Corporate governance: Reddy’s Labs, Cipla, Tata Power in top-10, says study

Cipla, Dr Reddy’s Laboratories and Tata Power, made it into the top 10 list for the first time in corporate governance score, according to a joint-study by BSE, International Finance Corporation and Institutional Investor Advisory Services India Ltd (IiAS), with the financial support of Government of Japan.

Cipla and Tata Power, in fact, made it directly to the ‘Leadership’ category, showing immense growth in corporate governance score, the report said. Infosys, HDFC, Hindustan Unilever and Wipro remain in the ‘Leadership’ category, as they did last year, it added.

Several best practice requirements, such as ensuring facilities for shareholders in AGMs and during voting, gender diversity in the board and separating the roles of chairperson and managing director are among the 63 key parameters used for the scorecard.

In the BSE 100, institutionally-owned and widely held companies have better governance scores compared with PSUs, which continue to fare poorly. The median score for PSUs continues to remain in the ‘fair’ due to inadequate independent representation on the board and lack of transparency on critical issues such as related-party transactions, board evaluation and stakeholder management policies, the report said.

For Corporate India, the past 12 to 18 months have been difficult. With economic growth slowing, achieving business targets has been stretching managements with a few opting for a short-term fix, reflecting in a lower CG score. The meltdown of two large NBFCs has impacted the flow of funds.

With stretched liquidity and a weakened real estate sector, the asset quality of several NBFCs has also come under scrutiny, the report said.

“Our study, ‘Stability despite headwinds’ shows that the larger companies have taken their governance practices seriously, resulting in median scores of S&P BSE Sensex constituents increasing to 61 from 60. The BSE-100 companies have maintained median scores at 58.

Information technology and consumer staple businesses continue to lead in their corporate governance practices, while industrials, healthcare and energy remain laggards, the study found.

IPO companies

The markets have rewarded the more stable and better-governed IPO companies. RBL Bank and D-Mart, which were part of our list of top five well-governed IPO companies last year, have moved to becoming part of the BSE 100 index.

Narayana Hrudayalaya and Syngene International improved their governance practices to cross the threshold score of 60 to enter the ‘good’ category. Apart from these two, I-Pru too remain in the ‘good’ category. As many as 57 companies in the BSE 100 and 23 of the 50 IPO firms have separated the roles of the chairperson and CEO, with the chairperson being non-executive. However, some firms have a chairperson and CEO from the same promoter group, the study said.