The Hindu Business Line : Crisil's new governance model to provide roadmap for cos

CRISIL has said that its new Governance and Value Creation (GVC) corporate governance rating model, coupled with a strong regulatory push from SEBI, could evolve into an effective roadmap for improved governance practices in Indian industry.

According to its research team, the increasing preponderance of joint stock companies with a substantially defused ownership over the last three decades has led to a new impetus to research focused on how such corporations "ought" to be run.

Making a presentation on the new rating model at a national meet here recently, Mr Gurpreet Chhatwal, head, Business Development, Crisil, said, the assessment has been done using the broad principles of good corporate governance contained in the OECD principles of corporate governance, the NYSE corporate governance rules and the current German and Japanese governance codes. The rating is valid for one year and is done on a scale of 1 to 8.

Pointing out that Crisil had to work closely with SEBI to develop the GVC rating model, he said the parameters applied generally seek to quantify the delivery of whatever it is that the relevant stakeholder expects the corporation to deliver, the implicit assumption being that various stakeholders associate with the company to get something that they value. He referred to this broadly as "stakeholder value creation assessment."

Mr Chhatwal described the strength of a corporation's relationship with all "stakeholders" as the key determinant of its ability to create sustained wealth and economic value. Crisil has identified these stakeholders as shareholders, creditors, employees, customers, suppliers and the society at large. Parameters have been devised to measure the strength of these relationships based on understanding of general business principles. Crisil, with active encouragement from SEBI, has tried to propose an alternative approach that takes adequate cognisance of what comes out of the governance of corporations - the economic value created.

Explaining the concept followed, he said the framework contained elements of both shareholder and stakeholder approach to corporate governance. The quality of a corporation's management was a major factor for understanding whether it would be capable of adapting its functioning to changes in the business environment so as to ensure sustainable value creation, he clarified.

Dwelling at length on management's capabilities to create wealth in a sustainable manner, he said the governance processes were broadly related to, a) Board-related functioning, b) Procedures and c) Disclosures.

Stressing on adequacy of audit procedures, Mr Chhatwal said the quality of disclosures too was important for shareholders, who should be able to get a true and fair picture of the company. Disclosures relating to pattern of ownership have to be clear and concise, he added.

The new rating model is described as a model for the future, as it has received a positive response at the international forums where it has been presented.

More Stories on : Corporate Governance | Credit Rating

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page