The Hindu : Corporate Governance: Striving for higher standards

Online edition of India's National Newspaper
Friday, Sep 05, 2003

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Business

Corporate Governance: Striving for higher standards

By Oommen A. Ninan

MUMBAI SEPT. 4. In its constant endeavour to improve the standards of corporate governance in India in line "with the needs of a dynamic market," the Securities and Exchange Board of India (SEBI) recently approved certain amendments in the Listing Agreement concerning corporate governance. The capital market regulator, from time to time, came out with several regulations on corporate governance. Now the SEBI has come out with a new set of regulations for corporate governance.

The regulator is trying to ensure that the interest of all shareholders is taken into account and also the management does not violate any of the laws of the land. That is why the SEBI has increased the number of independent directors on the board and made them accountable. For instance, the audit committee of a company, with the implementation of SEBI's new norms, comprised only independent directors and these independent directors were expected to check all details of accounts, see that proper systems were followed and they were supposed to quarry the auditors on various issues without having the management around.

Corporate governance is meant to run companies ethically in a manner such that all stakeholders — creditors, distributors customers, employees, society at large and Governments — are dealt in a fair manner.

There was a belief at one time that the job of the management is to look after its shareholders alone. Now the whole concept of capitalism has changed and it has started adopting a much broader view for its own survival that is why it has now become important that governance should look at all stakeholders and not just shareholders. Otherwise, one can have a situation where a chemical company can maximise the profit of shareholders but completely violate all environment laws and make its impossible for the people around that area to even live.

For example, there are so many companies along the Gujarat coast which have maximised profit for their shareholders but destroyed the livelihood of the people living in that areas, spoiled health of their workers and so on. "That is not a good governance. We have examples of other companies which have seen that corporate social responsibility is very important," said Raj Nair, Chairman of the Governance Forum of Indian Merchant Chamber.

Corporate governance is not something which regulators have to impose on a management but it should come from within. There is no point in making statutory provisions for enforcing ethical conduct. It is not that there is no broad regulatory framework in position now. There are lot of provisions in the Companies Act. For example, disclosing the interest of directors in contracts in which they are interested and abstaining from exercising voting rights in matters they are interested, statutory protection to statutory auditors who is supposed to go into the details of the financial management of the company and report the same to the shareholders of the company.

One important point here to note that these are in fact not guiding principles but out and out regulations.

The SEBI has jurisdiction only in limited companies and they are concerned about protecting the interest of the shareholders.

But the benefit of good corporate governance should reach not only the shareholders of the listed companies but also the shareholders of other public limited companies and further the interest of the creditors, labourers, and consumers are also to be protected through proper governance.

In view of this, instead of making a segmented approach in SEBI regulation it would be more appropriate to have a centralised approach which would take care of the interest of all those interested in the good governance of companies, shareholders, creditors, employees, and consumers.

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