Corporate governance takes a beating

When it comes to corporate governance, many Indian companies show scant regard for the law. Though the Securities and Exchange Board of India...

When it comes to corporate governance, many Indian companies show scant regard for the law. Though the Securities and Exchange Board of India Sebi made it compulsory for listed companies to follow certain corporate governance guidelines from January 1, 2006, listed companies are still ignoring the norms, making a mockery of the listing laws.

According to information available from the Bombay Stock Exchange BSE, 1,213 companies have not submitted the corporate governance compliance report for the period ended March 2008. This means nearly one-fourth of the 4,895 companies listed on the BSE are yet to show the proof that they are following the norms. 8220;Most of these are small companies8230; and they are permanent violators of norms. They don8217;t have proper projects or operations, and indulge in fund diversion and mismanagement. Some of them exist only on paper,8221; said a source.

When contacted, a BSE official did not comment on what action the BSE has planned against those violating the norms. 8220;The exchange can suspend or delist these companies after sending show-cause notices to them. However, in the case of delisting or suspension, investors will suffer as they won8217;t be able to trade in those shares,8221; said a former BSE official.

As per the terms of Clause 49 of the Listing Agreement, listed companies should obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance. It says the board of directors of the company should have an optimum combination of executive and non-executive directors with not less than 50 per cent of the board comprising non-executive directors. Where the chairman of the board is a non-executive director, at least one-third of the board should comprise independent directors; in case, he is an executive director, at least half of the board should comprise independent directors. If the non-executive chairman is a promoter or is related to any promoter or person occupying a management position at the board level or at one level below the board, at least one-half of the board should consist of independent directors.

Many of the 1,213 firms in the Z group of the BSE where shares of thinly traded and shady firms are listed don8217;t even have proper boards. Most were listed in the 1990s when the norms were lax. 8220;Share prices of these companies are often rigged in thin trading and their financial performance is hardly worth talking about,8221; said BSE dealer Pawan Dharnidharka.

The Listing Agreement says that a board should meet at least four times a year, with a maximum gap of four months between two meetings. An independent director who resigns or is removed should be replaced by a new independent director within 180 days from the day of resignation or removal.

Though Clause 49 says the board should lay down a code of conduct for all members and senior management and all of them should affirm compliance with the code on an annual basis, it8217;s rarely followed by these companies.

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The number of listed firms in which public shareholding is less than the stipulated percentage

1,729

The firms that have failed to submit the shareholding pattern