CORPORATE GOVERNANCE: PROPOSED REFORMS (PART-I)

[Dr. Sanjiv Agarwal]

Prologue

SEBI is known for its path breaking measures for implementation and regulation of Corporate Governance in India, more particularly with reference to Indian listed companies.  While the focus has been on voluntarily self-compliance and disclosures, companies have generally followed a 'check list' and 'tick the box' approach to Corporate Governance rather than following the Corporate Governance in true letter and spirit. Also, an effective Corporate Governance calls for a strong, qualified team of professionals who can not only guide the corporate in Corporate Governance implementation but also become torch bearers of good Corporate Governance in India, while vouching the same in the auditee companies.

Concept of Corporate Governance

The concept of Corporate Governance is relevant for all- investors as well as all other stakeholders. While dealing with Corporate Governance, one needs to consider the interests of both-monetary investors and non-monetary investors. The management of a company ought to address both.

Concept of Corporate Governance as postulated by 2003 Report of Narayana Murthy Committee requires a re-visit in present day scenario. 'Shareholders' have to be transformed into 'stakeholders' and apart from funds, conduct of entire business dealings have to be done in an ethical manner. Moreover, there has to be a reasonable stress on the Corporate Social Responsibilities (CSR).

Evolution of Corporate Governance Framework

The Companies Act, 1956 also provide for other measures leading to effective Corporate Governance in companies such as on the following aspects -

• Postal ballots
• Disqualification of directors
• Appointment of directors by small shareholders
• Approval of accounts by members
• Application and compliance of accounting standards
• Secretarial audit etc.

SEBI has been empowered to administer the provisions in relation to issue of securities which can be done by exercise of such powers which are unqualified and exercised without any 'ifs' and 'buts'.

Clause 49

Presently, Corporate Governance in India is developed, practiced, administered and regulated by Clause 49 of the Listing Agreement which is a binding and legal contract between a listed company and stock exchange(s) where such company's securities are listed. While SEBI plays the role of a regulator, the first responsibility for overseeing the Corporate Governance compliance is with the stock exchange(s) as Clause 49 binds the company and the stock exchange(s). How Corporate Governance is implemented, complied with, reported and monitored is an issue which can be debated. It contains both, mandatory as well as non-mandatory disclosures.

It is suggested that instead of Corporate Governance norms being part of the listing agreement, there could be -

(a) A separate Code of Corporate Governance in India for -

• Listed companies
• Unlisted public limited companies
• Private companies/body corporates

There could be different levels of requirements/compliance norms for such entities.

(b) A separate agreement between stock exchanges and companies or an undertaking that compliance with Corporate Governance Code are mandatory and shall be made. Infact, if a separate enforceable Code exists, there is no need for a clause in an agreement also.

As a single point nodal agency responsible for good Corporate Governance in India, SEBI should be mandated to formulate a consolidated Corporate Governance Code which should take care of MCA Voluntary Code, CSR Code, CII code, and all other such Codes so that there is uniformity and focus on what Corporate Governance has to be in Indian context. Presently, different Codes exists for companies, public sector companies, banks etc.

Principles of Corporate Governance Code

Like OECD principles on Corporate Governance, India should develop its own Principles or Code keeping in mind Indian context, laws and regulations, business practices and values which may also include CSR initiatives. This could be an ongoing  process for which a full-fledged separate steering committee comprising of people from MCA, RBI, SEBI, professionals and others be constituted. Such 'Principles of Corporate Governance' could be made a part of issue of capital guidelines or even as a separate regulation/ law itself.

(To be continued….)

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