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In this advancing world there necessarily arises the need for good corporate governance in the developing world as it leads to the creation of a system of rules and practices that would determine how a company shall operate. And also, good corporate governance ensures corporate success and economic growth.

Meaning of corporate governance:

Corporate governance is the system through which companies are managed and controlled.

The board is responsible for the management of its companies. Corporate governance is therefore about what the company's board of directors does and how it sets the company's values, and must be distinguished from the day-to-day operational management of the company by full-time executives. Corporate governance therefore refers to the way in which a corporation is managed.


The main purpose of corporate governance is to facilitate effective, enterprising and prudent management that can ensure the long-term success of the company.

Regulation and history:

The Companies Act, 2013 got assent of the President of India on 29th August, 2013 and it was enacted on 12th September, 2013 repealing the old Companies Act, 1956. The Companies Act, 2013 provides a formal structure for corporate governance by enhancing disclosures, reporting and transparency through enhanced as well as new compliance norms.

Advantages of corporate governance in developing world

• Success: good corporate governance ensures corporate success and economic growth

• Capital efficiently: strong corporate governance maintains investor confidence, as a result of which the company can raise capital effectively and efficiently.

• Cost of capital: Corporate governance also reduces the cost of capital

• Share price: has a positive impact on the share price

In addition to the above benefits;

• Corporate governance provides the proper incentive to owners and in addition as managers to realize goals that are in the interest of shareholders and the organization

• Good corporate governance also minimizes waste, corruption, risk and mismanagement

• Helps in brand building and development

• It secures the organization in an extraordinary manner that suits the simplest interests of all.

Dis-advantage of corporate governance in developing world

1. Separation of ownership and management

The officers and executives who oversee the company's internal affairs and make most of its policies are not necessarily shareholders.

This can become a problem for publicly traded corporations. In the absence of the controlling shareholder and the majority of shareholders voting by proxy, the company's assets are managed by the board of directors and officers. The difference between ownership and management will lead to a conflict of interest between management's duty to maximize shareholder value and increase its earnings.

2. Illegal insider trading

The word "company insiders" refers to corporate executives, managers and employees because they may have access to sensitive, non-public information about the company that could affect the value of their stock.

Company insiders are not specifically prohibited from dealing in corporate securities, but must report such transactions to the Securities and Exchange Board of India.

3. Misleading messages

There are many ways to present factual and accurate financial statements in a way that misleads investors.

4. Regulatory costs

Corporate governance abuses have led to the adoption of a wider range of federal and state laws to discourage the recurrence of such abuses. Complying with these laws can be burdensome and costly for companies.

Sources regulating corporate government practices:

The governance practices of listed companies in India are based on a combination of mandatory requirements, voluntary guidelines and economic process.

To illustrate, five governance regulations that are unique to India include the mandatory blood test requirement, auditor rotation, mandatory corporate social responsibility, shareholder rights, annual and event information, audit and financial reporting, and prosecution procedures. The nodal authority under the Business Act, the Ministry of Corporate Affairs ("MCA") issues rules, circulars and instructions. In particular, the MCA issued the National Guidelines for Responsible Business Conduct ("NGRBC") in 2019, which sought to adopt Gandhi's fiduciary principle into the core responsibility of the business towards the society objectives while trying to maximize their profits'. In addition, listed companies in India are regulated by the Securities and Exchange Board of India ("SEBI") and are subject to the regulations, rules and circulars issued by it.

Specifically in the area of ​​corporate governance, the primary regulations are the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (hereinafter referred to as the "LODR Regulations"), which impose a number of substantial requirements on listed companies, including compliance with the principles governing the disclosure and obligations of listed companies stock exchange. , rights of shareholders including special rights of minority shareholders and liability of the board of directors. Governance standards are further prescribed by certain industry-specific regulators such as the Reserve Bank of India (“RBI”) and the Insurance Regulatory and Development Authority of India.

The consequences of director liability under various criminal laws such as, but not limited to, labour and environmental legislation, the Insolvency and Bankruptcy Code 2016 (the "Bankruptcy Act") and the Prevention of Money Laundering Act 2002 also govern governance practices companies.

The governance practices of Indian listed companies are also being driven by market forces such as investor expectations, proxy voting guidelines and recommendations, governance assessment criteria and international best practices that boards voluntarily adopt to unlock the governance premium and stock value. Recent trends of increased institutional ownership and increased voting participation have also prompted boards to consider governance practices more closely.


Corporate governance issues are particularly important in developing economies, because these countries do not have a strong and long-established

financial institution infrastructure for solving problems of corporate governance.

Corporate governance has become important in developing economies. In recent years. Directors, owners and business managers began to take notice that there are benefits that can flow from good corporate governance structure. Good corporate governance helps increase the share price and facilitates the raising of capital. International investors hesitate whether to lend money or buy stocks in a corporation that does not adhere to good corporate governance principles. Transparency, independent directors and a separate audit committee are particularly important. Important. Few international investors may not seriously consider investing in a society that does not have good corporate governance.

This article is written by Sneaha Sharma of Bharati Vidyapeeth New Law College.

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