The Ministry of Corporate Affairs (MCA) and the Securities and
Exchange Board of India make up the framework for corporate governance
activities in India (SEBI). Through Clause 49, SEBI oversees and controls
corporate governance for listed firms in India.
This clause is included in the
listing agreement between stock exchanges and firms, and listed companies are
required to abide by its terms. Through its several appointed committees and
forums, including the National Foundation for Corporate Governance (NFCG), a
not-for-profit trust, MCA promotes communication between business executives,
decision-makers in government and law enforcement, and non-governmental groups.
Research and Development In The Corporate India: Private limited enterprises,
particularly start-ups, make significant contributions to a country's R&D
production, but they are frequently cash-strapped, and their capacity to
sustainably invest in R&D is constrained by design.
Despite this, current study
reveals that private limited enterprises (particularly those engaged in the
pharmaceutical industry) significantly contribute to the creation of new goods
and technologies on a global scale. Therefore, it would be crucial to research
trends in private limited enterprises in order to acquire a holistic picture of
Corporate India's contribution to R&D and innovation in India.
their more easily observable and perhaps bigger effect potential, the focus of
this report is mostly restricted to the R&D and innovation performance of
publicly listed corporations (including government owned companies/public sector organisations). The terms "Corporate India" or "India Inc." should be understood
in this context when they are used in the Report to refer to Indian companies.
A few global trends are particularly interesting. For example, in 2019, the top
five businesses with the highest R&D expenditures-Apple, Samsung Electronics,
Huawei Investment & Holding, Microsoft, and Alphabet-spent 17 times as much on
R&D as all the Indian listed companies combined. In 2019, businesses based in
the US spent 71 times more on R&D than publicly traded Indian corporations.
Similar to how corporations in the EU spent 38 times more than those in India,
businesses in China and Japan spent approximately 24 times as much. Only one
Indian company (Tata Motors Limited) is among the top 100 global spenders on R&D
in 2019. Indian listed firms contributed just 0.5% of all corporate R&D spending
A five-year period between 2015 and 2019 saw significant R&D expenditures by
Indian listed companies in the following industries:
- automobiles and parts;
- pharmaceuticals and biotechnology;
- software and computer services;
- industrial metals & mining;
- oil equipment, services & distribution;
- industrial engineering construction; and
- materials oil & gas producers.
Review of Union and State Level R&D Policies, Incentives, and Programs: Legal
and Policy Environment: The framework at the national level in India offers
numerous incentives to companies engaging in R&D. Several laws, including the
Income Tax Act of 1961 and the Customs Act of 1962, have provisions that provide
financial incentives to such businesses.
There are several important financial
advantages that can be accessed, including:
- tax deductions for capital and revenue expenditures incurred for R&D
activities and contributions made to Indian companies or notified
institutions for R&D purposes;
- a reduced tax rate of 10% on royalty income earned from patents
developed and registered in India; and
- customs duty exemptions on import of specific components for R&D
The Department of Science and Technology, Department of Scientific and
Industrial Research, Department of Biotechnology, Ministry of Environment,
Forest and Climate Change, Council of Scientific and Industrial Research,
Technology Development Board, etc. are just a few of the central government
departments and bodies that run programmes and schemes aimed at funding R&D
activities by private companies.
Other government initiatives, rather than
concentrating on funding, aim to improve the nation's overall research and
infrastructure facilities (including, for example, through the creation of
shared R&D facilities for use by industry clusters) and to improve the
professional skills of the nation's R&D workforce.
Additionally, a number of governments have started initiatives as part of their
industrial and startup strategies to encourage R&D-focused businesses with money
and institutional assistance. The importance of having well-developed industrial
R&D and innovation capabilities in the state has also been recognised by certain
state governments in India, which have announced (or are in the process of
implementing) specialised state level R&D plans.
Such policies have
traditionally been directed at certain industries with the goal of offering
corporate entities engaging in R&D concessions like soft loans, subsidies,
exemptions, etc. These programmes also include measures to foster long-term
innovation capacity in the targeted sectors.
Research And Development Along With Corporate Governance: Given that corporate
governance (CG) factors have an impact on both fostering and stifling
innovation, it is crucial to investigate the relationship between corporate
governance (CG) factors and innovation.
This is because the ability to innovate
and how that innovation is harnessed within companies is influenced by both
internal governance structures and market forces. R&D activities are frequently
seen as providing major agency problems due to controlling managers'
opportunistic behaviour and information asymmetry, which eventually affects
corporate decision-making. R&D activities are typically classified as high risk
and yielding cross-period revenue.
