Oct 1, 1999|
Corporate governance gets a serious look-in
The Securities Exchange Board of India (SEBI) appointed Kumar Mangalam Birla committee has suggested that corporate governance in India be implemented through stock exchanges, with defaulters being de-listed outright. This was reported by a leading financial newspaper.
The committee has suggested several recommendations, mandatory as well as non-mandatory, for implementation of corporate governance. The committee is not satisfied with the existing system of penalties, as it feels that they are not stringent enough to enforce corporate governance. It has suggested that the listing agreement between stock exchanges (SEs) and corporates be strengthened and sweeping powers be granted to SEs to discipline deviant companies.
While corporate governance is an established norm in international companies, it is yet to catch on in India. For quite some time now, there has been growing demand, especially from minority shareholders, for enforcement of corporate governance at the board level. Shareholders feel that financial institutions' (FIs) representatives on company boards should lead the charge in this regard. They are expected to play a more active role in protecting the interests of shareholders, by voicing their concerns regularly at board meetings.
Often in the past, allegations of insider trading by promoters have been the cause of concern for shareholders. This leads to shareholder discontent and is reflected in stock prices of such companies. Apart from the existing shareholders, even potential investors and funds look at the company stock with suspicion.
As companies look overseas for foreign investments, they will have to boost their image by enforcing corporate governance to enhance shareholder value. Domestic markets have rewarded companies like Infosys and Hindustan Lever with better valuations due to a higher level of corporate governance. Similarly, one reason why Infosys' listing on the NASDAQ was greeted with such enthusiasm was due to the impeccable record of its promoters. Other companies that plan to get listed on international stock exchanges (NASDAQ and the New York Stock Exchange) should take a leaf out Infosys' book to get a favourable response from international investors.
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