Although India has been rather slow in establishing corporate
governance principles over the last two decades, 2012 was a
positive year for progression in the Indian corporate governance
arena. The Companies Bill 2012, passed by Lok Sabha (the lower
house) on 18 December 2012, includes a number of new provisions
aimed at improving the governance of public companies.
Interestingly, despite the structure of Indian businesses
differing significantly from those in the UK, the foundations of
the new Indian corporate governance model are drawn from the
Anglo-Saxon governance model. The investor base in the Indian
corporate market, for instance, largely consists of the company
founders, their respective family members and the government. In
contrast, shareholders in UK companies are less concentrated
towards a certain group of people, are geographically dispersed and
largely held by professional investors. However, despite
significant differences in the corporate structure in the two
markets, the corporate governance proposals recently published in
India are similar to those adopted in the UK. The question
therefore arises as to whether it is appropriate for a closed
market to base its corporate governance model on practices
developed for and in a market fundamentally different from its
The Indian market regulator, the Securities and Exchange Board
of India (SEBI), recently issued a consultative
paper on the "Review of Corporate Governance" encouraging
a wider debate on governance. The paper calls for, inter alia, the
splitting of the roles of chairman and chief executive, disclosure
of the reasons for an independent director's resignation from
office, a limit on the term of appointment of independent directors
and greater involvement of institutional investors. SEBI goes on to
propose making radical changes which seek to ensure that these
corporate governance proposals are implemented in a market which is
generally viewed as weak in the implementation of rules and
regulations. These changes include:
the appointment of independent directors by minority
independent directors to receive compulsory training and pass
the adoption of a principle-based approach for certain
Although it is clear that the proposals stem from the
Anglo-Saxon corporate model, in some instances they go further and
introduce new initiatives which recognise the need for certain
obligatory requirements and the need for training in a market that
has for centuries been based on a closed board structure and
There has been a clear move in India to develop the corporate
market to attract foreign investment. Foreign investment is slowly
increasing shareholder diversity in some companies. This in turn
pushes the agenda for the introduction of a regulated and universal
corporate governance model. It appears from the recent SEBI
proposals that the adoption of a corporate governance model based
on the Anglo-Saxon model will be a useful starting point but the
adoption of certain UK-based concepts such as 'comply or
explain' should be adopted cautiously given the radical nature
of certain proposals and significant effects they will have on the
structure of Indian businesses. New regulatory institutions may
need to be created, existing institutions strengthened and hybrid
approaches adopted but, on the whole, the Anglo-Saxon model may
well be a useful foundation.
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