The fact that shareholder "myopia," or
"short-sightedness," or "short-termism," which may take many forms, is related
to such agency issues is that shareholders who make up an increasing percentage
of company ownership are "short-term" oriented and are consequently disinclined
towards R&D investments relative to other long-term investments. Understanding
the link between pertinent Corporate Governance variables and R&D investment is
crucial given that adequate corporate governance procedures can solve these
The literature analysis broadly identifies three important corporate governance
elements that have an impact on innovation: ownership structures, boards of
directors, and incentive systems. However, it is challenging to draw general
judgements about whether specific CG variables have a good or negative impact on
R&D expenditures, and a literature review reveals that these assessments may
typically be made within the context of a particular economic, legal, and
After examining the laws that control these variables in the
Indian context, it can be concluded that while India's corporate governance
framework has undergone a thorough evolution and modernization process in recent
years, there is still room for improvement, particularly in terms of actually
adhering to international standards and best practises.
Last but not least, it is significant to observe that corporate governance norms
around the world have converged more and more on a shareholder-centered model of
accountability. In this regard, academic research and empirical investigations
on how this model affects innovation indicate that these internationally
recognised standards call for a moderated form of standardisation, whereby these
standards may be modified to meet the requirement for fostering corporate
Such standardisation essentially implies creating a new foundation
for the necessary revision of corporate governance rules and reimagining boards,
shareholders, senior management, and other stakeholders. In other words, it's
imperative to modify the rules governing board structures, membership,
responsibilities, and accountability to ensure that they better support business
On August 29, 2013, the President of India gave his assent to the
Companies Act, 2013, and on September 12, 2013, it became law, abolishing the
previous Companies Act, 1956. Through improved and expanded compliance
standards, the Companies Act of 2013 establishes a legal framework for corporate
governance through improving disclosures, reporting, and transparency.
Industries (Development and Regulation) Act of 1951, the Monopolies and
Restrictive Trade Practices Act of 1969 (replaced by the Competition Act of
2002), the Foreign Exchange Regulation Act of 1973 (replaced by the Foreign
Exchange Management Act of 1999), and other laws also have an impact on
corporate governance principles.
Non-regulatory organisations have occasionally released codes and
recommendations on corporate governance in addition to the many laws and
regulations that have been passed by different regulators. For instance, the
Confederation of Indian Industries (CII) released its Desirable Corporate
Governance Code in 2009.
With the report of the Kumar Mangalam Birla Committee
(2000), which was established by SEBI to recommend the addition of a new clause,
Clause 49, in the Listing Agreement to encourage good corporate governance, the
topic of corporate governance for listed firms came to light.
The Naresh Chandra
Committee was established by the Ministry of Finance on August 21, 2002, to
investigate a number of corporate governance issues, particularly those
pertaining to the relationship between the auditor and the company, the rotation
of auditors, and the definition of independent directors.
The Narayana Murthy Committee was established by SEBI in 2003 as a result, and
it made recommendations on matters such as the duties of the audit committee,
audit reports, independent directors, related parties, risk management,
independent directors, director compensation, codes of conduct, and financial
disclosures. Numerous of these suggestions were later included in the Revised
Clause 49, which is regarded as a crucial statutory necessity. Additionally,
SEBI updated Clause 49 in 2013 to conform to the 2013 Companies Act after it was
Committee of Directors:
The idea of independent directors for listed firms and
the salary given to them were first proposed in the Desirable Corporate
Governance Code by the CII (1998). The Kumar Mangalam Birla Committee (2000)
then recommended that at least half of the board members for a business with an
executive chairman be independent, or at least one-third.
The revised Clause 49,
which was based on the Narayana Murthy Committee's recommendations, further
defines "Independent Members" and mandates that listed businesses have the ideal
ratio of executive and non-executive directors, with the latter making up at
least 50% of the Board. A resident director and a woman director must be
appointed, according the 2013 Act.
According to the 2013 Act, "Key Managerial Personnel" includes the Chief
Executive Officer, the Managing Director, the Manager, the Company Secretary,
the Whole-Time Director, the Chief Financial Officer, as well as any additional
officers that may be prescribed. New ideas, such the performance review of the
board, committee, and individual directors, have also been included by the 2013
The updated Clause 49 (in 2013) now includes specifies that a cap would be
imposed on stock options awarded to non-executive directors and that any pay
paid to non-executive directors, including independent directors, must first
have shareholder approval in the general meeting. Such compensation and stock
options must be mentioned in the company's annual report.
The independent directors must also abide by a "Code of Conduct" and reaffirm
their adherence to it every year.
