It’s not hyperbole to say that 2018 was a corporate governance game-changer for India. It was the year the securities regulator, the Securities and Exchange Board of India (Sebi), rubber-stamped a number of recommendations made by the Kotak Committee on corporate governance, and gave these recommendations the regulatory clout they needed.
And from April 1 many of these changes will start to apply, with all listed companies required to ensure their implementation. The amendments cover the whole gamut of modern corporate governance, with a focus on the board of directors and a strong emphasis on independence, diversity and transparency.
Deepak Balwani, associate vice president of IR at chemical manufacturer Deepak Fertilisers and Petrochemicals Corporation, tells IR Magazine that he feels the changes will prove beneficial to the Indian financial marketplace.
‘I am confident the new set of corporate governance rules will deal with large issues – with industry expectations to synchronize various rules under various acts, guidelines, Sebi requirements and standards – and act as a catalyst in increasing the wave of investor activism in India,’ he says.
It does, however, present a challenging environment for Indian IROs. ‘With institutional investors focusing more on ESG-compliant companies, the IRO has to play a significant role in such a challenging environment – to manage internal, as well as external, expectations,’ notes Balwani.
But he adds that while Indian companies are facing up to the new world, there exists a narrative that the changes do not bring every organization to the top governance table. ‘Regulatory authorities are constantly taking serious initiatives to enhance corporate governance standards in India with imposing requirements such as the Business Responsibility Report, live webcasting of AGMs, women directors and separation of the office of CEO and chair,’ he explains.
‘Many of these requirements are applicable to top 100 and top 500 companies by market cap in India but the need for improvement in corporate governance standards is felt more at companies that do not fall under these prescribed categories. A greater standardization of reporting requirements is required under the growing climate of proliferation of standards such as GRI, integrated reporting and business responsibility reporting requirements.’
The current changes are, therefore, very much a solid foundation to build upon, but also raise issues of having a unified global approach to sustainable reporting standards.
Best is best
Balwani acknowledges that many corporates are spending most of the mandatory CSR budget improving their board composition and communicating long-term business plans with a wider audience. But he says it is ‘highly recommended to all corporates to adopt the best-in-class corporate governance practices along with ethical behavior at the top level of management, which will improve credibility with shareholders and other stakeholders in the long run.’
The importance of an effective and ethical corporate culture also plays a central role in the whole governance narrative for Sandeep Mahindroo, head of IR at tech and consulting multinational Infosys.
‘The onus should be on companies to think about governance rather than regulators imposing it or investors seeking for it,’ he tells IR Magazine. ‘Governance is how a company lives and operates on a day-to-day basis. It reflects the value system of a firm. Governance standards need to become more proactive in adoption [by companies] rather than imposed by regulators.’
At the same time, the governance push can be a balancing act, as governance should not stifle the work of corporates, observes Mahindroo: ‘It is important to have a high level of governance. But it shouldn’t reach such a point that it starts to constrain the business. Higher governance standards are broadly welcome up to a certain level – beyond which they should be weighed against the costs of compliance.’
These issues and more will be explored further at the IR Magazine Forum – India: IR trends and best practices. Join the debate here.
