Interview with Dr Madhav Mehra, Chairman World Council for Corporate Governance
Hindustan Times, April 5 2004
Corporate ratings bring false sense of complacency
CORPORATE GOVERNANCE rating in India is back in focus with two stalwarts - chairmen of Unit Trust of India M. Damodaran and G N Bajpai of the Securities Exchange Board of India- expressing contrary views on the issue. President Madhav Mehra of the London Based World Council for Corporate Governance, who also head a global environment foundation and various quality assurance and assessment bodies spoke to Arpan Mukherjee on the nexus between rating agencies and corporate bodies.
Corporate governance rating is not yet made mandatory in India. Do you think governance ratings adequately reflect the true image of the organization to all the stakeholders and public in general?
The problems here is that the rating agency has no means to the veracity of the facts and figures given by the companies. Since the corporates are paying the rating them. It is likely that the ratings could be overstated.
In all like hood under the current system there is going to be an unholy alliance between auditor's analysis and companies. These ratings bring a false sense of complacency and I feel that the corporate rating exercise is dangerous.
What does corporate governance practices in India stand vis-à-vis global counterparts?
India is treading on a dangerous path. The Naresh Chandra committee report on corporate governance has been gathering dust for the last 18 months.
Corporate governance is not only mere compliance is not only mere compliance but also covers competitiveness, beating obsolesce, looking at innovation and diversity. This committee did not face half the opposition that was faced by Derek Hicks in the United Kingdom.
It was only after secretary of state for department of trade & industry, Patricia Hewitt pother feet down, the recommendations were implemented late last year. In comparison Naresh Chandra committee had very few contentious issues to tackle like having 50 percent independent directors on board of companies.
Then what is the way for Indian companies?
I think an organization has to be set up under the Securities Exchange Board of India (Sebi), which will have a panel. This panel in turn would appoint independent directors on the boards of companies.
All payments and allowances io these independent directors should be routed through this organization under Sebi order to eliminate any influence that the management might have at the board meetings.
Due to the tightening of norms, more financial scams are likely to be exposed.
You spoke highly of American accounting and corporate governance practices. What do you feel about the country's decision, not to honor the Kyoto Protocol on environment?
That was a tragedy. It was to protect the interest of the energy lobby. The issue is that like the East Europeans. West Asians, we Indians are also subservient.
However, whether it is accepted or not, governments are run by big corporate houses. Wars are fought to protect economics interests than anything else
Author : Dr Madhav Mehra
Dr Madhav Mehra is the President of World Council for Corporate Governance
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