Uday Salunkhe - Evolution of Corporate Governance in India

In recent years the issue of corporate governance and the design of appropriate governance mechanisms have become important subjects of academic research and policy discourse in both developed and developing countries. The increasing importance of governance mechanisms comes in the wake of major corporate scandals in internationally renowned companies like Enron , Tyco and Worldcom as well as East Asian crisis in the early nineties and Satyam in India, with a large body of empirical and theoretical research highlighting the significant impact that an economy's corporate governance system can have on the profitability and growth of corporations.

Understanding the meaning of corporate governance

Recent corporate scandals have focused attention of corporate governance for all the wrong reasons. There is a need to cut through all the sensational corporate governance failures, like the case of Satyam, to understand what is the meaning of corporate governance. Corporate governance in the Indian context spells out clearly that ethics

and values form the bases of corporate governance, while adherence to the legal framework is the minimum requirement. Confederation of Indian Industries (CII) - Desirable Corporate Governance Code (1998) defines it as "Corporate Governance deals with laws, procedures, practices and implicit rules that determine a company's ability to take informed managerial decisions vis-à-vis its claimants - in particular its shareholders, creditors, customers, the State and employees. There is a global consensus about the objective of 'good' corporate governance: maximizing long-term shareholder value."

The primary purpose of corporate governance norms is to ensure that managers protect the investment of the owners (scores of minority shareholders of the company's stock) and maximize their returns on such investment. The goal of this research paper is to understand the evolution of corporate governance in India, against the backdrop of the history of India's stockmarket, its corporate culture and the government attitude that strongly influenced the way business was conducted.

Corporate governance in India: An overview

Historically Indian companies had no incentive to show higher profits on their books and enhance shareholder value. This was on account of a very high tax structure - both personal/corporate and also wealth tax. The private sector was also denied access to the equity market at fair market valuations due to strict control of the pricing of public issues by the erstwhile Comptroller of Capital Issues. The combination of high taxes and low valuations left no incentive for good corporate governance. The early beginnings of corporate governance was an outcome of therepealing of the Capital Issues (Control) Act, 1947, in 1992 paving the way for market forces in the determination of pricing of issues and allocation of resources for competing uses. Tax rates were reduced from a peak 97 per cent to 56 per cent in 1991 and 30% in 1997. Due to recent imposition of a surcharge and cess, it is almost 34% today....http://blish.in.com/udaysalunkheweschool/post/evolution_ofcorporategove-3909612.html


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