CORPORATE GOVERNANCE IN INDIA: BRIDGING THE GAP BETWEEN GLOBAL STANDARDS AND LOCAL REALITIES

Introduction

In the rapidly changing economic environment, corporate governance has become a fundamental element for fostering sustainable business growth and maintaining investor trust. Essentially, corporate governance encompasses the set of rules, procedures, and frameworks by which companies are managed and overseen, ensuring that decisions are made with accountability, fairness, and transparency. As India accelerates its development as a major player in the global economy, the importance of robust governance systems is increasingly critical. Nevertheless, the Indian corporate landscape has faced several governance breakdowns revealing deeper systemic flaws and undermining public confidence. Notable incidents like the Satyam accounting scandal, the IL&FS debt crisis, and the NSE co-location controversy have exposed weaknesses in regulatory enforcement, board independence, promoter influence, and the overall governance framework.

Even though India’s regulatory environment has seen considerable strengthening through laws such as the Companies Act of 2013 and SEBI’s Listing Obligations and Disclosure Requirements (LODR), challenges in practical enforcement persist. Unlike global models that focus on adaptive governance, responsibility, and active regulatory supervision, India’s approach is often criticized for being overly procedural and lacking effective independent monitoring. This article delves into India’s corporate governance structure, contrasts it with international benchmarks, examines major governance failures, and suggests progressive reforms and technological advances. The aim is to present a comprehensive understanding of how India can evolve its governance practices to meet global standards while addressing its distinct obstacles

Setting the Stage: What is Corporate Governance?

Corporate governance refers to the comprehensive system of rules, practices, and processes through which corporations are directed, controlled, and held accountable. It is a multifaceted framework that ensures businesses operate with integrity, transparency, and fairness, balancing the sometimes competing interests of diverse stakeholders as of shareholders, management, employees, customers, regulatory authorities, and the wider community. At its core, corporate governance aims to establish mechanisms that safeguard investor rights, foster ethical behaviour, and enable companies to achieve sustainable long-term growth. A well-governed company mitigates risks, enhances operational efficiency, and builds investor confidence, thereby creating value for all stakeholders. In India, the significance of sound corporate governance has intensified due to the country’s rapid economic expansion and increasing integration into the global financial ecosystem. As India has attracted substantial foreign direct investment (FDI) and portfolio inflows, international investors have placed heightened emphasis on governance standards as a critical determinant of investment decisions. Nonetheless, India’s corporate sector has been marred by a series of high-profile governance failures. The Satyam scandal in 2009, which involved one of the largest corporate frauds in the country, the IL&FS debt crisis in 2018 that exposed systemic financial vulnerabilities, and the NSE co-location scam, which revealed governance lapses in market infrastructure, have all contributed to eroding public and investor trust.

The World Bank’s Ease of Doing Business report has repeatedly underscored governance as a persistent challenge in India, citing issues related to regulatory enforcement, transparency, and investor protection as key hurdles for business growth and investment[1]. Understanding India’s corporate governance landscape, its strengths, weaknesses, and areas for reform, is therefore critical for fostering a resilient and credible corporate environment.

The Legal Framework: India’s Corporate Governance Architecture

India’s corporate governance regime is primarily anchored in the Companies Act, 2013, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. These frameworks collectively set out the legal and regulatory foundation for corporate oversight, accountability, and transparency. The Companies Act, 2013, is the landmark legislation introduced several governance reforms aimed at enhancing board independence and accountability. A key provision mandates the appointment of independent directors on the boards of listed companies to ensure impartial oversight and protect minority shareholders from potential promoter dominance. The Act also institutionalizes audit committees, which oversee financial disclosures, monitor internal control systems, and assess risk management frameworks. These committees play a crucial role in ensuring the integrity of financial reporting. Another significant feature is the mandatory Corporate Social Responsibility (CSR) provision. Companies meeting specified thresholds (annual turnover exceeding ₹1,000 crore, net worth above ₹500 crore, or net profit over ₹5 crore) are required to allocate at least 2% of their average net profits towards CSR activities. This embeds social responsibility within corporate governance, promoting sustainable development goals and stakeholder welfare. The SEBI LODR Regulations, 2015, these regulations complement the Companies Act by imposing rigorous disclosure requirements on listed companies, including timely publication of quarterly and annual financial results, transparent reporting of related party transactions, and prohibiting insider trading. SEBI’s regulations also place explicit obligations on promoters to disclose shareholding patterns and material corporate actions to enhance transparency and investor protection. The Ministry of Corporate Affairs (MCA) oversees compliance with the Companies Act and related regulations, empowered to inspect, investigate, and penalize corporate misconduct. The National Company Law Tribunal (NCLT) serves as a specialized adjudicatory body handling cases related to corporate governance violations, director misconduct, and shareholder disputes, providing a legal forum for redressal.[2] Recent amendments have sharpened the definition and eligibility criteria for independent directors and increased the transparency around related party transactions. However, implementation challenges persist, with many companies treating compliance as a procedural formality rather than embedding substantive governance practices. This disconnect between law and practice limits the effectiveness of India’s corporate governance framework[3].