The board's supervisory role and delegation to other
committees strongly influence the audit committee's responsibilities.
It serves as an oversight body for financial reporting that is transparent,
effective at preventing fraud and managing risk, and successful at doing
internal and external audits.
According to section 177 of the 2013 Companies Act and Rule 6 of the 2014
Companies (Meetings of Board and its powers) Rules, every listed company and all
other public companies with paid up capital of at least Rs. 10 crore, at least
Rs. 100 crore in annual revenue, or with at least Rs. 50 crore in aggregate
outstanding loans, borrowings, debentures, or deposits A minimum of three
directors and as many additional directors as the board may decide are required
for an audit committee to be established. Of the committee's total members,
two-thirds must be directors who are not managing or full-time directors.
In addition to formulating the duties, powers, and activities of the Audit
Committee, the Kumar Mangalam Birla Committee, the Naresh Chandra Committee, and
the Narayana Murthy Committee suggested its organisation and composition should
include independent directors. The Chairman of the Audit Committee is also
tasked with overseeing the operation of the whistle-blower mechanism as well as
the organization's ethical and compliance systems.
The Chairman of the Audit Committee is also tasked with overseeing the operation
of the whistle-blower mechanism as well as the organization's ethical and
The revised Clause 49 broadens the role of the Audit Committee by enhancing its
duties in providing robust internal audit and control systems, transparent and
accurate financial reporting and disclosures, oversight of the company's risk
management policies and programmes, effectiveness of anti-fraud and vigil
mechanisms, and review and administration of related party transactions.
The requirement for the board of the holding company to
have some independent connection with the board of the subsidiary and offer
essential supervision was the justification for having distinct provisions with
regard to subsidiary firms in the Revised Clause 49.
Therefore, the Narayana Murthy Committee's recommendation to include provisions
relating to the composition of the holding company's board of directors to be
made applicable to the composition of the boards of directors of subsidiary
companies and to have at least one independent director on the boards of
directors of both the holding company and the subsidiary company was
incorporated into the revised clause 49 of the listing agreement. In addition to
the holding company's Audit Committee reviewing the financial statements, the
subsidiary's investments and disclosures of key transactions guarantee that any
possible conflicts of interest with the company's interests may be resolved.
The Businesses Act of 2013 further broadens the definition of "subsidiary" to
cover joint venture corporations and associate companies.
Institutional investors' function:
Rapidly developing nations like India have
drawn substantial shareholdings from foreign investors and sizable Indian
financial institutions with worldwide ambitions.
The standards of corporate governance in the investee firms have significantly
improved as a consequence. Numerous studies released in recent years demonstrate
that businesses with strong governance systems have produced significant returns
on invested capital for their owners. Therefore, a firm must convincingly
improve its corporate governance standards if it wants institutional investors
In order to compete globally, Indian businesses must embrace
best practises like the OECD Corporate Governance Principles (updated in 2004).
All shareholders, including domestic and international institutional investors,
must be treated fairly in nations like India where company ownership is still
Institutional investors are anticipated to take an active role in the AGM voting
on the shares they own in portfolio firms, as well as to publicly disclose their
voting history and the reasons behind any non-disclosures. Their website must
state the basis for their agreement or disagreement with any Board Resolution of
their portfolio firms.
Committee for Stakeholder Relationships:
One of the necessary recommendations
made by the Kumar Mangalam Birla Committee was the creation of a board committee
with a non-executive director as its chairman to explicitly address shareholder
concerns about share transfers, missing financial sheets, unpaid dividends, etc.
The Committee thought that setting up a shareholders' grievance committee would
assist the corporation focus on shareholders' complaints and make management
more aware of the need to address such complaints. The creation of such a
committee with a wider mission to address issues and concerns of all
stakeholders, not just shareholders, is now required under the 2013 Act as well
as the updated Clause 49.
The 2013 Act now requires companies with more than 1,000 shareholders,
debenture-holders, deposit-holders, and any other security holders at any time
during a financial year to establish a Stakeholders Relationship Committee with
a chair who shall be a non-executive director and such other members as may be
determined by the Board to address the concerns of security holders of those
Management of Risk:
The annual report's mandatory Management Discussion &
Analysis segment, which covers topics like industry structure and development,
opportunities, threats, outlook, and risks, as well as financial and operational
performance and managerial advancements in the area of human resources and
industrial relations, was included in the Kumar Mangalam Birla Committee report.
This suggestion was contained in Clause 49's management disclosures.
the Narayana Murthy Committee (2003) first included risk management in its
report, which demanded that the corporation establish protocols for informing
the Board of Directors about the risk assessment and mitigation techniques.
