The Corporate Purpose and Governance Failures – A Tale of Two Corporates in India

Abstract

In the year 2016 and the mid of 2017, key words that were being discussed in many corporate circles in India was Corporate Governance, Role Executive Chairman & CEO, conflict of interest and company performance. These were the times when two large corporate houses had issues related to company performance, corporate governance, Board independence and Promoter shareholders rights. This article attempts to find reasons and analyses the events. From inception to date, a debate rages, on the purpose of a Company, on whether maximizing shareholder value is the ultimate goal of corporate activity or whether the goal is some other broader societal “good.” To understand the vital balance between these interests it is very relevant to understand how a Company is regulated through Companies Act, and other relevant legislation and securities regulation through SEBI, Stock Exchanges. It is also important to know the role and responsibilities of and limits on shareholders, including promoter shareholders, independent directors and other directors with respect to corporate decisions. Various regulations and legislation have indicated that Investor protection is a primary goal. As a regulatory goal, investor protection has value in that it provides positive value to capital formation and the long-term contributions of viable corporations to the economy. More intentional deliberation about the role of the corporation and its relationship to society is necessary in the dialogue over expanding shareholder influence, and also with respect to rebuilding societal trust in the corporation. With more emphasis on performance, a closely related issue that has emerged now is the balance in governance roles and responsibilities between shareholders and boards.