More teeth for corporate governance

Corporate governance w
25 August 2005

Corporate governance will be strengthened by SEBI's clause 49.

The issue of corporate governance has acquired centre-stage as a consequence of foreign investments flowing into India. Overseas investors wish to be reassured that the companies they invest in will not only be managed well, but be required by law to be managed in an open and transparent manner.

To ensure this, SEBI has revised clause 49 of its 'listing agreement', to stipulate that at least one-third of the directors on the boards of companies should be independent professionals who are in no way connected to the interests of the promoters.

Good corporate governance is vital to integrity and efficiency of financial markets, while poor corporate governance weakens a company's potential and, at worst, can pave the way for financial difficulties and even frauds. If companies are well governed, they will usually outperform other companies and will be able to attract investors whose support can help to finance further growth

Corporate governance implies a well defined, well structured and well communicated system to manage, direct and control the conduct of business of a company. The corporate governance structure specifies the distribution of responsibilities among different elements of the company — the individual board members, board committees, the executive functionaries like the chief executive and chief financial officers — and spells out the rules and procedures for making decisions on corporate affairs.