Corporate Governance in Emerging Economies: Role of the Independent Director

Ph.DDOCTOR OF PHILOSOPH

Against Aviation Orthodoxy: India\u27s Foreign Investment Regime for the Airline Industry

The foreign investment regime governing the airline industry has been the subject matter of considerable debate. Our goal in this article is to supplement the literature by embarking on an analysis of the foreign investment regime in India and to cautiously suggest that India’s new regulatory reforms could be a harbinger for other states. A study of the foreign investment regime in the airline industry in India is both interesting and timely, for at least two reasons. First, India has nearly everything that bodes well for the growth of an aviation market, and it is one of the fastest growing aviation markets in the world. Second, the Indian Government has introduced substantial reforms to liberalize the aviation sector. Although India has transitioned from a highly restrictive regime to one that is among the most liberal in the world—and that too within a relatively short span of time—we argue in this article that the liberalized norms give rise to tension on several counts that is not easy to resolve. For instance, the policy creates a dichotomy between foreign airline investors (who face a restrictive regime) and non-airline investors (who enjoy a liberal regime). Moreover, the restrictions on “substantial ownership and effective control” that apply to the airline investors give rise to several issues in implementation. This is complicated further by the influence of several interest groups that seek to influence government policy in this area. These are generally incumbent airline companies and their controllers who seek to raise the bar for new entrants. Even if Indian domestic law on foreign investments can be addressed, the ownership and control requirements under various bilateral agreements between India and other countries (which cater for the operation of flights between those countries) tend to pose a stumbling block towards full liberalization. Unlike domestic laws which can be reformed unilaterally, India’s ability to unlock the investment restrictions under the bilateral agreements is much more circumscribed given that such negotiations occur within the realm of reciprocity. Despite various shortcomings in India’s foreign investment policy in the airline sector, the industry has witnessed massive growth. It remains to be seen whether resolving the regulatory problems will unleash its further potential. It will also be illuminating to see how and to what extent India’s new way will influence other states as to their policy

The Divergent Designs of Mandatory Takeovers in Asia

Optimal takeover regulation aims to promote efficient changes of corporate control while curbing inefficient takeovers. Viewed from a comparative perspective, the Anglo-American prototypes of takeover regulation spearhead not only the discourse but also the dissemination of takeover regulation globally. At one end of the spectrum, the law in the United States follows the market rule, whereby transfers of corporate control benefit from a regulatory free hand. At the other end of the spectrum lies the mandatory bid rule (MBR), epitomized by takeover regulation in the United Kingdom. Under the United Kingdom\u27s version of the MBR, an acquirer who acquires de facto control over a target must make a general offer to the remaining shareholders to acquire all of their shares at the same price it paid to acquire the controlling block. This Article aims to analyze how and why six significant Asian jurisdictions adopted the MBR and its variants. This is puzzling given that the jurisdictions display considerable divergence in terms of structural, legal, and institutional foundations, not only with their Anglo-American counterparts but also among themselves. This Article challenges the prevailing notion that the binary Anglo-American approach constitutes the framework for the dissemination of takeover regulation worldwide. The Article claims that because of the political economy of takeover regulation in the Asian jurisdictions, the choice to adopt various intermediate positions is by design and not by accident. Considering that the market rule provides suboptimal protection to minority shareholders and the MBR curbs the market for corporate control, the intermediate positions aim to balance these somewhat conflicting objectives. This study contributes to the wider debate surrounding the appropriate takeover regulation and, more specifically, the claims made by the proponents of the market rule on the one hand and the MBR on the other

Corporate Governance in M&A; Transactions

The growing importance of M&A has coincided with a spurt in concerns over Corporate Governance issues. However, there has been little analysis of the clash between the two. In this essay, Mr. Varottil studies the anatomy of an M&A transaction through the lens of governance mechanisms, noting how pulls and pressures within a company affect the viability of a deal. He notes that \u27mature and sophisticated\u27 structures can minimize the risk of an M&A transaction. Further, he considers whether the existing legal framework in India allays fears of misgovernance, and suggests that there are several aspects that require reconsideration from both the regulators and the corporate sector

India\u27s Corporate Governance Voluntary Guidelines 2009: Rhetoric or Reality

In the aftermath of recent episodes (such as the accounting fraud at Satyam) that have tested the efficacy of corporate governance norms in India, the Government has adopted a cautious approach to reforms with a view to avoiding a knee-jerk reaction. Change to existing norms has come forth in the form of the Corporate Governance Voluntary Guidelines, 2009 [hereinafter the Guidelines ], a set of good practices that may be voluntarily adopted by Companies. This article examines, primarily on two counts, the response of the Government of india to governance scandals through the issue of the Guidelines. First, it evaluates the substantive provisions of the Guidelines and finds that while the Guidelines do contribute to enhancement of the existing corporate governance framework in significant ways, they fail to satisfactorily address some of the shortcomings in the prevailing regime that have surfaced in the recent past. Second, it seeks to determine the efficacy of the voluntary approach followed by the Government of India (whereby companies are encouraged to follow a code of corporate governance on a recommendatory basis) rather than through the imposition of mandatory rules. Based on a comparison of the voluntary and mandatory approaches to corporate governance and an analysis of various factors at play in India, it raises doubts about the success of the voluntary approach in India

A Cautionary Tale of the Transplant Effect on Indian Corporate Governance

During the last decade, there has been a sustained effort on the part of Indian regulators to strengthen corporate governance norms. This has been strongly influenced by developments that occurred in other parts of the world, particularly the Sarbanes-Oxley Act in the U.S. and the Cadbury Committee Report in the U.K. This study reflects upon whether the policies adopted by the Indian regulators are adequate or whether they require some mid-course correction. With that in mind, this Article adopts a revisionist approach with the help of two simple assertions, develops those further and leaves some food for thought leading to possible further detailed normative research. The twin assertions are: (i) the broad features of the Indian corporate governance norms have been transplanted from other jurisdictions such as the U.S. and U.K. that follow the outsider model of corporate governance, and hence those norms are not likely to be suitable for implementation in addressing governance problems in India, which follows the insider model; and (ii) recent events involving the collapse of several leading financial institutions provide evidence, at least anecdotal in nature, that the corporate governance norms followed in the U.S. and U.K. have not been effective in preventing large-scale corporate governance failures, thereby raising questions about the efficacy of that model in the Indian context. Through these assertions, this Article makes the case that the source for strengthening Indian corporate governance lies within. Seeking out other systems of corporate governance to emulate will only lead to further incongruity with the traditional business systems and practices that are replete in India, and unnecessarily add to the eclecticism that persists in Indian corporate governance. While the empirical evidence on the impact of corporate governance reforms in India is promising, the anecdotal evidence is less optimistic and the recent accounting irregularities at Satyam Computers bear testimony to that fact. This Article calls for a model of governance that resonates well with Indian business values and practices from the standpoint of economic, social, and political factors