Corporate governance standards at India's top 100 listed companies saw an improvement in 2021 due to better disclosures and stewardship practices, according to Institutional Investor Advisory Services.
The median governance score of companies in the S&P BSE 100 index improved to 62 from 61 out of 100 last year, highlighted the report by IiAS. While the rise is marginal, almost twice as many companies as last year now have scores above 70—putting them in the 'leadership' category. A score of 60-69 is considered 'good', while 50-59 is considered 'fair'.
Overall median scores were pulled down by governance at public sector firms, with most failing to meet even the basic compliance requirements for board composition.
"Lack of adequate disclosures and poor independent representation on the board continue to plague PSUs. They have continued to underperform their peers in the overall scorecard," the report said.
IiAS scores companies broadly in four areas: shareholder rights, board responsibilities, transparency and stakeholder management. For every factor, if a company's practices are in line with best global standards, it scores 2 points; and if it just meets Indian regulations, then it scores one point. Otherwise, it gets nil.
According to IiAS, the S&P BSE 100 index comprises 67% of the total market capitalisation, which makes it a fair proxy of governance standards among Indian listed firms. Indian companies continued to score high on disclosures and transparency, but lagged in the areas of stakeholder management and board responsibilities.
Sectorally, financials, consumer discretionary and industrials saw an improvement in governance practices. Telecom noted a decline, while median scores for information technology remained the same.
IiAS noted that companies with higher institutional shareholding tend to have better scores, and they have driven the improvement in governance practices. "Institutional investors, both global and domestic, have increased their expectations of companies with respect to their governance practices," the report said.
"Stewardship codes and responsibilities have had a material impact on how these investors have engaged with companies and voted on shareholder proposals."
Investors are getting more vocal, which is reflected in the increased push back on shareholder resolutions.IiAS Statement
IiAS' corporate governance scores are built on a framework developed jointly with the International Finance Corp. and the Bombay Stock Exchange. It is based on the accepted corporate governance standards of the Organisation for Economic Co-operation and Development.
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