Thursday, December 17, 2009

More Suggestions for Governance Reforms

When the financial fraud at Satyam occurred nearly a year ago, there was tremendous anticipation of swiftly regulatory activity to follow in terms of reforms to corporate governance norms. But, that was not to be. Any hopes were only dampened when it was announced that the Companies Bill (drafted in the previous year) would be presented in Parliament without any change whatsoever.

More recently, however, there has been a spate of suggestions for reforms. As previously discussed, SEBI has proposed changes to disclosure and audit norms, and CII’s Task Force has made its recommendations to corporate governance more generally, also calling upon companies to adopt them voluntarily pending any legal changes.

Now, the Institute of Company Secretaries of India (ICSI) has provided its own set of recommendations for changes to corporate governance regulations. While there is possible overlap with earlier efforts, an important contribution offered by ICSI is its analysis of, and comparison with, corporate governance norms in various other jurisdictions and the OECD principles.

Given that these changes, both by the CII Task Force and well as ICSI, are being considered by the Ministry of Corporate Affairs, at least some of them are expected to be adopted in one form or the other. Now that the Companies Bill, 2009 is pending consideration in Parliament, that appears to offer an appropriate occasion for change.


Mandar said...

While all these draft recommendations are commendable, the political economy of corporate law in India makes it virtually impossible that these recommendations would be formalized as law.

The recommendation for the mandatory nominations committee for example, as also the recommendation to "pre-sanction" material related party transactions are unlikely to meet the challenges political economy throws up.

The shareholder-nominated director is the other option but prudential safeguards restrict the discretion of institutionzal shareholders to "go long and deep" in selected firms. Concentrated exposures incentivize monitoring. Diversified exposures induce rational apathy; so, the possibility that the shareholders will exercise their power to nominate/appoint, even assuming that they are empowered in this respect, is too remote. The Prisoner's Dilemma will continue to haunt us.

Siddharth said...

The provisions of Companies Act, 1956 will be applicable to the private companies; however, the private companies are allowed to have their own regulations on many issues as dealwith under the provisions of Companies Act, 1956.

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