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Delivering value through corporate governance

Our Economy Bureau
22 August 2005

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
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