Corporate governance structure: issues & challenges--cases of Tata sons & infosys.

AuthorDhameja, Nand L.

Introduction

Corporate governance includes the processes through which corporation's objectives are set and pursued in the context of the social, regulatory and market environment. Governance mechanism involves monitoring the actions, policies, practices, and decisions of the corporation, their agents and affected stakeholders. Interest in the corporate governance practices of modern corporations, particularly in relation to accountability, increased following the collapses of a number of high-profile large corporations during 2001-2002 and after the financial crisis in 2008. In the words of Narayana Murthy, "good corporate governance is about doing what is fair in a transparent manner with full accountability accepted by senior leaders and board members for their actions. Good corporate governance results from following the adages--when in doubt disclose and let the good news take the stairs and the bad news take the elevator" (Balasubramanyam, 2017)

Corporate governance and corporate performance are inter-related. Twin indicators of good corporate governance are transparency and accountability. It reflects the relationship between BODs and the shareholders; the process of involvement of shareholders in the company's operations and BODs practices, functioning and its relations with stakeholders. Studies have shown that companies with good corporate governance have reported better performance. World over, countries have taken measures for improvement of corporate governance practices. Such measures vary among countries categorized as mandatory or collaborator, and have increased over the years. The law in India is exhaustive; the Companies Act 2013 lays down detailed provisions for the functioning of BODs, its duties, powers, role, and appointment and functioning of independent directors.

Legal Aspects

As per Companies Act 2013, BODs are required to hold a meeting every quarter and to take all policy decisions relating to the company's operations, finances and its functioning. According to Mahalingam (2015) the average Indian Board member is 58 years old and aging; CEOs are getting younger while boards are getting a fresh infusion of talent. Older board members are often unwilling to back the futuristic bets that CEOs want to take simply because they do not understand new businesses. Only 3.5 percent of Indian board members are foreigners and nearly 9.5 percent constitute women. Less than 3 percent of directors are IIM graduates; only 0.7 percent has both an IIT and IIM degree.

With the increasing business complexities and time commitment of board members, board can set up committees with particular terms of reference. A committee can be delegated powers, though the final decision to accept will depend upon the board. Under Companies Act 2013, all the listed companies are required to constitute the following board committees (ICSI August, 2014):

Audit Committee is one of the main pillars of corporate governance mechanism. As a most powerful committee, it is charged with the oversight of financial reporting and disclosure and has the aim to enhance the confidence in the integrity of the company's financial reporting, the internal control processes and procedures and the risk management systems. The committee shall consist of a minimum of three directors, two-thirds shall be independent directors. All members of the audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise (Dhameja, 2003). The committee makes recommendations to the board, however, the board shall disclose in its report non-acceptance of the recommendations along with the reasons there for.

Nomination and Remuneration Committee is expected to ensure among other things that remuneration arrangements support the strategic goals of the business and more importantly to conduct performance evaluation of every director.

Stakeholders Relationship Committee shall act as a 'shareholders/investors grievance committee' to look into the redressal of shareholders and investors complaints like, transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc.

Corporate Social Responsibility (CSR) Committee is expected to formulate the corporate social responsibility policy of the company, recommend the expenditure that could be incurred for this purpose and monitor such policy from time to time. CSR is one tool for corporate governance and relates to responsibility of business to various stakeholders and to contribute towards well-being of people. India is the only country where CSR has been enforced by a legislation wherein profitable listed companies above certain size are required to contribute a certain percentage of profit towards prescribed activities. Studies have shown that total CSR spend in India fell short of the government mandate of two percent of profit. Education and healthcare attracted the largest CSR spend, while empowering women, support for senior citizens and armed forces veterans saw no takers. Dhameja (2016) highlights the need to examine whether mandatory approach to CSR would be more effective than the voluntary incentivized scheme prevalent earlier and elsewhere.

Women Representation

Company Act 2013 makes it mandatory for every listed company and every public company having a paid-up capital of Rs. 100 crore or a turnover of a minimum of Rs. 300 crore to appoint at least one woman director. Further, SEBI, the stock market regulator mandated that every public listed company to have at least one woman director; this norm came into effect from October 1, 2014. According to a study by Prime Database, approximately sixty percent of 1463 companies listed on NSE did not have even one woman director on their boards; i.e. 886 companies were yet to appoint a woman director as on July 24, 2014. Of the companies which since complied with the requirement of one woman director, about twenty had been filled by appointing women belonging to the promoter or friendly group (Dhameja & Agarwal, 2014). Issue for consideration is whether the presence of woman directors on the board has any positive relation with the financial performance of the company or is an obstacle to company's performance.

The problem of women director exists everywhere but has been well dealt in Australia. Instead of setting targets like the British, France or Scandinavian countries, Australia has set how many women they prepare for boards (Amrit Raj, 2014). The Australian Institute of Company Directors, together with the Australian Federal Government, has said that each chairman had to monitor two people over next 18 months. Lastly, prime mover for women empowerment and gender equality would be to harness basic development indicators like education, life-longevity and per capita income for women. As per Monster Salary Index (MSI) on gender for 2016, women in India earn 25 percent less than men (Mathur, 2017).

Independent Directors

As per the Companies Act, 2013, one-third of the directors on board of every public-listed company must be independent directors. In case the company does not have a regular non-executive chairman, at least half of the board should comprise independent directors.

The Act 2013 levied more responsibilities on independent directors and also made them criminally liable for oversight. Two key changes introduced include; a person can hold across firms to seven from the earlier limit of 15. Secondly, limiting the tenure of two successive five-year terms after which he can come up for reappointment only after three years of cooling period, the ten year tenure to be counted prospectively. Globally, only a few countries such as France, Hong Kong and Singapore have a...

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