tag:blogger.com,1999:blog-3202774368551476669.post1395049311069878647..comments2023-09-15T16:21:31.980+05:30Comments on INDIAN CORPORATE LAW: Satyam Computers - "Admission" of mammoth "fraud" - discussion and some updatesUmakanth Varottilhttp://www.blogger.com/profile/12438677982004444359noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3202774368551476669.post-47328018344801057372009-01-08T16:17:00.000+05:302009-01-08T16:17:00.000+05:30True, Rahul. Also, while we are right in being con...True, Rahul. <BR/><BR/>Also, while we are right in being concerned with the content of corporate governance norms in India, borrowed from inappropriate context of the US/Cadbury Committee, there would also be a concern about how they are brought about - particularly the legal status that they may have in India. <BR/><BR/>While India has heavily borrowed from US for may corporate governance requirements, the implementation seems to be similar to UK. Corporate Governance norms as contained in Clause 49 are, as we know, in the Listing Agreement and not in a separate statute such as Sarbanes Oxley.<BR/><BR/>Hence, the Satyam episode will now expose also this poor basis of law.The question will be whether the delinquent Promoters and Independent Directors can be punished for violation of the corporate governance requirements? <BR/><BR/>In this context, Mr. Umakanth, you have also rightly referred to the state-owned companies. We had discussed earlier in this blog recent orders for violation of corporate governance norms by public sector listed companies where, because of default/delay by the Promoter (Central Government), the Company ended up violating the norms. And the Adjudicating Officer had to excuse the company. <BR/><BR/>- JayantCA Jayant Thakurhttps://www.blogger.com/profile/06755740172092808729noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-21627453987252574872009-01-08T15:57:00.000+05:302009-01-08T15:57:00.000+05:30I agree with Mr. Umakanth. Besides the Indian corp...I agree with Mr. Umakanth. Besides the Indian corporate governance being out of sync with shareholding patterns, I believe that businesses act as a vested interest group and thwart any robust regulation that genuinely empowers stakeholders. <BR/><BR/>It is trite to suggest that no Indian politician has ever been imprisoned for fraud. But, so is the case of business people! (Indeed, trial is so slothful that someone like Harshad Mehta escaped punishment by merely outliving the time period for trial.) <BR/><BR/>While Naresh Chandra committee was looking at corporate governance reform way back in 2002-03, it was clear that imprisonment of directors in undesirable as that would lead to a chilling effect on the pool of potential directors. Satyam scandal instantiates India's half-baked tryst with corporate governance norms. <BR/><BR/>A law reform program, is by definition in future, and would evidently be useless for Satyam's 55,000 odd employees and their family members who are undergoing a harrowing experience.Rahul Singhhttps://www.blogger.com/profile/13726977353870235496noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-54044370801254315862009-01-08T04:30:00.000+05:302009-01-08T04:30:00.000+05:30Mr. Thakur, thanks for your post. The Satyam episo...Mr. Thakur, thanks for your post. The Satyam episode does raise fundamental questions pertaining to Indian corporate governance, and the solutions may not be available that easily. One reaction that we could certainly expect in the near future is tighter laws relating to corporate governance. However, there is need for caution here. One finds a fundamental mismatch in the Indian approach to corporate governance that has possibly perpetuated mis-governances of this nature. Clause 49 of the listing agreement and other corporate governance norms have been largely borrowed from the Cadbury Committee recommendations in the UK and the Sarbanes-Oxley Act in the US. These include matters such as minimum number of independent directors, an independent audit committee, CEO/CFO certification of accounts, etc. However, these measures are more applicable in countries such as the UK and the US where the shareholding is diffused, and the incumbent managers wield strong powers over the shareholders. On the other hand, the Indian shareholding pattern is vastly different – with most listed companies being either family-owned or state-owned. Since the governance mechanisms are subject to the control of the dominant shareholder, they will necessarily fail. For example, there could be fundamental questions pertaining to the concept of independent directors in Indian companies – when the appointment, remuneration, tenure and removal are subject to the control of the major shareholders. How effective is the role of independent directors when the flow of information that enables discharge of their duties is subject to control by the major shareholders, as we have seen in Satyam’s case? This logic holds good in the case of the audit committee as well as CEO/CFO certification. What is more peculiar in the Indian context is that controlling shareholders are able to determine significant matters regarding the company by holding even minor stakes that are less than 10%, again as we saw in the case of Satyam. In short, the lesson from this episode is not to simply emulate corporate governance norms in other jurisdictions, but perhaps to devise specific measures that cater to protection of shareholders in family-owned and state-owned companies that are more prevalent in India.Umakanth Varottilhttps://www.blogger.com/profile/12438677982004444359noreply@blogger.com