Evolving legal framework of corporate governance in India –
issues and challenges
Associate Professor Pankaj Kumar GUPTA1
Research Scholar Singh SHALLU2
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
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,
2 Singh Shallu – Centre for Management Studies, JMI University, New Delhi, India,
3 Ayuso S. and Argadona A., Responsible Corporate Governance – Towards a Stakeholder Board
of Directors, IESE Business School, Working Paper, 2007.