These processes must be frequently examined to guarantee that executive
management manages risk using a clearly defined framework and under the
supervision of a Risk Management Committee.
As part of internal disclosures to the Board, this is included in Clause 49.
Revised Clause 49 and the 2013 Act both lay out specific guidelines for risk
management. Evaluation of the effectiveness of the risk management systems and
policies established by the Board is the duty of the Audit Committee and the
independent directors of the firm.
Sustainable Development And Methods To Deal With Challenges:
The definition of sustainable development is "development that satisfies current
demands without compromising the capacity of future generations to satisfy their
Three elements are promoted by modern ideas of sustainable
development: environmental integrity, social equality, and economic prosperity.
There is discussion over whether or how these principles can be implemented, and
the suggested answers range from minor tweaks to significant social alterations
of the existing institutional and economic system.
The term "responsible innovation" was first applied to risk analyses of
scientific innovations, particularly in the context of nanoscience and
nanotechnology research, but it has since been used to refer to concerns with
issues like research involving human subjects, socio-technical integration,
intellectual property, and the moral and social ramifications of scientific
innovation more generally.
According to one definition of responsible
innovation, it is "a transparent, interactive process by which societal actors
and innovators become mutually responsive to each other with a view on the
(ethical) acceptability, sustainability, and societal desirability of the
innovation process and its marketable products". On the basis of this
comprehension, we contend that responsible innovation should satisfy three types
- the responsibility to do no harm;
- the responsibility to do good; and
- responsible governance, which entails creating institutions, structures
Thus, governance is a meta-duty and essential to attaining
According to management research, social innovation is defined as "innovative
activities and services that are motivated by the goal of addressing a social
need and that are primarily dispersed through organisations whose major goals
are social." This understanding is different from that.
The concept of
responsible innovation is more expansive since it takes into account all forms
of public, private, and civil society actors as well as the various ways in
which these actors collaborate as potential innovators, rather than just
specific types of organisations.
Additionally, responsible innovation stands out
since inventions go through a deliberate control process. For example, global,
societal, and corporate governance frameworks must support an inclusive process
of forming a shared understanding of the objectives, means, and acceptance of
innovations if responsible governance is to be achieved.
This aids society in deciding what levels of risk or harm should be accepted
when regulating financial markets or limiting economic and social exchange
during a pandemic like the current COVID-19. It also aids society in thinking
through how trade-offs between competing collective goals should be managed. In
contrast, organisations with prosocial goals that may not always involve
individuals in need in their decision-making or governance structures produce
and disseminate social innovation in a paternalist manner.
New information and communication technologies provide pertinent examples of
responsible innovation (ICT). These technologies offer a significant deal of
promise to support sustainable development and tackle major issues. Companies
and government agencies that create and use ICT breakthroughs must also be
cognizant of any potential negative effects.
Corporate Governance In Past, Present And Future:
Laws can only offer a basic set of rules for how people and businesses should be
governed. Laws are created to ensure that, if you commit a crime, you will
suffer the corresponding penalties-good for good and bad for bad-if you do so.
In a similar vein, the role of legislation in corporate governance is to
supplement rather than to replace. It can't be the only means of regulating
corporate governance, but it does offer a minimal set of guidelines for
effective corporate governance. Law establishes some moral principles that
should be followed by everyone to ensure maximum satisfaction and minimal
conflict. It performs a supplementary function.
The Companies Act plays a key
role in corporate governance because it places restrictions on Directors to
prevent document misrepresentation and abuse of power. It also places
obligations on Directors to act in the company's best interests and refrain from
making secret profits or covering up losses caused by negligence or other
violations of their duties.
Some of the issues in corporate governance that is faced are as follows:
Values based on corporate culture:
Any organisation needs certain ethics and
ideals in order to function effectively. Corporate culture must be based on
long-term success. Corporate governance best practises call for a culture of
values. It is a collection of unbreakable ideals, ethics, and convictions. There
might be a vision, which is a dream to be realised, a mission and purpose, an
objective, a goal, and a target. It can also be a motto, which is a brief word
that is distinctive and aids in running the business.
Holistic view: This holistic viewpoint has a somewhat pious, godly mindset that
aids in organisational management. It takes extra work to embrace; nevertheless,
once done, it promotes the growth of noble, tolerant, and empathic traits.
Compliance with laws:
Businesses that are serious about progress, have high
ethical standards, and need to operate over the long term must abide by and
comply with laws such as those of the Securities Exchange Board of India (SEBI),
the Foreign Exchange Regulation Act, the Competition Act of 2002, the Cyber
Laws, and the Banking Laws, among others.
