Examining the role of corporate governance in India

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The term corporate governance means a set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. (http://en.wikipedia.org/wiki/Corporate_governance). The term corporate governance became a prominent research theme after the publication of Cadbury committee report in the UK in the early 1990s. At the global level the numbers of corporate frauds are increasing both in number and magnitude. (http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?hid=17&sid=b27e67e2-746e-4ed8-a8ed-4de40113600f%40sessionmgr14&vid=2). As a result there is increasing pressure from the various stakeholders on increased transparency and change in accounting and reporting from the side of the corporates. A case in example being, the much debated and studied Enron scandal. The scandal led to a slew of reforms in the existing legislature of US which asked for much stricter reporting norms from the corporates.

In India also, the corporate governance movement gathered momentum after the publication of the report of CII on desirable code of corporate governance in 1997. But despite some much publicised debates on the issue the need for corporate governance is not typical in our country. However there are 2 sides of the story. Not only the scams are becoming increasingly regular like Harshad Mehta scam, Ketan Parikh scam, UTI scam, Bhansali scam, Satyam scam etc. but on the other hand thanks to rapid strides in technology on multiple fronts, these frauds have become more visible (Gurbandini Kaur, IUP Journal of Corporate Governance, Jan 2010). However despite these facts, the regulation (existing and in pipeline) are still archaic and inadequate. The reason for them can be multi-fold and will be discussed subsequently in the paper. What is more important, however, is that corporate governance needs to be brought into mainstream ideology in the Indian context as the implications from a good corporate governance are far and wide ranging from short term (profits, cash flows) to long term (valuation and firm risk). (YAN-LEUNG CHEUNG, International Review of Finance; Dec2010) The research works of the corporate governance in the Indian context is classified into five categories, namely, corporate governance systems in India; ownership/capital structure and corporate governance; institutional investors and corporate governance (S Subramanian, ICFAI Journal of Corporate Governance, July 2008). The scope of corporate governance therefore is very wide. In this paper we will however touch upon a few aspects of these five major categories so as to broadly cover the issue as a whole.

Corporate Governance in India

The corporate governance problems in every country are unique and it is because of the path dependence (Bebchuk and Roe, 1999). Indian corporate governance problems also have their own uniqueness because of the business models and structures it had in the past. A study done by Gollakota and Gupta (2006) proposed that Corporate Governance in India could be divided into four phases. These along with the identified value system associated with business enterprises during those periods are stated below:

The roots of the current problems of the corporate governance in India can be linked to the managing agency system prevalent during the pre-independence period. the managing agency model is one with the help of which Indian business houses were able to retain control of the business enterprises without having a controlling stake. This resulted in serious corporate governance problem of having control rights disproportional to the voting rights. The Indian Companies Act 1956 abolished the managing agency model and gave time till 1970 for the companies to do that. Hence, the Indian business families moved towards a new model called 'business house model' through which the families were able to retain the control with minority stake even after the abolition of managing. Managing agency system was a miniature replica of the limited liability company and was so designed that the promotion, finance and administration of other companies would be taken care of by the 'agents' in return for a small share of ownership and or agency fees. The system evolved during the early 19th century. The latest business model followed in India is the one in which India is moving towards Anglo-American model of corporate governance. The Anglo-American model gives importance to the shareholders over other stakeholders.

Does Good Corporate Governance Means Better Corporate Performance?

The primary objective of sound Corporate Governance must be to contribute to improved corporate performance, to the integrity of financial markets and hence to international competitiveness of an economy, all of which must be judged against the criterion of wealth and economic creation.

