Corporate Governance: Proposed Reforms – Part II

[Dr. Sanjiv Agarwal]

 Principles of Corporate Governance

• Let there be one unified Code of Corporate Governance in India prescribing broad / macro level Principles of Corporate Governance.

• It should bring out clearly the difference between shareholders and stakeholders, their expectations and responsibilities and company’s obligations towards them.

• There could be at least one finance professional person on the Board, whether as an executive or an independent director (He / She could be a CA / CS / CWA / advocate / management consultant, economist, ex-banker etc).

• A proper guideline for whistle blower mechanism need to be formulated and put in place ensuring that:

(i)    no whistle blower is unnecessarily victimized

(ii)   his / her identity is also kept secret / not disclosed

(iii) instances of gender bias or sexual abusement in work-place are  also covered

(iv) there is no clash with any alternative remedial measure including vigilance mechanism in public sector entities .

• Balancing between performance and compliance is not desirable where good governance is being advocated. Infact, SEBI should endeavour for zero tolerance so far as non-compliance is concerned as it can have multiplying and far reaching consequences, besides developing a habit for tolerance of non- compliance - no matter small on big.

• Ideally all directors including nominee directors and independent directors should attend all or majority of the board / committee meetings. While seeking for leave of absence should be at the initiative of the director concerned, it should not be granted automatically. Any instances of such occasions being more than three continuously, should lead the director / managing director / chairman to take up the matter with the concerned director and the reasons be appraised to the Board / Committee, as the case may be.

• SEBI should also clarify its stand and role of Nominee directors / Institutional directors represented as the company's board. Their sitting fee should be paid to the organization they represent as they attend the meetings in their official capacity, unless the nominating agency decides otherwise.

• All payments must be paid by any accepted banking mode and not by cash.

• The companies should be discouraged from distributing gifts to the directors (including independent directors) on any occasion, whatsoever.

• A reasonable secretarial assistance may be provided by companies to their directors, in case it is requested, but it should be made a rule atleast for Committee chairmen.

• A Code of Conduct (may be voluntary) should be prescribed for banks / financial institutions / mutual funds and other institutional shareholders providing guidance on-

(i)            Their role in company management

(ii)          Degree of interference in management

(iii)         Their meetings with company management

(iv)         Participation in general meetings

(v)          Exercise of voting rights including elections of directors from shareholder's quota.

Such investors must disclose their policy on such issues.

 

(To be continued…….)