Disclosure, transparency and accountability:
Accountability, disclosure, and
openness are crucial components of successful governance. On topics like the
financial status, performance, and other issues, accurate and up-to-date
information should be made public. Government must have confidence in corporate
entities, which is why corporate tax rates have been slashed from 97% in the
late 1970s to 30% now. Due to the fierce competition in the market, corporate
bodies must be transparent in order to prevent clients from switching to
Corporate governance and human resource management:
The personnel and employees
of any business body are like family to them. Human Resource Management plays a
crucial part in the success of a firm because the two are inextricably
intertwined. Every person should be treated with respect, and his
accomplishments should be acknowledged. The Human Resource Department should
provide each staff member and employee with the best opportunities to
demonstrate their value. Human Resources therefore play a significant part in
Innovation in products and services is a risk that every corporate
body must take since it is essential to good corporate governance.
Necessity of judicial reform: Judicial reform is essential for a strong economy
as well as in today's dynamic period of globalisation and liberalisation. Even
though it has served a beneficial purpose for so long, our judicial system is
undoubtedly getting outmoded. Judiciary is delayed as a result of several
competing interests. But when the situation changes and competition intensifies,
the judiciary must make the necessary modifications. It needs to swiftly and
economically resolve disputes.
Lessons from corporate failure: Every narrative has a lesson to be learned from,
just as every achievement and failure have lessons to be learned from them. In a
similar vein, corporate bodies have particular policies that, if they fail, they
must learn from. Failure can occur internally or externally, but in good
governance, corporate organisations must learn from their mistakes and continue
down the successful road.
Globalisation assisting Indian corporates becoming giants on good governance: In
today's competitive and globalised economy, our numerous Indian corporate bodies
are growing into worldwide behemoths, which is only achievable with sound
Even in the past, corporate governance took on different forms. In the Vedic
era, kings had their own ministers and were governed by ethics, values,
principles, and laws. Today, corporate governance, which has the same rules,
laws, ethics, values, and morals, among other things, is used to run corporate
bodies in more efficient ways so that they can become global giants in the age
of globalisation. A number of international heavyweights, including PepsiCo,
Infuses, Tata, Wipro, TCS, and Reliance, have their success flags flying high in
the sky thanks to sound corporate governance.
Toady, the legislation also contributes significantly to a prosperous and
expanding economy. In order to prevent these laws from acting as a barrier for
these corporate bodies and India's development, the government and judiciary
have enacted a number of laws and regulations, including SEBI, FEMA, Cyber laws,
Competition laws, etc. They have also brought about a number of amendments and
repealed the laws.
The judiciary has also been quite helpful in resolving
business problems quickly. Corporate entities have goals, values, a motto,
ethics, and other guiding principles that help them climb the success ladder.
Both large and small businesses have annual reports in their periodicals that
detail their successes and failures, profits and losses, and market position at
A few businesses have also demonstrated knowledge of environmental
preservation, social obligations, and the cause of social advancement and have
devoted themselves to it. The best example of such a business is Deepak
Fertilizers and Petrochemicals Corporation Limited, which also won second place
in the business world's 2005 CSR award competition.
Stakeholders are given greater weight in the current situation than
shareholders; they even have the opportunity to attend general meetings, cast
ballots there, and remark on the company's performance.
From a futuristic perspective, corporate governance has a significant role to
play. The corporate bodies there have a very futuristic outlook. For the future
prosperity of their business, they are working toward a vision. They take
chances, adopt cutting-edge concepts, and strive to accomplish futuristic
ambitions and future aspirations.
Internationally recognised corporate governance standards are crucial for Indian
companies looking to stand out in the global market as independence and free
trade between nations and populations rise. By delivering higher-quality, more
dependable integrated products and services, businesses should always be
updating, upgrading, and improving themselves. They ought to handle themselves
with more openness.
Corporate governance should also adopt a comprehensive perspective, value-based
principles, and a commitment to corporate social responsibility, social uplift,
and environmental protection. Additionally, it entails productive, beneficial
actions that generate value for the many stakeholders who are treated as
clients. Every area, whether it is finance, taxation, banking, or the legal
system, needs sound corporate governance.
A code of conduct establishes a set of guidelines that become the norm
for everyone who takes part in the group and is created with the specific
intention of promoting professional conduct among the organization's members.
For the first time, the Naresh Chandra Committee suggested that businesses
should adopt an internal code of conduct.
