This article has been written by Abhipsa Upasana Dash. Abhipsa is a third-year student at Symbiosis Law School, Noida.

The elucidation of the very term; Corporate Governance varies widely. However, they can be demarcated into two categories. The first set defines it as a collaboration of behavioural patterns, that is, the actual behaviour of organisations in terms of performance, efficiency, growth, financial structure, manipulation of shareholders and other stake holders. The second set defines it as a standardized scaffold for governance laying down rules under which the firms operate with respect to external influences such as the legal system, the judicial system, financial and factor (man power) markets.Hence, a comprehensive meaning of corporate governance suggests that it is “the complex set of constraints that shape ex post bargaining over the quasi rents generated by the firm”[1]. Elaborating on that, CG is the complex set of constraints that determine quasi-rents (profits) generated by the firm in the course of relationships and shape ex post bargaining over them. This definition is applied to both the determination of value-addition by firms and the allocation or sharing of such value among stakeholders that have legitimate relationships with the firm.[2]

The rules and codes of Corporate Governance is an important spoke in the wheel of competitive performance, especially in developing nations. It is a basic roadmap which provides the base for fundamental interaction between companies and their capital suppliers. With the onset of globalisation and technological advancement, companies and entrepreneurs are being exposed to more efficient and full-fledged capital raising vehicles that ever thought of. Greater competition for capital eventuate greater pressure for corporate economic performance and hence bring consequential pressure on the enduring relationships with employees. Contrastively, globalisation ensures that capital suppliers are exploring new prospects which in turn can meliorate their returns. So, better corporate governance standards keep the corporations in a good light, thus helping them attract capital suppliers from well governed firms.[3]

The emergence of corporate governance can be marked with the publication of Jensen and Meckling’s article published in 1976, which triggered plethora of empirical and theoretical research on the subject. During the late 90’s, the research on the subject was primarily targeted on US corporations. As time went on, similar work had been construed in other developed nations such as Japan, Germany, and the UK. Hence cometh an era of finding out the impact of Corporate Governance on the emerging markets.

Thus, the subject of Corporate Governance in India has been based precisely upon the Anglo-Indian exposure, literature and practice. The corporate sector regulators of India have been quick to assimilate and apply international Corporate Governance practices into the day to day work environment of the corporations. Given the track trudged upon by the Indian Firms post-independence along with the roles Foreign Investments have played therein, the issues and problems of Corporate Governance in India are contrastive to those found elsewhere.[4] Adopting international CG practices without suitable modification does not, therefore, help to address or resolve specific governance issues plaguing the behaviour of Indian firms. Issues such as the effect of ownership concentration on shareholder rights, the role of relationship-based activity between banks and non-bank corporations, its impact on creditor participation in corporate governance, the prevalence of insiders and promoters, the effect of social and corporate culture on disclosure, transparency and enforcement, etc., cannot be resolved simply by transplanting international CG practices.

The rules and codes of Corporate Governance is an important spoke in the wheel of competitive performance, especially in developing nations. It is a basic roadmap which provides the base for fundamental interaction between companies and their capital suppliers. With the onset of globalisation and technological advancement, companies and entrepreneurs are being exposed to more efficient and full-fledged capital raising vehicles that ever thought of. Greater competition for capital eventuate greater pressure for corporate economic performance and hence bring consequential pressure on the enduring relationships with employees. Contrastively, globalisation ensures that capital suppliers are exploring new prospects which in turn can meliorate their returns. So, better corporate governance standards keep the corporations in a good light, thus helping them attract capital suppliers from well governed firms.[5]

Irrespective of uneven starting points, convergence of corporate governance regimes has become an emerging trend in recent years. This surge can be due to firms adapting and adjusting as a result of the increasing globalisation and integration of capital markets, ever increasing contact of policy-makers and regional and global policy, and its intense impact on the minds of leaders initiating change. The increased adoption of such Anglo-American model in the developing countries can be reasoned for a) the historical connection of the countries since colonial era and b) the apparently unsuccessful results of previous interventionist regimes associated with corporate governance constituents.

In reality, the rules-on-books regarding CG appear to be converging in response to the pressures of global competition; but convergence of actual CG practices is much slower in materialising. Nevertheless, especially to transnationals and multinationals, a set of universal guiding principles are relevant. In terms of the functioning of transnationals the importance of regulatory convergence becomes critical, when countries have different company codes, capital market requirements and enforcement capabilities which transnationals can use to their advantage to arbitrage. The first effort to offer a global set of principles was done by the OECD19 by attempting to harmonise practices across its 29 country members, ranging from the US to South Korea.[6]In response to various corporate failures and systemic crises, CG practices the world over have evolved over time and are still evolving. The structural and process elements of governancehas been the focus to date.Butcompanies need to view this issue as a strategic challenge instead of simply responding to recurring imposition of new requirements to achieve truly effective corporate governance. The process of adapting, refining and adjusting corporate governance practices is a never ending process. Corporate governance should therefore be considered as “work in progress” and its practices should be reviewed systematically and periodically.

[1]Zingales Luigi, ‘Corporate Governance’, The New Palgrave Dictionary of Economics and the Law, Macmillan, London, Corporate Governance (1998), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=46906.

[2]StijnClaessens, Corporate Governance and Development (THE WORLD BANK 2003), available athttp://www.ifc.org/wps/wcm/connect/7fc17c0048a7e6dda8b7ef6060ad5911/Focus_1_Corp_Governance_and_Development.pdf?MOD=AJPERES.

[3] ibid

[4]Lalita S. Som, Corporate Governance Codes in India(2016), https://www.jstor.org/stable/4418757?seq=1#page_scan_tab_contents.

[5] ibid

[6]OmkarGoswami, THE TIDE RISES, GRADUALLY CORPORATE GOVERNANCE IN INDIA (2000), http://www.oecd.org/daf/ca/corporategovernanceprinciples/1931364.pdf.