INTRODUCTION

            Corporate governance generally pertains to the mechanisms employed to direct, manage, and oversee enterprises. The basic objective of corporate governance is to create the conditions that ensure directors and managers act in the best interests of the firm and its stakeholders, while also instituting mechanisms for holding management accountable to investors on asset usage. The Indian Government has implemented several efforts to achieve the goal of building a traditional system for controlling enterprises in India.[1]

            The CII, as the inaugural voluntary initiative in India, introduced the term “corporate governance” for application in the corporate sector during the late 1990s. It included several optional recommendations to incorporate exemplary corporate governance norms in publicly traded firms, addressing the four concepts of fairness, transparency, accountability, and responsibility in managing the company’s operations.

The Securities and Exchange Board of India (SEBI) implemented the second major initiative as Clause49 of the Listing Agreement. The third significant advancement in fostering effective corporate governance was initiated by The Naresh Chandra Committee and the Narayan Murthy Committee. They demonstrated the functioning of the corporate governance model in organizations from several perspectives, including those of shareholders and investors. Since 1998, both obligatory and discretionary corporate governance norms have evolved due to the sincere efforts of numerous committees established by the MCA and SEBI.

The Companies Act of 2013[2] added key measures, including the necessary participation of independent directors, corporate social responsibility (CSR), a specified number of women directors, and compliance with accounting and secretarial standards set by the ICAI and ICSI, respectively. Section 118[3] of the Companies Act, 2013 stipulates that these compliance requirements must be observed.

CORPORATE GOVERNANCE AND COMPANIES ACT, 2013

The Act emphasizes superior corporate governance by expanding the Board’s responsibilities and roles, fostering an investor-friendly governance framework, and establishing a disclosure-oriented management and governance structure. The 2013 Act substantially modifies the representation of enterprises. Corporate governance imbues ethical ideals into commercial practices. It promotes open dialogue by incorporating transparency and equity into the strategic endeavors of firm management.

            The primary stakeholders impacted by business management decisions are lenders, investors, agencies, directors, employees, and the general public. These exemplify but a subset of the individuals and organizations affected by corporate management decisions. Nonetheless, only significant stakeholders, such as investors, directors, and officers, actively participate in a company’s governance process. Conversely, other stakeholders primarily benefit from the organization’s good governance principles rather than engaging in them directly.

[1]LALITA S SOM, see note 19 above.

[2]Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).

[3]Companies Act, 2013, § 118, No. 18, Acts of Parliament, 2013 (India).