The Hindu : SEBI not to make rating of governance mandatory

Online edition of India's National Newspaper
Sunday, Jan 25, 2004

Business

Business

SEBI not to make rating of governance mandatory

By Our Special Correspondent

CHENNAI, JAN. 24. The Securities and Exchange Board of India (SEBI) has no intention to make rating of governance of listed companies mandatory, according to T. M. Nagarajan, Whole Time Member of the board.

Participating in a workshop on corporate governance rating models, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) here today, Mr. Nagarajan denied that governance norms compelled companies to sacrifice long-term interests or outlook in the pursuit of short-term interests and responses to market signals.

Mr. Nagarajan said SEBI had commissioned a study to determine the cost of compliance incurred by companies in respect of the regulatory framework, including Clause 49 of the Listing Agreement. The Narayana Murthy Committee on the corporate governance code, with 23 members, had gone about its work in a highly professional and democratic manner, he said. He suggested to professionals and others to study the issues raised and recommendations, including for facilitation of `whistle-blowing', made by the committee at the board's website.

Anjan D. Ghosh of ICRA, explaining the parameters and procedures adopted by the agency in rating companies, said ICRA was prepared to make assessments of governance in the case of closely-held (unlisted) companies at their request. Emphasising that governance rating, normally requiring four to six weeks, was not an audit or certification of regulatory compliance by the listed company concerned and was not a guarantee against fraud, he said the primary focus in the rating exercise was on the business processes. Key variables analysed in rating including the shareholding structure, governance structure and management processes, board structure and processes, stakeholder relationship, transparency and disclosures and financial discipline.

The starting point was an assessment of the corporate's compliance with statutory regulations as laid out in Clause 49 of the Listing Agreement. Feedback from independent directors was a `key part' of the rating process. So far, ICRA had carried out seven rating assignments, out of which in the case of one company the client did not accept the rating.

Anita George, Chief Investment Officer, International Finance Corporation, Washington, said the IFC's rating of companies was based on the OECD guidelines. The corporation faced the task of adopting the model and developing best practices suited to companies in emerging economies. Global experience showed that good governance helped corporates in accessing capital, especially long-term finance and equity. The IFC (as a major lender/investor) looked at corporate governance as a tool to reduce investor risk and took account of the risk to reputation arising from bad governance. Companies focussed much on short-term profits tended to lose in the long-term, she observed.

V. Balaraman, CEO, Empower Works Ltd, said an ethical approach and `sense of natural justice' of corporate leaderships were more important than statutory codes. Regulatory frameworks in the name of ensuring transparency and good corporate governance should not put shackles on the entrepreneurial drive, risk-taking ability and vision of promoters.

A. Vellayan, Chairman of FICCI-Southern Region, said the substance of governance should be given more importance than the form. Governance and excellence in a company should be considered `a journey and not a destination'. It was a means and not an end in itself.

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