Despite developments in regulation of corporate entities around the world and India’s own share of scandals in recent years, corporate governance continues to be a matter of “check the box” or a set of compliance requirements, with only limited emphasis on the spirit of governance. This has been underscored in a recent corporate governance survey The India Board Report 2011 prepared jointly by AZB & Partners, Hunt Partners and PWC. The key findings are summarized in the report as follows:
Corporate governance is a subject that attracts a lot of media attention, especially just after a scandal. This usually prompts governments and regulators to appoint committees to review and change laws. After a while, the hype fades and it’s back to business as usual.
Regulation only ensures compliance. Unfortunately, compliance does not equal commitment to corporate governance. This has been one of the key findings of the third edition of our biennial India Board Report - 2011. Clause 49 of SEBI’s listing agreement has been widely praised, in terms of the standards of corporate governance that it sets. However, only 38% of the respondents felt that it significantly contributed to improving governance!
There are other indications as well. More than half the respondents pointed out that their boards did not have a formal process to evaluate their effectiveness. Two-thirds of the independent directors surveyed said that the roles and responsibilities of non-executive directors were not defined clearly. Around 50% of them felt that the time spent by the board in completing the agenda of the meeting was inadequate.
The findings of the survey are also discussed in a reportin the Mint.
Part of the findings may be attributed to the fact that the emphasis of governance norms lately has been to adopt a voluntary approach. In addition to Clause 49 of the listing agreement that lays down the basic norms, the Ministry of Corporate Affairs’ Corporate Governance Voluntary Guidelines of 2009 set out best practices to be adopted by companies on a voluntary basis. However, the proposed approach under the Companies Bill, 2011 is vastly different as it seeks to impose mandatory norms of governance on companies. As and when the Companies Bill is enacted into legislation, it is likely that it would have a significant impact on the manner in which companies approach matters of governance.