A corporation should establish a whistle-blower programme to report any
unethical or inappropriate behaviour or code of conduct violation, according to
the Narayana Murthy Committee's report. The Audit Committee would be responsible
for overseeing the program's effectiveness.
These proposals were further included into Clause 49, which required directors
of every listed firm to establish a Code of Conduct and publicise it on the
website of their organisation. The CEO must publish a statement to this effect
in the Annual Report, and the Board members and other senior management staff
are obliged to confirm compliance with the code on an annual basis.
Clause 49 incorporates the Narayana Murthy Committee's suggestion that the Audit
Committee be charged with overseeing the operation of the whistle-blower
mechanism, provided one exists. The 2013 Act and the revised Clause 49 require
the establishment of a whistle-blower mechanism to allow employees and directors
to report financial and non-financial wrongdoings. Additionally, the mechanism
must protect the whistle blower from victimisation and, in exceptional
circumstances, grant them direct access to the Chairman of the Audit Committee.
Compensation for Executives: The main rule governing directors' compensation is
transparency, and shareholders have a right to a complete and understandable
list of the perks offered to directors.
A Nomination & Remuneration Committee must be established in accordance with the
2013 Act and Revised Clause 49. This committee must have at least three members,
all of whom must be non-executive directors, and at least half of whom must be
The Nomination and Remuneration Committee is responsible for
ensuring that the level and composition of compensation are reasonable and
sufficient, that the relationship between compensation and performance is clear
and meets the necessary performance benchmarks, and that the compensation for
directors, key managerial personnel, and senior management includes a balance
between fixed and incentive pay reflecting short- and long-term performance
objectives appropriate to the working of the company and its goals.
The following disclosures are also required to be included in the annual
report's section on corporate governance: All components of each director's
compensation package, including salary, perks, bonuses, stock options, and
pension; Service contracts, notice periods, severance costs; Stock option
information, if any, and if provided at a discount as well as the time over
which accumulated and during which exercisable; Details of fixed component and
performance related incentives, together with the performance criteria;
Statement of Directors' Responsibilities:
The 2013 Act mandates that a Director's Responsibility Statement be included in
the company's Annual Report in order to encourage improved disclosures and
openness. It must read as follows:
- The annual accounts were prepared in accordance with applicable accounting
- The directors have chosen these accounting principles, consistently used
them, and made judgements and estimates that are reasonable and prudent in
order to present an accurate and fair picture of the company's financial
- Adequate accounting recordkeeping in compliance with this Act's
requirements, with the goal of protecting the company's assets and
preventing and detecting fraud and other irregularities.
- The company's annual accounts are produced on a going-concern basis.
- The internal financial controls that the firm must adhere to have been
established by the directors and are sufficient and are in place.
- The directors had created suitable procedures to guarantee adherence to
the requirements of all relevant legislation, and such systems were
sufficient and functional.
Certification as CEO or CFO: Internal control is a procedure carried out by a
company's management, board of directors, and other staff members and is
intended to give reasonable certainty about the accomplishment of the following
- Operation effectiveness and efficiency,
- Financial reporting accuracy, and
- Adherence to relevant laws and regulations.
For the first time, the Naresh Chandra Committee required the signing officers
to declare that they are accountable for establishing and maintaining internal
controls that have been created to ensure that all relevant information is made
available to them on a regular basis and assessed the company's internal control
systems for effectiveness.
Additionally, what they have done or plan to do to address any weaknesses in the
design or operation of internal controls that they have revealed to the auditors
and the Audit Committee. According to Clause 49, the CEO and CFO must certify to
the board the yearly financial statements in the required format and implement
internal control procedures.
Therefore, it is the responsibility of the CEO and CFO to set up reliable
internal control and risk management systems for the operational procedures of
their company. Internal controls certification has become substantially more
rigorous as a result of the 2013 Act's revisions to Clause 49 and its inclusion
in the Directors' Responsibility Statement.
Laws can only offer a basic set of rules for how people and businesses should be
governed. Laws are created to ensure that, if you commit a crime, you will
suffer the corresponding penalties-good for good and terrible for bad-if you do
so. In a similar vein, the purpose of legislation in corporate governance is to
augment rather than to replace.
It can't be the only means of regulating corporate governance, but it does offer
a minimal set of guidelines for effective corporate governance. Law gives
specific ethics to regulate everyone in order to have the most happiness and the
least amount of conflict.
The Companies Act plays a key role in corporate governance because it places
restrictions on Directors to prevent document misrepresentation and abuse of
power. It also places obligations on Directors to act in the company's best
interests and refrain from making secret profits or covering up losses caused by
negligence or other violations of their duties.
