The rule book on corporate governance is getting fatter but the compliance is not getting any better
With the Securities Exchange Board of India (SEBI) and the Ministry of Corporate Affairs vying with each other to write newer corporate governance regulations for India Inc, the rulebook for the top listed companies is getting quite voluminous indeed. While writing new rules into the statute, regulators seldom stop to evaluate if companies are in compliance with existing ones. This is what makes the Excellence Enablers Survey on Corporate Governance, piloted by former SEBI Chairman M Damodaran, such a useful document. This comprehensive survey, which dives deep into the annual reports of the Nifty 50 companies, measures the degree of compliance achieved by these companies with governance provisions in the Companies Act, 2013 and SEBI’s 2015 LODR Regulations. It also evaluates whether these companies are embracing the spirit of the law. Importantly, what it finds is a patchy record of compliance in letter and in spirit, even in this elite sample.
This compliance record at India’s leading companies causes one to despair about the state of governance at the other 5,000-odd listed companies that face far less public and analyst scrutiny. Before framing their next set of governance rules, SEBI and the Corporate Affairs Ministry must investigate reasons for the current non-compliance and identify if it is owing to real hurdles or wilful default. Governance rules also need to be harmonised across the Companies Act and LODR, so that companies don’t find it easy to exploit loopholes.