Better Corporate Governance

Updated: Jan 28 2003, 05:30am hrs
The Crisil GVC level 1 rating has gone to Hero Honda Motors, HDFC Bank and Housing Development Finance Corporation for their creation of wealth for all stakeholders as well as for adopting sound corporate governance practices. Dabur India has bagged Crisil GVC level 2 for wealth creation and its high corporate governance. Crisils exercise is in keeping with the global trends towards transparent and clean corporate practices. Crisil has given importance to the past record and future expectations of the rated companies. The rated companies are on a strong ground in terms of both the parameters. Post-Enron, popular perception of companies in America and elsewhere has undergone a sea change. Once passive shareholders are now pressurising chief executives (CEOs) to adopt more transparency in their corporate dealings. Now, a company will be judged by its viability in terms of integrity and trustworthiness and not merely by its ability to make numbers at any cost. No longer can the CEOs or company boards bamboozle stakeholders with desiccated figures of earnings or stock prices. Nor can they trick them into approving fat salaries and substantial stock options. In the future, non-tangible virtues of trust, transparency and accountability will be crucial in shaping the destiny of companies. Crisil ratings are a small beacon to the future trend. The current corporate thinking in the aftermath of a slew of corporate scandals and the busting of dotcoms sets much store by corporate values as a bedrock of sustainable growth rather than mere wealth creation or returns to shareholders.

It is significant that Crisil feels corporate governance practices in the rated companies are moderate as compared to global corporate practices or even in relation to some Indian companies. In simple words, the rated companies and many more to be covered by Crisil have to go a long way before these companies can benchmark against global practices. This factor will be crucial for Indian companies seeking to tap global financial markets for funds. Less than a score of Indian companies are listed on the Nasdaq as against a number of Israeli companies. The post-Enron thinking in corporate America now concentrates on a search for new ideas that will ensure success. India Inc should innovate too. American CEOs are now expected to shift their focus away from perks and stock options for themselves, towards building a system of values that incorporate trust, transparency and accountability, or value-based corporate governance. In the Indian context, this seems to be a tall order as yet. Business families control India Inc. Those who forget that trust, integrity and fairness provide a ballast to bottomlines will soon face sagging bottomlines and eroding levels of confidence. That does little good to the long-term prospects of these companies.