`SEBI NOT DOING ENOUGH FOR CORPORATE GOVERNANCE'
French investment
firm CLSA has said that the Indian market regulator Securities and
Exchange Board of India (Sebi) has failed to clear some major roadblocks
in Indian corporate governance. In a recent report titled "Tremors and
Cracks" published in collaboration with the Asian Corporate Governance
Association (ACGA), CLSA points out that the regulator has not taken
steps to improve the quality of financial
disclosures. None of the
Indian companies figured in the list of Top 15 companies in the
AsiaPacific region in terms of corporate governance score. Taiwanese
technology firm TSMC topped the list, followed by Australian firms
Newcrest and Brambles. Even some Thai and Malaysian firms beat Indian
firms to the list. At 17, Infosys was the highest ranked Indian firm in
terms of corporate governance score. HUL at number 28 and Wipro at
number 35 are the only other Indian large caps in the longer list of 40
large caps (firms with a market cap of $10 billion or more). "Despite
efforts made by the corporate sector and individual regulators to raise
corporate governance standards, these mostly fail to address core
governance issues such as accounting standards, the regulation of
auditors and obstacles to voting for investors who are unable to attend
company meetings," Sharmila Gopinath, research director, ACGA, said in
the report. The report said that corporate governance in India has moved
forward a couple of steps since a similar survey conducted in 2010,
with the overall score up from 49 per cent to 51 per cent, but the
ranking staying at seventh place. "This is not due to a lack of
awareness by the regulators, but rather a piecemeal approach to reform
and a lame duck government unable to do anything meaningful given
infighting among its allies," the report said. While the report
acknowledges Sebi's moves in areas such as release of audited financial
results within a period of 60 days and introduction of e-voting, etc, it
says work needs to be done in improvement of formats of disclosure.
"One relates to the format of quarterly reports, which lack cashflow
statements and balance sheets, and could be improved in other ways (eg,
more detail on revenue). At present, balance sheets are only provided
every six months and even then come in a condensed form with no notes to
accounts (in the half-year report), while cashflow statements are still
missing from interim reports." According to the report, few companies
provided adequate P&L, cashflow and balance sheet disclosure on a
quarterly basis - some large-cap companies provided incremental details
such as balance sheet and consolidated results every quarter, but most
did not. Attacking the Indian regulatory regime, the report said, "It is
only if the company is listed abroad do the quarterly reports improve –
and then depending on where the company is listed." Lack of a strong
framework for related party transactions were another area of concern
pointed out by the ACGA. The rules governing related party transactions
"require only board approval, offer a limited role to audit committees
and mandate disclosure only in quarterly compliance reports and annual
reports." CLSA-ACGA said it had earlier recommended that SEBI
incorporate stronger checks into the listing rules, but instead the
regulator recommended an amendment to the company law to the Ministry of
Corporate Affairs (MCA) in February 2011. "While the content of the
proposal was sound –that interested shareholders should not be allowed
to vote on special resolutions approving related-party
transactionsputting it in the company law guaranteed an inefficient
outcome. Not only does the company law cover all types of incorporated
firms (listed and unlisted), but amending this law has been tortuously
difficult in India," the report noted. India also lags more advanced
markets in Asia in its failure to undertake a comprehensive review of
its code of corporate governance (or Clause 49 of the Listing
Agreement), last comprehensively revised in 2004. –
www.business-standard.com