CERTIFICATE COURSE ON

INTRODUCTION TO
CORPORATE GOVERNANCE

ANALYTICAL QUESTIONS [Within 200 Words]

10 Marks each

1. Is the Indian Model of the corporate governance fruitful in the current context?
Highlight some prominent suggestions that may be implemented to bring a productive
ethical and transparent corporate governance?

Answer 1. A company that has good corporate governance has a much higher level of
confidence amongst the shareholders associated with that company. Active and
independent directors contribute towards a positive outlook of the company in the
financial market, positively influencing share prices. Corporate Governance is one of the
important criteria for foreign institutional investors to decide on which company to invest
in.

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 The corporate practices in India emphasize the functions of audit and finances that have
legal, moral and ethical implications for the business and its impact on the shareholders.
The Indian Companies Act of 2013 introduced innovative measures to appropriately
balance legislative and regulatory reforms for the growth of the enterprise and to increase
foreign investment, keeping in mind international practices. The rules and regulations are
measures that increase the involvement of the shareholders in decision making and
introduce transparency in corporate governance, which ultimately safeguards the interest
of the society and shareholders. Corporate governance safeguards not only the
management but the interests of the stakeholders as well and fosters the economic
progress of India in the roaring economies of the world.

2. Discuss ways in which the principles of ethics (in observing corporate governance)
can be balanced with that of the profit making intention of the companies.

Answer 2. The effective integration of corporate social and environmental responsibilities

could potentially release greater value for both shareholders and wider stakeholders: moving
beyond compliance, to creating new value through new products and services that meet
societal needs; and collaborating to solve the complex and demanding social and
environmental problems that threaten to grow beyond our control. This would provide a more
vital context in which people would have greater opportunity to exercise moral values and
ethical commitments. However corporations capable of working in investors’, stakeholders’,
and society’s interests in a collaborative, creative and productive way would require a further
fundamental redesign of the concept of the corporation and the institution of the market. It is
possible that confronting the dilemmas of social, economic and ecological survival which
governments, business and communities face, will force the rethinking of corporate
objectives, structures, and activities that is necessary.

3. Do you think that the present amended method of inducting independent directors,
be effective in terms of improving corporate governance?

Answer 3. The corporate governance norms for independent directors might not be the
ultimate solution to deal with the increasing corporate frauds and scandals. This is primarily
because of two reasons: firstly, not all wrongdoings can be traced by the independent
directors as they are not involved in the day-to-day functioning of the company and secondly,
with increasing responsibility and liability, no incentive to blow the whistle and no recourse
for protection under the current legal framework, the institution of independent directors may
not be viable.

It is important for the Government to understand that they should protect the genuine
independent directors as well. In a country like India, where major corporates are owned by
business families forming majority, often the job of the independent director is at the mercy
of the promoters. At present, the changes proposed by the MCA would put the independent
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directors between a rock and a hard place where on one hand, if they try to raise red flags —
the majority shareholders might remove them through a special resolution and on the other, if
they do not do so, the MCA may take extreme steps like freezing their personal assets,
removing and debarring them, etc.

4. Analyse in brief, the development and working of Clause 49 of SEBI Guidelines on

Corporate Governance.

Answer 4.

Clause 49(1) a company must adhere with some following principles.

Right of Shareholder- As shareholders are the ultimate owner of the company, the company
should seek to protect and facilitate the exercise of right of shareholders. A company must
always be transparent with its shareholders and shareholders should have all the rights
regarding General Meeting such as information about meeting, participate, Vote and
questioning in GM etc.

Role of stakeholders- A company must take care of stakeholder’s right and encourage
cooperation between company & stakeholders. Their rights can be by Mutual agreement or
by Applicable law or statute.

Disclosure & Transparency- It is the obligation on company to be transparent with its

stakeholders by giving disclosures of all material matters on timely basis. Disclosure can be
regarding financial position, Performance, ownership and Governance etc. Non disclosure of
Material Matter is Strictly Prohibited.

Responsibility of Board- Members of the Board should disclose their interest in company and
in any individual transaction and contract. They should also maintain the rule of
confidentiality. They should also perform their key function such as preparation of major
action plan, corporate Strategy, execution of Board, and effective financial Performance.

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 5. Discuss the Tata-Mistry Controversy and relate it to the role of Corporate
Governance in a Company.

Answer 5. In mid-2012, that a selection panel of the Tata Group, chose Cyrus Mistry to be
the Chairman of Tata Sons Ltd., the holding company of the now USD 110 bn. Tata Group,
to succeed the retiring Ratan Tata. His family has been a minority shareholder of Tata Sons
for 50 years and holds an 18.5% stake in it. He was its sixth chairman and only the second
non-Tata to be appointed its chairman. When he came to the chairman, the Board was packed
with persons who can be called Ratan Tata’s men. He inherited a legacy of botched mega
investments and forays by the Tata Group, during the tenure of Ratan Tata, which included
the disastrous acquisition of Corus Steel UK for about USD 15bn and failed huge investments
in Tata Power, Tata Teleservices and Indian Hotels, including questionable loans to the
controversial Sivasankaran, all of which had saddled the group with huge debt and losses and
had eroded its return on investments. He commenced a clean up of the Tata companies and
their stressed finances and till as late as June 2016, the board applauded his good
performance. But his clean up act apparently took him to the doorstep of Ratan Tata and thus
suddenly, in a board meeting held on 24.10.16, without any prior notice or proper discussion,
he was unceremoniously sacked as the chairman of Tata Sons Ltd., with all independent
directors to participating in this corporate coup, which was blatantly in violation of corporate
governance and principles of natural justice. And thereafter, to thwart any further scrutiny or
compliances, Tata Sons was surreptitiously converted from a public company to a private
one.

The sacking of Cyrus Mistry was clearly in violation of the Companies Act and two
companies from the SP stable ie. Cyrus Investments and Sterling Investments filed a petition
before the NCLT, alleging that there has been gross oppression and mismanagement of the
minority shareholders and seeking that the sacking of Mistry and the conversion of Tata Sons
into a private company be held illegal. The NCLT dismissed the petition of the SP Group in
April 2017, leading to its appeal before the NCLAT.

In a hard-hitting 172-page order, the NCLAT has upheld the plea of Cyrus Mistry and has
termed the entire affair of his ouster to be illegal.

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