CENTRAL UNIVERSITY OF SOUTH BIHAR

PROJECT-TOPIC

“ROLE OF TRANSPARANCY IN CORPORATE

GOVERNANCE, A REVIEW.”

Submitted To Course Instructor Submitted By Student

SITARAM
Dr. P.K.DAS.
B.Sc.LLB.(H)
Assistant Professor,
9th Semester
School Of Law And Governance
Enrollment No. CUB1313115019
Subject- Corporate Governance.

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ACKNOWLEDGMENT

During the course of writing this project, I have received the help, encouragement and assistance
from my teacher, colleagues, friends, library staff and other. I am thankful to all of them.

I am very thankful to my Investment Law teacher, Dr. P.K. Das for encouragement and support
that he provided during the preparation of the project.

I am deeply indebted to the works of eminent legal experts and law scholars and other scholars of
repute, whose valuable work has been highly useful in writing this project.

By Sitaram.

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LITRATURE REVIEW

There exists a large body of literature that provides insight into historical evolution of company of
Transparency and its manner of functioning.

BOOKS REFFERED

1) BOOK; International Journal of Computational Engineering Research||Vol, 03||Issue5 (2013) ||

by R. M. Kemble.

2) BOOK; Company Law. 19th edition. BY Dr. G.K.Kapoor and Sanjay Dhamija.

3) The Companies Act, 1956; Universal Law Publishing Co., C-FF- 1A, Dilkhush Industrial Estate,
G.T. Karnal Road, Delhi. -110 003.

4) Book; Company Law. 17th edition (2015). BY Dr. Avtar Singh, Eastern Book Company.

RESEARCH METHODOLOGY

The method used is doctrinal and descriptive. No data collection is done in this regard and this is
based merely on the descriptive sources.

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RESEARCH HYPOTHESIS

This study is based on the hypothesis that Company Legislation in India owes its origin to the
English Company Law. In each and every types of company transparency play an impotent roll.
Basically, three main model of corporate Governance in the world that is, Anglo U.S. Model,
Japan’s Model, German Model. But out of three, Anglo U.S. Model provides more and more
transparency in the world. India also fallows Anglo U.S. Model...

RESEARCH QUESTIONS

Based on this hypothesis the following research questions have been formulated:

 Why Transparency is necessary in each and every types of Company?

• What are the benefits of Transparency?

LAW JOURNALS & WEBSITES REFFERED

1) https://www.lawteacher.net
2) https://economybuilding.wordpress.com
3) https://en.wikipedia.org/wiki/Layoff
4) www.securenow.in
5) https://indiankanoon.org/search/

6) https://www.thehindu.com

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 CHAPTER- HEADS

PAGE NO.

 ACKNOWLEDGMENT………………………………………………………………………………………… 02
 LITRATURE REVIEW…………………………………………………………………………….………………03
 BOOKS REFFERED……………………………………………………………………………..…………………03
 RESEARCH METHODOLOGY………………………………………………………..…….………………..03
 RESEARCH HYPOTHESIS……………………………………………………………….….………………….04
 RESEARCH QUESTIONS……………………………………………….……………………………………..04
 LAW JOURNALS & WEBSITES REFFERED…………………………………….……………………….04
 INTRODUCTION………………………………………………………………………………………………….06
CHAPTER 1: The need for Corporate Governance in India…………………………………………07-08

CHAPTER 2: Corporate Governance Framework in India ………..….…………………………….08-10

CHAPTER 3: What is 'Transparency and Importance of Transparency ……………………………..11-13

CHAPTER 4: Reasons Why Transparency is Important…………………….……………….………..14-16

 CONCLUSION………………………………………………………………………………………………….17-17

 BIBLIOGRAPHY……………………………………………………………………………………………18-18

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Introduction

Corporate governance is set of principles or guidelines on which a company is governed. It

ensures that the corporate works in a way it supposed to work to achieve the desired goals. It
makes the corporations accountable to each stakeholder including, directors, shareholders,
employees, customers etc. The term governance itself explains the meaning that it is an act of
managing a corporate entity. The entity of a corporation is separate from its officials which
makes corporate governance. Corporate governance plays an important role to protect the
rights of thousands of shareholders, who have ownership in the company but do not play an
active role in governing day to day business activities. Corporate governance is a part of
Indian corporate sector since the beginning but corporate governance failure and fraud of
Satyam Computer Services Limited increased the concerns about corporate governance in
India.

