Public sector undertakings (PSUs) continue to underperform on compliance requirements, particularly with respect to the companies' board structures, according to a report by Institutional Investor Advisory Services (IiAS).
The proxy advisory released their March 2024 report, based on the corporate-governance practices of BSE100 companies, on March 6.
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Overall, India Inc's corporate governance scores improved over the past five years despite the more stringent benchmarks, noted the advisory. Companies that have scored 60 and over (GOOD + LEADERSHIP categories) are now 64 out of 100, against just 45 in 2019.
The highest score of BSE100 companies increased to 84, versus 82 for the previous year. The lowest score increased to 49 in 2023 from 43 in 2022.
"The skew has clearly shifted, reflecting better governance practices," the IiAS report added.
The report is based on data gathered upto December 31, 2023. As of that date, 93 of the BSE100 companies were compliant with regulatory
requirements of board independence. All of the seven non-compliant companies were PSUs, one of which was a public sector bank, the report stated.
"Most PSUs continue to have weak board structures or remain non compliant with even the minimum regulatory standards. This has been a concern over the past several years, but regulatory enforcement over PSUs has been weak," said the report.
"For a large part of the regulatory requirements on corporate governance, the government has created an exception for PSUs in the regulation itself. 7 of the 13 PSUs in the BSE100 did not meet the regulatory standard for board independence on 31 December 2023," it added.
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The number of PSUs on BSE100 index have reduced from 19 to 13 over the past five years, and this is a result of their poor governance practices, according to IiAS.
"That markets reward performance is also seen in the changing index composition. PSUs have, for the longest time, trailed the market on governance practices. In several instances, their boards are not compliant with the applicable regulations. As a result, the number of PSUs in the BSE100 index have reduced over the past five years," the report stated.
Hetal Dalal, President and COO, IiAS, noted how corporate governance has been appreciated by the market.
In a statement released to the press, she said, "A few exceptions aside, markets generally reward well-governed companies. This is also reflected in the change in index composition over the past five-years. Well-governed companies have entered the S&P BSE 100 while those that needed better governance practices have exited."
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