India's Corporate Governance Voluntary Guidelines 2009: Rhetoric or Reality?

Abstract:     
In the aftermath of recent episodes (such as the accounting fraud at Satyam) that have tested the efficacy of corporate governance norms in India, the Government has adopted a cautious approach to reforms with a view to avoiding a knee-jerk reaction. Change to existing norms have come forth in the form of the Corporate Governance Voluntary Guidelines, 2009 [hereinafter, “the Guidelines”], a set of good practices that may be voluntarily adopted by Companies. This article examines, primarily on two counts, the response of the Government of India to governance scandals through the issue of the Guidelines. First, it evaluates the substantive provisions of the Guidelines and finds that while the Guidelines do contribute to enhancement of the existing corporate governance framework in significant ways, they fail to satisfactorily address some of the shortcomings in the prevailing regime that have surfaced in the recent past. Second, it seeks to determine the efficacy of the “voluntary” approach followed by the Government of India (whereby companies are encouraged to follow a code of corporate governance on a recommendatory basis) rather than through the imposition of mandatory rules. Based on a comparison of the voluntary and mandatory approaches to corporate governance and an analysis of various factors at play in India, it raises doubts about the success of the voluntary approach in India.

Number of Pages in PDF File: 21

Accepted Paper Series