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CHAPTER: 1

The need for Corporate Governance in India

In the last decade, corporate fraud and governance failure is occurring frequently which is
why we require good corporate governance in the country. India provides proper norms and
laws aligned with international requirements to govern a corporate. Some of the important
reasons are discussed below which raised the need for corporate governance in India.

1. A corporate has a lot of shareholders with different attitudes towards corporate affairs;
corporate governance protects the shareholder democracy by implementing it through
its code of conduct.

2. Large corporate investors are becoming a challenge to the management of the

company because they are influencing the decision of the company. Corporate
governance set the code to deal with such situations.

3. Corporate governance is necessary to build public confidence in the corporation

which was shaken due to numerous corporate frauds in recent years. It is important
for reviving the confidence of investors.

4. Society having greater expectations from corporate, they expect that corporates take
care of the environment, pollution, quality of goods and services, sustainable
development etc. code to conduct corporate is important to fulfil all these
expectations. Takeovers of the corporate entity created lots of problems in the past. It
affects the right of various stakeholders in the company. This factor also pushes the
need of corporate governance in the country.

5. Globalization made the communication and transport between countries easy and
frequent; so many Indian companies are listed with international stock exchange
which also triggers the need for corporate governance in India.

6. The huge flow of international capital in Indian companies is also affecting the
management of Indian Corporates which require a code of corporate conduct.

Principles of Corporate Governance1

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Corporate governance has evolved around certain key principles, which form the base of
rules and guidelines set for the corporate.

1. Transparency

Disclosure of the relevant information about corporate in timely and accurate manner is
necessary. It helps stakeholder to know their rights and day to day activity of the corporate.

2. Accountability

It ensures the liability of the person who takes decision for the interest of the others. Hence
persons like managers, chairmen, directors and other officers should be accountable to other
stakeholders of the corporate.

3. Independence

Independence of top manager is important for smooth functioning of the corporate. Board of
Director must work without the interference of any interested party in the corporate.

CHAPTER:02

Corporate Governance Framework in India2

The Indian framework on Corporate Governance has been vastly in sync with the
international standards. Broadly, it can be described in the following:

1. The Companies Acts 2013 has provisions concerning Independent Directors, Board
Constitution, General meetings, Board meetings, Board processes, Related Party
Transactions, Audit Committees, etc.

2. SEBI (Securities and Exchange Board of India) Guidelines ensure the protection
of investors and have mandated the companies to adhere to the best practices
mentioned in the guidelines.

3. Accounting Standards issued by the ICAI (Institute of Chartered Accountants of

India) wherein the ICAI is an autonomous body and issues accounting standards. The
disclosure of financial statements is also made mandatory by the ICAI backed by the
Companies Act 2013, Sec. 129.

2
https://economybuilding.wordpress.com

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 4. Standard Listing Agreement of Stock Exchanges applies to the companies whose
shares are listed on various stock exchanges.

5. Secretarial Standards Issued by the ICSI (Institute of Company Secretaries of

India) issues standards on ‘Meetings of the board of Directors’, General Meetings’,
etc... The companies Act 2013 empowers this autonomous body to provide standards
which each and every company is required to adhere to so that they are not punished
under the Companies Act itself.

Issues in Corporate Governance in India3

Although there exist many issues in the field of Corporate Governance especially in India, an
effort has been made to highlight only the major ones here:

1. Board performance

The requirement of at least one woman director is necessary, and also the balances of
executive and non-executive directors are not maintained. Evaluation is not performed from
time to time and transparency is lost somewhere. The performance is not result oriented.
These requirements are not always met with.

2. Independent Directors

Independent directors are appointed for a reason which does not seem to be fulfilled in the
current scenario. Even after SEBI guidelines being issued to the corporates, for the
appointment of an audit committee or giving of a comprehensive definition of the
independent directors, the actual situation appears to be worse.

3. Accountability to Stakeholders

The accountability is not restricted to that of the shareholders or the company; it is for the
society at large and also the environment. The directors are not to keep in mind their own
interests but also the interests of the community.

