Session on ‘Corporate Governance in India and China: Current Developments’ in the Conference themed as on ‘Trade, Investment and Corporate Governance: Law and Policy in India and China’

This report briefly summarizes the observations made at the Fourth Thematic Session on ‘Corporate Governance and India and China- Current Developments’ as part of the International Conference on “Trade, Investment and Corporate Governance: Law and Policy in India and China”. This Conference took place on the 25^th-26^th of April, 2014 and was jointly organized by the Centre for International Trade and Economic Laws and the Michigan-Jindal Centre for Global Corporate and Financial Law and Policy from. The Fourth Thematic Session witnessed a panel of eminent speakers who shared their opinion and points of comparison in corporate governance norms between China and India, particularly under the Companies Act, 2013.

Professor Umakanth Varottil- Assistant Professor of National University of Singapore, in his address, highlighted corporate governance as a key development in counteracting the challenges of family dominance over the business landscape. The speaker highlighted the recently-introduced Circular by Securities Exchange Board of India (“SEBI”) that mandates mutual fund houses to provide adequate reasoning for their stand on resolutions put forth by their investee companies and the details of their votes casted or abstained from. He mentioned the importance of e-voting which ensures maximum participation. Further, the speaker discussed the reasons of ineffectiveness of class action suits. These reasons include lack of long-term interest of shareholders and absence of the scheme relating to contingent fee within the Indian framework.

After Professor Umakanth concluded by highlighting the major developments within the framework of corporate governance in India, Professor Arjya Majumdar (Jindal Global Law School) gave an overview of the factors that have resulted in certain differences as well as similarities in their corporate governance framework. While mostly highlighting the convergent nature of corporate governance adopted within India and China, Professor Arjya Majumdar addressed several lines of similarity as well as disparity in the scheme of corporate governance, as prevalent within the two developing powers. He concluded by identifying a range of similarities and differences that are founded on the ideology, management structure, framework of corporate social responsibility, pace of liberalizing national economy and concentration of share ownership in companies incorporated in both countries.

The session was further taken over by Mr. Shinoj Koshy from Nishith Desai Associates. He discussed two broad aspects, namely: (a) the theme of corporate governance - steps India has adopted and their inspiration, and (b) the Board of Directors as an instrument of governance, and the codification of directors’ duties. While speaking in favour of the comply-or-explain regime when it comes to the rules associated with corporate governance, he opined that this approach is preferable to having explicit rules or a lighter mechanism to ensure compliance. He also spoke about the experience of codifying the duties of directors referring to specified rights of directors provided for in the Indian Companies Act, 2013. However, according to him, directors do not seem to have any fiduciary duties. He stated that there must be certain changes which need to be introduced in order to impose greater responsibility on directors. For instance, the directors should be duty-bound to finalize board meetings within a time span of 75 days. Another change which he proposed was that independent directors should have a  greater participatory role  when it comes to the functioning of the company. He concluded by highlighting that there should be more allowances provided for private equity investors to act as observers of the board.

While Mr. Shinoj summarized the points of significance of the developments brought about under Companies Act, 2013, the Director of National Institute of Science Technology and Development Studies - Dr. Parthsarathi Banerjee mainly focused on the foundational notion of corporations. He started off by challenging the very notion of a corporation, emphasizing the fact that organisers of a business actually own the corporation and that all financial institutions take root from this. Activists, shareholders and investors have a huge role to play in the making of a corporation. He went to elaborate that corporate governance activists have introduced a great deal of change. According to the agency theory, a company is owned by shareholders and they have a right in the decision-making of the company. He further said that in China, corporate governance is strong. Shareholders have a greater role to play in China. However, according to him, a corporation has certain responsibilities towards shareholders, other stakeholders and the government. Dr. Banerjee concluded by stating that even suppliers can be considered to be stakeholders and should be taken into account. 

Lastly, an overview of corporate governance scheme under the 2013 Act with a focus on corporate investment was offered by Mr. Ashwin Bishnoi, Partner at Khaitan & Co. The speaker mainly questioned the rationale of three aspects as incorporated under 2013 Act, namely: (1) independent directors; (2) Director liability, and (3) related-Party transactions. It was also highlighted that some of the compliances mandated under the Act have unduly increased the cost of investing in the country. Mr. Ashwin concluded by stating that while the Act has headed in the right direction, this development has been welcomed too quickly and has distorted the balance between better disclosure and corporate governance.