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Unit 11: Corporate Governance

have responsibilities to the various segments of the society. The responsibilities of the managers Notes
are co-extensive with the sphere of corporate influence. They owe a duty to the employees in the
corporation in that their conditions of service are proper. They owe duty to the consumers in
providing quantity goods and services at reasonable prices. They owe a duty to society, to keep
the environment free of pollution. The managers have to accept these realities of life and fulfill
the obligations to the various sections of the society.
Once the corporations are considered public institutions, their managers become public trustees.
From the point of view of both the general public and the government, the standards of duties
of managers have changed. New ethical standards have come up in which the interests of the
various segments of the society are given due consideration.

11.5 Corporate Governance in the Indian Scenario

Many factors in the Indian socio-economic environment have added significance to the concept
of corporate governance. Firstly, the Indian government is committed to remove poverty and
bring about a socialist society in which private interest will be subordinated to the national
considerations. The constitution of India provides for economic and social justice for all. Our
country, being welfare state, has therefore, enacted many laws in order to make corporations
feel responsible to the various segments of the society. Many amendments have been carried
out in the recent past to the Companies Act, 1756, the Consumer Protection Act, 1986 and other
laws which suggest a fresh look at the economic and social values implicit in the existing legal
provisions.
One could safely hope and predict that the new concept of the company formally projected in the
Indian Corporate Legislation will be the dominant factor in the shaping of corporate policy in
the years ahead of us.
Secondly, the financial institutions and banks are contributing a great deal towards the financial
needs of the corporate sector. The financial institutions and the banks require the borrowing
corporations to conform to the declared social and economic policy of the government. This is
ensured by nominating representatives on the Board of Directors of the borrowing companies.
Thirdly, the ethical aspect of business relates back to some of our ancient teaching, and is deeply
enshrined in the thoughts and workings of some of our great national leaders. In the modern
context, one has to refer to Mahatma Gandhi, who aimed at throughout his life, the promotion
and development of the concept of trusteeship in almost every field-political, social, and economic.
According to Gandhi, all life is trust and all power carries with it obligations.

Task Why do the financial institutions and banks require the borrowing corporations to
conform to the declared social and economic policy of the government? Discuss.
Corporate governance may thus, be defined as a conscious effort by the corporate management
to balance judiciously the interests of its different stakeholders. Some of the stakeholders are
shareholders, employees, consumers, society, government, suppliers, creditors, etc.
In 1999, the Securities and Exchange Board of India (SEBI) appointed a committee to promote and
raise the standards of corporate governance of India. It was headed by Mr. Kumara Mangalam
Birla, and, as such the committee came to be known as Kumara Manglam Committee on corporate
governance. The agenda of the committee was three-fold, i.e.,
1. (a) To suggest suitable amendments to the Listing Agreement executed by the stock
exchanges with the companies

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