4. Risk Management

3
The Companies Act, 1956; Universal Law Publishing Co., C-FF- 1A, Dilkhush Industrial Estate, G.T. Karnal
Road, Delhi. -110 003

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The risk management techniques are to be mandatorily be undertaken by the directors as per
the Company Laws and they have to mention in their report to shareholders as well. This is
not being done in the most sincere manners required for the job.

5. Privacy and Data Protection

This is an important governance issue. Cyber security has evolved to be the most important
aspect of modern governance. Good governance can only be achieved once the directors and
other leaders in the company are well known about the hazards in this field.

6. Corporate Social Responsibility (CSR)

Being among the few countries to legislate on CSR, it is mandatory for companies to invest
minimum 2% of the profits in the last 3 years for CSR activities. Otherwise proper reasons
should be mentioned in the reports in case of failure. The companies seem to be reluctant
towards making such investments.

Suggestions

In line with the issues mentioned above, there is a greater onus upon the directors of the
companies to adapt to the standards and best practices provided in various laws and
guidelines. Other than the laws and norms prescribed by various institutions from time to
time, the companies are also expected to act responsibly towards the society as a whole
because the corporates are so huge in the current times, that they affect each and every
individual citizen of the country equally. The burden on the companies is already reduced as
they are made to follow a set of guidelines and they are not required to make any amends to
that. It is also required that the stakeholders also participate in the decision making processes
to make it a contributory job altogether.

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CHAPTER:03

What is 'Transparency and Importance of Transparency?

What is 'Transparency'4?

Transparency is the extent to which investors have ready access to required financial
information about a company such as price levels, market depth and audited financial reports.
Transparency helps reduce price volatility because all market participants can base decisions
of value on the same data. Companies also have a strong motivation to provide disclosure
because transparency is rewarded by the stock's performance.

Importance of Transparency

A strong indicator of future growth is how a business invests its money. When an investor
cannot find information stating where a company invests, the investor is less likely to invest
in the business. Opaque financial statements may hide a company's debt level, and the
business could be facing insolvency. Investors should be aware of the underlying investments
that compose their portfolios. For example, owning a single stock means investing in one
company while owning a mutual fund means investing in multiple companies. Transparency
shows investors how much risk they will be exposed to with a security helping them to make
more educated investment decisions. Investors should regularly monitor how their securities
are performing. The history of investors’ returns and market fluctuations may indicate
possible fund performance in the future. Investors may also compare their returns with the
performance of related securities, benchmarks and other asset classes and make investment
choices that better meet their goals. Investing limitations, liquidity restrictions and fee
structure should also be considered because they affect how much an investor pays for a
security.

How transparency became so important

Transparency is important to consumers and employees alike. This open "reveal" of

information shows that a company has nothing to hide, and helps consumers make better
decisions -- so that, in a direct comparison, a company that reveals all information related to
its supply chain, for example, will likely be chosen over a competitor that keeps its

4
BOOK; Company Law. 19th edition. BY Dr. G.K.Kapoor and Sanjay Dhamija

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information secret. Yet, despite these benefits, transparency has only somewhat recently
become a bigger priority. What sparked this change?

Distrust of corporations. American distrust of corporations is higher than it's ever been.
According to the Corporate Perception Indicator survey, only 36 present of Americans
queried said they felt that corporations were a "source of hope," compared to an impressive
84 present of the population surveyed in China, whose economy is still developing.

Related: Reasons You Need to Embrace Transparency in the Workplace

Why are Americans so distrustful? Part of the problem stems from the perception of greed
associated with CEOs and big businesses. Less than a decade ago, we collectively witnessed
a global economic crash (and personally felt the resulting effects), due in part to greedy,
deceitful or misleading financial institutions. We subsequently bore witness to the Occupy
Wall Street movement, which criticized the wealth gap that capitalism has created. Not
surprisingly, many Americans assume that corporate goals are focused only on profits --
which can lead to unethical practices, especially if those practices are hidden.

1. Rating and review sites.

The prevalence of online ratings and reviews has also led to increased demand for
transparency. These days, a visit to a site like Consultants 500 or time spent browsing
Amazon Product Reviews can tell you everything you need to know about a company's
operations, products and overall customer experiences. We've grown to rely on these peer
reviews so much that today, 88 present of consumers trust them as much as a personal
recommendation from a friend or family member. With such honest opinions openly
available, we expect companies to be just as honest.

