With the U.S. Government controlling various companies now, it is in the process of revamping the boards of directors of such companies. The obvious question relates to the role that the Government would take in the management of the companies, and particularly in the selection of their directors. In an op-ed column in the New York Times (NYT), Professors Gilson and Kraakman suggest the idea of a...
A Call for Greater Shareholder Rights under U.S. Law
The proposed Shareholder Bill of Rights Act of 2009 in the U.S. that comes in the wake of the financial crisis gives rise to an important debate regarding the rights of shareholders in companies. The rationale for the Bill is the perceived failure of corporate governance that led to the crisis. It is worthwhile to set out the larger objective behind the Bill: Congress finds that— (1) among the...
Corporate Governance and Protection of Minority Shareholders
Corporate law and corporate governance norms are devised to address certain agency problems (as they are known in economic terms). In countries where there is diffused shareholding (such as the U.S. and the U.K.), the agency problem that is prevalent is one between managers (the agent) and shareholders (the principal). Diffused shareholding gives rise to the collective action problem where each...
CSR in India: Some Theory and Practice
Experts in the area of corporate social responsibility (CSR) have argued that CSR is not just philanthropy by companies. It should involve the right combination of enhancing long-term shareholder value and protecting the interests of various other stakeholders (such as employees, creditors, consumers and the society in general). In a recent article in the Wall Street Journal, R. Venugopal and...
Independent Directors in the Post-Satyam Era
The Serious Fraud Investigation Office (SFIO) appears to have given a clean chit to Satyam’s independent directors, as it was found that the board was not involved in the fraudulent conduct and that they were kept in the dark. Much has already been written about the difficulties of placing too much reliance on the role of independent directors in corporate governance. Independent directors spend...
Reactions to the Satyam Sale
The swiftness with which the sale of Satyam was effected has made headlines (please see links below). At stake were not only the interests of the company and its stakeholders (including shareholders, employees, customer, and so on) but also the credibility of India as an investment destination (particularly in the IT sector). These interests can largely be said to have been preserved (without...
Reputational Sanctions in Corporate Governance
Who Shall Govern? CEO/Board Power, Demographic Similarity, and New Director Selection The Satyam episode has led to debates about inadequacies in corporate governance norms in India. One of the issues currently being discussed pertains to the level of investor activism in the Indian markets. Compared to the developed economies such as the U.S. which has activist shareholders such as CalPERS and...
Environmental, Social and Corporate Governance (ESG) Factors
While examining issues pertaining to corporate governance, a myopic approach is to look at the interest of the shareholders, whose interests are to be protected. On the other hand, there is a school of thought, known as the “stakeholder” approach, which calls for governance of companies with a view to protecting the interest of stakeholders in a company, which include not only shareholders, but...
Independent Directors and Family-Owned Companies
I came across an interesting article Guests at the Table?: Independent Directors in Family-Influenced Public Companies by Professor Deborah DeMott. Although the article focuses primarily on U.S. law (where family-owned companies are more the exception than the rule), it does have a significant bearing on the Indian situation as well. In India, a large number of publicly listed companies continue...
A Recent Corporate Governance Survey
Business Standard reports a recent study by Grant Thornton-FICCI of corporate governance practices in Indian companies. The “India 101-500 CGR 2009 was designed to analyze corporate governance practices at ‘mid-market’ listed companies in India. The review methodology was based on a survey to gauge the nature and extent of corporate governance practices and approximately 500 companies across...
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