The Companies Act and SEBI Act
The Companies Act and the SEBI Act are the fundamental tools of corporate governance in India. The Companies Act of 2013, which superseded the Companies Act of 1956, and the regulations issued by the Securities and Exchange Board of India play an important role in governing business operations. SEBI was updated in 2015 to add listing obligations and transparency standards that stated obligations of listed firms, a phrase that embraced entities that had listed not just their equity shares but also other instruments (Rahim & Kuruppu 2016). Non-convertible redeemable preference shares, non-convertible debt securities, perpetual non-cumulative preference shares, and securitized debt instruments were among them. Indian depository receipts, and units offered by joint funds.
Regulations on Listing
The regulations on listing make it a mandatory for firms that have listed their convertible securities and equity shares to comply with various requirements for transparency in the management of the firms. The information of independent directors, the constitution of different committees, remuneration regulation of non-executive directors, the disclosure of transaction between the parties, maintenance of minimal convention of the executives and limitation on the number of the committee that a director can chair. The regulation of listing also requires submission of a written code of conduct for the members of the board and management of the firm. Failure of the firm to comply with the listing regulation can result in fines, trading suspension, promoter freezing or holding of promoter equity shares and other actions which SEBI may deem fit (Rahim & Kuruppu 2016).
Regulations on Securities
Also, the regulations on securities contact on Act of 1956, SEBI Act of 1992, and rules developed in 2011 on the substantial acquisition of shares and takeover, 2015 regulation on SEBI prohibited insider trading. The regulation amended in 2009 by SEBI required capital issue and disclosure of all requirements. Also, depository act was amended in 1996. These regulations were all aimed at initiating effective corporate governance. The introduction of these regulations provides a transparent and progressive process which benefits directors' stakeholders and the management of firms. India has an effective advisory service and firm's proxy to provide information to shareholders on the introduction of regulations and processes aimed at improving corporate governance in India (Rahim & Kuruppu 2016).
Legal Mandate and Consequences of Non-compliance
The legal mandate requires these mechanisms to be complied with by organizations. Failure of the firm to comply with the regulation under the Companies Act or SEBI results to lawsuits against the firm.
Corruption Perception Index of India and Argentina
In the 2016 corruption perception index undertaken by Transparency International, India got placed 79th of 176 nations with a corruption index of 40. India had marginally improved its index from 38 in 2015 to 40 in 2016. The same index ranked Argentina 95th out of 176 countries with a corruption perception index of 36. The index had increased from 32 in 2015 to 36 in 2016. Both countries have been reporting different indices over the years (Transparency International 2016). However, both countries have not been performing well regarding efforts to eliminate corruption.
Factors Driving Corruption Perception Index
Different factors drive corruption perception index of different countries. Transparency International uses information from the economic forum, World Bank, and other institutions to rank the nations. Corruption in these countries is contributed by several factors including lack of effective government systems. When government does not have effective agencies for investigating and preventing corruption, the cases of corruption are expected to increase. The other factor is the unstable economy. The third factor is unemployment. When there are high levels of unemployment in a country, there is the increase in corruption as the citizens try to get employment and services from public institutions. Lack of vigilance and control is another factor (Douma and Schreuder 2013). Corruption perception index of countries differs because these factors also vary between countries.
Impact of Poor Corruption Perception Index
Poor corruption perception index greatly affects the country. Corruption contributes to loss of national wealth. Countries with natural resources like oil lose much of their wealth through corruption. The states might then get forced to depend on international loans and grants which affects their citizens negatively. Development in these countries is also obstructed. Funds which need to be directed to the development of the country get lost through corruption (Marc 2012). The economy of the country is also affected as investors avoid investing in countries with poor corruption perception index.
Overall Political Risk of India and Argentina
In general, the political risks of both countries have been relatively good for investors. In India, the political environment has improved drastically after liberalization. The political right of India moved from 4 to 2 which is considered to have a strong political right. The inflow of investors from other countries has increased over years which indicate that the country has a definite political environment for investors. In other words, an increase in the flow of foreign investors indicates that the economy of the country is politically stable. The country has enacted different legal framework which would ensure that its economy is less affected by the political shakeups. Its good relationship with other countries has a positive political impact. However, the state has some political instability as a result of different ideologies of political parties. This does not pose a high threat to foreign investors since there is no policy which has been framed in the past to affect its economy. Though there are chances that India can experience less political instability in future, its economy will be hardly affected (Rahim, & Kuruppu 2016). Being a strong democratic country, there are minimal chances of high political instability.
Argentina is also a strong democratic country which experiences minimal political risks. It has experienced increase in the number of direct foreign investors over the years. The government of Argentina has established laws which ensure that the economy and foreign investors are protected. The action has gotten replicate by subsequent governments. However, the country experiences less political instability due to the differences in ideologies which cannot affect the economy (Christine 2011).
Impact of Political Instability
If the presence of political instability in the country, the organization should be ready to handle the situation since it has the negative influence on its operations. One of the main risks of political instability is that investors might lose all their investments (Marc 2012). The firms can hedge the risk by investigating the political situation of a country in advance and evaluating its impact on the business.
References
Christine, M., 2011. Corporate Governance Developments in the UK: Handbook on
International Corporate Governance: Country Analyses, 2nd Ed., UK: Edward Elgar Publishing.
Douma, S. & Schreuder, H., 2013. Economic Approaches to Organizations, 5th Ed., London: Pearson.
Marc, G., 2012. International Corporate Governance, Harlow: Prentice Hall.
Rahim, M. and Kuruppu, S., 2016. Corporate Governance in India: The Potential for
Ghandism." Corporate Governance in Developing and Emerging Markets, London: Routledge.
Transparency International 2016. Corruption Perceptions Index 2016. [Online]. Available at:
https://www.transparency.org/whatwedo/publication/corruption_perceptions_index_2016 [Accessed October 10, 2017]