Building an R&D strategy for modern times
Fundamentally, companies want their R&D efforts to provide the crucial
technology that will allow them to create new goods, services, and business
strategies. In order to generate distinctive offers for the company's key
markets and expose strategic possibilities, R&D should both help deliver and
influence corporate strategy. This will show promising methods to reposition the
business through new platforms and disruptive innovations.
R&D ends up being divorced from corporate goals, unconnected to market changes,
and out of step with the pace of business, rather than acting as the company's
innovation engine. Companies seeking to gain and maintain a competitive
advantage over rivals require a strong R&D strategy that makes the most of their
innovation investments in an environment where there is a widening performance
gap between those who innovate effectively and those who do not.
To create such a plan, you must first comprehend the difficulties that
frequently stand in the way of R&D success, then select the best elements for
it, and last pressure test it before putting it into practise.
The introduction of increasingly widely applicable technology, such as digital
and biotech, from sources other than the headquarters of major industry players
is accelerating the pace of business innovation.
While this is going on, well-funded start-ups are creating and quickly expanding
innovations that frequently threaten to upend tried-and-true business models or
direct the expansion of a sector in new directions.
One big company's R&D leaders met, and a considerable chunk of the conversation
was devoted to merely bringing everyone up to speed on what the various
divisions were doing, let alone tying those initiatives to the organization's
Going farther and interacting with clients becomes all the more challenging
given the difficulties R&D encounters in working with other functions. This
commonly leads to market-back product creation that depends on a telephone game
via several middlemen regarding what the buyers want and need.
The pharmaceutical business, with its standard pipeline for novel treatments
that gives well-understood measurements of success and value implications, is
the exception, not the rule, in that it has effective systems for measuring and
communicating progress. Corporate leaders struggle to put a dollar figure on
R&D's contribution when failure is written off as experimentation and success is
defined in terms of patents rather than earnings.
How to evaluate a single component that serves as the foundation for several
products is a typical problem we see in R&D organisations, from automotive to
Even when results are clearly quantified, the sometimes lengthy time between the
original investment and the final product might make the R&D organization's
performance difficult to discern. However, this may also be efficiently
controlled by monitoring the pipeline's total value and development status so
that the company can respond and, if necessary, swiftly realign the portfolio
and its individual projects.
Our analysis shows that incremental initiatives make up more than half of an
average company's R&D expenditures, despite the fact that risky bets and
aggressive portfolio reallocation of innovations are associated with better
success rates. Organizations sometimes prioritise "safe" projects with quick
returns-like those resulting from consumer requests-that frequently achieve
little more than preserve their current market dominance.
The executives of one consumer products company, for instance, utilised the
money to accomplish their short-term goals rather than the organization's
longer-term differentiation and growth objectives by dividing the R&D budget
among their business divisions.
A company may be able to coast for a while if it just focuses on innovation
related to its core business, but eventually the industry will catch up to it.
The way the business case is measured may unintentionally foster a mentality
that regards risk as something to be avoided rather than managed. Even after the
probability of success was taken into account in their valuation,
transformational projects at one company still faced a higher internal
rate-of-return hurdle than incremental R&D, which decreased their chances of
receiving funding and shifted the pipeline toward core-focused initiatives.
As businesses age, innovation-driven growth becomes more and more crucial as
traditional organic development strategies like regional expansion and entry
into underserved market niches become less effective. They must create R&D plans
fit for the twenty-first century, treating R&D not as a cost centre but as the
potential growth engine.
Given that R&D drives innovation and moves the business agenda forward, its
guiding strategy must connect board-level goals with the technologies that the
company is concentrating on. What we want to achieve, what we need to deliver,
and how we will deliver it must all be made clear and committed to in the R&D
By responding to a series of inquiries about how the parts fit together,
businesses may determine the direction of their R&D strategy.
The R&D, commercial, and corporate strategy groups need to work closely together
to understand what a firm wants to and can provide, with the commercial and
corporate strategy teams anchoring the R&D team on the company's goals and the
R&D team disclosing what is achievable.
When addressing issues like the following, the R&D strategy and the company
strategy must be in agreement. What are the company's greatest priorities?
Others have a comprehensive business plan but only have a time horizon of three
to five years, which is too short to direct R&D, especially in sectors like
semiconductors or medicine where the product-development cycle is significantly
longer. Corporate-strategy leaders should actively engage in R&D to complete
this first stage correctly. That entails bringing clarity where it is lacking
and taking into account R&D feedback that can reveal opportunities, such as new
technologies that open up growth adjacencies for the firm or enable whole new
Chief technology officers want to influence the market and be involved in it, so
they produce cutting-edge solutions that raise the bar for what customers
demand. By forcing talks about customer demands and potential solutions that, in
many firms, take place very infrequently, aligning R&D strategy offers a
valuable platform for uncovering those possibilities. The commercial and R&D
teams must clearly express their goals by posing questions like the following:
Which markets will make or break us as a company?, much like with the alignment
of the corporate strategy.
