Thursday, 22 February 2018

India Inc Moving Towards Better Corporate Governance

The Indian economy is likely to become the fastest growing major economy in the world in 2018 and the interest that Indian businesses is generating among foreign investors shows no signs of abating. However, while willing to commit growth capital to Indian businesses, a key measure of performance that global investors are factoring in is the standard of corporate governance.

According to the annual Indian Corporate Governance Scorecard by the International Finance Corporation, BSE, and Institutional Investor Advisory Services, corporate governance standards of Indian Inc has improved in 2017. The Corporate Governance Scorecard for 2017 showed that companies (of S&P CNX BSE-100) aim to increase transparency and provide confidence to investors globally.

With over 5,000 listed companies and more than 50 companies in the global Fortune 2000, India represents a vibrant mix of small and large companies that access capital from domestic and international investors to fund their growth. Many of these companies are amongst the largest employers.

Moreover, a large number of small investors in India rely on corporate India’s good performance so that the returns they obtain on their investments can ensure their financial security. Beyond doubt, corporate India represents a key engine that powers nation building; and nation building requires sound principles of governance, whether it is a country or a company. As corporate India’s health is critical for India’s future, sound corporate governance needs to be the key enabler to manifest this reality.

The study suggests that more than 90 per cent of the Sensex 30 companies have provided adequate disclosures and inducted more women directors.

The 2017 Scorecard highlights several areas of improvement for Indian companies including better clarity on effectiveness of policies, improvement in board effectiveness and enforcement of shareholder rights.

The number of Sensex 30 companies giving detailed minutes of the annual general meetings, disclosures on succession planning and facilitating shareholder participation doubled in the last one year, the study revealed further.

The BSE 100 companies have improved on information standards with scores ranging between 85 and 50.

Increasing investor scrutiny and significant steps being taken by various regulatory bodies such as the Reserve Bank of India, and Securities and Exchange Board of India (Sebi), and increased vigilance by minority and institutional shareholders demonstrate the changing governance standards in India.

Good corporate governance helps companies operate more efficiently, improve access to capital, mitigate risk, and safeguard against mismanagement. It makes companies more accountable and transparent to investors and gives them the tools to respond to stakeholder concerns.

Corporate governance also contributes to development. Increased access to capital encourages new investments, boosts economic growth, and provides employment opportunities.

 Latin Manharlal Group

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