2. Social media visibility.

At this point, most businesses have at least one social media profile -- with 88 present of
companies using social media marketing to engage with their customers. The social media
world is also active 24-7 and publicly available to the majority of consumers. Information

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spreads like wildfire, and customers are always on the watch for new developments. All it
takes is one piece of leaked information to send a company's reputation tumbling, so it's in
businesses' best interests to proactively provide this information and avoid the catastrophe of
an unintentional reveal.

3. Availability of information.

This is also the Information Age, where consumers have grown to expect instantly available
information on all their interactions. If you want to know the name of an actor in the movie
you're watching, you can expect to find it within seconds of searching. If you want to know
where your food distributor gets its raw materials, you can expect to find that, too. Such
expectations put pressure on businesses to provide as much information as possible, as openly
as possible, to avoid consumer suspicions.

Example of Transparency

In February 2016, six groups at a Tyson shareholder meeting spoke with chairman of the
board John Tyson about the lack of transparency the company provided on its financial
reports. The International Brotherhood of Teamsters notes that contributions to the American
Beef Federation, the National Chicken Council and other trade groups, as well as state and
local lobbying efforts, were not readily available. Multiple shareholders notes Tyson's leak in
Monett, Missouri, which killed over 100,000 fish in the city's waterways.

Shareholders wanted more information on the company's planned improvement of water

quality in plant areas. Additionally, shareholders asked for an annual report showing plant
safety records to ensure the records improve over time. Because Tyson family members
control the company's voting rights and did not approve of what was being asked of them, all
six proposals were voted down.

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CHAPTER:04

Reasons Why Transparency is Important5

Your employees are in reality, the backbone of your company. Things wouldn’t run without
them and your company relies on their happiness, engagement and productivity. And
although the workforce is changing constantly, one thing that is abundantly clear is your
workers want to know what is going on. In fact, only 42% of employees have any idea what
their organization’s vision, mission or values. WHAT?

Here are 4 reasons to change and ideas for how to do it6.

1. Transparency Increases Trust7

Reason: Nearly 25% of employees don’t trust their employer, according to a 2014 American
Psychological Association survey. Even worse? Only about half believe their employer is
open and upfront with them. When you add in transparency to your everyday work with your
employees they seem to be more engaged and intrigued by what is going on. Why? Because,
they actually understand what is going on, now that they have the same information as you,
they can help you and even have ideas for you to go off. Bonus: Employees are now a critical
cog in the solution – people love adding value.

How to do it: Communicate! There is something to this radical honesty idea (communicating
directly) that can be beneficial to your company. Live your (work) life by a simple rule: If
you CAN tell your employees something, DOES IT. Reinforce this by being upfront about
their behaviour and encouraging them to give you feedback on yours. Harvard Business
Review’s 2013 employee engagement survey revealed that 70% of those surveyed say they’re
most engaged when senior leadership continually updates and communicates company
strategy.

Employees CRAVE inclusion! Learn the 4 reasons to crush it with company transparency:
CLICK TO TWEET

2. Transparency Builds Relationships8

5
www.securenow.in
6
https://indiankanoon.org/search/
7
https://indiankanoon.org/search/
8
https://indiankanoon.org/search/

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Reason: We’ve all heard the old adage: “People don’t leave jobs, they leave managers.”
While that’s debatable, we do know that good relationships of any kind begin with
transparency. A 2014 CareerBuilder survey revealed that 37% of the 3,008 employees
surveyed were likely to leave their jobs due to a poor opinion about their boss’s performance.

How to do it: Have that welcome mat in place! While an open office or an open door policy
may not work for every company, it’s worth a try for individual teams. This policy or line of
communication is meant for you to talk to your employees without hesitation and vice versa.
The problem is you can have this “policy” but your workers might not feel like they can use
it. So, don’t be afraid to step out of the office every once in a while and go visit their desk or
cubicle. Once you establish this open line of communication you will see a shift in the mood
and even your company culture.

3. Transparency Increases Productivity9

Reason: Did you know 50% of employees felt that their employers were not giving them all
the information and true facts needed to be successful in their jobs? Meaning, they don’t trust
you and can’t communicate with you and even worse, they are feeling like you aren’t even
giving them the tools they need to do their jobs properly! Time to fix this.