'McKinsey's 'Global Investor Opinion Survey' (2000 (updated in 2002)) of over 200 institutional investors found that more than 70% of the respondents would pay a premium for well governed companies. Premiums averaged 12-14% in North America and Western Europe; 20-25% in Asia and Latin America; and over 30% in Eastern Europe and Africa. Companies which are perceived to be run in the interests of investors may benefit from a lower cost of capital. Their study indicated that there was a positive relationship between corporate governance and performance as measured by the valuation of the company. If better corporate governance is related to better firm performance, better-governed firms should perform better than worse-governed firms. Gompers et al (2004) suggested that there is a link between the quality of corporate governance (measured in terms of shareholder rights) and performance. Using the incidence of 24 unique governance rules, they constructed a "Governance Index" to proxy for the level of shareholder rights for about 1500 large firms during the 1990s. They found that an investment strategy that bought firms in the lowest decile of the index (strongest rights) and sold firms in the highest decile of the index (weakest rights) would have earned abnormal returns of 8.5 per cent per year during the sample period. They suggested that firms with higher corporate governance rankings (stronger shareholder rights) had higher firm value, higher profits, higher sales growth, lower capital expenditures, and made fewer corporate acquisitions.

Brown and Caylor' Gov-Score methodology also proved that better-governed firms are relatively more profitable, more valuable, and pay out more cash to their shareholders.

A study by Bernard Black and Vikramaditya Khanna showed that the large companies that first adopted these measures saw their stock prices appreciate by 4% more during a two-day "event window" (and 7% more over a five-day period) than the prices of the smaller Indian companies that were not expected to be required to implement the requirements of Clause 49 of SEBI

Why corporate governance is a far cry in India?

One of the biggest challenges facing Indian corporate governance is reflected by-and to a certain extent stems from-the ownership structure of its companies. Even among India's largest publicly traded companies, shareholdings remain relatively concentrated, and de-facto control even more so, with family business groups and, to a lesser extent, state-owned (or public sector) enterprises continuing to dominate the corporate sector.

Source: Source: World Federation of Exchanges 2006 Annual Report

Even in companies that are not controlled by families, the widespread presence and influence in Indian corporate governance of what are called "promoters" are, at least potentially, cause for concern. A "promoter" is generally understood to mean the "entrepreneur"-whether an individual, a corporate entity, or a government institution5-that establishes and continues to have effective control of the business. And since the status of "promoter" gets effectively transferred through sale of the business to a new owner, perhaps a better definition is an individual or entity with a "controlling interest" in the business (with 20% or more equity holding, according to the definition of the Securities and Exchange Board of India (SEBI)).

As one indication of the pervasiveness of promoters, a 2005 study of the shareholdings of some 2500 Indian listed manufacturing companies at the end of 2002 reported that promoters held roughly 48% of the shares, accounting for about 51% of the shares of the family group companies and 46% of the shares of the other, so-called "stand-alone" firms. By comparison, the Indian public's share amounted to just 35% of the total sample, including 28% of the group companies and 38.5% of the stand-alone firms. Moreover, as reported in a follow-up study by the same authors, there were very few Indian companies with widely held ownership and no significant "single-promoter control."

Source: Prowess

On average, as already suggested, promoters own just over 50% of the shareholding of these companies. Of this total, Indian corporate promoters account for largest share (24%), while governments account for about 15%, Indian individuals for 6%, and foreigners (mostly companies) for 7%. But it's important to remember that this picture of Indian corporate ownership is a snapshot of the past. And while the present probably doesn't look much different, the future, thanks to some fairly recent changes in Indian corporate governance, could look quite different. As one suggestive indicator of future developments, Figure 3 shows significant (non-promoter) holdings (14%) in India's largest companies by Indian institutional investors, mainly banks, financial institutions, mutual funds and insurance companies. And even more telling, at least in terms of the future of Indian corporate governance, foreign institutional investors accounted for 16% of the shares.

Independent Directors' Shareholding in the Companies:

The general assumption about CG is that directors holding stake in the company will have increased commitments towards the performance of the company. It is assumed that directors who hold substantial chunks of equity in a company are much more likely to ask discerning questions to management than an outside director who does not own any stock but the counter view is that Instead of being independent, they would align themselves with other shareholders like promoters or other institutions. The problem with pay through stock options is that the exercise of options will have a bearing only on the stock price (or the market) and may not be of much relevance to the actual performance of the company. While, some may suggest that safeguards can be built in to assure that directors become long-term shareholders, this gives rise to another question: Should directors be serving the boards long-term? If the interest is to create a strategic board, it would be better to shuffle the board to meet the requirements of the current, changed scenario.

