Chennai: Corporates that do not conform to the corporate governance code laid down in the revised ''clause 49'' of the Securities and Exchange Board of India (SEBI) will have to pay heavily for non-compliance.

Sounding the warning note to the corporate sector, SEBI chairman M Damodaran declared, "We are going to make non-compliance difficult and painful. We have sought clearances to have a provision to impose a daily fine relating to the size of the company on non-compliance. More than that, this record of non-compliance against a company, will also have a dampening effect on defaulting companies'' prospects of raising capital overseas."

Delivering the keynote address at the seminar, `Corporate governance: Shift from compliance to delivering value, hosted by the Madras Chamber of Commerce and Industry (MCCI), in Chennai today he said, SEBI was also focusing on how to make compliance to corporate governance rules more cost-efficient for companies so that they consider it an investment rather than expenditure; and that it would add value both in terms of image and profitability.

On corporate governance rating, he felt that it would be an efficient tool of differentiation only when a sufficient number of companies have complied with the minimum requirements.

Opening the topic R Seshasayee, mananging director, Ashok Leyland Limited, said, "corporate governance is a basic issue of trusteeship, which attempts to guard the interest of all stakeholders."

Urging SEBI to help corporates move beyond compliance into a higher plane of delivering value, N Sundararajan, company secretary, Ashok Leyland suggested the market regulator consider a graded approach in prescribing guidelines based on the promoters'' holdings in a company. According to him corporates could be classified into three categories:

• Those where promoters'' ownership, exceeds 75 per cent
• Those where promoters'' ownership, is between 50 per cent and 75 per cent and
• Those where promoters'' ownership, is below 50 per cent

"For companies where the promoter''s stake is below 75 per cent, SEBI''s regulations need to be more stringent."

Speaking on the venture capitalist''s perspectives on corporate governance, Ravi Parthasarathy, chairman, Infrastructure Leasing & Financial Services Ltd (ILFS) said, "SMEs lack scale to find incentive in fitting in. Because of this, VCs find that in terms of governance, management depth is the key issue among SME''s."

He suggested that lowering the number of regulations would make compliance far easier. He also highlighted a project that ILFS has currently undertaken in bringing together industry clusters - one near Coimbatore and the other in Hyderabad. ILFS is talking to the entrepreneurs in the clusters to bring them together into a holding company pattern to bring scale and agglomerating clusters. This would lead to easier governance and probably to a possible stock exchange listing also.

He also urged SEBI to instil the fear of the regulator by not just having stringent laws but also by stricter enforcement.

On the emerging rating system, Anjan Ghosh of ICRA said, "Though there is no financial theory, which has established a linkage between corporate governance and performance, international opinion surveys support the proposition that "good governance enhances value. The Mckinsey Investor Opinion Survey 2002 has ranked board practices are at least as important as financial performance. The same survey also has established that investors would be willing to pay more for the shares of a well governed company."

On institutionalising the corporate in the management process in corporates M S Sekhar, managing director, Three D Management Services Pvt Ltd stated that individual flair or strong systems alone are inadequate. "Governance is a right vested by shareholders on the management. Exercise of this right has to uphold and reinforce values, beliefs and processes that build and sustain moral and professional character of the enterprise. The institutional framework must be embedded with the principles of empowerment, transparency, accountability, control, integrity and compliance.