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Good corporate governance will enhance companies' image

Good corporate governance means being honest at all levels, ensuring the confidence of investors, and providing a conducive environment for corporate growth, said T S Krishnamurthy, secretary, Department of Company Affairs.

Speaking at a session organised by the Confederation of Indian Industry on 'Desirable Corporate Governance' on Tuesday, Krishnamurthy said that it was neither the government's wish nor will to interfere in the working of the corporate sector.

The secretary pointed that the present internal audit systems are inadequate and poor. He said to create a better environment, the proposed new company's law bill would take into account the ideas of the corporate bodies. In his speech, Bajaj Auto Chairman Rahul Bajaj said integrity without knowledge is weak and useless, while knowledge without integrity is dangerous and dreadful.

Introducing the CII code on desirable corporate governance, Bajaj, who is also chairman of the CII National Task Force on Corporate Governance, said that in the liberalised and globalised economy, there was a need to have guidelines and a code of conduct which did not hinder decision-making or the growth process, but ensured transparency and accountability.

He said that although the task force had accepted some of the practices followed in the United States and Britain while preparing its code, it had made a distinctive corporate governance code for Indian industry.

The task force has decided to make the code concentrate on the interests of the shareholders and the creditors rather than all the stakeholders, including the employees. The CII code emphasised the role of the non-executive directors saying it was necessity to have an outsider's point of view. The CII code also stated that single board is adequate and a two-tier board not needed in Indian conditions.

Pratip Kar, senior executive director, Securities and Exchange Board of India, while defining the role of corporate governance, stated that it is an interplay of the companies with shareholders, creditors, capital markets, financial institutions, and the regulatory framework. It cannot be any one of these in isolation.

He added that corporate governance would bring in high standards for integrity and best practices in the boardroom, which in turn would translate into high standards throughout the enterprise. Leadership of the board outweighs the authority of any regulator.

He said independent directors have an important role to play in corporate governance which needs to be viewed in the light of the fact the company belongs not to the board, not to the management, but to the thousands of shareholders who are owners of a fraction of the assets of the company.

He said SEBI had recommended the use of postal ballot for companies as one of the suggestions for the companies bill.

Kar added that disclosure -- both in the prospectuses and in annual reports -- were an important tool of good corporate governance. He added that SEBI proposes to standardise offer comment and key information for mutual funds.

Referring to the role of financial institutions and nominee directors, S H Khan, Chairman and Managing Director, Industrial Development Bank of India, stated that board meetings are generally held solely for the purpose of statutory compliance.

According to him, one of the prerequisites of corporate governance was to ensure that the board meets more frequently and important matters like intercorporate loans, transactions with associate companies, formation of new companies, report on compliance with statutory requirements, etc are compulsorily brought before the board for deliberation and decision.

Khan stated that a nominee director, or for that matter any non-executive director, should not be made accountable for acts of omission and commission of the executive management except in the event of his culpability or conveyance. The nominee director is not expected to take upon himself the role of an investigating agency and unearthing the violation of laws by the executives/employees of the company.

Speaking on capital market and investors projections, Bombay Stock Exchange President M G Damani said that there should be some mechanism and structure through which those responsible for the day-to-day conduct of the business of the company are made accountable for their conduct.

According to him, the role of an independent auditor is vital to the governance and accountability process. He observed that effective corporate governance should generate the following:
-- growth and efficiency through autonomy and accountability;
-- raise the level of investor protection;
-- provide timely disclosure of price sensitive information, both, financial and managerial; and,
-- add value to the investor's holding.

Damani that if Indians followed international practices in governing their companies, it would enhance the credibility of Indian companies and would help them become globally competitive and win the unreserved praise and confidence of customers and government.

Earlier, while welcoming the delegates, N Kumar, president, CII, said that the draft code on corporate governance was released by CII on April 22 in New Delhi and has been widely debated throughout the country.

He said Tuesday's meeting was part of that process of public debate because CII wanted to finalise the code based on the feedback. He added while everyone had a role to play in preparing the corporate governance code, the primary responsibility lay with industry.