Corporate Governance in India: Principles, Regulations, and Legal Framework
Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It establishes the framework for achieving long-term business goals while ensuring accountability, transparency, and integrity in a company’s operations.
In India, corporate governance has gained increasing prominence due to regulatory reforms, rising investor expectations, and global benchmarking standards. Effective governance builds trust, improves efficiency, and prevents fraud.
Key Principles of Corporate Governance
- Accountability: Defined roles and responsibilities for the board and management.
- Transparency: Timely and accurate disclosure of information.
- Fairness: Equal treatment for all shareholders.
- Responsibility: Ethical conduct and legal compliance.
- Risk Management: Oversight of financial and strategic risks.
Regulatory Framework in India
1. Companies Act, 2013
- Board Composition and Duties (Sec 149–172)
- Independent Directors (Sec 149(6))
- Board Committees and Related Party Transactions (Sec 188)
- Director duties, disclosures, and transparency
2. SEBI LODR Regulations, 2015
- Minimum independent directors
- Role separation: Chairperson vs CEO
- Board performance evaluation
- Corporate governance reports (quarterly/annual)
3. Secretarial Standards
Issued by ICSI (SS-1, SS-2) for Board and General Meetings procedures.
4. Other Laws
- FEMA – for foreign-invested companies
- Competition Act – for anti-trust practices
- IBC – for governance during insolvency
- Sector-specific rules for banks, NBFCs, etc.
Structure of Corporate Governance
Board of Directors
Responsible for strategy, oversight, and compliance. Listed firms must have:
- At least one-third independent directors
- Mandatory woman director for certain categories
- Duties: good faith, reasonable care, avoid conflicts
Independent Directors
Provide impartial oversight. Key roles include:
- Audit and risk management
- Performance evaluation
- Related party approvals
Board Committees
- Audit Committee
- Nomination and Remuneration Committee
- Stakeholders’ Relationship Committee
- Risk Management Committee (Top 1000 listed entities)
Corporate Governance Reporting
- Annual Corporate Governance Report (SEBI)
- Director’s Responsibility Statement
- Disclosures: RPTs, board meetings, remuneration
- BRSR for top 1000 listed companies
Common Governance Challenges
- Board independence and oversight gaps
- Promoter dominance
- Disclosure deficiencies in unlisted entities
- Non-compliance with committee rules
- Delays in reporting and grievance handling
Best Practices
- Periodic board evaluations and training
- Whistleblower and ethics policies
- Compliance audits and risk checks
- Succession planning
- Technology for governance management
- Top 250 listed companies to assure BRSR Core from FY 2024–25
Frequently Asked Questions (FAQs)
1. What is the role of independent directors?
They ensure fair governance, financial oversight, and reduce promoter influence.
2. Is governance mandatory for all companies?
Yes, but SEBI LODR applies mainly to listed and large public companies.
3. How often must the board meet?
Minimum four meetings per year with max 120 days between two meetings.
4. What is the quorum for board meetings?
One-third of total directors or two directors, whichever is higher.
5. Are audit committees mandatory for private companies?
Not for most private firms unless they cross financial thresholds.
6. Consequences of weak governance?
Fines, director disqualification, reputation damage, investor litigation.
7. How is director remuneration regulated?
As per Section 197 & Schedule V of the Companies Act; SEBI norms also apply.
8. Role of Nomination & Remuneration Committee?
Board selection and executive pay policies.
9. Can promoter and CEO roles be the same?
Yes, but top 500 companies must justify if Chairperson is also an executive/promoter.