Reality Of The Approach To Corporate Governance In India: The Companies Act, 2013

Sanjana S, O.P. Jindal Global Law University, Sonipat

ABSTRACT

The debacle between the shareholder theory and the stakeholder theory has existed since time immemorial. There are two main popularly recognised approaches towards the accountability of a company - The shareholder theory approach and the stakeholder theory approach. The governance of a corporate entity can be best understood by considering the approach used by it. The shareholder theory approach states that the shareholder and the corporate executive of a company share a principal and agent relationship respectively. This approach states that the shareholder is the owner of the company and is therefore entitled to the profits made by the company in its course of business. This approach is based on the profit maximization and does not recognise the doctrine of social responsibility. The stakeholder theory approach, was brought to light in order to refute the shareholder theory approach. This approach states that the shareholder is not the only person who should be entitled to the profits made by the company in its course of business. Rather, these profits should be bestowed upon the stakeholders of the company i.e., every person who has a stake in the company. India, follows a stakeholder approach only in theory and therefore, the below made suggestions should be inculcated in order to make it a reality.

Keywords: Corporate Governance, Stakeholder Theory, Shareholder Theory, The Companies Act