CORPORATE GOVERNANCE IN
NEW MILLENNIUM
"The greatest evil which proponents of corporate
governance would have to deal with in the coming years was the
evil of Insider Trading". This was stated by the Member Secretary,
Law Commission of India, Shri T.K. Vishwanathan while addressing
a seminar on Corporate Governance in the New Millennium, organized
by National Foundation of Indian Engineers—Global Corporate Convention,
here today. Shri Vishwanathan said that the challenge of the corporate
governance was insider trading and this menace was not confined
to any particular country but prevalent in all the jurisdictions.
He said that so great was the magnitude of the problem that the
Council of Europe came out with an International Convention on
Insider Trading in 1988. In New Zealand, a suggestion was made
that criminal penalties were the only way of providing an effective
deterrent to combat the evil of insider trading. South Africa
has enacted the Insider Trading Act, 1998 prescribing criminal
and civil law penalties for such dealing.
Talking of ramifications of corporate governance
during the last century, Shri Vishwanathan said that it has undergone
a metamorphosis from protecting the shareholder to the protection
of multi stake holders of the corporation. Today, corporate governance
was based on the principles of transparency, accountability, fairness
and responsibility. Besides, the foundation of any structure of
corporate governance was disclosure. In addition, openness was
a basis of public confidence in the corporate system.
Dwelling at length on the evil of insider trading,
the Member Secretary referred to the internet that has facilitated
anonymity and opened up new opportunities to indulge in insider
trading that was discovered by the Securities Exchange Commission
and the Federal Bureau of Investigation when 19 persons were charged
with using Chat Rooms Insider Trading Scheme yielding $8.4 million
in 2000. He also referred to our own Kumarmanglam Birla Report
which revealed that the evil of insider trading require to be
viewed as a serious economic offence. Shri Vishwanathan also talked
of fixing criminal liability for corporate wrong doings. He said
that the emergence of stock markets speculation in stocks opened
a new dimension which lawyers steeped in conservatism found it
difficult to comprehend.
Yet another area to be addressed about corporate
governance was that shareholders no longer exercised control over
managers acting on their behalf. Since corporate governance arrangements
influenced efficient use of society’s resources and ability of
firms to create new wealth, it assumed great importance. In today’s
world, institutional investors were major stockholders of corporations
and the manner they exercised their voting rights was a matter
of concern to the corporate health in general. It was in this
context that Shri Vishwanathan said that corporations had a mandate
beyond their Memorandum of Association and Articles of Association
as the advent of stock market and the paradigm shift in the nature
of stock holdings had exposed the inadequacies of the existing
regulatory regimes. That is how it has laid corporate lawyers
to explore alternate means and techniques to deal with corporate
power thus giving birth to corporate governance movement.
