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European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 05
May 2019
Available online: https://ejbss.org/ P a g e | 1872
Problems of governance in public and private organizations in India
Mansi Khanna
Phd Scholar, Law & Governance
Seedling School of Law & Governance
Jaipur National University, Jaipur Rajasthan
Abstract
The chapter deals with the problems in implementation of good governance practices in public
and private organizations. Corporate Governance is the set of mechanisms in which companies
are directed and controlled. Rapid pace of globalization and liberalization compelled companies
to have effective Corporate Governance strategy and to adopt improved standards of governance
so to minimize cases of fraud, malpractices and financial instability
In spite of strict governance, corporate frauds continue to exist in the public and private
organizations to the larger extent. Organization for Economic Co-operation and Development
(OECD) published The Principles of Corporate Governance in 1999. The objective was to help
policy-makers evaluate and improve the legal, regulatory, and institutional framework for
corporate governance, with a view to support economic efficiency, sustainable growth and
financial stability. Since then, the principles have been adopted worldwide as an international
benchmarking for policy-makers and stakeholders.
Corporate Governance has wider implications and is critical to economic and social well-being.
Key Words: Corporate Governance, Problems of Governance, Effective Corporate Governance,
Corporate Governance practices
Introduction
Corporate Governance practices are the code of practice governing the operations of the Board of
Directors.i
In the past, many corporate scandals have emerged due to the poor implementation of
the Corporate Governance practices.ii Major corporate failures involving so-called 'big shots'
have brought about increased pressure on accountability of directors and promoters of the
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European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 05
May 2019
Available online: https://ejbss.org/ P a g e | 1873
firms.iii This has created an atmosphere of mistrust and doubt in the minds of investors, donors,
the Government, the communities and the public thereby requiring more transparency in the
ways of doing business.
India and indeed the rest of the world were shocked when in January 2009; $1.47 billion fraud
was committed at Satyam. Satyam’s fraud served as a notice to prompt regulators, academics,
the investors and the firms in and out of India to rethink some important questions namely:
1. What is the status of Corporate Governance in India, in theory and in practice?
2. What progress has been made since India’s economic liberalization in the early 1990?
3. If significant progress has been made, why do large corporate frauds, like Satyam’s,
continue to occur?
Above questions became important not only to India, but also to the rest of world, because India,
as one of the emerging economies, is ready to play central role in the global economy. For the
new India as economic power and this too become a reality, the firms in India have an important
role to play. It requires credible, transparent, accountable and enlightened Corporate Governance
practices to have an efficient Corporate Governance practices. Efficient Corporate Governance
practices are required to strengthen the national economy and bring forth justice to every
shareholder.
The effective Corporate Governance seeks to find ways of reducing conflict among minority
shareholders and majority shareholders (including the promoter, founder etc. in a company, those
who actually make decisions on behalf of all the shareholders). It is only through effective
Corporate Governance that strategic aims and objectives are established and the proper
management is put in place to achieve those aims and objectives.
Though SEBI has been established as trustees of the shareholders, and in principles, India has the
most stringent regulations in the world for corporate governance; shareholders are yet at the
mercy of the promoters and receive nothing beyond the promoters will.
1. Problems in Corporate Governance in Private Organizations.
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ISSN: 2235-767X
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The problem of Corporate Governance has arisen due to the rising need to separate ownership
and management control and the increasing demand to make the organization more visible,
accountable not only to founders, but also to every shareholders, groups and the community at
large ivThe legal responsibility for the overall management and the control of the organization
rests with the Board of Directors. The following major issues in the Corporate Governance
practices:
1.1 The Conflict between Promoters and Management
Since many companies are family owned enterprises, the promoters are majority shareholders
who continue to exercise undue influence over business decisions. This leads to a conflict
between the promoters and the management, highlighting the weaknesses in our Corporate
Governance norms. This conflict has also reflected the weaknesses in succession planning by the
founders/promoters, many of them inherent inhibitions to let go of control over their companies.
1.2 Stressed balance sheets
The bad debt problem, which has affected the corporate sector, is as much an outcome of bad
Corporate Governance norms. Many expensive acquisitions were made in the last decade by
companies without a proper approval from the shareholders and conducting due diligence.
1.3 The Composition of the Board
The Companies Act, 2013 introduced several good Corporate Governance provisions such as,
one-third of the company board should comprise of Independent Directors, and the Board should
have at least one woman Director, the constitution of Audit Committee within the Board etc.
However, several companies still have not appointed Woman Directors in their Board while
some of them have named the women family members or friends of promoters as Directors in
order to comply the requirements on the paper.
1.4 Role of Independent Directors
The role of Independent Directors is to enhance the accountability of the Board towards
shareholders. As part of the Audit Committees, it is their duty to ensure that the financial