How Real Is the Independence of a Director?

One of the most important components of good corporate governance is the independence of board of directors. On paper Indian boards might look independent but when one looks at them from the substance point of view, many of them may fail the test of independence. Example in hand is of Nusli Wadia who has been indicated as an Independent, Non-Executive Director on the boards of Tisco, Telco and Tata Chemicals. While arguments exist in favour of his appointment that he was nominated by the promoter group (source of the reports is the appearance in the business press about his affiliations to the group patriarch JRD Tata and the role played by Wadia on a few crises situations within the group), the question is about his independence when he is on the board of three companies belonging to the same group. The moment he becomes the director of one company of the group, his independence in the real sense is lost. It has to be noted here that these companies have a number of common directors from the promoter group. Similar are the cases of Keshub Mahindra, who sits on the boards of Tisco and Tata Chemicals; Suresh Krishna, who sits on the boards of Tisco and Videsh Sanchar Nigam Ltd. (VSNL); and S M Palia mentioned earlier (Tata Motors and Tata Steel). That Tata sits on the board of Bombay Dyeing, a Wadia Group Company, of which Wadia is the Chairman, makes it an even interlocking directorship situation, strengthening the author's scepticism about real independence.

The Insider Proportion (Including Family)

Too many insiders on the board (either from the promoters or as executive directors) is an indication that the promoters are apathetic to independent views. An insider's allegiance is most likely to themselves, if they are part of promoters or to the boss, if they are otherwise insiders, rather than to the shareholders. These insiders are unlikely to challenge the CEO or the Chairman since that might cost him/her the job. Too many insiders will also result in diminished opportunities for getting outside expertise. And too many insiders mean less debate hence, less opportunities to be critical of the current way of doing things. Since management has the control over the information, too many insiders can collude and withhold information from others or pass on filtered information.

The Composition of the Board

A strategic board will have a balanced composition in terms of expertise, diversity, age, size, geographical representation etc. The board must be composed of people who can contribute to the strategic goals of the company so as to guide it to the next level, in the ever changing competitive scenario and environment. Also, whether the board consists of people from different sectors who could inject a different kind of strategic thinking should also be looked into. Even the size of the board matters a lot. Usually, the smaller the size the better it is, since it generates greater involvement, whereas a large board will make decision making cumbersome and even passive.

Director Tenures

If the majority of directors have been serving the board for long periods, say 10 years or more, it gives an indication that the board doesn't encourage new or young blood to come on board. While experience is definitely a boon, the company might be encouraging comfort in the boardroom, shutting itself from lateral thinking, debates and dissent. Most of the companies don't give details of directors in every annual report and give them only when new directors get appointed or retiring directors get reappointed, causing difficulties for the ever-changing investors to understand the directors' profiles.

The Board Committees and Independence

While, in India, the regulatory requirements require only Investor Grievance committee and Audit Committees as mandatory, and that Audit Committees be constituted with majority independent directors, the presence of committees like Remuneration, Nomination/CG and constituting committees like Audit and Remuneration only from independent directors, is considered to be progressive from the point of view of better governance. An analysis (by Som Lalita (2006), Stock Market Capitalization and Corporate Governance) shows that even highly reputed companies in the Tata Group do not have Nomination Committees (Tata Steel, Tata Motors and TCS). Similarly, Aditya Birla Group companies, Grasim and Hindalco also do not have Remuneration or Nomination committees and only have committees whose constitution is mandatory, namely Audit and Investor Grievance.

Risks and Risk Management Reporting

From the investors' point of view, it is essential for the company to report the risks as perceived by them. All the possible areas of risk in the external environment (like macroeconomic factors, political environment, regulatory environment, competition, geographical concentration of business and revenues, inflation and cost structure, exchange rate fluctuations, technological obsolescence, etc.), and the internal environment (like business portfolio risks, liquidity and leverage risks, cyclicality risks, capital intensity risks, contractual liability risks, intellectual property related risks, Human Resources (HR) related risks, leadership related risks, financial reporting risks, etc.) need to be identified, and how each of them is perceived by the management is to be understood. A study (by Varma Jayanth R (2006), "Reconnecting Board") shows that while Infosys and Wipro detail the risks and the management plan in about 8 pages and 12 pages respectively, Reliance, a much bigger company with even more risks and threats going by the size and product portfolio, details it in less than two columns of their annual report. This study found out that many companies in the Sensex, barring a few, have not done a good job as far as reporting risks and risk management are concerned.

