A red pen moment for corporate governance

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A red pen moment for corporate governance

  • Chitra Ramkrishna, the former Managing Director of the National Stock Exchange (NSE) from 2013 to 2016, was recently found to have violated corporate governance.
  • The Ministry of Corporate Affairs, the Income Tax Department, and the Securities and Market Board of India are among the institutions looking into the activities of India's main stock exchange.
  • They've now expanded the investigation into Chitra Ramkrishna's frequent trips to tax havens and governance failures when she was the managing director of the NSE.

Recent controversy related to NSE

  • The continuing SEBI investigation brought the events at India's largest stock market to light in February 2022.
  • During her time as MD and CEO of NSE from April 2013 to December 2016, Ms. Ramkrishna discussed the exchange's private information with an unidentified spiritual guru, according to the investigation.
  • She engaged Anand Subramanian, a little-known public-sector executive, as an adviser and then promoted him to chief operating officer (COO) at the guru's request.
  • Ms. Ramkrishna reportedly allegedly sought the guru's assistance on important business matters and vacationed in tax havens such as the Seychelles.
  • This isn't the first time NSE has been accused of corporate governance failures.

About Corporate Governance

  • In the Cadbury Committee Report, Sir Adrian Cadbury described corporate governance as ""the structure through which enterprises are directed and governed."" It is the set of rules, policies, and procedures that govern a company.
  • It entails balancing the interests of a company's various stakeholders, including shareholders, management, consumers, suppliers, financiers, the government, and the general public.
  • Corporate governance guarantees that a company's operations are performed ethically, in accordance with applicable laws, rules, and regulations, as well as industry best practises.
  • Investors value corporate governance because it demonstrates a company's direction and business integrity. Corporate governance aids in the development of trust among investors and the general public.

Committees setup to improve corporate governance in India

  • Rahul Bajaj committee (1995)
  • Kumar Mangalam Birla committee (2000)
  • Naresh Chandra committee (2002)
  • Narayan Murthy committee (2003)
  • Uday kotak committee (2017)

Need of robust corporate governance

  • India has seen various scams, such as the Satyam Scam and the Harshad Mehta Scam, which have eroded people's confidence in the markets and the corporate sector. Appropriate governance principles can help to prevent such schemes.
  • It is very impossible to safeguard the interests of minor investors without strong corporate governance requirements such as the mandated nomination of independent directors.
  • Large firms and industrial conglomerates have such sway over the Indian economy that their failure would have a major negative impact on millions of Indians.
  • Only when there are robust rules in place, then only new players will be allowed to enter and compete with the existing major ones.
  • The globe is becoming more globalised, and investments are flowing at a rapid pace. In this situation, a strong corporate governance system is a must for attracting foreign investment to India.

Steps which can be undertaken to further improve Corporate Governance

  • The country's forensic auditing ecosystem has to be strengthened in order to efficiently investigate and penalise violators. A forensic audit examines and analyses a company's or individual's financial records in order to provide evidence that may be utilised in court.
  • Double taxation avoidance treaties should be revised on a regular basis. Any gap that allows a country to be exploited only as a tax haven should be closed by strong data exchange based on mutual consent.
  • The focus of strong corporate governance should shift away from independent directors and toward minimising promoter influence.
  • The board must devote a fair amount of time and money to achieving the purpose of data protection.
  • It is desired to increase the powers of SEBI, ICAI, and ICSI in order to lessen the necessity for judicial action in cases of business collapse. In the Sahara case, for example, the court had to intervene to ensure justice.