Corporate governance for shareholder value

Abstract

In the last few years there has been serious debate about the generally poor quality of corporate governance in Indian companies and the need to improve the same. This has led to the publication of a recommended code of corporate governance by the Confederation of Indian Industry (CII). More recently, the Securities and Exchange Board of India (SEBI) formed its own committee on corporate governance and its recommendations are sought to be implemented through amendments to the Stock Exchange Listing Agreement. This paper traces the emergence and spread of the shareholder value and corporate governance movements in other countries and examines the structural reasons that may have contributed to the serious governance problems in Indian companies despite convergence of management dominant equity ownership. It is argued that while CII and SEBI initiatives might be welcome, they seem to address only the form and not the substance in relation to corporate governance. Some suggestions for further improvement of the SEBI guidelines (under the new clause 49 of the Listing Agreement are given. The corporate governance charter issued by Warren Buffet (called the Owners Manual) to the shareowners of Berkshire Hathaway is discussed by way of illustration to highlight the fact that good corporate governance is essentially a question of managerial attitude and goes often beyond regulatory fiats.