Governance wake up call!

It's a new decade and it's brought with it new Corporate Governance standards and challenges!

At the turn of the year, the Ministry of Corporate Affairs released new voluntary corporate governance guidelines. Guidelines that recommend sweeping changes such as limiting the term of an Independent Director to 6 years, separating the role of Chairman and CEO,  'Impact Analysis on Minority Shareholders' of every board agenda item and the rotation of audit firms every 5 years. And though the guidelines are voluntary, the ministry expects that companies inform their shareholders if it hasn't met any of them.

 

Could this herald a new era of governance disclosures & transparency?

 

Earlier this year the Church of England, followed by other investors like the Joseph Rowntree Charitable Trust, Marlborough Ethical Fund and Millfield House Foundation disinvested millions of dollars worth shares in metals giant Vedanta, citing ethical concerns regarding the company's human rights record in Orissa. This comes two years after Norway's sovereign fund, the 2nd largest in the world, sold it's 13 million dollar stake in Vedanta on  grounds of environmental and human rights violations.

 

Could this investor rejection force Indian companies to improve their governance standards?

 

This year the U-N Special Representative will work to finalise proposals that corporate law be changed to promote human rights. Some of the potential changes include a human rights impact assessment by the Board of Directors and disclosure regimes for environmental, social and human rights issues.

 

Will human rights and environment protection drive new governance standards?

 

And finally this week, SEBI has directed all mutual funds to make detailed public disclosures regarding their voting rights in investee companies. From policies and procedures for exercising voting rights to disclosures on the actual exercise of proxy votes...the new rules expect 'mutual funds should play a more active role in ensuring better corporate governance of listed companies'.

 

Could this herald an era of activist investors in India? 

 

Discussing theses issues in an exclusive interview with CNBC-Tv18's Menaka Doshi are Koushik Chatterjee, CFO - Tata Steel, Shardul Shroff, Managing Partner - Amarchand Mangaldas,  Rahul Matthan, Partner - Trilegal, Sunil Singhania, Executive VP (Equities) - Reliance Mutual Fund and Karina Litvack, Director - Head of Governance and Sustainable Investment at F&C Investments. Let me elaborate a bit on F&C and Karina.

 

F&C is an asset management company with assets of over Euros 100 billion under management. Insurance and Institutional funds are amongst its largest clients. It was amongst the first few investors of its kind, to publish its voting history on its global holdings. It also runs 'The Responsibility Engagement Overlay' - representing and managing votes for other investors. It's a fee based business and F&C has close to 30 such Institutional clients.

F&C also runs a Euro 3 billion 'Screened Ethical Fund'.