Evolution and Historical Perspective of Corporate Governance

06/05/2021 1 By indiafreenotes

Corporate governance is the matter which involves a set of rules, principles, ethics, values, regulations, and procedures. Corporate governance Sets up a system of where directors and directors are entrusted with duties and responsibilities in relation to the direction of company matters. For effective corporate governance, its policies need to be such that the directors of the company should not abuse their power and instead should understand their duties and responsibilities towards the company and should act in the best interests of the company in the broadest sense.

The concept of ‘corporate governance’ is not an end; it is just a beginning towards growth of company for long term prosperity. In this article we will learn about the History pf corporate governance and then we will talk about evolution of corporate and all governing bodies which have legal authority towards corporate governance and case law finally It ends with a conclusion.

Corporate administration is to a huge degree, a lot of components through which outcast financial specialists shield themselves from confiscation by insiders (La Porta et al. 2000). The theme of corporate governance has attained prominence particularly since the 1980s and all the more so after the code of corporate administration issued by the Cadbury advisory group. The well-known Cadbury Committee characterised “corporate governance” in its report (Financial Aspects of Corporate Governance, distributed in 1992) as “the framework by which organisations are coordinated and controlled”.


Emergence of corporate governance happened in India after mid 1996 when economic liberalization and deregulation of business and industries came into picture. Concept of corporate governance India exists from a long back also can be said as Arthshastra. Earlier instead of CEO India kings and subjects used to exist but now are replaced with shareholders but still principles still are the same.

After independence, there was interest among industrialists and Businessmen for production of a lot of necessary products for which the Government directed and recited fair prices. This was the point at which the Bureau of Industrial costs and prices and Tariff Commissions were set up by the Government.  Industries (Development and Regulation) Act and  corporations Act were introduced into the system in 1950. 1960s was a time of setting up of big industries in addition to the existing routine affairs. The period between 1970 to mid-1980 was a time of cost, volume, and profit examination, as a vital piece of the cost accounting activities.

Reformation to Corporate Governance

First phase of India’s corporate Governance reform 1996-2008

The initial or first phase of India’s corporate governance reform aimed at making Boards and Audit committees much more transparent and Independent, they aimed at building more focused and powerful supervisors of management they were also aiding shareholders which includes both foreign and institutional shareholders. Efforts of this reform were channeled in number of different paths under Securities and exchange board of India (SEBI) and Ministry of corporate affairs (MCA)


In 1996, CII took up the very first initiative in the Indian industry and made an essential step towards corporate governance. The basic aim was regarding promotion and development of a code of companies, irrespective of whether it is a public sector or private sectors, financial institutions, or all corporate entities.

The initiative taken by CII addressed the public concern regarding the security of interest and concern of investors which includes especially small investors, the promotion of transparency within business and industry, it was required for the as it was necessary to procced towards International standards of disclosure information by corporate bodies. Through this way a confidence will be developed in business and industry. Final draft of code was introduced in April,1998.

Report of Committee on Corporate governance

Renowned Industrialist,  Mr. Kumar Mangalam Birla was appointed by SEBI to provide an aspect towards a concern of insider trading to secure the rights of our investors. The companies were asked to show their annual report separately, A report on corporate governance mentioning the steps taken to comply with the recommendations of the committee. The objection was to allow the shareholders to know in which company they have invested and stand with the initiative that are taken to ensure robust corporate governance.


There was realization about the importance of auditing body to the committee and many specific suggestions were made related to constitution and board Audit committees. These rules and regulations were mentioned in Clause 49, new section of the listing agreement which came into force in phases of 2000 and 2003.

Report of the consultive group of directors of banks April 2001

Reserve bank of India constituted the corporate governance of directors of banks and financial institutions to review the supervisory roles played by the board of banks and financial institutions and to get a feedback on activities of the board that is regarding compliance, disclosure, transparency, and audit committee etc. Also provide with ways for making the role of board of directors much more of effective with a perspective to reduce the risks.

Report of the committee on corporate Audit and governance committee: December 2002 

The committee took the responsibility to analyze and suggest some changes like statutory Auditor, company relationship, appointment of auditor and audit fee measures to ensure that management and companies put forth a true and fair statement of financial affairs of the company.

SEBI report on corporate governance ( N.R Narayan Murthy) Feb-2003

In order to improve governance standards, SEBI introduced a Committee to analyze the role of Independent directors, risk management, director compensation, code of conduct and financial disclosure

Clause 49 Amendment: Murthy Committee

In 2004, After Murthy Committee’s recommendations in accordance to that SEBI brought about changes in Clause 49

Second stage of corporate governance: Post satyam scam

India’s corporate community got a shock after, Jan 2009 with damaging revelations about colossal fraud and board failures in the financials of satyam .it can also be considered as satyam scam worked as a catalyst for Government of India to improve corporate governance, accountability, disclosures, and enforcement mechanisms. Industry reacted shortly after information of the scandal broke, the CII began investigating the corporate governance issues arising out of the Satyam scandal.  corporate governance and Ethics Committees were formed by industry groups to study the impact and lessons of the scandal.

Legal framework on corporate governance

The Companies Act, 2013: It describes about the laws of provisions concerning the constitution of the board, board meeting, board processes, Audit committee, general meetings, party transactions, disclosure requirements in the financial statements etc.

SEBI Guidelines

SEBI can be considered as governing body which has the power and carries jurisdiction over the listed companies and issues regulations, rules and regulation to ensure safety of the investors

Standard listing agreements of stock exchange: it is made for those companies whose shares are listed in the stock exchanges.

Accounting standards issued by the institute of chartered accountants of India (ICAI)- ICAI ca be said an independent body, which provides accounting standards mentioning guidelines about the disclosure of financial information. If we talk about new companies Act, 2013 Section 129 provides that the financial statements would give a fair view of the situation of the companies, following the accounting standards given under Section 133 of the Companies Act, 2013. It is further given that the things contained in such financial statements should be following the accounting standards.

Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI). ICSI can also be considered as independent body, which carries secretarial standards according to the terms of conditions in the new companies Act ICSI has issued secretarial standards on “Meetings of the Board of Directors” (SS-1) and secretarial standards on “General Meetings” (SS-2). Given secretarial standards have come into force from 1-7-2015. Companies Act, 2013, Section 118(10) provides that every company (other than one person company) shall observe secretarial standards specified as such by the ICSI with respect to general and Board meetings.

It was the role of the Board in hurriedly giving a clean chit to its CEO without the results of an independent investigation released within the property right in an apparent case of alleged nepotism, and its refusal to require any questions on the matter.