14 May 2019
As corporates expand their global footprint and seek foreign investments and markets, safeguarding the interests of different stakeholders becomes critically important. To build and sustain investor confidence, corporates need to have transparent and good governance practices in place because mismanagement and false projection can cause immense financial and reputational loss.
Pioneering corporate governance movement
Long before it became a buzzword, CII pioneered the corporate governance movement in India and has always promoted best practices. It released the CII Voluntary Code of Corporate Governance in 1998, which was developed after extensive consultations with stakeholders. This was followed by several other codes, aimed at assisting companies to put in place systems that allow for greater transparency and meet regulatory standards.
CII’s work with the Codes and the CII Task Force on Corporate Governance report of 2009 have played a key role in shaping the corporate governance ethos in India. The 1998 Code served as a base for various other reports that followed and contributed to Clause 49 of the Listing Agreement in the stock exchange in 2005. The 2009 CII report was referred to in the Voluntary Corporate Governance Guidelines 2009 prepared by the Ministry of Corporate Affairs (MCA).
In March 2012, the MCA constituted a committee under the Chairmanship of the then CII President, Mr. Adi Godrej, which specified seventeen guiding principles for corporate governance. These provide a base for enhancing governance standards in India.
CII has also been working extensively with the Government on the corporate governance regulatory framework set out by the Companies Act, 2013 and the Listing Obligations and Disclosure Requirements (LODR) regulations of Securities and Exchange Board of India (SEBI).
NFCG
As responsible organizations, corporates must include focus on environmental sustainability and social welfare in their corporate policy. It is incumbent on them to conform to the highest moral standards, transparency and fair conduct and fair and equitable treatment. There must be zero tolerance for bribery and corruption.
The changing communication landscape necessitates changes in the way corporates are run and governed. Thus, improving audit quality and audit reporting amidst emerging technologies and social media is critically important.
Disclosure and transparency related issues must be tackled to ensure proper and sufficient care for preventing and early detection of frauds and other irregularities; adequacy of internal financial controls; compliance with the provisions of all applicable laws; and elements of risk, which in the opinion of the Board may threaten the existence of companies.
In the event of any lacunae in governance, or mismanagement, whistleblowers play a crucial role and the identity of the whistleblower and the employee investigating the matter must be protected. Care must be taken, however, to dissuade frivolous accusations.
Vendor and customer management must be transparent with clear processes in place. To address conflict of interest with other vendors in the system or with employees, segregation of duties and layering of employee approvals in customer management and dealings is vital.
In 2003, the Ministry of Corporate Affairs (MCA) in partnership with CII, Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI) set up the National Foundation for Corporate Governance (NFCG). In 2010, the Institute of Cost Accountants of India (ICAI) and National Stock Exchange (NSE) and in 2013 Indian Institute of Corporate Affairs (IICA) were included in NFCG as Trustees. NFCG works on raising awareness and conducting training of corporates on good management practices.
Taking a step forward, in June 2016, CII, Indian School of Business (ISB) and GE together launched the ‘Compliance Management Programme’ (CMP), a training course for compliance managers in corporates.
In letter and spirit
The mandatory provisions of the law today comply closely with global standards, and while there is greater awareness and acceptance of the need for following good corporate governance practices, corporates need to internalize these and implement them in letter and spirit.
Recent isolated incidents of frauds have dented the reputation of the entire industry sector, once again turning the spotlight on corporate governance.
Against this backdrop, Industry needs to strengthen some key areas to ensure good corporate governance practices are reflected in the performance and perception of the corporate.
One of the areas that needs close attention is the role of the Board of Directors to promote effectiveness, accountability and responsibility. Directors may need better preparation to fulfill their tasks as per regulatory expectations.
Risk intelligence and management is important for the health of corporate organizations. For example, cybercrime is the new challenge, and a focused Board Committee must oversee the cyber framework to secure organizations.
Today, even minority shareholders are assertive and influencing corporate decision-making. Organizations need to review and improve internal governance, moving it beyond regulatory compliances to better oversight.
Ease of doing business
Corporates should ensure good governance practices are adopted and followed since self-regulation would serve them well in highly competitive markets. In the absence of such self regulation, regulatory strictures will become even more stringent, affecting ease of doing business and corporate performance.
Corporate Governance, ethics, transparency and integrity remain priority areas for CII and focused initiatives in this space will be aimed at ensuring continual enhancement of standards by Indian Industry.