Lack of corporate governance being tackled: ASSOCHAM

Amid rising cases of insolvency in the corporate sector, the ASSOCHAM noted that the Indian stock market is showing an increasing tendency for zero tolerance for any perceived dishonesty on the part of companies, expecting them to remain fully transparent and compliant in corporate governance.

However, the industry body cautioned promoters to remain committed to enhancing shareholders' value, as they would have to pay the price for faltering on transparency.

"Gone are the days when a firm or its promoters could get away with practices which do not follow the best of standards. Thanks to increasing awareness among the investors and strict disclosure norms, one cannot afford any wrongdoing, knowing or unknowingly," it said.

According to the ASSOCHAM, the predominance of the foreign portfolio investors, a large number of domestic mutual funds with enough clout in the market, have led to a situation where the punishment for any act, which even appears to be wrong, can be severe in terms of wealth erosion. Therefore, the companies listed in the stock market, it said, would have to be extra careful in ensuring that the corporate governance standards are in line with best international practices.

"In fact, the stock investor is willing to give a handsome premium on the quality of promoters, boards and the CEOs. Since the majority of the shareholding is held by the promoters, it is in their interest that their firms are run in the most transparent manner. Extra care should be taken with regard to correct and transparent valuations for all the inter-group transactions. Nowadays, the analysts are all having eagle eyes," added ASSOCHAM Secretary D S Rawat.

The chamber also lauded the Securities and Exchanges Board of India (SEBI) for ensuring that companies are made to provide all material disclosures which have a bearing on the stock prices.

It suggested that things like change in top management, allegations of wrongdoing, and so on must be responded to in the filings to the stock exchanges so that investors remain fully cognizant of the developments in the companies they own stakes in.

"A lot has been done in the area of corporate governance while still a lot more is needed. Image of corporate India and the promoters is of paramount importance for gaining the confidence of not only the investors but also the society at large," the ASSOCHAM opined.