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| Infosys Technologies Chairman and Chief Mentor, N R Narayana Murthy has urged the industry to set up an academy to train independent directors to bring stringent corporate governance practices. “India requires at least 4,000 independent directors with more training in corporate governance”. The academy can offer basic training in accounting practices, corporate governance, management analysis and foreign bourses’ norms, Murthy said at The Fourth Asian Roundtable on Corporate Governance organised by the Confederation of Indian Industry (CII). Indian companies, in the wake of the recent accounting scandals involving big firms in the US, should offer training sessions for a few days on business models, parameters for revenue / expenditures risks involved on business such as micro/ macro economies, etc. At present, Standard & Poor is assisting Infosys on the corporate governance practices, added Murthy.
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| Companies raising money through fixed deposits and debentures will face stricter disclosure norms. A working group on corporate governance, set up by the Department of Company Affairs (DCA), is classifying corporates into two categories: direct and indirect public interest companies. The working group is also planning to recommend a new chapter on corporate governance in the Companies Act, 1956. The report is also expected to propose greater freedom for corporates in setting managerial remuneration. A
higher sitting fee for directors is also proposed while companies
will be asked to make more disclosures on shareholders’ meetings,
loans to directors and appointments of relatives of directors
and promoters. More information would also be sought on compliance
with secretarial standards, like the procedure of convening board
meetings. The Working Group headed by the Vice President of the
Institute of Company secretaries of India, Shri Pavan Kumar Vijay
will also prescribe the format in which the disclosures are to
be made.
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Executives seem to be increasingly getting their hands dirty, with 50% of companies experiencing corporate fraud. Manipulation of expense accounts tops the fraud list as far as rupee losses of domestic corporates are concerned. Around 37% of respondents in KPMG’s Fraud Survey 2002 felt fudging in expense accounts is the most common executive fraud. Secret commissions and kickbacks come a close second with 30% of respondents reporting it. Forged documents come in next, while misappropriation / diversion of funds also figure in a big way in India Inc.’s corporate frauds list. The survey also drew
up a profile of a typical fraudster. A typical fraudster will
most likely be a male, between 26 years and 40 years of age,
earns an income of between Rs. 2 lakh and Rs. 4 lakh per annum
and is employed in the company for less than two years. However,
the study notes that the percentage of female fraudsters has
shown a steady rise and has been around 10% over the past three
years. On a sectoral basis, retail is the most prone to frauds,
with 83% respondents of this sector saying that they have experienced
corporate fraud. Surprisingly, the very employee-friendly IT
industry came in second on the corporate frauds stake, with
67% of the companies in the sector experiencing it. Consumer
products come in at No. 3, followed by construction and engineering.
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Planning Commission has underlined the need for an alternative framework for governance envisaging continuous and meaningful interplay of three entities – institutions, delivery mechanism, and supportive and subordinate framework of legislation, rules & procedures. In
a concept note, which has been inserted in the Tenth Plan document,
the commission said, “a useful approach to examine the issues
of governance, whether it is restricted to political, economic
or civic governance or looked at holistically, is to view the
process of inter-mediation”. The commission’s exhaustive agenda
for improving governance include improved people’s participation,
effective decentralization of governance, involvement of civil
society, especially voluntary organisations and the crucial right
to information. The agenda also includes civil service reforms
aimed at improving transparency, fair play and honesty, procedural
reforms for public government interface to get rid of the system
of unnecessary rules, procedural regulations and controls, reforms
of revenue system and mobilization of resources and judicial reforms
with a view to hasten the process of delivery of justice. |
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According
to Mr. Gangopadhyay, the Institute has submitted its recommendations
to the Naresh Chandra Committee, which was set up by the central
government to look into the company - auditor relationship. “This
audit is dynamic in nature and wide enough in scope to ensure
that the interest of investors are safeguarded. The compliance
audit’s objective would be proper compliance rendering investor’s
service, protection of investor’s interest and protection of company’s
interest”.
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The Institute of Chartered Accountants of India (ICAI) had correctly decoded to plug the gaping hole in the business practices of its members that was exposed by A F Ferguson’s withdrawal of the Tata Finance Ltd’ s special audit report. The ICAI’s guidance note has plugged this excuse barring practicing chartered accountants from withdrawing any report once it has been submitted: the decision would cover statutory audits and all other reports & assignments commissioned by companies. The ICAI will, however, not prevent auditors from adding to their repots or submitting a fresh one if new facts have been bought to light that would warrant changes. But a member who flouts the guidance note will invite charges of professional misconduct. Indeed,
the ICAI guidance note and its recent attempts to make auditors
more accountable can be considered a frontrunner to the Naresh
Chandra Committee’s recommendations. The Naresh Chandra Committee
has almost finalised its report and is understood to have made
several important suggestions, which will complement and complete
the disclosures mandate by corporate governance rules of the Securities
and Exchange Board of India (SEBI). |
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| © 2001 Academy of Corporate Governance |
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