The Advisory Group on Corporate Governance, chaired by R. H. Patil, former Managing Director, NSE, was formed by the Standing Committee on International Financial Standards and Codes at the Reserve Bank of India in 2000 to assess corporate governance in India and compare it to global best practices. Members included V. V. Desai; Deepak M. Satwalkar; M. G. Bhide; Nandan Nilekani; and Rajendra P. Chitale. The group focused on benchmarking India’s corporate-governance structures against the OECD Principles and other international models, such as the Cadbury Committee’s recommendations in the UK and the Blue-Ribbon Committee in the US. Its key objective was to highlight areas in which India’s corporate-governance frameworks fell short and suggest improvements.
The report found that India primarily followed an insider model of corporate governance, as found in East Asian countries, where ownership and control are concentrated among founding families or small groups of shareholders. This contrasted with the outsider model prevalent in the US and UK, where ownership is dispersed and professional managers control corporate governance. The group noted that Indian laws generally protected shareholder rights but highlighted the lack of transparency in promoter-group holdings and inadequate board independence, especially in public sector utilities and public sector banks. It also found that institutional investors, despite holding substantial equity, were passive in corporate governance, and public sector utilities lacked sufficient autonomy because of government interference.
The advisory group recommended several reforms, including ensuring that at least half of the board members in large companies be independent directors and that audit committees be composed entirely of independent, financially literate members. The group emphasized the need for greater disclosure and transparency, particularly in relation to consolidated accounts and promoter shareholdings. Additionally, the report called for regulatory reforms, such as strengthening the Securities and Exchange Board of India’s enforcement of corporate-governance norms and updating the Companies Act to impose stricter penalties for noncompliance. For public sector utilities and public sector banks, the group urged greater board autonomy and a reduction in government interference in the management of the company to align these institutions with international governance standards.
The advisory group identified weaknesses in board independence, transparency, and institutional investor activism within India's insider-dominated corporate governance model and proposed reforms to align governance practices with international standards, aiming to enhance accountability and global competitiveness.
