India Inc's governance score improves marginally in 2021, shows IiAS study

The governance practices of India Inc have improved in 2021 even as it battles the aftermath due to the Covid-19 crises. The study conducted by Institutional Investor Advisory Services (IiAS) highlighted that for the BSE 100 universe, median scores of companies increased marginally to 62 in 2021 from 61 in 2020.

IiAS released the sixth edition of its assessment of corporate governance scores of the S&P BSE 100 index constituents. The S&P BSE 100 constituents account for about 67 per cent of total market capitalization, the results of the assessment are a reasonable representation of market practices.

The report suggests that despite the coronavirus crisis, corporate India has kept a steady focus on improving its governance practices, primarily due to better disclosures and enhanced stewardship practices.

What is more notable is that 20 companies were in the ‘Leadership’ category, against 11 in 2020 and six in 2019. These included Airtel, Cipla, HDFC Life, Marico and Tata Motors among others.

“This report shows that while most companies have continued to improve governance practices even through the pandemic years. Boards are responsible for setting the corporate governance agenda, which is why the composition and structure of the board of directors is of critical importance.”, said Amit Tandon, MD & CEO, IiAS.

The framework for the Indian corporate governance scorecard was developed over 2015 and 2016, jointly by International Finance Corporation (IFC), a member of the World Bank Group and Bombay Stock Exchange (BSE) and IiAS. The scorecard is based on the widely accepted G20/OECD principles of corporate governance.

However, the governance at public sector undertakings (PSU) continued to pull down overall median scores. Several PSUs do not even meet the basic regulatory compliance requirements for board composition, the report said.

“Moreover, the regulation itself has built-in exceptions for several of the disclosure regulations that are otherwise mandated for the remaining listed companies in India. These practices will weigh on the investor attractiveness of the PSUs scheduled for disinvestment,” said the press release.

Investors are watching how corporate India manages its stakeholders, and the focus on environmental, social and governance (ESG) practices has become central to investors’ engagement with companies.

Regulators too are attempting to standardize disclosures that companies are expected to make on their ESG practices. Companies with stronger boards and stronger governance practices are likely to be better placed in manouvering companies towards sustainability.