New Delhi, Nov 24: The Kumar Mangalam Birla Commitee on corporate governance is likely to submit its report early December. ``We are awaiting the suggestions which may be taken up at the next board meeting,'' said Sebi chairman DR Mehta, adding that all companies (listed or unlisted) will have to adhere to the corporate governance norms once they come into effect. While some of the norms will be compulsory (like guidelines on audit committee and compensation committee for directors), others will be voluntary.
"Companies which fail to adhere to the norms will not be allowed to list on any exchange," Mehta said, adding that listed companies will be given some time to adhere to these norms. However, Mehta does not expect 100 per cent success overnight. ``Even if top-rung companies follow the guidelines, it will take care of the bulk of trading on the bourses,'' he added.
There will be punitive measures in case of violations, warned Mehta, though he declined to spell out these measures in detail. ``While it would be up to the bourses to ensure compliance, through a threat of delisting, Sebi could also take action under Section 11 B of the Sebi Act,'' Mehta said. About delisting, Mehta said, as most of the Indian promoters hold a sizeable stake in their companies, a delisting would mean that the value of their holding will drop drastically. Therefore, it is highly unlikely that corporates will not adhere to these guidelines.
``By putting the companies under a `watch', prospective investors can be warned that the company is not adhering to the guidelines,'' Mehta said.The Sebi chairman also pointed out that companies tapping investors through initial primary offers will have to follow the code. ``It is obvious that companies going for listing will have to abide by the rules on corporate governance. If they do not, they will not be allowed to list.''
Even listed companies tapping their existing investors will have to follow these regulations. The committee is planning to make public information shared by companies with institutional investors. On the dispute resolution mechanism, he said, ``Let the draft be put through first and then we would take up other matters.'' The corporate governance code would include not only financial disclosures but also non-financial ones, Mehta said.
According to Michel Prada, president, Commission of Operations on French Bourses, corporate governance was important to attract FII investments.
``Corporate governance is very important for emerging markets, since FIIs look at the standard of corporate transparency before investing in a emerging market. They will bypass the country and invest elsewhere if they are not satisfied.''
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.