory board, comprising eminent personalities, will monitor performance as well as the value system for the company and this alone will create wealth for the company and keep it on the tracks
  • The board of directors, in turn, oversees the functioning of the executive management.
  • Multinationals like Google and Microsoft are governed in this manner
  • SEBI had constituted a committee on corporate governance under the chairmanship of Uday Kotak

Subjective interpretations of Corporate governance:

  • While India is moving towards internationally accepted norms of corporate governance, we are bound to see volatility on this issue
  • In the case of Infosys, extreme positions have been taken in terms of interpreting corporate governance, which degenerated into an ugly battle in full public view
  • Another view is that difference between stakeholders on the vision for the company caused the turn moil.
  • It turned out to be a fight between a CEO who is responsible for financial performance and founders who have nurtured the company for more than three decades and are passionate about the founding values and ethics that they consider paramount

Committee on corporate governance:

  • Market regulator SEBI has set up a committee under the Chairmanship of Uday Kotak, to help improve the standards of corporate governance of listed companies in India
  • The company has been tasked to make recommendations to ensure independence of independent directors and their active participation in functioning of the company. Independence of independent directors is among the weakest links of listed companies in India
  • The other terms of reference include improving safeguards and disclosures pertaining to related party transactions. The Panel has been tasked to go into issues of accounting and auditing practices by listed companies
  • The other areas include addressing issues faced by investors on voting and participation in general meetings and disclosure and transparency related issues
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