Vat­sala Gaur

The Economic Times - - Saturday Feature -

to­mates rou­tines and pro­vides alerts to fos­ter an at­mos­phere of good cor­po­rate gover­nance. Like Le­ga­sis, Cim­plyFive too is work­ing on a tool that helps com­pa­nies eval­u­ate their boards.

“Board eval­u­a­tion is treated like a statu­tory req­ui­site, al­most like a com­pul­sory med­i­cal test that you un­dergo be­cause you have to. Right now, the law asks only for a re­port on eval­u­a­tion and means em­ployed. They do not ask for re­sults,” Shankar Ja­ganathan, founder, Cim­plyFive Cor­po­rate Sec­re­tar­ial Ser­vices, said.

Cim­plyFive and InGovern, an in­de­pen­dent cor­po­rate gover­nance re­search and ad­vi­sory firm, re­leased in May, 2016, a study of board eval­u­a­tion prac­tices in In­dia’s top 100 com­pa­nies in 2015. Only five got 3-star rat­ings, the high­est that any com­pany got for their 2015 dis­clo­sures for dis­clos­ing pos­i­tive re­sults of board eval­u­a­tion. These were Am­buja Ce­ments, Con­tai ner Cor­po­ra­tion, Fed­eral Bank, HDFC and Hero Mo­tocorp. In­fosys got a two-star rat­ing, along with ITC, Wipro, Bharti Air­tel and 48 other com­pa­nies while Adani Ports, Bosch, Idea Cel­lu­lar and Maruti Suzuki were among the com­pa­nies rated one star.

“In a large listed com­pany with a mar­ket cap of over ₹ 5000 crore, a for­mal meet­ing was con­ducted for eval­u­a­tion but three of the four in­de­pen­dent di­rec­tors (ex­cept the lead in­de­pen­dent di­rec­tor) took and were granted leave of ab­sence. En­tire eval­u­a­tion was done by the lead in­de­pen­dent di­rec­tor. In an­other listed com­pany, a CA act­ing as an in­de­pen­dent di­rec­tor was man­dated to fill in forms on be­half of all di­rec­tors and com­plete all the doc­u­men­tary for­mal­i­ties. Also, while the terms of in­de­pen­dent di­rec­tors are ex­tended on the ba­sis of their an­nual per­for­mance eval­u­a­tion, we’ve never heard of an in­stance where the per­for­mance eval­u­a­tion has caused the re­moval of an in­de­pen­dent di­rec­tor,” said Tul­japurkar.

A 2015 re­port by the World bank’s In­ter­na­tional F i na nc e Cor p or at ion ( I F C) t it le d ‘ Boa r d Eval­u­a­tions: In­sights from In­dia and Beyond’ said board eval­u­a­tions are in­ef­fec­tive and in­clude de­fen­sive at­ti­tudes by di­rec­tors, le­gal and pro­ce­dural con­cerns and per­ceived busi­ness risks in In­dia. In­dian di­rec­tors suf­fer from a “prima donna com­plex” where they find it al­most de­mean­ing that be­ing di­rec­tors, they, too, have to un­dergo the process of eval­u­a­tion, Sandeep Parekh, founder, Finsec Law Ad­vi­sors and a for­mer ex­ec­u­tive di­rec­tor at Sebi, told ET.

“Hav­ing a soft­ware for eval­u­a­tion would dra­mat­i­cally re­duce the amount of lever­age which a pro­moter group, for in­stance, has over in­de­pen­dent di­rec­tors.”

Board eval­u­a­tion has not been a fa­mil­iar in­ter­na­tional prac­tice. Even the coun­tries that have pi­o­neered this change have been in­tro­duced to this con­cept only in the last 12 years. How­ever, a study in Bel­gium re­ferred to in the re­port by IFC has re­vealed that “the re­quire­ment for pe­ri­odic board eval­u­a­tion is one of the least re­spected gover­nance rec­om­men­da­tions”.

“The onus of car­ry­ing out ef­fi­cient board eval­u­a­tion is as much on the in­vestors and in­sti­tu­tional in­vestors as it is on the board. If the share­hold­ers ask for it, the boards are bound to take it se­ri­ously,” said Sri­ram Subra­ma­nium, founder and MD, InGovern Re­search. “The ar­gu­ments be­ing of­fered re­gard­ing the pay hike of the In­fosys CEO and sev­er­ance pack­ages would have had a bet­ter back­ing if the eval­u­a­tion was done se­ri­ously. A lot of ques­tions could have been an­swered by just re­vis­it­ing the eval­u­a­tion doc­u­ments.”

SANDEEP PAREKH, FOUNDER, FINSEC LAW AD­VI­SORS

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