Over time, as customer demands and the competitive environment change, leaders
of all three divisions should revaluate the strategic direction and constantly
hone target product profiles.
This component of the R&D strategy identifies the skills and technology the R&D
organisation needs to have in order to commercialise the intended solutions.
The quickest method to pinpoint the necessary skills is to iteratively construct
priority solutions-what will it take to create a brand-new feature or product?
Others view being the best in class as essential since it allows for a quicker
road to market or the creation of a superior product than that of rivals.
Although businesses in such industries require that expertise, it is doubtful
that being the best at it will result in a significant advantage. Additionally,
firms should aim to predict which skills will be crucial in the future rather
than focusing on what has previously been most crucial.
Following the prioritisation of capabilities, the R&D group must specify what it
means to be "good" and "the best" at each during the life of the plan. ... For
instance, the price of genome sequencing decreased 150-fold between 2009 and
2019. 2 The firm must next decide how to create, get, or gain access to the
The tendency to construct everything from scratch might also prevent or delay
access to the greatest resources available worldwide, which may be necessary for
high-priority skills. A. G. Lafley, a former CEO of Procter & Gamble, is
credited with breaking the company's concentration on internal R&D and setting
goals for getting innovation from outside sources.
Finding partners and successfully cooperating with them is becoming into a vital
competency in and of itself as R&D businesses increasingly source capabilities
They are already essential for bringing together current collaborators, but the
goal moving forward is to foster the serendipity of accidental meetings that
characterise so many inventions.
Meanwhile, stakeholders outside of R&D laboratories must comprehend complicated
technologies and development processes and think over far longer time horizons
than they are used to.
Stakeholders inside and outside the R&D group, from top scientists to chief
commercial officers, must be included for an R&D strategy to be strong and
thorough enough to serve as a blueprint to steer the firm.
As the strategy is implemented at deeper levels of the R&D organisation, its
description of capabilities, technologies, talent, and assets should also become
increasingly more detailed. In our opinion, the 10 tried-and-true tests of
strategy developed by McKinsey apply equally to corporate and business-unit
plans as they do to R&D strategies.
Too frequently, R&D companies confuse the relevance of a strategy with technical
requirement (what is required to produce a solution) (distinctive capabilities
that allow an organisation to develop a meaningfully better solution than those
of their competitors). Additionally, it is critical for businesses to
periodically reassess their responses to this issue since competencies that
formerly offered uniqueness may now be considered commodities and no longer
represent competitive advantages.
R&D initiatives could have lengthy time horizons, but that does not imply they
should be immune to external changes and never reviewed.
Organizations might try this exercise to increase the strategy's clarity: break
the strategy down into a series of fill-in-the-blank elements that first
describe how the world will change and how the company plans to refocus
accordingly (for instance, industry trends that might inspire the organisation
to pursue new target markets or segments); second, describe the decisions the
R&D function will make in order to support the company's new focus (which
capabilities will be prioritised and which de-emphasize); and lastly, the
specific activities and milestones that the R&D team will use to carry out the
The capacity to communicate anything to others simply is the ultimate measure of
comprehension, according to renowned scientist Richard Feynman. If a corporation
cannot fit the exercise on a single page, it has not adequately distilled the
A helpful implication is that employees who are initially exposed to the
approach are more likely to learn about it from their immediate supervisors than
from more senior R&D officials. One R&D team gave an example of the wide-ranging
advantages of this communication model: by involving staff in the formulation
and dissemination of the R&D strategy, the team doubled its Organizational
Health Index strategic clarity score, which gauges one of the four highly
interconnected "power practises."
The foundation of corporate governance is complete openness, honesty, and
responsibility on the part of management and the board of directors. Corporate
governance is significant because it promotes accountability and commercial
Good corporate governance serves as a powerful instrument for corporate entities
in the era of globalisation and global competition. As good corporate
governance, it has existed since the Vedic era as the Highest Standards in Artha
Shastra and continues to exist now as a set of ethics, principles, rules,
regulations, values, morals, thinking, laws, etc.
Corporate Excellence should be the goal; corporate governance should be seen as
a means to that end. The Indian Corporate Body will shine to outshine the entire
world if solid corporate governance is attained.