Too many cooks

On corporate governance, the regulator's nudge may work better than the mandate of the law

The Securities and Exchange Board of India issued a discussion paper on corporate governance last week, noting that this is an area that should have been left to the discretion and power of the regulator instead of being made a part of the Companies Bill by the ministry of corporate affairs. Measures to implement corporate good governance in the true spirit are difficult to mandate by law and may be better achieved through prodding from the regulator. For instance, clause 49 of the listing agreement with the market regulator, which companies must agree to when they enter the stock market, says that at least half of the members of a board must be independent directors, while the law says only a third need to be so. The former is only a guideline, but the reason Indian companies seek to improve on the ratio is because the regulator can make it difficult for them to raise money from the market, or worse, they run the risk of being named and shamed. Other provisions, too, like those related to the pay-scale of top management, work best as governance norms. Also, stipulations like the age limit for a person to be an independent director, are matters of best practice for the sector to decide upon, rather than directives set down in law.

Despite the several problem areas, however, the renewed focus on corporate governance standards by Sebi, following upon the passage of the Companies Bill through Lok Sabha, is timely. Events of the last few years underline that abiding by best standards of corporate governance is now a measurable asset for an Indian company. The share markets, too, are discovering that companies with leaky standards slip up on performing well on their core functions. Sebi has also done well to include the Adi Godrej committee recommendations in its discussion paper, bringing subjects like related party transactions, often the bane of significant segments of corporate India, into the realm of actionable areas.

... contd.

Please read our terms of use before posting comments
TERMS OF USE: The views expressed in comments published on are those of the comment writer's alone. They do not represent the views or opinions of The Indian Express Group or its staff. Comments are automatically posted live; however, reserves the right to take it down at any time. We also reserve the right not to publish comments that are abusive, obscene, inflammatory, derogatory or defamatory.