Satyam was profitable, listed, famous, and audited. It had a board, an audit committee and independent directors, and its chairman had been inflating revenues and assets for years before he confessed in 2009. Every structure the rulebook asks for was in place. None of it was doing anything.
Corporate governance is the system of rules and practices by which a company is directed and controlled, defining how power is shared between the board, management and shareholders — governed in India by the Companies Act, 2013 for all companies and SEBI's LODR Regulations, 2015 for listed ones.
The bottom line
What it exists to solve: the people who run a company are usually not the people who own it. Governance is what keeps the first group acting for the second.
What the law requires: board composition rules, an audit committee under Section 177, a nomination and remuneration committee under Section 178, and scrutiny of related party transactions under Section 188.
What no rule can deliver: a board that actually challenges management. Structure is mandatable, culture is not.
What governance is trying to fix
A company's owners and its managers are different people, and the managers hold the information and the levers. That gap is the structural problem every governance rule addresses, whether it concerns board composition, disclosure, or who approves a contract with the promoter's brother-in-law.
The principles underneath are few. Accountability, so the board answers to shareholders and management answers to the board. Transparency, meaning accurate and timely disclosure. Fairness to all shareholders including minorities. Responsibility for compliance and conduct. And independence — objective oversight that is free of conflicts.
The two frameworks
The Companies Act, 2013 applies to all companies. It codifies directors' duties in Section 166, mandates independent directors and, for certain companies, a woman director, requires an audit committee under Section 177 and a nomination and remuneration committee under Section 178, and regulates related party transactions under Section 188.
The SEBI (LODR) Regulations, 2015 apply on top, to listed companies. Listing Obligations and Disclosure Requirements impose stricter norms on board composition, mandatory committees, disclosure timelines and control of related party transactions. Their ancestry runs back to Clause 49 of the old listing agreement, which is why practitioners of a certain vintage still use the name. The full LODR regime is a subject of its own.
Board composition
A listed company's board needs an appropriate mix of executive and non-executive directors, with at least one woman director and not less than 50% non-executive directors.
The independence requirement then turns on who chairs. If the chairperson is non-executive, at least one-third of the board must be independent. If the chairperson is a promoter, or related to one, at least half the board must be independent. The logic is straightforward: the more concentrated the power at the top of the table, the more counterweight the rest of the table needs.
The committees
- Audit Committee — financial reporting, internal controls, the auditors, and related party transactions. This is the committee that matters most and the one that failed at Satyam.
- Nomination and Remuneration Committee — board appointments and pay.
- Stakeholders Relationship Committee — investor and shareholder grievances.
- Risk Management Committee — the risk framework, required for larger listed entities.
Each carries its own independence requirements for membership and chairing.
What changed in 2025
SEBI amended the LODR Regulations to add a dedicated governance chapter for High Value Debt Listed Entities, raising that threshold to ₹1,000 crore of outstanding listed debt and adding a sunset exit for entities that fall below it.
Related party transaction materiality moved towards a turnover-linked, scale-based test rather than a flat number, scrutiny of subsidiary transactions was widened, and disclosures were streamlined through integrated filings.
The direction is consistent: more transparency and sharper accountability, with the weight of the rules scaled to the size of the entity rather than applied identically to everyone.
Building it in practice
- Constitute a balanced board with independent directors who are genuinely independent.
- Form the required committees and give them real authority, including the authority to say no.
- Adopt the policies that give the structure teeth — a code of conduct, a whistle-blower mechanism, related party and materiality policies.
- Disclose financial results and material events promptly and accurately.
- Put related party transactions through the audit committee, and to shareholders where required.
- Evaluate board performance and revisit governance practices, rather than setting them once at incorporation.
Who has to do what
Baseline governance under the Companies Act applies to all companies, with requirements such as audit committees and independent directors switching on above certain thresholds. The full LODR regime applies to listed companies, with the heaviest obligations on the largest by market capitalisation.
An unlisted private company gains from adopting the discipline early anyway. Investors conducting diligence look at how decisions were made and recorded, and a company that has kept proper minutes and run its approvals correctly moves through a funding round far faster than one reconstructing three years of history.
Where it goes wrong
Governance decays into box-ticking. Committees that meet and never probe. Independent directors who are old friends of the promoter. Disclosures written to satisfy a requirement rather than to inform a reader.
Rules can mandate a structure and cannot mandate the culture that makes it work. The difference between the two is invisible in an annual report and obvious in a crisis.
There is also a genuine cost question for smaller and unlisted companies. Elaborate governance machinery has a price, and proportionality is a real consideration rather than an excuse.
Common mistakes
- Treating governance as compliance paperwork rather than as how decisions get made.
- Appointing independent directors who are friends or associates of the promoter, which satisfies the count and defeats the purpose.
- Letting committees exist on paper without real scrutiny.
- Approving related party transactions without an arm's-length review, because they are the easiest route for insiders to move value out of a company.
- Delaying or burying disclosures to the market.
- Concentrating power in a dominant promoter with no effective check anywhere in the structure.
Frequently asked questions
Is corporate governance only for listed companies? No. The Companies Act imposes baseline governance on all companies. SEBI's stricter LODR regime applies on top, to listed ones.
What is the role of an independent director? To provide objective oversight, protect minority shareholders, and challenge management where it needs challenging.
Why are related party transactions watched so closely? Because they are the simplest way for insiders to extract value from a company at everyone else's expense.
Does good governance hurt profitability? Generally the opposite. Well-governed companies tend to raise capital more cheaply and survive crises better.
How many independent directors does a listed company need? At least one-third of the board where the chairperson is non-executive, and at least half where the chairperson is a promoter or related to one.
We are a small private company. What is worth doing now? Keep real minutes, run related party approvals properly, and separate company money from personal money. Those three habits cover most of what diligence will later ask about.