Findings of a study done by Satheesh Kumar T N* in 2008

(Strategic Corporate Governance: Looking beyond Regulations)

• By and large, even big companies in India do not consider governance from a strategic point of view

• Very few companies look at governance with strategic importance and most of these belong to new generation companies and technology sector.

• A majority are concerned about conformance and compliance to the regulatory framework rather than looking at it from a strategic perspective or with an intention to take the governance performance to the next level. One of the reasons for this could be that the thrust on governance is a recent phenomenon.

• There are silver linings on the horizon. Moves by some well-known companies are definitely in the right direction. The only worry might be about the time frame by which about 7,000 companies, of which more than 50% are low-capitalized, sincerely feel that governance shall be given paramount importance.

Strategic Intention for Governance is Akin to 'Strategic Intent' in Corporate Strategy

While the parameters listed above can be considered to be the apparent indicators of strategic CG, the practice of governance can still leave much to be desired if the leadership of the board and the board as a whole do not show the emotional and intellectual commitment towards the CG journey. They should together develop a vivid picture of the outcome of better governance. They should be able to visualize together the strategic advantages of good governance in a competitive scenario. For this, the board, in addition to the courage to be different, should have a solid, well-founded intention when it comes to CG. This necessitates the board to subscribe to a set of values and principles of governance and also communicate it to the entire organization.

One can compare it to what Hamel and Prahalad termed as 'strategic intent' (Hamel and Prahalad, 1994). Any attempt to fine-tune the architecture of CG (the structural changes like specifying a percentage of independent directors, committees with majority independent directors, etc.) without the intention will not necessarily result in any advances in CG practices. Just like strategic architecture is the brain, CG described by structures or parameters above becomes the brain. One need to have the CG intention to have the heart just as one should have strategic intent in conventional corporate strategy. Just like strategic intent conveys a sense of direction, creating a differentiation or a unique view about the future conveys a sense of discovery helping everyone in exploring new competitive territories, and implies a sense of destiny providing an emotional edge and considering it as a goal inherently worthwhile to pursue. CG intention will provide a sense of direction, a sense of discovery and a sense of destiny. As Bob Garrat has said, while management has to be 'hands-on', board has to be 'brain-on' (Garrat, 2003). However, only when the organization as a whole becomes 'heart-on', will CG become a part of the culture of the organization, passionately imbibed by everybody.

Satyam Fiasco: Corporate Governance Failure

The concept of Corporate Governance (CG) is more than a decade old in India. However, the inadequacy and inefficacy of the governance framework in the country has been espoused by the massive corporate disaster-Satyam.

In the wake Satyam Scandal this concept has assumed significance of a never before proportion. Satyam Computers Services Limited (Satyam) was founded by B Ramalinga Raju in 1987, to provide services in the Information Technology (IT) sector. It soon prospered to become the country's fourth largest software company with a customer base spread across 66 countries.

Stocks of Satyam were traded in the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), New York Stock Exchange (NYSE) and Euronext (Amsterdam, Europe). Satyam featured at the 185th rank in the list of Fortune 500 companies at the time of the fiasco (The Economist, 2009)

In a shocking confession, Satyam's Chairman B Ramalinga Raju, in his letter of January 7, 2009, unveiled the biggest corporate fraud of the history of India with manipulations involving direct monetary implications of Rs. 7,136 cr. Further revelations by the Central Bureau of Investigation (CBI) sequel to their enquiries extend to Rs. 12,000 cr. Besides, investors in Satyam have lost not less than Rs. 14,000 cr as per the new disclosures (O, 2009).

