Is Indian Business Ready for a Brave New World of Tough Corporate Governance?
- Dec 22, 2005
- Article is provided courtesy of Wharton School Publishing
- Is Indian Business Ready for a Brave New World of Tough Corporate Governance?
- Tough New Rules
- Governance at Godrej
- Family Business Practices
- Search for Independent Directors
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This article is provided courtesy of Knowledge@Wharton.
Is Indian Business Ready for a Brave New World of Tough Corporate Governance?
As global business interest in India keeps growing, so does the expectation that Indian companies must play — and be seen to play — by rules that are clear to international investors. Demands have long been heard for greater transparency in the way Indian companies do business. Now, matters are about to come to a head. Ready or not, India’s public companies must meet a January 1, 2006, deadline to comply with sweeping new corporate governance standards.
The reforms, ordained by the Securities and Exchange Board of India (SEBI), are laid out in amendments to Clause 49 of the companies’ listing agreement with Indian stock exchanges, a section that pertains to corporate governance. Among the requirements: More independent directors on boards and audit committees; a code of conduct for board members; a larger role for the audit committee; mandatory risk assessments and certification by the chief executive officer and chief financial officer of the effectiveness of internal accounting controls.
Sound familiar? The reason is that many of these rules have been inspired by the Sarbanes-Oxley Act that was passed in the U.S. three years ago in response to governance scandals involving Enron and other companies. While U.S. executives have tended to grumble about the regulatory burden that Sarbanes-Oxley imposes on their companies, India’s governance gurus have viewed the law as a promising template for their reforms.
Many Indian companies have been phasing in the requirements through 2005. Predictably, with the deadline looming large, some companies say they are not ready yet. Virtually all the laggards are large “public sector units” — companies such as Bharat Petroleum and Steel Authority of India that are partially government-owned — according to a recent tally by The Hindu group of publications. Among their concerns is an apparent dearth of candidates qualified to be independent members of their boards. That reason — or excuse — is unlikely to buy them more time. SEBI chairman Meleveetil Damodaran has warned in public remarks that there will be no extension of the deadline, and no exceptions from compliance for any company.
