Proxy advisory firm raises red flag on corporate governance structure of Indian companies
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Proxy advisory firm InGovern has raised a red flag on the average tenure of independent directors and statutory auditors of top listed companies in India.
About 22% of independent directors have served on their companies' boards for more than nine years and audit committees of only 45 companies are composed of 'only independent' directors, according to the firm's India Proxy Season 2012 Analysis special report, which has analysed the corporate governance structure and practices prevalent in top 100 companies forming part of the Nifty and Junior Nifty indices.
The report also highlights the fact that the percentage of independent directors among the companies analysed was as low as 54%.
According to the report, the average tenure of the statutory auditors in companies in the Nifty and Junior Nifty indices was approximately nine years. "Barring public sector companies, where appointment of auditors is done by CAG on a three-year rotation basis, 53 companies have had the same statutory auditors for more than five years and 30 companies have retained the same audit partner for more than three years. Thirty one companies out of these had the same auditors for 10 years or more," said the report.
Clause IV C (i) of the Voluntary Guidelines for Corporate Governance issued by the ministry of corporate affairs recommends duration of five years for rotation of the audit firm and three years for rotation of the audit partner.
The percentage of independent directors on the 100 companies analysed is about 54%, with 14 companies having less than 50% independent directors on their board. "Of the 14 companies, nine companies did not have an independent chairman as on March 31, 2012, and, hence, were not in compliance with Clause 49 of the Listing Agreement," stated the report.
Out of the 100 companies analysed, only 45 companies have 'only independent' directors in its audit committee, according to the report.