In the Satyam fiasco the main issues pertaining to Corporate Governance are:-

Role of Board of Directors

An independent and effective board is entrusted with the responsibility of guiding and monitoring the activities of Management to ensure safeguarding interests of all the stakeholders.

Since Satyam had an Executive Director as its Chairman at least half its board should have comprised of Independent Directors.

Of the total of 10 Directors Satyam had 6 Independent Directors.

Ideally Non-Executive Directors exercise independent judgment in matters of corporate practices and performance.

In reality Satyam was very much a promoter-controlled, owner-driven paradigm. In a country largely indifferent to Corporate Governance practices Independent Directors are appointed at the whims of the CEO. Analysts commented that the passivity of these directors in the occurrences at Satyam can be described as callous negligence bordering on 'collusion' with the perpetrators of India's largest corporate fraud.

SATYAM: Board of Directors

Director

Designation

Category

Meetings held

Meetings Attended

Ramalinga Raju

Chairman

Executive

4

2

Rama Raju

MD

Executive

4

3

Ram Mynampati

Full time Director & president

Full time Employment

4

3

VP rama Rao

Director

Independent non exec

4

3

Mangalam

Srinivasan

Director

Independent non exec

4

1

Krishna G Papelu

Director

non exec

4

3

Ram Mohan Roy

Director

Independent non exec

4

5

Vinod K Dham

Director

Independent non exec

4

7

TS Prasad

Director

Independent non exec

4

-

VS Raju

Director

Independent non exec

4

-

Inference : From the table above its quite evident that none of the Independent Directors barring one had attended all the meetings. Moreover, all the Independent Directors form part of Board of another company also. This makes it almost impossible for them to exercise due diligence while monitoring the work of management.

Despite the concept of having Independent Non-Executive Directors being a well thought out step in the right direction by SEBI. It did not work out practically.

SATYAM : Remuneration

Particulars

V P Rama

Rao

Ram Myanpati

Krishna G Papelu

Vinod K Dham

RamMohan Roy

Commission

12,00,000

12,00,000

12,00,000

12,00,000

12,00,000

Sitting fees

1,30,000

80,000

30,000

40,000

1,50,000

Professional fees

87,81,000

It is often argued that the meagre remuneration of Independent directors

doesn't impel them enough to reasonably dedicate themselves to the cause of stakeholders of the company. But even a cursory look at the table above is enough to make it clear that a person drawing Rs. One Crore a year would not turn a blind eye towards the matters of concern. Although, the manner in which Raju framed his confession giving clean chit to the Independent directors has made it impossible to nail any one of them.

Audit Committee

Draft Bill Companies Act 1997

Audit committee can improve the quality of financial reporting by reviewing the financial statements, creating a climate of discipline and control and reducing the opportunity for fraud. It provides communication link with external auditor and strengthens the Internal Audit Function.

SATYAM Composition and other details

1.Mr. V P Rama Rao, Chairman

2. Dr. (Mrs.) Mangalam Srinivasan, Member

3. Prof. M Rammohan Rao, Member

During the year, the Audit committee met 8 times. Mr. V P Rama Rao attended seven meetings, Dr. (Mrs.) Mangalam Srinivasan attended four meetings and Prof. M Rammohan Rao attended all the meetings.

The meetings of the Audit committee were attended by the Head of Finance, Head of Internal Audit and Statutory Auditors as invitees. The quarterly and annual audited financial statements of the Company were reviewed by the Audit committee before consideration and approval by the Board of directors. The Audit committee reviewed the adequacy of internal control systems and internal audit reports and their compliance thereof.

Inference

Raju confessed that Satyam's balance sheet as of the September 30, 2008, carried inflated figures for cash and bank balances. He claimed that none of the board members had any knowledge of the situation in which the company was placed. This throws open question marks not only on diligence but on the very purpose of Audit Committee. The auditors internal as well as external should have known this. Internal auditors can be hand in glove with the management but what happened to the external auditors as to why they did not suspect something wrong.

