Impact of Clause 49 of Listing Agreement of Securities and Exchange Board of India on Corporate Governance

Abstract

Corporate governance is the current exhortation in India as well as the world over. As an offshoot of economic liberalization, global investment in the form of foreign direct investment and foreign institutional investment have gained momentum leading to vast economic growth in India. On the other hand, major corporate scams that have occurred worldwide in recent times, have revealed that the need for strict supervision and scrutiny over corporate management and governance is a sin quo non for the protection of stakeholders and the growth of the nation which has to compete with the multinational companies in the global arena. Further, in India, most of the listed companies, and substantially all billion-dollar companies, are family-run. A particular characteristic of the Indian corporate landscape, however, is a tendency for individuals (and their families) to establish large interlocking networks of subsidiaries and sister companies that include partially owned, publicly listed companies. Such pyramidal structures can lead to severely inequitable treatment of shareholders. The extent of this control is frequently opaque to outsiders and undisclosed by insiders. A particular need for effective corporate governance in India is, therefore, to encourage the dynamism and growth of family. The inclusion of Clause 49 by Securities Exchange Board of India (SEBI) in the listing agreement between companies endeavouring to have their securities listed in stock exchanges has impacted the modality of corporate management. This research paper examines the impact of clause 49 of listing agreement of SEBI on corporate governance.