Corporate Scandals That Shook the System

India’s corporate governance narrative cannot be fully understood without examining the watershed scandals that exposed profound systemic flaws.

1. Satyam Computers Scam (2009):Often dubbed “India’s Enron,” the Satyam scandal involved deliberate falsification of accounts by the company’s chairman, inflating revenues and profits to the tune of over ₹7,000 crore. The board, dominated by promoters and ineffective independent directors, failed to detect or prevent the fraud. This scandal catalysed reforms in auditing standards, mandatory rotation of auditors, and tighter oversight by regulatory authorities[4].
2. IL&FS Financial Crisis (2018):The Infrastructure Leasing & Financial Services (IL&FS) crisis revealed major governance failures in the non-banking financial sector. The company defaulted on debt obligations exceeding ₹91,000 crore, partly due to the misuse of shell companies and opaque financial transactions orchestrated by promoters. The crisis prompted regulatory tightening of corporate borrowing norms and heightened scrutiny of financial disclosures, but also spotlighted the ease with which promoters could circumvent governance safeguards[5].
3. NSE Co-location Scam (2015–2018):This controversy involved select brokers gaining preferential access to high-frequency trading data through NSE’s co-location facilities, allowing them an unfair market advantage. The scam revealed inadequate internal controls and highlighted promoter dominance within India’s premier stock exchange. SEBI’s intervention led to penalties and governance reforms, but the episode underscored persistent vulnerabilities in India’s market infrastructure institutions[6].

These incidents collectively illuminate recurring governance challenges: concentrated promoter control undermining board independence, weak enforcement mechanisms, delayed regulatory interventions, and inadequate internal oversight. They underscore the imperative for stronger governance frameworks to protect market integrity and restore investor confidence.

Global Standards vs. Indian Reality: A Comparative Insight

Internationally recognized corporate governance frameworks prioritize the principles of transparency, accountability, and board independence as essential elements of good governance. The OECD Principles of Corporate Governance provide a globally accepted benchmark, emphasizing shareholder rights protection, clear delineation of board responsibilities, and comprehensive disclosure to enhance investor confidence and sustainable corporate performance[7]. In the United States, the Sarbanes–Oxley Act (SOX) revolutionized corporate governance in response to corporate scandals like Enron. SOX requires that CEOs and CFOs personally certify financial statements’ accuracy, mandates rigorous internal control testing, and institutes stringent penalties for fraudulent reporting. These measures have significantly elevated accountability and transparency in American corporations[8]. The UK Corporate Governance Code focuses on leadership structure by recommending the separation of chairman and CEO roles, ensuring board independence, and requiring companies to publish annual governance statements detailing their compliance and governance practices[9]. India’s governance framework, while comprehensive on paper, often struggles with implementation. Promoter dominance remains pervasive, limiting the efficacy of independent directors. CSR compliance sometimes becomes a check-the-box exercise rather than a meaningful contribution to social welfare. Whistleblower protections are comparatively weaker, discouraging internal reporting of misconduct. The success of global governance systems is largely attributable to robust enforcement by agencies such as the U.S. Securities and Exchange Commission (SEC), active institutional investor participation, and a corporate culture emphasizing transparency and accountability. India’s path forward lies in adapting these principles to its unique corporate context as shifting from rigid procedural compliance toward flexible, principle-based governance that fosters genuine accountability and investor protection[10].

Persistent Challenges: Why the Gap Remains

Despite legislative reforms and regulatory initiatives, several entrenched challenges continue to hinder India’s progress toward world-class corporate governance standards.

1. Promoter Dominance:Promoters typically hold substantial equity stakes and wield decisive influence over board decisions, often marginalizing independent directors who may lack the authority or incentives to act independently.
2. Insider Trading and Related Party Transactions:Although legal frameworks exist to curb such practices, enforcement remains inconsistent and reactive. The NSE co-location scam exemplified systemic vulnerabilities in protecting market integrity.
3. Regulatory Delays:The National Company Law Tribunal (NCLT) faces a significant backlog of cases, leading to delayed adjudication of governance disputes. These delays weaken the deterrent impact of penalties and allow governance lapses to persist.
4. Limited Investor Activism:Retail investors, who constitute a large portion of shareholding, often remain unaware of their rights or reluctant to assert them due to fear of retaliation. Institutional investors may also hesitate to challenge promoters aggressively due to business considerations.
5. Weak Whistleblower Protections:Fear of job loss, retaliation, and inadequate anonymous reporting mechanisms discourage employees from reporting wrongdoing. This perpetuates a culture of silence detrimental to governance reform.

