Corporate governance needs to percolate from top levels: Pilot

The new Companies Act, 2013 seeks to ensure a stronger corporate governance system to safeguard investors' interests, he said

As India Inc gets ready for a new set of laws to govern companies, Union Minister Sachin Pilot wants corporates to put in place internal systems to detect and thwart frauds and other irregularities on their own, rather than these measures being mandated by regulations.

The Minister also said that corporate governance ethics should emerge from the top management and percolate down to the ground levels.

The new Companies Act, 2013 -- expected to be fully operational from the next fiscal beginning April 1, 2014 -- seeks to ensure a stronger corporate governance system to safeguard investors' interests in Indian companies.

Corporate Affairs Minister Sachin Pilot, who is steering the Ministry's work in implementation of the new law, is of the view that good practices cannot be just mandated.

"Corporate governance are not done at the lower level or at the middle management. It has to be a thinking at the top and that must percolate down. That is the only way it works," Pilot told PTI in an interview.

In recent times, there have been many instances of corporate frauds including the one at National Stock Exchange Ltd (NSEL), where there have been lapses in governance by boards and directors of certain companies.

The Companies Act, 2013, which received Parliamentary approval last year, lays emphasis on increased transparency, effective disclosures, self regulatory mechanisms and greater board accountability.

Pilot said that the idea is to curb white collar crimes and prevent such instances from happening in the future.

"... While we detect frauds and conduct investigations, the system within the company must be sufficient enough to be able to red flag such issues.

"So one is to remain environment friendly, consumer friendly, employee friendly and the other is to have checks and balances, everything on audits and accounting system," he said.

Wondering why should not Indian companies be seen as some of the best to work for, Pilot said that having large turnover and profits is one thing, but the bigger agenda should be to become an entity that everybody is proud of.

"These are all things you develop inherently. I can mandate it (through laws) but it would not work," he observed.

To promote capacity building for better corporate governance standards, the Ministry has also tied up with Independent Directors' Board in the UK.