Come New Year and it's time for all and sundry companies to send out greeting cards associated with a variety of laudable causes, social or environmental. It's an annual ritual which seems to leave them free for the rest of the year to engage in a single-minded pursuit of profits. But, luckily, there is reason to believe that the altruistic concerns professed by the corporates may actually begin to sound genuine. This is thanks to an announcement made last week by the minister for law, justice and company affairs, Arun Jaitley, to set up an institute for excellence in corporate governance.It may be recalled that the expression, corporate governance, caught on in India in the wake of the bank scam in 1992. The losses suffered then by small investors highlighted the need to make the companies more transparent and accountable. The scams that followed (MS Shoes, ITC, Anubhav, etc) reinforced the demand for enhancing the standards of corporate governance. Finally, the government set up a study group last May to find ways of doing so in terms of administration, end products or services, investors' returns, social responsibilities and rewards to employees. The study group also took into account the system of corporate governance in the more advanced economies of the US, UK, Germany and Japan. It was on the basis of the study group's recommendations that the government took the decision to establish the institute conferring an autonomous status on it.One of the key functions of the institute will be to accord accreditation to companies observing acceptable standards of corporate governance. A company can display the accreditation certificate in its prospectus to investors as well as in its applications to banks and financial institutions. Besides, it can flaunt the certificate in its advertisements and brochures as well. The certificate will have a validity period and can be renewed "on the basis of continued assurance of good corporate practices." Thus, the mileage that a company may derive from the corporate governance certificate is potentially immeasurable. Much like how export-oriented units benefit from acquiring ISO 9000 certificate for offering international quality products or services and ISO 14000 certificate for putting in place environment management systems.So, if things work out as planned, the corporate governance certificate may emerge as a major determinant of a company's image or reputation. Many of the decisions concerning the company may be taken on that basis: Whether an investor would buy its shares, whether a customer would take its products or services, whether a job seeker would join its employment, whether an associate would do business with it, whether even a journalist would accept its claims. An enlightened company may well see the introduction of the corporate governance certificate as a means of sharpening its competitive edge.But then, equally, the success of this whole scheme of giving certificates to companies will depend on the credibility earned by the proposed institute in the marketplace. Unless there are proper safeguards to ensure its independence and integrity, the institute can easily become a source of corruption. If that happens, its certificate will not be worth the paper it is printed on.In a bid to prevent such an eventuality, the study group proposed that the institute be headed by a director who should be a person of stature selected by a collegium comprising representatives of educational institutions like IIM and National Law School, industrial associations like CII, ASSOCHAM and FICCI and professional bodies like ICSI, ICAI and ICWAI. Another safeguard suggested is that the institute will not depend on any single source for funding. The finance will come from the government as well as industrial associations and professional bodies. Besides giving certificates to companies, the institute is envisaged to engage in policy research and conduct training programmes on the subject of corporate governance.The study group also suggested the drafting of "the model code of best practices in corporate governance" to be appended to the Companies Act. There is surely nothing objectionable in the proposal to make it compulsory for the companies to adopt the model code. That could well serve as the basis on which the institute assesses the credentials of a company seeking its certificate.In any case, the most enduring benefit that can emerge from the corporate governance certificates is that the companies will hopefully be forced to move towards what is known as "triple-bottomline accounting". The first bottomline is the traditional one showing the quantum of profit or loss. The second bottomline is about the measures taken by the company to minimise the environmental impact of its operations. The third bottomline is about corporate social responsibilities. Once the companies take to triple-bottomline accounting, you will perhaps not be so sceptical about the cards they send for the New Year.