Together, these factors sustain a significant divide between India’s regulatory aspirations and on-ground governance realities[11].

The Road Ahead: Reforms and Innovations for Stronger Governance

India is at a critical juncture where thoughtful policy reforms combined with technological innovations can substantially improve corporate governance outcomes.

• Separation of Chairman and CEO Roles:Mandating distinct individuals for these roles can prevent excessive concentration of power and encourage balanced board leadership.
• Board Diversity:Introducing mandatory diversity quotas encompassing gender, independent expertise, and professional experience can enrich board deliberations and oversight.
• Technological Integration:Blockchain technology can revolutionize shareholder voting by providing secure, transparent, and tamper-proof platforms, thereby enhancing shareholder participation and trust.
• Whistleblower Protection:Establishing secure and anonymous digital portals for reporting misconduct can empower employees to expose governance failures without fear of retaliation.
• Capacity Building:Mandatory training programs for directors and regulatory officials on compliance, ethics, and emerging risks will improve governance quality.
• Principle-Based Regulation:Transitioning from rigid checklists to flexible, risk-based regulatory frameworks aligned with global standards will encourage companies to focus on substantive governance outcomes rather than mere procedural compliance.

Such reforms will reinforce investor confidence, reduce governance risks, and position India as an attractive destination for global capital[12].

Conclusion

Corporate governance is no longer a peripheral obligation but a strategic imperative crucial to India’s economic credibility and growth trajectory. While India has made commendable progress through enhanced legal frameworks, mandatory CSR, and disclosure requirements, persistent issues surrounding promoter control, insider trading, and enforcement gaps continue to undermine reform efforts. Encouragingly, regulators such as SEBI and the Ministry of Corporate Affairs are increasingly proactive, and emerging technologies like AI and blockchain offer new tools to enhance transparency and compliance. Growing global investor activism may also inspire Indian shareholders to demand higher governance standards. India’s true potential lies in bridging the gap between well-crafted policies and their effective implementation. By fostering a corporate culture rooted in ethics, transparency, and accountability, India can transform its governance landscape into a competitive advantage and emerge as a responsible, trusted player in the global corporate arena[13].

References

[1] World Bank, Doing Business 2020: Comparing Business Regulation in 190 Economies (World Bank Group 2020) https://openknowledge.worldbank.org/handle/10986/32436 accessed on 5th September 2025

[2] Ministry of Corporate Affairs, Government of India, Companies Act, 2013 https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf accessed on 5th September 2025

[3] Securities and Exchange Board of India (SEBI), Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 https://www.sebi.gov.in/index.html  accessed on 5th September 2025

[4] Central Bureau of Investigation, Investigation Report on Satyam Scam (2009). https://cbi.gov.in/press-detail/MjE0MA== accessed on 5th September 2025

[5] Reserve Bank of India, Report on IL&FS Crisis and Financial Stability (2019 https://rbi.org.in/Scripts/FsReports.aspx accessed on 5th September 2025

[6] Securities and Exchange Board of India (SEBI), Report on NSE Co-location Scam (2019). https://www.sebi.gov.in/enforcement/orders/apr-2019/order-in-the-matter-of-nse-colocation_42880.html accessed on 5th September 2025

[7] Organisation for Economic Co-operation and Development (OECD), Principles of Corporate Governance (OECD Publishing 2015) https://doi.org/10.1787/9789264236882-en accessed on 5th September 2025

[8] US Congress, Sarbanes–Oxley Act of 2002 https://www.govinfo.gov/content/pkg/PLAW-107publ204/pdf/PLAW-107publ204.pdf accessed on 5th September 2025.S. Congress, Sarbanes–Oxley Act of 2002, https://www.govinfo.gov/content/pkg/PLAW-107publ204/pdf/PLAW-107publ204.pdf accessed on 5th September 2025

[9] Financial Reporting Council (FRC), UK Corporate Governance Code (2018 https://www.frc.org.uk/library/standards-codes-policy/corporate-governance/uk-corporate-governance-code/ accessed on 5th September 2025

[10] International Finance Corporation (IFC), Corporate Governance in Emerging Markets (2021) https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+cg/resources/publications/emergingmarkets_cg accessed on 5th September 2025

[11] National Company Law Tribunal (NCLT), Annual Performance Report (2023). https://nclt.gov.in accessed 5th September 2025

[12] Deloitte India, Future of Corporate Governance in India (2022) https://www.deloitte.com/in/en/about/governance/global-impact-report/global-report-governance.html accessed on 5th September 2025

[13] Securities and Exchange Board of India (SEBI), Report on Corporate Governance Reforms (Consultation Paper, 2022) https://www.sebi.gov.in/reports-and-statistics/reports/feb-2023/consultation-paper-on-strengthening-corporate-governance-at-listed-entities-by-empowering-shareholders-amendments-to-the-sebi-lodr-regulations-2015_68261.html accessed on 5th September 2025