How to do it: Only 42% of employees know their organization’s vision, mission or values.
Could it be because leadership within a company is not communicating these or using them
in everyday work? If your values are sitting in a dusty employee manual somewhere, take the
time to revisit them. Ireful allows you to tie performance and feedback to each review, so
employees can see them in action. Not only do they see them every time they get feedback,
they see how their actions directly align (or not) with the company values.

Only 42% of employees knew their organization's vision, mission or values. Learn why here:
CLICK TO TWEET

4. Transparency Boosts Innovation10

Reason: As a leader, your goal should be to train up your employees so they can handle
bigger and more complex problems. This involves trust and transparency. In a recent HBR
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https://indiankanoon.org/search/
10
https://indiankanoon.org/search/

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article, co-authors Holly Henderson Brower, Scott Wayne Lester, and M. Audrey
Korsgaard write:

“Employees who are less trusted by their manager exert less effort, are less productive, and
are more likely to leave the organization. Employees who do feel trusted are higher
performers and exert extra effort, going above and beyond role expectations. Plus, when
employees feel their supervisors trust them to get key tasks done, they have greater
confidence in the workplace and perform at a higher level.”

How to do it: It’s not rocket science but when you let your employees in on company
problems they will either have a solution for you or help you work on one. Plus, you will get
a solution a lot faster than if you, alone, spent all that time trying to come up with one just
because you didn’t want to let others know there is a major problem. Being transparent with
employees isn’t a bad thing, and certainly not something of the past anymore. By sharing
information you can get a new perspective, new opinions and better insight. Problems will be
solved faster and more efficiently if you learn to be open and honest. The HBR goes on to list
ways managers can “signal” trust:

1. Take stock of current policies and procedures. Do they indicate trust?

2. Give up control (wisely). If you go whole hog and let them direct anything and
everything, you’ll likely have to pull it back later. Mete out responsibility and control
a little at a time.

3. Share information. If you lost your two largest clients and you can’t afford holiday
bonuses, discuss it ahead of time with your employees. Don’t wait until the moment is
upon you.

4. Invest in employee learning and development.

To put all these reasons into play in your company will only benefit you. It costs almost
nothing to implement transparency into the business. Be open, honest, and communicate
effectively and you will see improvements. Remember that this is a team effort, keep that
open door policy in place, let your employees in the loop, find those solutions and watch how
work ethic can take a leap into success when you simply add in that crystal clear transparency
into your business. Want to learn more about this? ireful is here to help! Try our free trial to
get a head start on your business today.

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Conclusion

The more the level of corporate governance, the stronger is the company in the eyes of the
shareholders of the company. The independent and the active directors are the ones who
infuse and contribute towards displaying the corporate as that of having a positive outlook.
When it comes to investment, the investors also seek to find the companies with stronger
corporate governance in them. The corporate governance requirements in India deliberate the
companies to audit their working culture and give the shareholders community a more
positive outlook as their actions have moral and legal implications. The new norms after the
Companies Act 2013 came into the picture are very balanced and innovative. They have
helped reformed the growth of Indian companies as per international standards. Shareholders
are involved in the decision making of the companies and various safeguards have been put
in order so that the interests of the shareholders and the society as a whole are not side-lined.
Corporate Governance imbibes the much-required transparency in the corporates. Therefore,
it pushes India ahead in the race of emerging economies of the world.

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Bibliography

 BOOKS REFFERED

1) BOOK; International Journal of Computational Engineering Research||Vole, 03||Issue5 (2013) || by R.

M. Kemble.

2) BOOK; Company Law. 19th edition. BY Dr. G.K.Kapoor and Sanjay Dhamija.

3) The Companies Act, 1956; Universal Law Publishing Co., C-FF- 1A, Dilkhush Industrial Estate, G.T.
Karnal Road, Delhi. -110 003.

4) Book; Company Law. 17th edition (2015). BY Dr. Avatar Singh, Eastern Book Company.

 LAW JOURNALS & WEBSITES REFFERED

1) https://www.lawteacher.net
2) https://economybuilding.wordpress.com
3) https://en.wikipedia.org/wiki/Layoff
4) www.securenow.in
5) https://indiankanoon.org/search/
6) https://www.thehindu.com

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