Enactment of the pending Companies Bill 2012 is set to help streamline corporate governance practices

A spate of corporate scams in recent years due to corruption and mis-governance have caused enormous damage to the health of the economy. In India, the Satyam scam triggered alarm bells and sparked off a debate on how such a massive financial fraud was allowed or had gone unnoticed.

Such scams have compelled the government to take a hard look at the provisions in the Companies Act, 1956, pertaining to corporate governance. A Bill to amend the Act is currently pending in Parliament and the general consensus is that its enactment would go a long way in protecting the interests of people.

HCL Technologies Chief Financial Officer Anil Chanana, an ardent advocate of a rating model for corporate governance, believes that good corporate governance practices are of utmost importance for sustaining any business and protecting the interests of various stakeholders. “Corporate governance is a set of ethics, policy which as a corporation we need to adhere to. There has to be a governance mechanism, the supervisory body being the Board and the executive management. It is very necessary for value creation in a company,” he told The Hindu.

Though it is proven that good corporate governance protects the interest of shareholders, investors, employees as well as customers, according to Mr Chanana many companies in India do not strictly follow good practices such as adequate disclosures, transparency in business transaction, commitment to values and ethical conduct of business.

The Companies Bill 2012 proposes to further improve on the corporate governance law with the proposed legislations that are expected to protect the interest of small investors. It also endeavours to make India an attractive destination for foreign companies. Shareholders take a look at the governance track record of companies before making decisions, said SBIMF Fund Manager Anup Upadhyay.

Echoing similar views, Mr. Chanana added: “Corporate governance helps a company get more investments as well. When I travel overseas and meet potential investors during road shows, the questions that I am asked are not so much financial but on corporate governance. People are interested in what practices you follow before they invest.”

He added that in terms of corporate governance, the U.S. is way ahead of India. “We are still developing our system. It is basically a culture and you need to imbibe in an organisation.”

On the need of a ratings system for corporate governance practices of a company, Mr. Chanana said, “I do believe some of the rating agencies do it. But it is not a very established practice. So if implemented (certification or rating system for corporate governance practices), that will help a lot. There are agencies in the West which do it on their own.”

Market regulator SEBI earlier this year proposed the concept of ‘Corporate Governance Rating’ by independent agencies to monitor the level of compliance by listed companies and regular inspection by SEBI and stock exchanges.

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