India emerges 4th in global corporate governance ranking

India has emerged as a leader in corporate governance policies and practices among developing markets and the fourth globally with the clearest and most-comprehensive policies on corporate governance, according to a KPMG study.

While India scored higher than China, it is at par with Malaysia and Australia ranking 4th across 25 markets globally and is at the second spot in the Europe-Middle East-Asia (EMA) market category, according to the study jointly conducted by KPMG and ACCA.

''When implemented well, corporate governance builds confidence in capital markets. This is especially important in the context of high anticipated growth rates in many emerging economies such as those in the ASEAN region,'' said Irving Low, head of risk consulting at KPMG in Singapore, which spearheaded the study.

''Given the disparity in corporate governance requirements across the markets we have studied, there is still a long journey ahead of us. We hope this study can contribute to raising the standard of corporate governance requirements globally,'' he added.

''This reflects the improving standard of corporate governance in India over the years. The results of the study is testimony that these are resonating well with key stakeholders and their perception of the governance standards in India is also improving,'' Richard Rekhy, CEO, KPMG in India said, adding, "The Indian regulators have taken significant steps to raise the bar on e-governance requirements globally.''

The study noted the significant steps taken by regulators to raise the bar on governance in Indian companies, both in the Companies Act 2013 and the recently revised clause 49 of Sebi's listing agreement. In particular, the changes relating to the role and responsibilities of the audit committee, the roles of independent directors, and the codified duties of directors as a whole.

There is also a mindset change in how key players in the governance framework engage with other stakeholders including minority shareholders, the study noted. ''These, when implemented, can position India even higher in the ranking. It is now time for corporate India to follow corporate governance not only in form but in spirit.''

The study analysed corporate governance requirements in terms of clarity, degree of enforceability and number and type of instruments used by the 25 markets.

The three highest-scoring markets with clear and extensive corporate governance requirements are the UK, US and Singapore.

Australia, India and Malaysia jointly ranked fourth while Hong Kong and Russia tied for the next position. Brazil and Taiwan round up the top 10 highest-scoring markets.

The markets with the lowest scores, in descending order, are the Philippines, Indonesia, Canada, China, Cambodia, Japan, Vietnam, Myanmar, followed by Brunei and Laos.

Six of the ten highest scorers are developed markets, indicating that the maturity of the economy and capital markets influences, to some extent, generate the need for well-defined corporate governance requirements.

Commenting on the rankings, Low said, ''The results are broadly in line with expectations, particularly at the top end and bottom end of the markets we examined.''

''There were some interesting insights; India and Russia performed strongly, and this could be in part due to recent revisions in their corporate governance codes and a desire to build confidence in their growing capital markets. Japan and Canada, on the other hand, received lower than expected scores.''

He clarified that low scores do not necessarily indicate the lack of corporate governance requirements in these markets.

''What low scores do reflect is that some of the corporate governance requirements were not reflected in the actual corporate governance code of the market, although they might be present in other corporate governance instruments. This means that stakeholders who are unfamiliar with a specific market's corporate governance requirements may find it challenging to quickly and easily understand what the requirements are, and when, where, and how these requirements interact with one another,'' said Low.

The study found that the frequently mentioned corporate governance requirements related to OECD principles, which highlights their significance in shaping a market's corporate governance requirements.

A majority, 16 out of the 25 markets studied have adopted more than 80 per cent of OECD-related principles. While this is encouraging, the study found that there were some markets such as Myanmar, Brunei and Laos that did not contain any requirements for more than half of the OECD principles.

The study also identified an additional 32 areas of better practice requirements that were not captured in the OECD principles. Some of these areas include risk governance, board diversity and disclosures across a number of governance aspects.

The codes in some markets have not kept pace with changing corporate governance requirements.

Most markets introduced their corporate governance codes between 1992 and 2004. On average, the markets studied revised their codes 2.4 times. The highest-scoring markets, on average, revised their corporate governance codes 3.4 times, compared to the lowest scorers revising them 1.8 times.

While most markets, 76 per cent, have revised their corporate governance codes since the Global Financial Crisis in 2008, Indonesia, Korea and China have not updated their codes for a significant period of time.

Russia, India, Australia and the UK revised their codes in 2014.