A Cautionary Tale of the Transplant Effect on Indian Corporate Governance
National Law School of India Review, Vol. 21, No. 1, p. 1, 2009
41 Pages Posted: 23 Jan 2009 Last revised: 16 Mar 2010
Date Written: January 22, 2009
During the last decade, there has been a sustained effort on the part of the Indian regulators to strengthen corporate governance norms. This has been strongly influenced by developments that occurred in other parts of the world, particularly the Sarbanes-Oxley Act in the U.S. and the Cadbury Committee Report in the U.K. This study reflects upon whether the policies adopted by the Indian regulators are adequate or whether they require some mid-course correction. With that in mind, this Article adopts a revisionist approach with the help of two simple assertions, develops those further and leaves some food for thought leading to possible further detailed normative research.
The twin assertions are: (i) the broad features of the Indian corporate governance norms have been transplanted from other jurisdictions such as the U.S. and U.K. that follow the "outsider" model of corporate governance, and hence those norms are not likely to be suitable for implementation in addressing governance problems in India, which follows the "insider" model; and (ii) recent events involving the collapse of several leading financial institutions provide evidence, at least anecdotal in nature, that the corporate governance norms followed in the U.S. and U.K. have not been effective in preventing large-scale corporate governance failures, thereby raising questions about the efficacy of that model in the Indian context.
Through these assertions, this Article makes the case that the source for strengthening Indian corporate governance lies within. Seeking out other systems of corporate governance to emulate will only lead to further incongruity with the traditional business systems and practices that are replete in India, and unnecessarily add to the eclecticism that persists in Indian corporate governance. While the empirical evidence on the impact of corporate governance reforms in India is promising, the anecdotal evidence is less optimistic and the recent accounting irregularities at Satyam Computers bear testimony to that fact. This Article calls for a model of governance that resonates well with Indian business values and practices from the standpoint of economic, social, and political factors.
Keywords: Corporate governance, India, Clause 49, listing agreement, insider model, outsider model, transplantation
JEL Classification: G38, K22
Suggested Citation: Suggested Citation