Bala N. Balasubramanian

Firm-Level Corporate Governance In Emerging Markets: A Case Study of India

We provide an overview of Indian corporate governance practices, based primarily on responses to a 2006 survey of 370 Indian public companies. Compliance with legal norms is reasonably high in most areas, but not complete. We identify areas where Indian corporate governance is relatively strong and weak, and areas where regulation might usefully be either relaxed or strengthened. On the whole, Indian corporate governance rules appear appropriate for larger companies, but could use some strengthening in the area of related party transactions, and some relaxation for smaller companies. Executive compensation is low by U.S. standards and is not currently a problem area. We also examine whether there is a cross-sectional relationship between measures of governance and measures of firm performance and find evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. We find an overall association, which is stronger for more profitable firms and firms with stronger growth opportunities. A subindex for shareholder rights is individually significant, but subindices for board structure (board independence and committee structure), disclosure, board procedure, and related party transactions are not significant. The non-results for board structure contrast to other recent studies, and suggest that Indias legal requirements are sufficiently strict so that overcompliance does not produce valuation gains.

Ownership Trends in Corporate India 2001-2011: Evidence and Implications

The first decade of the new millennium saw dramatic changes in the ownership patterns in major listed corporations in India. Two developments were striking: promoters especially in the domestic private sector bolstered up their holdings to assure continued entrenchment; and institutional investors significantly increased their holdings especially in the private sector management controlled companies segment. In both cases, these increases were achieved at the cost of retail non-institutional shareholders whose holdings correspondingly recorded a steep fall. This paper documents this evidence, seeks to identify their underlying rationale and assess their implications for corporate equity investment and governance in the country.

Gender Equality, Inclusivity and Corporate Governance in India

Equity, equality and inclusivity have been themes of abiding interest to philosophers, politicians, social reformers and activists alike. In the modern Indian context of political and social reformation spearheaded by Gandhi during the first half of the twentieth century, the imperatives of mainstreaming women in public and private spheres of activity was a theme that engaged many scholars and statesmen and attracted his serious concern. Not giving women their due share of responsibility and authority was to him as much a case calling for greater inclusivity as was the exclusion of vast proportions of the population from equal opportunities based on other legacy prejudices of caste, creed, and so on. Despite remarkable progress in many other spheres, countries in general are still way behind in rectifying the gender inequalities that still persist. This article discusses, within the broader framework of equality and inclusivity, the theme of women in corporate governance with particular reference to India. Corporate boards, key instruments in governing corporations, are still too thinly populated with women directors; there is comparatively little representation of women in positions of influence and importance within the bureaucracy associated with corporate legislation and market regulation; active involvement of women in policy-making legislative bodies like the parliament and its committees as well as in the ministerial ranks in post-independent India is minimal. This situation calls for speedy correction in developing countries like India, which can arguably benefit most from such inclusion.

Ownership Contingent Influence of Governance Structure on CEO Compensation: Need for Change in Governance Paradigm

The study examines the need for changes in the standard governance structure through investigation of the moderating effect of ownership identity and ownership concentration on the influence of standard governance structure on CEO compensation in companies with dominant owners in control. Using data from companies listed on the National Stock Exchange (NSE) of India that were a part of the diversified 100 stock index for the period 2007-2012, we find that the influence of standard governance structure on CEO compensation is indeed contingent on identity of the owner and concentration of ownership. Duality is the only governance measure that directly influences CEO compensation in family owned domestic private companies. Gender diversity and proportion of non-executive independent directors directly influence CEO compensation in corporate owned foreign private companies. The direction of influence of non-executive independent directors however supports the possibility of board capture by CEOs. In case of government companies, none of the governance measures directly influences CEO compensation. The key finding of the study are the meagre and in one instance an inappropriate (from governance point of view) influence of standard governance measures. As the decision on CEO compensation in case of companies with dominant owners in de facto control of board and executive management implies ‘principal-principal’ rather than ‘principal-agent’ conflict of interest, the results from the study suggest a re-think on the standard governance framework that is designed to deal with the latter conflict. A 2013 legislative initiative disenfranchising interested shareholders from voting on related party transactions including CEO compensation is a step in the right direction but much else remains to be done. Corporate governance frameworks across the world are derived from the frameworks proposed in the US and UK context of dispersed ownership. The framework is designed to deal essentially with ‘principal-agent’ conflict of interest. This ‘one size fits all’ approach may not ensure governance effectiveness in several situations that arise in functioning of organizations that require dealing with ‘principal-principal’ conflict. Our study on CEO compensation in the Indian context underlines the need for governance based on minority-shareholder-centered governance framework.