The real test of governance
Governance failures rarely start with fraud. They start with a board pack that arrives late, a conflict disclosure treated as a formality, or minutes that do not show what the board actually considered.
The practical test is simple: if an auditor, investor, or new director asked six months later why a decision was taken, could the company answer clearly from its records? Directors operate under duties, disclosures, and reporting obligations set out in the Companies Act, 2013 — and listed entities carry further obligations under the SEBI listing framework. Here are six warning signs worth a board-level review.
1. Board papers arrive after the decision is effectively made
A board meeting should not ratify a decision management has already taken. Directors need real time to review a transaction, appointment, borrowing, or related-party arrangement before approving it — especially when financial exposure or a conflict of interest is involved.
Fix: Set an agenda-freeze date and circulate papers early enough for directors to ask questions before, not during, the meeting.
2. Minutes record outcomes but not the reasoning
Minutes that list only approvals do not show that the board considered the relevant facts. Section 118 and the Secretarial Standards expect minutes to capture material concerns, disclosures, abstentions, and dissent — not a transcript, but enough to show the basis for the decision.
3. Conflict disclosures are collected once and forgotten
A director’s interests change during the year — a new investment, advisory role, or vendor connection can affect their ability to participate in a matter. Section 184 disclosures should be updated, but the stronger practice is a standing conflict check before each transaction is discussed, with any recusal recorded in the minutes.
Red flag: a signed disclosure form on file for every director, but no process that checks it against live transactions.
4. Related-party transactions lack a commercial comparison
Transacting with promoters, group companies, or common-control entities isn’t improper by itself — the problem is the absence of a clear commercial record. The board or audit committee should be able to see the rationale, pricing basis, alternatives considered, and approval route before treating the transaction as routine.
5. Statutory registers get reconstructed before an audit
Registers of members, directors, charges, and interests are the company’s legal memory. When they’re updated only before an audit or fundraise, mismatched dates and unrecorded allotments tend to surface at the worst possible time.
Fix: reconcile registers quarterly rather than waiting for the annual filing cycle.
6. No one owns governance responsibility inside the company
When everyone assumes someone else is handling compliance, no one is accountable. A simple responsibility matrix — who prepares, reviews, approves, files, and retains records for each recurring obligation — prevents this from becoming visible only after a personnel change.
| Question | If the answer is “no” |
|---|---|
| Are board papers circulated early enough for meaningful review? | Rework the board calendar and paper protocol. |
| Do minutes capture material reasoning, dissent, and recusals? | Review minutes against the Secretarial Standards. |
| Are conflict disclosures checked against live transactions? | Add a standing conflict check to meeting agendas. |
| Can the company explain related-party pricing and rationale? | Prepare comparables and an approval record. |
If a red flag turns up, the first step isn’t to assign blame — it’s to preserve the records, understand the gap, and take corrective action through the proper approval route rather than manufacturing a better record after the fact.
Frequently Asked Questions
Are governance failures limited to listed companies?
No. Private and unlisted public companies also operate under the Companies Act, their articles, and contractual obligations to investors and lenders — SEBI requirements are an additional layer for listed entities, not the whole picture.
How often should governance controls be reviewed?
At minimum, annually and whenever there’s a fundraise, acquisition, management change, or audit concern. Regulated or fast-growing businesses often need quarterly checks.
Can an external lawyer replace the internal governance process?
External counsel can help design and review the system, but responsibility still sits with the board and management to exercise it day to day.
Call to Action
If your board is preparing for a fundraise, audit, or leadership change, Lindait & Associates can assess your records, approvals, and decision-making process in a practical, structured way.