Corporations have a variety of stakeholders that include internal — shareholders and employees — and external ones: lenders, suppliers, customers, government, and society. However, decision-making authority is concentrated with a few, leading to agent-principal conflicts, i.e., between management and shareholders, and principal-principal conflicts, i.e., between founders/promoters and minority shareholders. The disconnect makes it critical for corporations to institute corporate governance processes and structures in a way that protects the interests of all stakeholders. 

While corporate governance objectives are universally similar, some regional nuances address local needs, regulatory requirements, or cultural norms. We see a two-tiered board in continental Europe. This consists of an executive board comprising company executives that directs routine operations and business decisions but reports to a supervisory board, which consists of neutral non-executive directors representing shareholders and employees. The supervisory board is empowered to appoint members of the executive board, determine their compensation, and review and approve all major business decisions. In the USA and the UK, we find a single-tiered board, which is more familiar to Indians, consisting of shareholder-appointed independent directors and company executives. Boards in such regions emphasise shareholder interests for the most part. The Japanese model, meanwhile, emphasises the interests of stakeholders beyond shareholders. 

Irrespective of the structure, the primary focus of the board remains the same, which includes: i) establishing vision, mission, and values; ii) setting strategy and structure; iii) delegating authority and responsibility to management; and iv) being accountable to shareholders and relevant stakeholders.


A few corporate governance principles are considered universal. These include:

Fairness: Corporations need to uphold the rights of all shareholders, including the right to information and participation in decision-making.  Corporations must also acknowledge their legal, contractual, social, and market-driven obligations.

Accountability: The board should possess adequate skills to supervise and question management in pursuing its objectives. Besides skill sets, independence and commitment are vital.

Ethical behaviour: The highest level of integrity is expected from management and board members, which entails putting in place a code of conduct for directors and executives. 

Transparency: Disclosure of material matters impacting stakeholder interests and reliable financial information needs to be undertaken in a transparent and timely manner. 

Indian context

The main thrust of the Indian corporate governance framework is on minority interests, accountability of company leadership, regulatory compliance, and corporate social responsibility. India joined the corporate governance cause belatedly but has caught up admirably, with Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs being the two flagbearers of corporate governance compliance, especially for public companies. The burden carried by a public company’s board is that much greater because of the additional responsibility towards public shareholders and the higher bar set by regulations.

In the Indian context, the Ministry of Corporate Affairs broadly lists a few key responsibilities for board members. These include observance of the memorandum and articles of association of the company, acting in good faith, promoting and protecting the interests of all stakeholders, independence of judgment along with care, skill and diligence in the exercise of duties, avoiding conflict of interest, avoiding exploitation of company resources or information, and the duty of special care in cases of insolvency. 

More specifically, Section 166 of the Companies Act 2013 codifies the duties of the director covering the above areas. 

Independent directors carry a greater burden of responsibilities, as defined in Schedule IV of the Companies Act, 2013. Important responsibilities include:

  • Facilitating an independent and equitable judgement in decision-making;

  • Safeguarding the interests of all stakeholders, particularly the minority shareholders; 

  • Balancing the conflicting interests of the stakeholders;

  • Determining appropriate remuneration for executive directors, key management personnel, etc. 

  • Reporting concerns about unethical behaviour, actual or suspected fraud, or violation of the company’s code of conduct or ethics policy

Additionally, the board is ultimately responsible for various compliances under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations. 

These regulatory requirements are necessary because, beyond appointment, shareholders rarely have control over how a board director undertakes his or her duties. Regulations help to strengthen independence, objectivity, and the fiduciary aspect of the director’s role.

The rapid evolution of corporate governance was an outcome of several controversies and scams that eroded shareholder wealth and confidence through conflicts of interest, poor risk management, outright fraud, or lack of transparency:

Global Trust Bank (2001): GTB was involved in Ketan Parikh’s stock market scam and continued operating despite eroded net worth. Its auditors were accused of professional negligence in not detecting fraud and inadequate provisioning.

Satyam (2009): Founder Ramalinga Raju admitted to fraud wherein the company’s profits and cash balances were inflated.  

