India’s economic scenario began to alter radically with the commencement of the liberalization process. Globalization has significantly increased the number of players in the corporate market and eventually led to an increase in business risks. However, it also had a positive impact, i.e., it has compelled Indian companies to adopt international norms of transparency and good governance. Executive management is given more freedom to enhance its ability to respond to the dynamics of a fast-changing business environment. Good corporate governance practices have now become the feature of several Indian companies like ITC, Infosys, ONGC, BHEL, and RIL.
Corporate governance is a set of principles, processes, and systems for governing a company in the best interest of all stakeholders. It is committed to achieving corporate objectives by providing business values and ensuring ethical conduct. Besides, it offers the following:
- Improved transparency in business transactions
- Statutory and legal compliance
- Adequate disclosures, and
- Effective decision-making
In simple words, corporate governance is all about promoting corporate transparency and accountability. Good corporate governance means good business.
Corporate governance has been present for ages; however, it was present in a different form. In the Vedic period, kings had appointed ministers to run their state with ethics, values, principles, and laws. Today, corporate bodies are run by corporate governance with the same ethics, values, principles, and laws in more effective ways. Everything from finance, taxation, banking to the legal framework requires good corporate governance that helps corporate bodies to become global giants.
If more and more Indian companies want to access the global capital market, they need to be more transparent in their operations and financial results. It means the Indian companies need to improve their standards of corporate governance. Therefore, SEBI (Securities and Exchange Board of India) that regulates the Indian stock markets took a major step to resolve this issue and asked the Indian firms (above a particular size) to implement Clause 49.
Clause 49 is an agreement listed to the Indian stock exchange to improve the corporate governance in companies. As per the clause, if a company has appointed an executive chairman, then at least 50% of its board members should be independent directors. On the other hand, if the company has appointed a non-executive chairman, then at least one-third of its board members should be independent directors. The CEO and CFO must establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls. All companies must submit a quarterly compliance report to the stock exchange in the given format. Moreover, the annual report must be a detailed compliance report having a separate section on corporate governance. The company must obtain a certificate (from auditor or practicing company secretary) for meeting stipulated compliance requirements and annex it to the director’s report. The company must form an audit committee; one of the directors must be financially literate. All the companies must comply with clause 49.
Clause 49 was modified by SEBI to strengthen the responsibilities of independent directors serving on corporate boards. The revised Clause 49 incorporated certain provisions of the Sarbanes-Oxley Act that was prevalent in the US. According to the modified clause, the roles and responsibilities of the board, quality and quantity of disclosures, and accountability of top management (especially the CEO and CFO) have been enhanced. Also, the roles and responsibilities of the audit committee related to internal controls and financial reporting have been consolidated.
In India, GrayCell Technologies have created a web-based solution that can help companies implement Clause 49 compliance requirements. They have created the CEO/CFO certification application using the .NET technology framework to simplify the implementation of the CEO/CFO certification process. This solution has already established processes to bring changes in the controls environment of various companies such as Nestle India Ltd. and Tata Chemicals Ltd.
GrayCell Technologies is an award-winning digital solution provider company having more than 15 years of experience in delivering result-driven design, development & analytics solutions. It has proven experience in a broad range of business applications that use both open source and proprietary software technologies. GrayCell’s development team ensures to offer top-notch quality solutions at a competitive price within the specified timeline.