Corporate Governance: Investor Concerns

The fiasco attempted by 'Satyam Computers Ltd' promoters for the benefit of family owned companies has brought the issue of 'Corporate Governance' to the fore. The backlash from shareholders to the move by the Satyam board was unprecedented, and the management had to backtrack on its decision within hours of its announcement. The promoters who hold less than 9% stake in the company have tarnished the image of the company, which may have negative global consequences on the future of the company.

What is Corporate Governance? It is as an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.

In India, Kumar Mangalam Birla committe was constituted in 1999, to promote and raise the standard of corporate governance amongst corporate entities in India. It is applicable to all listed companies with paid up capital of Rs. 3 crores and above. It is implemented through clause 49 of the listing agreement between the company and the stock exchanges. Provisions of clause 49 are:

• The Board will be comprised of 50% executive directors and 50% non executive directors, where there is a full time chairman
• Constitution of audit committee with 3 independent directors and chairman having sound financial background- responsible for review of financial performance on a yearly/ half yearly basis
• remuneration of non executive directors to be decided by board, disclosure of this information to shareholders
• Atleast 4 meetings by the board in a year, directors not to be members of more than 10 committees
• Management discussion and analysis report to include: outlook, risks and concerns, internal control systems, DISCLOSURE BY DIRECTORS ON MATERIAL FINANCIAL AND COMMERCIAL TRANSACTIONS WITH THE COMPANY.

Some more changes are in the offing as a part of the Company Law ammendment Bill.

Satyam promoters have violated the basic tenets of Corporate Governance, which has sent a wrong message to Foreign investors. The Govt. (Company Law Board) and the regulator SEBI have a responsibility to take requisite action against the defaulters to assuage the feelings of the shareholders of the company. This will send a strong signal to other promoters also, who may be thinking on the same lines.