In this the case the external auditors were PEC or Price Water House Coopers and that means PwC knew about the fraud all along or they did not do proper auditing. Two partners of PWC have been arrested for their involvement in the scam (The Express India, 2009). The dimensions on modus operandi of the fraud are a clear indicator to the culpable intentions of the auditors, commented the analysts. It is emphasized here that exceeding a certain threshold should necessarily be taken cognizance of, as 'culpable', particularly so, when such negligence leads to detriment and damage to the property of millions of people worldwide

In fact they were paid much more than what other Indian IT companies paid their auditors. The extent of negligence on their part was such that they failed to verify the existence cash balance. Such a scenario begs for greater transparency and accountability in the dealings.

Shareholder's Committee

SEBI's Code for Corporate Governance provides for constitution of shareholder's committee under the chairmanship of a non-executive director to ensure that the grievances of shareholders are properly received and solved.

In 2008, Satyam attempted to acquire two infrastructure companies founded by family members of company founder Ramalinga Raju - Maytas Infrastructure and Maytas Properties ) - for $1.6 billion, despite concerns raised by independent board directors. Both companies are owned by Raju's sons. All this was done without consent of shareholders. Satyam's investors lost about INR 3,400 crore in the related panic selling. The USD $1.6 billion (INR 8,000 crore) acquisition was met with scepticism as Satyam's shares fell 55% on the New York Stock Exchange. Three members of the board of directors resigned on Monday 29th Dec 2008.

Ramifications

Institutional investors have the tools, bandwidth and clout to extract information and play an activist role (as had happened in Satyam's case) in ensuring that managements don't go off-track.

But the retail shareholders whose consent wasn't even sought before Raju went ahead with the Maytas deal are the ones who are the real sufferers but are still indifferent about corporate governance, the Satyam episode will probably highlight the need to weigh this aspect.

In such a scenario establishing minority shareholders' groups can also be a positive step. Individual shareholders through these groups can communicate with institutional shareholders for taking up their concerns with the company's management.

Learning from the fiasco

Narayana Murthy of Infosys Technologies seems to agree: "Corporate Governance is beyond the realm of law; it stems from the culture and mind-set and cannot be regulated by legislation alone" (Murthy, 2003)

One does, however, draw several important lessons from the fiasco.

It is, now, abundantly clear that CG provisions need to be looked at on a 'zero-base' premise and that too with serious urgency by the nation's law-makers. Ministry of Company Affairs (MCA) has tabled the Companies Bill, 2009 on August 3, 2009. Analysts commented that the Bill could hardly be more opportune and would provide the Legislature occasion to deliberate on the extant CG framework. Even the existing formal CG framework needs to be nurtured by all the votaries of CG, in particular, the legislature of the nation.

The investor fraternity, now, identifies independent directors as curators of their interests and as an instrument of protection against corporate deceptions and foul play. It is, therefore, imperative to provide adequate powers to such independent directors to enable them to exert sufficient influence on Board's decisions (Singh and Kumar, 2010). Besides, they also need to be endowed with sufficient insulation from impertinent pressures and persuasions.

Ideally, the appointment of independent directors should be completely dissociated from the boardroom although shareholders can be the final appointing authority. A possible channel of identifying potential candidates for independent directorships and, at the same time, retaining 'independence' could be through the professional institutes like the ICAI, ICWAI2 and ICSI,3etc

Promoters are the people who take the entrepreneurial decisions and the risks attendant thereto and the law must not become an impediment to innovative entrepreneurship.

Another vital issue is to delink remuneration to IDs from the performance of the company in question by prohibiting payments of profit related commissions, bonuses, stock options, etc. Sitting fees could be significantly enhanced to take account of the opportunity costs of the time spent in rendering service.

Irony of The Situation - Golden Peacock

 Golden Peacock award was given to Satyam for its corporate governance standards.

This is the irony of the situation that a company which was considered the best in IT industry has such low corporate governance standards. On top it the Board of Directors were not even apprised of even anything.

In fact it seems even the CFO was not sure about a lot of things! Talk about corporate governance.

