Corporate Governance Code Proposed

The draft code -- which will be formulated by the Confederation of Indian Industry -- will be an Indian version of the well-known Cadbury committee report in the UK which laid down the principles of good corporate governance.

A closed-door meeting organised by the CII on Monday discussed the subject and related issues, including the role of financial institutions in the governance of a company, the role of nominee directors, the relationship between stock exchanges and companies.

Representatives of leading financial institutions said that in the changing economic scenario, it is just not possible for them to continue supporting a company's large non-performing assets.

 

They said the FIs themselves are under pressure from their own shareholders,

foreign institutional investors among them, as well as from RBI which has forced FIs

to take a more professional approach to governance.

According to sources, the participants felt there is no need for changing law. Instead, what is needed is a change in the mindset of the corporate world -- more so in the wake of the takeover code.

CII was called upon to play an active role in formulating a model code of conduct and also the structure of a board outlining the responsibilities of the directors. According to sources, CII would call for feedback from its members and then formulate the code.

The role of the chairman and the managing directors of a company was also sought to be clearly defined.

A section believed the role of the two should be clearly delineated.

The code of conduct could be modelled on what the Cadbury committee prescribed. It had looked into corporate management issues such as the structuring of the board and responsibilities of its members, among others.

The Cadbury committee had primarily recommended that the role of a chairman and that of the chief executive officer should be different and clearly defined. While the chairman should be the head

of the board of directors, a CEO would be the head of the company but accountable to the board.

The CII meeting was attended by 37 key representatives of industry and government -- among them were finance secretary Montek Singh Ahluwalia, K Dadiseth, R C Bhargava, Jamshed Irani, K D Aggarwal, S H Khan, S Raha, Mantosh Sondhi, apart from the CII top brass.

The role of nominee directors was also discussed as were subjects like corporate ethics.

"We have been wanting to initiate a debate on this issue for two years because we feel that the issue of corporate governance has become relevant in the Indian corporate world," said a CII source.

Senior CII officials were not available for comment. The CII spokesperson declined to comment, saying that it was an "informal and closed door meeting".