Looking at the growing importance of the role of corporate governance in good business practices, CII organised a roundtable conference in Mumbai on New Paradigms in Transparency and Governance, which highlighted the various issues on corporate governance that corporates need to focus on.

Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general. Corporate governance is a relatively new issue for the Indian industry. It has assumed greater importance in the context of what has happened to companies like Enron, Xerox, WorldCom and Merck.

Shailesh Haribhakti, vice-president, Indian Merchants Chambers, and managing partner and CEO, Haribhakti group, made the keynote presentation on value creation in corporate governance. He said there is a lack of desire to follow good corporate governance practices. The need of the hour is to train the investor community. Today corporates only focus on an earnings-per-share aspect and not on economic value creation.

In todays world the investor will have to be educated and will have to give up to false expectations, he said. Trust is the key. Chief financial officers need to be as responsible as CEOs in matters of good corporate governance. While much has been stated about the form of good corporate governance, lots more need to be done on substance.

Tejpavan Gandhok, country manager, Stern Steward and Company, made a presentation on Internal corporate governance: How the EVA framework can work. He said the issues of good corporate governance are simple to follow but difficult to implement. In todays world internal corporate governance is most important when the owner and manager are the same. The employees stock options are not the answer to enhancing shareholder value. There also has to be a performance criterion.

He pointed out that in India the cost of capital is very high, and there is a high ratio of inefficient usage of capital. Two-thirds of the capital in the Indian capital market is in the hands of the wealth destroyers, who have a market value which is less than their book value.

He further said key problems are caused by the excessive focus only on EPS. What really needs to be focussed on is the economics of business. What Indian business really requires is a roadmap to measure economic value. Performance accountability has to be based on the bottomline and management must focus on economic consequences rather than accounting rules. EVA is an economic measure and it would differ from business to business.

Uday Gulvadi, director, Moores Rowland Consulting, made a presentation on IT governance and said IT companies have failed to deliver the promised value and business benefits. The 9/11 attacks and the dotcom bust have added to the woes of IT companies. A look at the overall investment pattern will reflect that only 34 per cent of the total investment is spent on strategic research and product development, while a chunk of 66 per cent goes on maintaining existing investment.

To have a good IT governance you require a linking with strategic business goals, he said. There is a need to create a set of performance measures and there is a need to exploit current IT investment to the fullest potential. To optimise value of IT companies there is a need for them to closely align their business and IT strategies. There is a need for a robust cost and benefit analysis to maximize the benefits derived from the IT sector.

S Venkatraman, director (financial sector and corporate governance ratings) Crisil, while speaking on the occasion said companies should not only focus on protecting the interests of shareholders but also the interests of vendors and retailers. Corporate governance should address issues not only related to the large shareholders but also focus more on the interests of the minority shareholders.

He said in a study done by McKinsey, more that 75 per cent of the companies felt those board practices and financial performance have a high correlation. There is no standard international benchmark for good corporate governance and it differs from culture to culture. If a company follows a practice of good corporate governance it adds to the rating profile of the company.

For good corporate governance there has to be transparency in the ownership management and a wider spread of shareholders is better for the health of the company, he added. In India, corporates are very reluctant to disclose information, so many Indian companies do not make it to the international rating charts. To follow a practice of good corporate governance within the company there has to be a positive correlation between remuneration and performance. Good corporate governance should not be made mandatory it should be voluntary.

Y M Deosthalee, chairman, CII (western region) corporate governance sub-committee, and CFO and member of the board, L&T, in his welcome remark said corporate governance can be defined narrowly as the relationship of a company to its shareholders or, more broadly, as its relationship to society. Corporate governance is about promoting corporate fairness, transparency and accountability.

He said education, technical skills, core competency and a system of effective communication, both internal and external, are the prerequisites of good governance. Good governance is a source of value addition to the organisation. It provides stability and growth to the enterprise. A good governance system, demonstrated by adoption of good corporate practices, builds confidence. It is a criterion, which applies not only to large corporates but also to small- and medium-size companies.

The conference was attended by leading industry heads and CEOs, who actively participated and debated on issues companies need to comply with to follow a transparent corporate governance code.