Even as corporates generally appreciate the prescribed corporate governance norms set out in Clause 49 of the Listing Agreement, a Grant Thornton-Ficci study reveals the bane of the issue relating to the availability of independent directors is in the process companies adopt to appoint them. There is also a need to enhance the quality of board meetings, the survey says.

According to the Grant Thornton-Ficci ‘CG Review 2009: India 101-500’ survey, 84% of the respondents said compliance with Clause 49 enhances the perceptions of their stakeholders on the conduct of the company’s business. This is possibly also an indication of the mindset of Indian companies where stakeholders’ perception is considered as an extremely important business driver. To the extent that such considerations result in decisions that seek to enhance shareholder value, this is a positive sign.

The study points out that an overwhelming majority of the respondents (68%) felt that Clause 49 was adequate to bring requisite levels of transparency in their business and a even larger proportion saw the benefits extending to improved processes and controls (84%), enhanced awareness of roles (74%) and better risk management (74%) in their companies.

While a relatively small proportion (9%) of the respondents were in the process of developing a suitable strategy to comply with Clause 49, approximately one third of the respondents (32%) believed that they did not need independent assurance on various initiatives undertaken by them internally, to achieve the desired levels of compliance. Possibly, this is also a reflection of a relatively cautious and “wait and see” approach that such companies would typically adopt to new regulations.

Fifty-three per cent of the respondents had supplemented such internal initiatives with external help on specific aspects such as those relating to assessment of controls, enterprise wide risk management, institutionalisation of a compliance framework and implementation of a code of conduct.

Sixty-one per cent felt that compliance norms should differ based on company size; and this will result in achieving the desired levels of governance in spirit rather than the letter of the law. This is possibly the strongest signal to the lawmakers that a “one size fits all” approach may not necessary yield the desired levels of compliance in India.

A majority of the respondents (56%) felt that an ideal board structure should have between 25% and 50% as independent directors. What appears to have come out strongly is that the bane of the issue relating to the availability of independent directors is in the process adopted by companies to appoint independent directors. A majority of the respondents (56%) disclosed that they did not have a nomination committee to lead the process of appointing independent directors in their companies.

While 66% of the respondents also felt the need for the development of a predetermined charter with specific KRAs for the members of the board and audit committees, 37% felt that their companies could do more in terms of a formal and tailored induction program for their new directors.

All respondents claimed that their board was meeting at least once every quarter and at regular intervals in accordance with the provisions of section 285 of the Companies Act. A large number (48%) disclosed that their board was meeting between 6 to 8 times in a year. About 10% also claimed that their board had met more than 8 times in the previous year.

However, the average time duration in these board meetings ranged from: from 0 to 2 hours in the companies of approximately 19% of the respondents; from 2 to 4 hours for 53% of the respondents; from 4 to 6 hours for 19% of the respondents; and more than 6 hours for 9% of the respondents. This shows that it is the quality rather than quantity of such meetings which needs to come up to the desired levels in India.

The survey also showed that the preparation time given to the directors for the board meetings was: up to 1 week in the case of the companies of 50% of the respondents; up to 2 weeks in the case of 41% of the respondents; and in excess of 2 weeks in the case of only 9% of the respondents.

In a contrast, the average duration of the audit committee meetings was: 0 to 2 hours in the case of the companies of 50% of the respondents; and 2 to 4 hours in the case of 40% of the respondents

The average duration of the audit committee meetings in the case of only 10% of the respondents was in excess of 2 hours. The preparation time given to members of the audit committees was on similar lines as the time given to board members.

Significantly, the Grant Thornton-Ficci study notes that a majority of the respondents (66%) did not have a policy for rotation of the members of their audit committees. In the case of approximately 1 in every 3 respondents (28%) the roles of the Chairman and MD/CEO was played by the same person. Approximately one-third of the respondents also felt the need to prepare or modify or update a statement in their company policy relating to matters such as energy consumption, employment, recycling and waste management.

About the study

Ficci and Grant Thornton have targeted 500 companies outside the top 100 companies in India in this Grant Thornton-Ficci: India 101-500 CGR 2009.

The Ficci GT: India 101-500 CGR 2009 was designed to analyze corporate governance practices at ‘mid-market’ listed companies in India. The review methodology was based on a survey to gauge the nature and extent of corporate governance practices and approximately 500 companies across various sectors were targeted to participate in the survey.

The respondents were asked to comment on specific aspects relating to corporate governance practices in their companies and their responses were collated and analyzed by Grant Thornton and FICCI. In addition, views of strong advocates of corporate governance in India were obtained on specific issues emanating from the survey.

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