Corporate Governance in India is based upon the Gandhian principle of trusteeship. The management which is the brain of the company should consider the shareholders as the true owners of the company. They must consider themselves as the agents of the company. They should always try to work for the best interest of the shareholders They should not try to settle their personal interest out of the capital invested by the shareholders.
The recent scams in India and around the world have increased the need for better corporate governance norms. Now, the main responsibility of formulating more strict corporate governance norms lies with the government and its bodies.
One of the establishments which can help in better corporate governance are the stock exchanges involved. The stock exchanges are closely connected with the companies so they would be in a better position to see that companies maintain the norms.
The OECD Steering Group on Corporate Governance has also started a project. In this, they have highlighted the role which stock exchanges can play in corporate governance.
STOCK EXCHANGES AND GOVERNMENT NORMS
Now, the question is how these stock exchanges can ensure the maintenance of corporate governance norms. Clause 49 of the listing agreement which is required by the company in order to get listed in the stock exchanges specifically talks about the corporate governance norms.
Also, one of the major steps which was taken in order to improve the corporate governance was the restructuring of the exchange itself. This was known as demutualization wherein the power was taken away from the brokers. This led to a transparency inside the exchanges. This was one major move from the government.
Apart from the same, there were also a few changes made by the government which has to be strictly followed by stock exchanges. They are-
(a) Whenever any investor wants to invest its capital into the company, he needs the complete information about the company. The information helps the prospective investor to make an informed choice since there are lots of risks involved in the market.
The prospective investors can get the complete information about the company from the official website of the stock exchange wherein the company is listed.
(b) The stock exchange has also been given the power to take action against the company which fails to comply with the procedure of reporting as required by them under the law. They have to file an “exception report” with SEBI about the defaulting company and the details of the action taken by the stock exchange.
(c) The company which wants to list itself in any of the stock exchanges has to follow a particular procedure and has to make the requisite disclosures before listing itself under any stock exchange.
(d) The company is also required to provide complete and periodical report about the annual returns of the company, its shareholding patterns, financial reports etc.
STOCK EXCHANGES’ OWN INITIATIVES
Apart from the above, the stock exchanges themselves have started taking certain steps to improve corporate governance. The individual stock exchanges have started organising various awareness programmes. These help in order to make the prospective investors to make more informed choice. In various towns and cities, training sessions are also organised.. The major stock exchanges such as National Stock Exchange and Bombay Stock Exchange are increasingly organising such events.
STOCK EXCHANGES’ CHANGING ROLE
There is one major roadblock in the role of stock exchanges in increasing corporate governance. This roadblock is the increase in competition among the stock exchanges themselves. The self-listing of stock exchanges was allowed due to the recent changes made. So, the stock exchanges have also become a part of the race for having a competitive edge over other stock exchanges.
Now, this competitiveness had led to a scenario wherein they are not concerned about the shareholders. They are only concerned for their own profits. There must be stricter norms so that these stock exchanges do not get converted only to mere profit making entities.
REFERENCES
- Hans Christiansen and Alissa Koderstova, Role of Stock Exchanges in Corporate Governance, http://www.oecd.org/finance/financial-markets/43169104.pdf
- Rajesh Chakrabarti, Corporate Governance in India – Evolution and Challenges, College of Management, Georgia Tech
- Poonam Kataria, A Summary of Role of Government in Corporate Governance in India-A Critical Study, http://shodhganga.inflibnet.ac.in/bitstream/10603/125485/15/15_summary.pdf
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