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Corporate Governance and the Indian Private Sector
The following study examines the issue of corporate governance in the context of large private sector companies in India against a regulatory background that is changing rapidly. Based on over 170 interviews with a very wide range of business representatives, including CEOs, non-executives, fund managers and audit firms, the two reports which make up the study highlight the ineffectiveness of boards in Indian companies, the lack of transparency surrounding transactions within business groups, the divergence of Indian accounting practices from international standards, and the changing role of, and controversy surrounding, institutional shareholders. Respondents concurred on the failure of the board as an institution of governance in Indian companies, despite the large presence of non-executives. The authors argue that regulatory intervention needs a much stronger definition of 'independence' for directors, in line with best practice definitions now adopted in the US and UK, as well as the mandatory introduction of nomination committees. In the accounting field, the most serious lacuna is the lack of consolidation of accounts, even if 51% may be too high a threshold for consolidation in the Indian context. Finally, the presence of institutional nominees is a unique feature of Indian corporate governance and there has been a powerful corporate lobby in favour of removing them from boards. While this would reduce the accountability of Indian boards even further, the reports argue that a more active approach to corporate governance on the part of institutional investors requires larger changes in the nature of the FIs' ownership and control by government, greater autonomy for institutional managers, and the active development of a market for corporate control.