Corporate Governance Standards and Practices in Reliance Industries Limited

Reliance Industries Limited is no doubt one of the best known companies in the India. The company's foundation was built upon the power of the small investor, who showed exemplary faith in the promoters, that they will not only give them supernormal return but also to be fair and transparent in their corporate culture. Mr Dhirubhai Ambani strengthened this faith by having shareholders' meetings in a highly open manner, inviting even the smallest shareholders to them. This went to the extent that whole stadiums were engaged for the same.

However if we compare certain standards of Companies Act, 1946 and SEBI's revised clause 49, certain problems are hard to ignore.

Shareholding Pattern: A snapshot of shareholding pattern of RIL is given below

Board Structure-According to the corporate governance report, RIL has seven independent directors, out of the total strength of 12 board members. Since one of the seven independent directors is a senior partner of a Solicitors' and Advocates' Firm appointed by RIL, he appears to be disqualified as an independent director as per Clause 49 I (A) (iii) (a) and (d) (ii) of SEBI Listing Agreement. Therefore the total number of independent directors has been considered as six instead of seven and the total number of other NEDs has been considered as two instead of one.

The duality of chairman and CEO exists at the RIL. A good corporate governance principle expects that there should be a clear division of responsibilities at the helm of the company, which should ensure a balance of power and authority such that no one individual has unfettered powers of decision (Kamesam, 2006). It is observed that this principle has not been practiced by RIL as the power, authority and responsibility at the helm in RIL are all vested in one individual only, i.e., chairman and managing director. Moreover, RIL is not publicly justifying the decision to combine the posts of chairman and CEO/MD.

Disclosure of Tenure- the code of best practices requires companies to disclose the tenure of the board of directors and the age of retirement for them. RIL in this regard fail to disclose either the age of retirement or tenure with respect to non-executive directors. For executive directors the age of retirement is not disclosed even though the tenure is disclosed.

Selection criteria for the board of members are required to be disclosed under a good governance system, the RIL however does not disclose this to its shareholders.

Disclosure of Remuneration Policy-Clause 49 of the Listing Agreement requires the listed Indian firms to establish and disclose a formal and transparent policy on executive remuneration and for fixing remuneration packages of individual directors based on the principles of fairness, reasonableness and accountability. RIL has not disclosed clearly its remuneration policy in its report. So far as disclosure of remuneration of directors is concerned, RIL has not disclosed the details of remuneration as per fixed component and performance linked incentives, details of perks and allowances of individual executive directors.

Compliance of Corporate Governance and Auditors' Certificate-RIL has obtained an 'unqualified' certificate from its statutory auditors confirming that the company has complied with the conditions of Clause 49 of the Listing Agreement.

We can therefore conclude that though RIL's compliance with most of the clauses exists but there seems to be a lot of room of improvement in this regard. Some of the issues where improvement can be seen are listed above .Apart from them certain non-mandatory disclosures can also be made such as

Disclosure of information to the board on risk management and publishing of a comprehensive report on risk management-risk assessment and risk minimization procedures envisaged and adopted by the company, in the annual report for stakeholders' Constitution of separate board committees for effective governance of the company's affairs e.g., Ethics Committee, Nomination Committee, Investment Committee, etc., and disclosure of the reports of these committees in the annual report information and review.

Given that the RIL is one of the largest private sector companies in India, there is a lot of attention and scrutiny it has to go through. We believe it is also a role model for many and therefore should improve its corporate governance so as to set an example for others.

Conclusion

India Inc. has a long way to go in the direction of CG. Even some of the biggest companies do not give it any strategic importance. While there are exceptions, a majority of the companies just comply with the regulatory requirements. For the governance standards in the corporate sector to improve, companies must look at it from a strategic point of view.

On the flip side, the Indian corporate governance landscape has been changing very rapidly during the past decade, particularly with the enactment of the Sarbanes- Oxley type measures in Clause 49 of the listing agreements, and the legal changes designed to improve the enforceability of creditor's rights. We are also seeing the rise of successful companies like Infosys that are completely free of the influence of a dominant family or group, and have made the individual shareholder their central governance focus. Thus there is strong momentum for continuing reforms that, by providing investors with better information and the promise of higher returns, should help Indian companies to sustain their remarkable growth.

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