tiers of intercorporate ownership. Such pyramidal business groups are common in
countries where investors’ legal rights are weak.3
On the other hand, China follows a form of state capitalism, wherein public
ocials supervise corporate managers and intervene to correct any governance
problems.4 If the bureaucratic overseers are able and altruistic, they can direct
corporate decision-making down paths that promote the general good. On the other
hand, intractable governance problems arise if the public ocials have inadequate
ability or knowledge to make such decisions, or skew decisions to benet politically
favored persons or groups.
Corporate governance is critically important to a country’s economic growth and
stability because it provides the credibility and condence that is fundamental to
capital markets.5 There are two main categories of shareholders: (a) the promoter
and the promoter group and (b) the public shareholding (nancial institutions,
companies and individuals). For investors to trust a company enough to buy its
securities, they need reassurance that the company will be run eciently and in
a transparent manner. This is where corporate governance becomes critical.6
Despite the dierences between the corporate governance mechanisms followed
in India and China, there seems to be a common ground in terms of establishing
corporate governance norms in both countries – that of concentrated shareholding
wherein the majority of the shares are held by one individual or a group of
individuals.7 This convergence is attributable in no small measure to the inuence
of the Sarbanes-Oxley Act of 2002 passed in the United States of America and the
Cadbury Committee Report in the United Kingdom.8
This paper is divided into three parts. The rst part examines the political and
economic background and the resultant corporate governance paths undertaken
by India and China and posits that these paths, while diverse, necessarily lead to
a convergence. The second part describes the eorts made by the Chinese and Indian
legislatures to mitigate agency problems in rms and argues that the second agency
3 Randall K. Morck & Lloyd Steier, The Global History of Corporate Governance: An Introduction, National
Bureau of Economic Research, Working Paper No. 11062 (November 2005).
4 William Goetzmann & Elisabeth Köll, The History of Corporate Ownership in China: State Patronage, Company
Legislation, and the Issue of Control in A History of Corporate Governance Around the World: Family Business
Groups to Professional Managers 149 (R.K. Morck (ed.), Chicago: University of Chicago Press, 2005).
5 Yong Kang et al., Chinese Corporate Governance: History and Institutional Framework (Santa Monica,
CA: RAND Corporation, 2008).
6 A History of Corporate Governance Around the World, supra note 4, at 5.
7 Tarun Khanna & Krishna G. Palepu, The Evolution of Concentrated Ownership in India: Broad Patterns
and a History of the Indian Software Industr y in A History of Corporate Governance Around the World,
supra note 4, at 83.
8 Adrian Cadbury, The Financial Aspects of Corporate Governance (London: The Committee on the
Financial Aspects of Corporate Governance and Gee and Co. Ltd., 1992).