Many top companies fail to carry out quality corporate governance

Proxy advisory firm InGovern has highlighted where independent directors and statutory auditors of top listed companies have exceeded their tenure

An analysis by proxy advisory firm InGovern, of the top 100 companies that form part of the Nifty and Junior Nifty indices, shows that the average tenure of independent directors in the top 100 companies is about seven years. In as many as 21 companies, independent directors had average tenure of more than nine years and there were 23 companies where more than half of the have served on the board for more than nine years, which is not as per best practice. The report also highlights that out of the 100 companies analysed, only 45 companies have all independent directors in its audit committee. As many as 21 companies have executive directors as part of their audit committee, which is not a goodcorporate governance practice. The Companies Act, 2013 limits the tenure of independent directors to hold office up to two consecutive terms, each term of up to five years. Independent directors will be eligible for appointment only after a cooling period of three years.
 

Many companies failed to comply with the Listing Agreement. As many as 13 companies did not have an independent director or non-executive director as chairman and hence were not in compliance with Clause 49 of the Listing Agreement. The Listing Agreementmandates that for listed companies, where the chairman is an executive director or a promoter, the Board should be constituted with at least 50% independent directors. Out of the top 100 companies, 20 companies had less than 50% independent directors on their Boards. Of the 20 companies, four companies had an independent director as chairman, three had a non-executive director as chairman.

“Only 45 companies had audit committees comprising only of independent directors,” the report highlighted. As many as 21 companies have executive directors as part of their audit committees, which is not a good corporate governance practice. The average number ofaudit committee members in the Nifty and Junior Nifty companies was approximately four. Out of the 100 companies analysed, only 45 companies have all independent directors in itsaudit committee. The Listing Agreementmandates listed companies to have a minimum of three directors as its audit committeemembers, two-thirds of which shall be independent directors along with the chairman of the audit committee being an independent director.
 

Of the 100 companies, as many as 36 companies have retained the same audit partner for more than 10 years. The average tenure of the statutory auditors in top 100 non-public sector undertaking (PSU) listed companies was approximately 10 years. Barring public sector companies, where appointment of auditors is done by the Comptroller and Auditor General (CAG) on a three year rotation basis, out of the remaining companies, 60 companies have had the same statutory auditors for more than 5 years. The Companies Act, 2013 prescribes a mandatory rotation of audit firm for listed companies post 10 yearsand also restricts the maximum number of companies that can be audited by a partner in an audit firm to 20 companies.
 

Five of the top 100 companies have close to half of their independent directors holding more than 10 outside directorships. Nearly 8% of the independent directors on an average in Nifty and Junior Nifty companies have outside directorships in more than 10 public companies. The Companies Act, 2013 limits the maximum number of outside directorships for all directors to 10 public companies and 20 companies in total.

As a corporate governance best practice, InGovern suggests that shareholders should vote against re-appointment of directors who attend less than 75% Board, annual general meetings (AGMs) or committee meetings or have not discharged their duties as director. The average board attendance in 2013 was 88% for companies forming part of the Nifty and Junior Nifty indices. Around 17% of the directors on an average attended less than 75% of the Board meetings.

The report mentions that there was a 6% year-on-year decrease in number of resolutions passed. There were 4,012 resolutions proposed in the proxy voting season of 2013 by Indian listed companies forming part of the coverage universe (585 companies of the S&P 500 and BSE 500 indices) compared to 4,271 resolutions passed in 2012 proxy voting season. There were 3,474 ordinary resolutions and 538 special resolutions proposed by Indian companies. Out of the total resolutions, 3,518 resolutions were proposed by management and 494 resolutions were proposed by shareholders.
 

The report further listed the resolutions passed by companies in 2013 came under severe media, investor and/or regulatory scrutiny due to non adherence to good corporate governance practices. The table shows a few examples of such resolutions that came under larger investor scrutiny in 2013:

 
              Share It & Spread It 
 

______________________________________________

                          ♦ Subscribe And Be Updated Yourself ♦ 
                      ♦ ♦  www.pullaharshavardhan.blogspot.in ♦ ♦ 
                               ♦ ♦ ♦ Be a FAN In Facebook ♦ ♦ ♦ 
______________________________________________