Evolving legal framework of corporate governance in India - issues and challenges

• Author: Pankaj Kumar Gupta - Singh Shallu
• Position: Centre for Management Studies, JMI University, New Delhi, India - Centre for Management Studies, JMI University, New Delhi, India
• Pages: 241-253

Evolving legal framework of corporate governance in India –

issues and challenges

Associate Professor Pankaj Kumar GUPTA1

Research Scholar Singh SHALLU2

Abstract

Investors now started considering corporate governance as very essential factor

before investment especially in view of the unstable environment in the securities market. It

is considered that good corporate governance inspires, strengthens and maintains

investor’s confidence by ensuring company’s commitment to higher growth and profits.

Corporate Governance has become a major concern for global economies particularly the

transition world. Sound corporate governance is extremely important for transition

economies for creation of the key institutions, the private corporations, which drive the

successful economic transformation to a market based economy, effective allocation of

capital and development of financial markets, attracting foreign investment and making a

contribution to the process of national development. The Corporate Governance issue has

emerged primarily because of the growing importance of corporations in the national

economies and their interaction with the international agencies and institutions. This paper

presents the current scenario of corporate governance in India, the evolving legal

framework and identified the major issues and challenges that need to be addressed to

implement an effective system of corporate governance in India.

Keywords: Corporate Governance, Ownership, Control, Board of Directors

JEL Classification: K22, K23

I. Introduction

Corporate governance has become an increasingly prominent issue for

companies because of the increasing emphasis on the separation of ownership and

control3. Investors have now started considering corporate governance as essential

factor before investing in companies in light of the unstable environment in the

securities markets. A number of empirical studies show that good corporate

governance creates trust for long time period between shareholders and firms.

Issue of corporate governance stems from managing firms in a manner that

the firms are owned by one group of persons whilst being managed by another

1 Pankaj Kumar Gupta – Centre for Management Studies, JMI University, New Delhi, India,

pkgfms@gmail.com

2 Singh Shallu – Centre for Management Studies, JMI University, New Delhi, India,

shallu9891@gmail.com

3 Ayuso S. and Argadona A., Responsible Corporate Governance – Towards a Stakeholder Board

of Directors, IESE Business School, Working Paper, 2007.