Whenever a corporate crisis erupts (a phenomenon all so common these days), questions quickly emerge regarding the role of governance (or failure thereof) at the companies involved. On a similar note, questions are being raised regarding the failure of board oversight, risk management systems and internal controls at banks such as Barclays that failed to curb manipulation in “fixing” the LIBOR...
Standing Committee Report on the Companies Bill, 2011
After the Companies Bill, 2011 was presented in Parliament late last year, it was referred to the Standing Committee on Finance chaired by Mr. Yashwant Sinha. The Standing Committee had previously submitted a detailed report on the Companies Bill, 2009, and most of its recommendations had found their way into the 2011 version of the Bill. The Standing Committee has now issued its report on this...
Shareholder Power: Say-on-Pay
Recent Developments in the US: Dodd Frank Act, section 951, requires companies to approach shareholders for their non-binding vote on executive compensation and golden parachutes. Recent Developments in the UK: A new proposal would require companies to approach their shareholders for a binding vote on executive pay. Existing Position in India: Managerial remuneration has been historically...
JP Morgan’s Trading Losses: Regulation and Governance
There has been a great deal of debate surrounding JP Morgan’s hedging losses announced last week. There is some mystery surrounding the nature of the transactions involved, without full clarity yet on the amount of losses. Andrew Ross Sorkin has a brief explanation of the episode in the New York Times: … Here’s an overly simplistic primer, but you’ll probably get the idea: The company’s...
Impact of SEBI Order on Governance of Exchanges
The concept of demutualization of stock exchanges has given rise to some questions regarding the governance of demutualized exchanges. That concept requires exchanges to separate ownership and governance from that of its trading members. Some issues pertaining to demutualization have come up before SEBI in its investigation into the affairs of the United Stock Exchange of India Limited (USE)...
Corporate Governance in MFIs
In order to achieve greater scalability, the microfinance sector has witnessed the emergence of for-profit microfinance institutions (MFIs) that are managed on similar lines as companies. They attract investors and lenders and they even list on the stock markets. That creates a dilemma as far as boards of MFIs are concerned, as they are required to manage two interests: one being the investors...
Corporate Governance Survey
Despite developments in regulation of corporate entities around the world and India’s own share of scandals in recent years, corporate governance continues to be a matter of “check the box” or a set of compliance requirements, with only limited emphasis on the spirit of governance. This has been underscored in a recent corporate governance survey The India Board Report 2011 prepared jointly by...
OECD Report on Related-Party Transactions
One area that is yet to receive significant attention in terms of regulatory reforms pertains to related-party transactions (RPTs). This is despite the enormous potential for RPTs in India given the concentrated ownership structures of public listed companies. All of these provide less protection to minority shareholders. In the past, although several suggestions for reform have been made (see...
Women on Boards Survey
The issue of diversity on corporate boards (particularly gender diversity) has garnered much importance lately, including in academic studies. The Harvard Corporate Governance Blog cites to a GMI Ratings’ survey that measures board representation by women in 45 countries across the globe. The survey reports heterogeneity in trends both among developed markets and emerging markets as distinct...
The Debate over Staggered Boards
Staggered boards are found to be a form of anti-takeover defence. This concept, which is prevalent in several U.S. companies, ensures that only a third of the board can change each year. Hence, it would not be possible for shareholders to replace the board, except through a gradual process of changing a third of the board each year. There is an interesting battle brewing in the U.S...
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