Corporate governance has assumed vital importance in the wake of increasing competition and globalization. In the emerging scenario of globalization, a uniform accounting and reporting standard is needed from the Ministry of Corporate Affairs and the regulator, Securities and Exchange Board of India (Sebi). As it stipulates parameters of accountability, control and reporting functions of the board of directors, it also encompasses proper relationship among various participants—the board, management, shareholders, banks, other financial institutions, suppliers, creditors and the state in determining the direction and performance of companies.

The United States (US) witnessed collapse of multinational companies like Enron, Tyco, Qwest Communications, Global Crossings and WorldCom due to fraud, misfeasance and dereliction of duty on the part of board of directors and accounting manipulations. There was also conflict of interest by auditors like Aurther and Anderson of PriceWaterHouse, who undertook both advisory and auditing assignments. The US Sarbanes-Oxley (SOX) Act, 2002, was enacted with the object of ensuring integrity, responsibility and accountability of the board of directors and transparency in financial reporting. In India too, the securities scams from Harshad Mehta to Ketan Parekh and duping of investors by the Criminal Records Bureau (CRB) Group and Agro Plantation Companies have eroded the confidence of investors. There was also need to separate the advisory and auditing functions after the role of AF Ferguson in Tata Finance.

The situation required urgent reforms in the legislative, regulatory and institutional framework to prevent stock market scams and safeguard the interest of investors. Consequently, in line with the recommendations of the Kumar Mangalam Birla Committee, Naresh Chandra Committee and Narayana Murthy Committee, the Companies Act, 1956 has been amended and the Sebi introduced Clause 49 in the Listing Agreement for improving the standard of corporate governance.

The Accounting World Magazine, Corporate Governance, Globalization, Securities and Exchange Board of India, Sebi, Criminal Records Bureau, Mangalam Birla Committee, Companies Act, Narayana Murthy Committee, Naresh Chandra Committee, Business Environment, Rsk Management, Corporate Culture, National Stock Exchange of India Limited, NSE, Bombay Stock Exchange Limited, BSE.