Monday, April 4, 2016

Recent Papers on Corporate Governance

The following papers on corporate governance in India are available on SSRN. Details, including abstracts, are set out below:

1.         Corporate Governance and the Indian Private Equity Model by Afra Asharipour.

Private Equity (PE) firms have long invested in Western firms using a leveraged buyout (LBO) model, whereby they acquire a company that they can grow with the ultimate goal of either selling it to a strategic buyer or taking it public. Unable to undertake the traditional LBO model in India, PE investors in Indian firms have developed a new model. Under this Indian PE Model, PE firms typically acquire minority interests in controlled companies using a structure that is both hybridized from other Western investment models and customized for India’s complex legal environment. As minority shareholders in controlled firms, PE investors in India have developed several strategies to address their governance concerns. In particular, PE investors in India have focused on solutions to address local problems through the use of agreements that govern (i) the structuring of minority investments, (ii) investor control rights, and (iii) exit strategies. Nevertheless, recent governance and regulatory difficulties highlight the continuing uncertainty surrounding the Indian PE model.

2.         Board Independence in India: From Form to Function? by Vikramaditya Khanna and myself.

In this paper we explore the application and evolution of board independence in India, where concentration of shareholdings in public companies is the norm, what effects it has had, and how one might make the best use of the board independence concept in the Indian environment. Following India’s liberalization in the early 1990s, the first foray into board independence came in the form of a voluntary code recommended by the Confederation of Indian Industry, which was later on adopted in a revised form by the Securities and Exchange Board of India (SEBI) as a mandatory requirement. This formal phase was influenced by developments around the world, thereby displaying signs of a legal transplant. However, we argue that the formal independence requirements gave rise to considerable doubts as to the functional impact of independent directors.

We also discuss the most recent set of reforms to corporate law in India which are moving away from the earlier conception of board independence imported into India and towards greater functionality by adapting the concept to the environment in India. A new legislation, the Companies Act, 2013, provides extensive powers and responsibilities and imposes significant liabilities on independent directors that transform their role to one that emphasizes monitoring. Interestingly, this transformation in India is not the result of international developments, such as the global financial crisis, that called into question the role of independent directors, but the result of internal systemic shocks due to local corporate governance scandals. Although these steps are positive, much is still required before board independence becomes more effective in India. We conclude with some suggested reforms that may further push the board independence concept towards greater effectiveness in India.

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