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Global Perspectives on Corporate Governance: Contrasts and Convergence

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   24-Jan-2024 | Shounak Roy

In India, corporate governance has undergone significant transformation, particularly in the last few decades. However, post-economic liberalization in the 1990s, India witnessed a paradigm shift.

The entry of foreign investors and the globalization of Indian businesses brought new challenges and opportunities, necessitating stronger governance frameworks. The Securities and Exchange Board of India (SEBI) introduced Clause 49 in the Listing Agreement for publicly listed companies, marking a significant step towards aligning Indian corporate governance with global practices.

Historical Evolution of Corporate Governance in India

India’s journey in corporate governance has been unique, shaped by its socio-economic landscape. Historically, Indian businesses were predominantly family-owned, influencing governance structures. The liberalization of the Indian economy in the 1990s marked a turning point, introducing more market-driven and shareholder-centric practices.

Contrasts in Corporate Governance Practices

Indian corporate governance practices contrast significantly with global norms, particularly those in Western countries. For example, Indian companies traditionally have promoter-driven models, where controlling families play a significant role, unlike the more dispersed ownership structure in Western corporations.

1. Promoter-Driven Models:

In India, a significant number of companies, especially in the private sector, are characterized by promoter or family ownership. According to a report by KPMG, as of 2020, promoters owned more than 50% in about 43% of the NIFTY 500 companies. This contrasts with the US or Europe, where ownership is often more dispersed among various institutional and retail investors.

2. Board Composition:

Indian boards tend to have a higher representation of inside directors, including promoters and their family members. Data from the Indian Institute of Corporate Affairs (IICA) indicates that in 2021, around 35% of directors on the boards of top Indian companies were promoter representatives, a significantly higher percentage compared to Western standards, where independent directors usually dominate.

3. Corporate Social Responsibility (CSR):

The CSR landscape in India is unique due to the mandatory spending requirement introduced by the Companies Act 2013. This legislation requires companies with a net worth of ₹500 crores or more, or an annual turnover of ₹1000 crores or more, or a net profit of ₹5 crores or more during the immediately preceding financial year, to spend at least 2% of their average net profit of the preceding three years on CSR activities.

4. Family Influence in Corporate Decisions:

The influence of families in corporate decisions remains significant in India. A study by the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business revealed that family firms in India contribute to around 60% of the total market capitalization of companies. This not only affects board dynamics but also influences long-term strategic decisions and succession planning.

Drivers of Convergence in Corporate Governance

India's corporate governance is increasingly aligning with global standards, driven by factors like foreign investments and cross-border listings of Indian companies. The influence of international institutional investors and partnerships with foreign companies have also pushed Indian businesses towards global governance norms.

1. Foreign Investments and Cross-Border Listings:

India has seen a surge in foreign direct investment (FDI). According to the Department for Promotion of Industry and Internal Trade (DPIIT), India attracted FDI inflows of $70.97 billion and total FDI equity inflows stood at USD 46.03 billion. This influx of foreign capital necessitates adherence to global governance standards to maintain investor confidence.

2. Influence of International Institutional Investors:

The role of international institutional investors in Indian companies has grown significantly. These investors often advocate for stringent governance standards, mirroring global best practices. Their participation drives Indian firms towards more transparent and responsible governance models, fostering trust and sustainability in the long term.

3. Enhanced Disclosure Requirements:

SEBI has mandated enhanced disclosure requirements for listed companies. These include detailed quarterly financial statements, disclosure of related party transactions, and risk management policies. The Business Responsibility and Sustainability Report (BRSR), introduced in 2021, further aligns India with global sustainability reporting standards.

Rules and Regulations regarding Corporate Governance

  1. Mandatory Board Composition: Indian regulations require a specific composition for corporate boards. These include having a minimum number of independent directors, ensuring diversity, and even mandating woman director presence. This rule ensures varied perspectives, reducing governance risks.
  2. SEBI's Listing Obligations and Disclosure Requirements (LODR): SEBI, India's securities regulator, enforces LODR for listed entities. It mandates detailed disclosures on financials, board meetings, and shareholder information. This ensures transparency, aligning with global corporate governance standards.
  3. Audit Committee Regulations: Firms must have an audit committee comprising mainly independent directors. This committee oversees financial reporting, audits, and risk management, ensuring accountability and integrity in financial disclosures.

Challenges in Global Corporate Governance

  • Balancing Family-Centric Models with Professional Management: Many Indian companies still operate under family-centric models, where decision-making can be influenced by familial ties. Achieving true independence in board composition is difficult, especially in companies where promoters or founding families hold significant influence.
  • Managing Minority Shareholder Interests: Protecting the rights and interests of minority shareholders in companies dominated by major stakeholders or families is a complex issue.
  • Implementation of Legal and Regulatory Reforms: While India has made significant strides in updating its legal and regulatory frameworks to match global standards, the actual implementation of these reforms at the company level is often inconsistent and challenging.
  • Overcoming Cultural and Behavioral Barriers: Traditional business practices and cultural norms in India sometimes conflict with modern governance principles, making it difficult to fully adopt and internalize these global practices.
  • Monitoring and Enforcement by Regulatory Bodies: Continuous monitoring and enforcement by bodies like SEBI are crucial, but ensuring consistent compliance across a diverse and vast corporate landscape poses its own set of challenges.

Future Trends in Corporate Governance

Emerging technologies like AI are poised to revolutionize corporate governance in India, with increased emphasis on data-driven decision-making and transparency. The post-pandemic era is likely to see accelerated digital transformation and a greater focus on sustainability and stakeholder welfare in corporate governance frameworks.

AI and Data-Driven Decision Making:

  • IT companies like TCS and Infosys are incorporating AI into their governance processes. For example, Infosys uses AI for risk assessment and compliance management, enhancing efficiency and transparency.

Digital Transformation Post-Pandemic:

  • The COVID-19 pandemic accelerated digital adoption across Indian industries. Reliance Industries, for instance, hosted its first-ever virtual Annual General Meeting (AGM) in 2020, setting a trend for digital governance practices.
  • Blockchain technology is also being explored for its potential in enhancing transparency and security in governance processes.
  • Recently, the first AI CEO Mika has been hired by Polish company Dictator Holdings. It marks a new horizon in terms of Corporate Governance.

Focus on Sustainability and Stakeholder Welfare:

  • Indian companies are increasingly adopting ESG (Environmental, Social, and Governance) criteria. The Tata Group, for example, has been at the forefront of integrating sustainability into its corporate governance framework.

Integrating Advanced Analytics for Governance:

  • Firms like Reliance Industries are integrating advanced analytics into their governance structures for better decision-making and predictive insights, demonstrating a commitment to leveraging cutting-edge technology to enhance governance practices.


The Indian corporate governance landscape exhibits a fascinating blend of traditional practices and modern, global standards. While distinct in many ways, the convergence towards international norms is undeniable. As Indian companies continue to integrate into the global economy, their corporate governance practices will play a crucial role in shaping their global competitiveness and sustainability.