Corporate governance in India Inc has been improving over the last few years. And experts say an increase in shareholder activism has been a key factor. CNBC-TV18's Sajeet Manghat and Kritika Saxena share the details of the latest world rankings compiled by the Asian Corporate Governance Association.
The rise in instances of shareholder activism in India has not gone unnoticed. According to the latest report by the Asian Corporate Governance Association, this rise has been instrumental in pushing India's corporate governance score to 54 percent, from 51 percent 2 years ago.
Even though India continues to rank 7th among the 11 countries covered in the report, the ACGA notes that going purely by individual country scores, most Asian countries have shown a marked improvement in governance standards.
India's score has also been helped by the regulations in the new Companies Act 2013, including better regulations for board resolutions, rotation of auditors, shareholder e-voting and minority approval for board resolutions.
However, the report says risk factors include slow enforcement of regulations, the delay in IFRS convergence, potential conflicts of interest for controlling shareholders and the lack of board independence.
The report also says that the biggest change seen over the last couple of years is the greater role of proxy firms in shaping the corporate landscape, thanks to growing acceptance by institutional investors. But of course, the rise in overall score would not be possible without Indian companies moving towards better disclosure and governance practices, and efforts to de-leverage.
Leading the race in these areas are Tata Motors, Hindalco and Tata Steel, all of which have see a rise in scores. But the report also shows that companies like ACC, Ambuja, Infosys and Cadila have actually scored lower over the last two years.
As it points out, corporate governance standards for MNCs have declined. This is attributed to rising interference by parent companies through increasing royalties and M&As.
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