Institutional EYE

Commentary on Corporate Governance Issues

Stewardship Code for India – IRDA intensifies the agenda

IRDA’s announcement1 earlier this week of a mandatory stewardship code for insurers will further strengthen markets. Insurance companies, one of the largest market participants, will be compelled to vote on shareholder resolutions and engage with companies to address governance issues. This will intensify the current corporate governance debate in India. The Insurance Regulatory and Development Authority of India (IRDA) is the first of the regulators to implement a stewardship code in India. An agenda that SEBI began, requiring mutual funds to vote on shareholder resolutions, has morphed into a larger and more structured agenda of engagement with investee companies for the insurance sector.

The Ides of March: a testing time for board members

India belongs to the small but growing group of countries which have made board evaluation and its disclosure mandatory. March is when most boards undertake this exercise. Being far removed from the minutiae, three items in the Companies Act 2013 agitated boards when this Act was rolled out: having a women director on the board, spend on corporate social responsibility (CSR), and board evaluation. India Inc can always do more, but it has progressed on all three fronts. I will visit CSR and women directors sometime in future, and focus on board evaluation for now. First the need for board evaluation itself. The board and its functioning has always been a black box. While boards in India have

Corporate Social Responsibility: Sustainable Progress

Overall spends of S&P BSE 100 companies increased 25% to Rs.65.5bn, or 1.7% of their three-year average profits. The largest increase in overall spends have been from public sector companies (PSUs): PSUs have increased their spends by 41% to race upto 1.8% of three-year average profits. This year, PSU spends are higher at 1.8% are higher than those of non-PSUs (which are at 1.7%). IiAS studied the FY16 Corporate Social Responsibility (CSR) initiatives and disclosures of the S&P BSE 100 companies. The data reveals that companies are taking their CSR initiative seriously. Over 60% of the aggregate FY16 spend was made towards the causes of education, and hunger, healthcare and poverty alleviati

Board Evaluation in India: Disclosure and Practices 2015-16

This is our second study on board evaluation disclosures and practices in India. This compilation is for FY 2015-16: the first study covered FY 2014-15. This report expands on the first. The first study reviewed disclosures made by 75 companies (- the NSE Nifty 50 index plus another 25 large chosen at random), on their board evaluation practices. The scope of this study includes disclosures of 100 listed companies, of which 50 are part of NIFTY 50 index and the balance 50 are part of Nifty Midcap 50 index. It compares the changes in board evaluation practices, over the previous year, for these 100 companies, providing a sense of how these have evolved. Only now that it has become mandatory t

The 'here and now' boards

Myopia at the boardroom can be unhealthy and leave stakeholders confused about the company’s strategy. Making structural changes and then going back on these decisions just as soon as shareholder approval is received displays a certain lack of understanding about the business dynamic and its external environment. Boards are expected to be thoughtful and provide investors comfort in the predictability of their behaviour. Boards are responsible for taking actions that are in the best interest of the company – both for the short-term and for the long-term. Structural changes are typically taken for the long-term interest of the business – either to mothball unsuccessful verticals, or to creat

Auditing the Auditors: Audit Quality Indicators

With regulations and financial reporting standards set to change the audit landscape in India, audit committees must evaluate their existing auditors for their audit quality and independence, and establish criteria for selecting new auditors. To assist audit committees with this change, IiAS has drafted a list of ‘Audit Quality Indicators’ which may be used as a guiding reference to evaluate and select auditors. Audit quality is difficult to assess in its absolute terms, but there are indicators that can reduce the subjectivity involved in evaluating audit quality. AQIs are a set of qualitative and quantitative parameters to provide a basis for comparison across different audits and audit fi

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