‘Corporate ratings bring false sense of complacency’
| HINDUSTAN TIMES, KOLKATA | Monday, April 5, 2004 |
‘Corporate ratings bring false sense of complacency’
CORPORATE GOVERNANCE rating in India 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 heads 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 reflects the true image of the organization to all the stake holders and public in general ?
The problem here is that the rating agency has no means to the veracity of the facts and figures given by the companies. Since the corporate are paying the rating agencies for analyzing and rating them, it is likely that the ratings could be overstated.
In all likelihood under the current system there is going to be an unholy alliance between auditors, analysts 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-a-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 but also covers competitiveness, beating obsolence, looking at innovation and diversity. This committee did not face half the opposition that was faced by Dereck Hicks in the United Kingdom.
It was only after secretary of state for department of trade and industry, Patrica Hewitt put her feet down, the recommendations were implemented last year. In comparison, Naresh Chandra committee had a very few contentious issues to tackle like having 50 per cent 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 to these independent directors should be routed through this organization under Sebi in 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 honour 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 sub servient.
However, whether it is accepted or not, governments are run by big corporate houses. Wars are fought to protect economic interests than anything else.
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