BREAKINGVIEWS - India's corporate governance cleanup is welcome

SINGAPORE Mon Jan 7, 2013 2:28pm IST

Buildings under construction are seen along the Mumbai skyline November 23, 2008. REUTERS/Arko Datta/Files

Buildings under construction are seen along the Mumbai skyline November 23, 2008.

Credit: Reuters/Arko Datta/Files

Related Topics

SINGAPORE (Reuters Breakingviews) - India's corporate culture is about to witness a shakeup. A new law will make it mandatory for most Indian companies to separate the role of the chief executive and the chairman of the board. The shift, already the norm in the United Kingdom but long resisted elsewhere, should help to narrow India's governance discount.

The change is far from cosmetic. The CEOs of about half of India's top 50 listed companies double up as chairmen. Those that want to continue combining the roles will need the explicit approval of their shareholders.

The country's securities regulator is also getting in on the act. The Securities and Exchange Board's proposed governance norms for publicly traded companies are actually tougher than corporations face in more advanced economies. For instance, India may require independent directors resigning their position to publicly disclose the reason for their departure - and "personal reasons" won't be considered a satisfactory answer if directors are only giving up one of multiple directorships.

The regulator also wants to explore the viability of requiring companies above a certain size to appoint at least one independent director from among small shareholders. The idea is worth a try. Company founders in India encounter little or no opposition from eager-to-please boards. A particularly egregious instance was the way independent directors of Satyam Computers rubber-stamped the former CEO's desperate attempt to cover up fraud in December 2008.

Of course, changing the rules is no guarantee of future good behaviour. Even boards that boast of independent leadership can do better. Infosys Technologies, the only Indian entry last year in CLSA's selection of 20 large Asian companies with best corporate governance, lists KV Kamath, a former banker, as a non-executive chairman. But a former Infosys CEO holds the position of executive co-chairman. Meanwhile, Kamath continues to be "independent" chairman at ICICI Bank, even though he was its founding CEO.

In Asia's corporate governance rankings, India lags behind Singapore, Hong Kong, Taiwan, Malaysia and Thailand, but ahead of China, South Korea, the Philippines and Indonesia, according to CLSA. Moving up the ladder should make the market more attractive to overseas investors.

Left to their own devices, companies would be reluctant to change, as they have been in the United States. And while an overly legalistic approach can backfire, using regulation to give companies a nudge forward is a sound idea.


- The Securities and Exchange Board of India, the country's market regulator, unveiled a set of proposals on January 4 seeking to boost corporate governance standards for publicly traded companies.

- The proposed measures include separating the roles of the chief executive and the chairman of the board. The regulator's move follows in the path of the new Companies Bill, which was recently passed by the lower house of parliament.

- Once the bill becomes law, most companies that continue to vest both responsibilities in one person will need to amend their constitutions with shareholders' approval.

(Editing by Peter Thal Larsen and Katrina Hamlin)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (1)
CommunalAward wrote:
90% of corrupt money ($2 Trillion) in India is with FORWARD CASTE people and 10 of them also evaded $100 Billion to Indian Banks.

Jan 10, 2013 1:14pm IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Shares Hit Record

Sensex, Nifty rise to second consecutive record high

Sensex surges 500 points on BOJ easing, L&T gains

The BSE Sensex and Nifty surged to record highs for a second consecutive session on Friday after Bank of Japan's surprise expansion of its massive stimulus programme raised hopes for additional foreign inflows, boosting blue-chips such as Larsen & Toubro.  Full Article 


Indian Economy

Indian Economy

India's fiscal deficit in H1 almost 83 pct of full-year target.  Full Article 

M&M Earnings

M&M Earnings

M&M Q2 net profit down 4 percent, hit by poor monsoon.  Full Article 

Ban on E-Cigs?

Ban on E-Cigs?

Govt considers ban on e-cigarettes, sale of single smokes.  Full Article 



Silver futures in India hit four-year low on global cues.  Full Article 

BOJ Policy

BOJ Policy

BOJ shocks markets with surprise easing as inflation slows.  Full Article 

Shadow Banking

Shadow Banking

China's shadow banking sector growing rapidly, third largest in world - FSB.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage