India Inc keeps focus on corporate governance: IiAS

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• 20 companies in BSE 100 universe are in the 'Leadership' category in 2021, against 11 in 2020 and 6 in 2019

• Governance at public sector undertakings (PSU) continues to pull down overall median scores

Mumbai: In spite of the Covid-19 crisis, corporate India has kept a steady focus on improving its governance practices, primarily due to better disclosures and enhanced stewardship practices. For the BSE-100 universe, median scores of companies increased marginally to 62 from 61.

These improvements were built on the median score of 58 in 2019. What is more impressive is that 20 companies were in the 'Leadership' category, against 11 in 2020 and six in 2019, says a study by IiAS.

Talking to Bizz Buzz, Amit Tandon, MD and CEO, IiAS said, "What is noteworthy about companies in the leadership category is that that they are looking at both substance and form. This is important because governance is not so much about compliance - which is what these companies now understand."

"In 2021, the continued volatility due to the Covid-19 pandemic has exposed companies to unique circumstances and risks. This report shows that while most companies have continued to improve governance practices even through the pandemic years. Boards are responsible for setting the corporate governance agenda, which is why the composition and structure of the board of directors is of critical importance," he added.

Institutional Investor Advisory Services (IiAS) released the sixth edition of its assessment of corporate governance scores of the S&P BSE 100 index constituents. Because the S&P BSE 100 constituents account for about 67 per cent of total market capitalization, the results of the assessment are a reasonable representation of market practices.

The framework for the Indian corporate governance scorecard was developed over 2015 and 2016, jointly by International Finance Corporation (IFC), a member of the World Bank Group and Bombay Stock Exchange (BSE) and IiAS. The scorecard is based on the widely accepted G20/OECD principles of corporate governance. The framework looks at the global best practices but contextualizes it for the Indian nuances - making it far more relevant for our markets.

"Having a large set of institutional investors creates greater expectations for companies with respect to their corporate governance practices. Our analysis shows a correlation between governance scores and the degree of institutional ownership. This is also reflected in how markets reward well-governed companies (those with a score of 60 and more) – at a portfolio level, these have shown to have stronger price performance and lower stock beta than those that are not as well-governed. Our analysis this year also shows that index inclusion may have tacitly factored in the governance quality of companies – companies that have entered the main indices have higher median scores than those that have exited these indices", said Hetal Dalal, President and COO, IiAS. Investors are getting more vocal, which is reflected in the increased push back on shareholder resolutions.

Several resolutions have passed because of the promoter vote, despite the unequivocal dissent of shareholders. Executive remuneration, being one of them, has been more contentious during the pandemic. While several business leaders took pay cuts in solidarity of the hardships faced by many due to Covid-19, there were many more that increased pay despite headcount reductions and forced furloughs for employees.

Governance at public sector undertakings (PSU) continues to pull down overall median scores. Several PSUs do not even meet the basic regulatory compliance requirements for board composition. Moreover, the regulation itself has built-in exceptions for several of the disclosure regulations that are otherwise mandated for the remaining listed companies in India.