The Hindu Business Line : `India Inc needs to do more on corporate governance front'

THOUGH there have been positive efforts by India Inc to improve corporate governance practices, substantive progress needs to be made in several key areas such as selection of independent directors, financial literacy of audit committee members, and linkage of pay with performance for directors, according to a survey by ICRA on the progress achieved by the major listed companies on this front.

The average size of a company's board is 12, and a large majority have boards with 9-12 members, according to the survey.

While there is considerable debate on what the optimum size of a board is, it is felt that for most mid-to-large companies, a broad size of 8-12 members can be considered adequate and in line with what is seen internationally, the survey said.

Some 50 per cent of the surveyed companies have separate CEO and Chairman, but in a majority of such companies the Chairman was either a former chief executive of the same company or a nominee of the dominant promoter group. This negates the basic purpose of separating the roles of the Chairman and the CEO, the survey said.

The proportion of `independent directors' on company boards is on the rise, and in more than 10 companies in the sample independent directors constituted more than 50 per cent of the board.

However, it must be acknowledged that there is a limitation in evaluating, for the purpose of this survey, how `independent' the independent directors actually are, given that the survey was based solely on published information.

In the sample surveyed, only four companies had a functional nomination committee. This may be considered a major negative from the governance perspective, as it seems to point to the absence of a structured approach to selecting independent directors.

Further, the survey revealed that the average number of board meetings held in a year was 7.69, while the median was seven meetings. The average director attendance, as worked out from the survey, stood at a high 83 per cent with a median of 84 per cent.

The audit committee functioning was found in line with regulatory requirements, which is a positive from the corporate governance perspective. However, the financial literacy of audit committee members, in particular the Chairman, has scope for improvement.

Only seven companies surveyed did not have a remuneration committee. The survey showed wide divergence between the remuneration paid to independent directors across companies, and very often, within companies.

Banks and financial institutions were excluded from its purview as they are governed by a somewhat different set of rules and regulations.

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