Measures to Ensure Corporate Governance in Indian Companies
Corporate governance is the system of rules, practices and processes by which a firm is guided towards attaining its objectives. It covers doing the business in adherence to the laws of the land and by following the best business ethics. Corporate governance balances the interests of various stakeholders, such as investors, employees, customers, society etc.
Recommended reading before proceeding-Corporate Governance in Indian Banks- A Revisit
Stock exchanges double as a first level regulator of compliance and corporate governance as far as listed companies are concerned. Listing conditions by SEBI warrants proper auditing, timely submission of audited balance sheets and convening of AGMs etc. The Securities and Exchange Board of India (SEBI) through appointment of various committees and ensuring periodical amendments have pushed corporate governance to higher levels.
Companies Act, 2013, casts responsibility on companies in India to ensure existence of effective Internal Financial Controls (IFC). IFC framework deals with the policies and procedures adopted by a company for ensuring orderly and efficient conduct of its business, adherence to company’s policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information. IFC demands independent certification / comments by the Directors, Audit Committee of the Board, Independent Directors and Statutory Auditors on the effectiveness of the framework.
Implementation of IndAs, the Indian standard of accounting for Indian banks, though slightly delayed has become definite. For NBFCs and other companies, IndAs is already in place and many banks have already migrated to IndAs standards while others are in the process of parallel preparations. The said accounting standards are in alignment with the best practices across the world and much tighter compared to the previous Indian Generally Accepted Accounting Principles (IGAAP).
There is no reason to doubt the efficiency, professionalism and supervisory capability of Reserve Bank of India as the regulator of the banking system. The regulator has always responded positively to the evolving market dynamics and has protected the interests of public in the rare event of bank failure. They have been highly successful in an era of integrated global markets wherein the decision taken by even one country has the potential to alter the economic climate of other countries. The regulator has also been an early adopter of corporate governance ( P J Nayak committee) and BASEL guidelines to make Indian banking system more robust. In fact, RBI norms have been more stringent than Basel norms. Pillar III of Basel norms encourages public disclosure of the capital and approach of the bank to risk management. This pillar ensures a tool to investors and other stakeholders to gauge the soundness and quality of operation and deployment of resources thereby ensuring transparency. This indirectly reinforces principles of corporate governance.
In addition to the regulators and watchful auditors, roles of market players like professional rating agencies, market analysts, equity research firms, large number of professionally managed mutual funds and alertness of 24×7 active media – both print and visual, make it practically impossible for a company to hide secrets / deviate from regulatory and legal prescriptions. But, as many recent cases revealed, major stakeholders and markets were unaware / discarded the actual issues, till strong actions were initiated by the regulator. In some cases, regulators too were on the back foot. Ground realities look stranger than the plots in the bestselling fictions, as evident from the headlines that appeared in the media recently. Please click to read the conclusions. Banking Sector- True Corporate Governance is the Only Solution