IL&FS (2018): The infrastructure financing company defaulted on its debt, which led to the discovery of fraud, besides auditor negligence.

Punjab National Bank (2018): Nirav Modi defrauded PNB of nearly Rs 10,000 crores through fraudulent letters of undertaking, which were used to obtain loans from other banks.

Ranbaxy/Religare/Fortis Healthcare (2018): Shivinder and Malvinder Singh are accused of siphoning nearly $2 billion from their corporate empire.

Jet Airways (2019): Jet ceased operations, but not before it was revealed that several decisions detrimental to the company were made at the behest of its promoter, Naresh Goyal. 

CG Power (2019): Promoters engaged in fraudulent activities, including misstating financial information and siphoning off funds. The company's board was found to have been complicit.

Yes Bank (2020): Founder Rana Kapoor was accused of granting loans to companies in exchange for bribes, besides other irregularities.

ICICI Bank (2020): CEO Chanda Kochhar is accused of a round-tripping arrangement wherein the bank sanctioned a large loan to Videocon International, which Videocon remitted to Nupower Renewables, owned by her husband Deepak Kochhar.


The duty of care and fiduciary duties of board members are complex, and these compliance and regulatory adherence responsibilities add another level of complexity. Some of the challenges for board members in complying with regulations include:

Conflicts of interest: Executive directors are beholden to narrower interests and the managing director. Even some independent directors owe their continuance to promoter benevolence, creating a clear conflict of interest in executing their fiduciary duties.

Technical capabilities: In a data-driven age, a lack of technical capabilities can greatly hamper the ability to assess risks or opportunities. Besides this, cybercrime and ESG considerations are other vital areas that require specific skillsets and experience that board members often lack.

Vested interests and management malintent: In addition to latent conflict of interest board members, especially independent directors, may suffer outright malintent from management. This can take the form of obfuscation, withholding of critical information, misrepresentation, and more. Such risks do not absolve directors of their statutory responsibilities. A case in point is Satyam Computers, where the promoter actively misled independent directors. However, this was not seen as an adequate defence, and the independent directors were widely seen as not having done enough to prevent the fraud.

Differences of opinion: A large enough body of people tasked with making key decisions will invariably have differences of opinion. This is pronounced in a board of directors where members are achievers who may value their own opinion much more than others do. Such ego clashes are detrimental to effectiveness and are often even exploited by unscrupulous management or promoters to push their own limited agenda.

Emerging trends

Besides preventing fraud and protecting stakeholder interests, corporate governance considerations now focus on areas such as CSR, the triple bottom line, and ESG criteria. Adding to the growing complexity are more onerous regulations and a globalised and digitised business environment. This has expanded the intricacy and breadth of responsibility for company management and directors. Their corporate governance skill sets must broaden and deepen around best practices, legal frameworks, risk management principles, and more. 

Apart from technical capabilities, being on top of emerging trends, and awareness of the Indian legal framework for boards, several other essentials enable the board to carry out its functions in an effective manner. One of these is the diversity in board perspectives, which comes from diversity in gender, age, ethnicity, and professional backgrounds. Optimal diversity creates a situation where the sum of the parts is greater than the whole, ensuring minimal compliance and genuine value addition to the organisation through board effectiveness in decision-making. 

N.V. Ramanan, Associate Professor, Accounting, ISB, adds that corporate governance needs to navigate stakeholder interests with a focus on mitigating principal-agent and principal-principal conflicts. “While universal principles of fairness, accountability, ethical behaviour, and transparency guide governance objectives, regional nuances shape governance structures. The Indian context, driven by regulatory bodies like SEBI, underscores minority interests, leadership accountability, and corporate social responsibility. Corporate governance evolution is propelled by past scandals, emphasising the critical role of boards in safeguarding against fraud, promoting stakeholder interests, and adapting to emerging trends such as CSR, the triple bottom line, and ESG criteria,” he says.

Understanding these complex regulations, appreciating various challenges in compliance with regulations, and the need to put enablers in place are non-negotiable expectations from board members.

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