Companies not complying with the ?voluntary? guidelines relating to corporate governance laid down by the corporate affairs ministry in December 2009 may soon have to offer explanations for the delay. Corporate affairs minister, Salman Khurshid told FE that even though the guidelines would continue to be voluntary, the government intends to ask the companies not complying for the reasons for the their recalcitrance.
The government?s prodding, analysts say, would force many companies to behave, as open non-compliance will affect their reputation.
?The guidelines on corporate governance may not be compulsory but certainly there should be an explanation as to why the companies are not complying with it. Disclosure and explanation are all that we are asking for? you don?t have to do what we are asking you to do but just explain why you can?t and that?s very much democratic,? Khurshid said.
Though he did not specify any timeframe for seeking explanations, indications are that it could be by the end of the current calendar year. ?The Companies Bill will be tabled in the Winter Session of Parliament and that will be the time when we need to see how much of these (guidelines) we can bring into rules and regulations,? Khurshid said.
The ministry?s guidelines are over and above the ones stipulated by market regulator Sebi under Clause 49 of the listing agreement.
The guidelines include: separation of the offices of chairman and CEO to promote balance of power, setting a limit of seven on the maximum number of directorships for individuals, clearly listing out the responsibilities of the director on the board, among others.
India Inc responded to Khurshid?s planned move positively. In fact, Mohandas Pai, director HR at the country?s second largest software firm Infosys said the compliance with the guidelines should be made mandatory.
?It is a half-hearted attempt by the government.
Ideally, the guidelines should be made mandatory for companies to follow. The guidelines should be lauded because it seeks to bring in accountability even to the privately held companies?, Pai told FE.
Venugopal Dhoot, chairman of Videocon Industries said the move would enhance the image of Brand India overseas and create more transparency in corporate governance. While welcoming the move but adding a bit of caution, Harpal Singh, chairman of CII?s northern region said the move should not lead to more paper work for companies. ?The real impact will depend on the way the government goes about implementing the move,? he said.
Vikas Vasal, executive director at KPMG, explained that India Inc is going through a transitional phase wherein corporate governance should take precedence. ?Corporate governance is not a regulation but essential for business survival?it needs to take the front seat?.