India Inc for more teeth to Clause 49: KPMG

India Inc strongly feels that market regulator Sebi’s Clause 49, formulated for the improvement of corporate governance in all the listed companies, needs to be strengthened, global audit and advisory firm KPMG said in its report.

KPMG conducted a corporate governance poll which involved CEOs, CFOs, independent directors and business leaders from various sectors like private equity, banking, insurance and securities and transport, among others.

According to the KPMG report, “44 per cent of the respondents are of the view that Clause 49 can be revamped significantly while 46 per cent feels that the clause requires a few changes only.”

Clause 49 of the Sebi guidelines on corporate governance has made major changes in the definition of independent directors, strengthening the responsibilities of audit committees, improving the quality of financial disclosures requiring Boards to adopt a formal code of conduct, requiring CEO/CFO certification of financial statements and for improving disclosures to shareholders.

The report further said that the clause had not been able to make major changes in corporate governance levels in the country and therein lies a scope for further improvement.

“Sixty eight per cent of the respondents believe that there exists significant improvement opportunity in corporate governance levels in the country,” the KPMG report said.

A majority of Indian firms also feel that even the New Companies Bill, 2008, proposed by the Ministry of Corporate Affairs would not make major improvements in the corporate governance levels.

“Out of the total respondents, 53 per cent believe that the new Companies Act might have a limited or insignificant impact in addressing contemporary corporate governance issues in the country,” the report said.

The New Companies Bill, 2008, aims to improve corporate governance by vesting greater powers in the shareholders.

These have been balanced by greater emphasis on self-regulation, minimisation of regulatory approvals and increased and more transparent disclosures.

Further, the penalty levels in the country are inadequate to enforce good corporate governance as compared with developed countries that impose stringent penal and criminal consequences for poor governance.

“71 per cent of the respondents considered penalty levels to discipline poor and unethical governance to be pretty low in the country,” the KPMG report said.