| Hony.
Editor |
| Dr.
Bindi Mehta
Professor
& Chairperson (Research & Publications)
Narsee Monjee Institute of Management Studies
(Deemed University) |
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National
Events |
| Corporate
governance to guide CalPERS |
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Econmic Times reports that although California
Public Employees Retirement System (CalPERS)
had announced its interest in investing
in the Indian capital markets earlier
this year, its activism on adherence to
corporate governance standards indicates
that the Indian investments would be restricted
to stocks of very few companies.
CalPERS
has been on a warpath with many of the
companies it invests in, regarding practices,
which it believes are against sound corporate
governance.
Confirming that this would be a serious
consideration for investing in Indian
equities, a CalPERS spokesperson told
Business Line, "CalPERS takes corporate
governance into consideration as one of
many factors when deciding whether to
invest in a particular country's equity
market."
In American companies that CalPERS invests
in, it has a three-pronged strategy -
promoting effective shareholder participation
in selection of management-nominated directors;
proxy reform, especially for confidentiality
in collection, independence in tabulation
and uniformity in the treatment of abstentions
and non-votes; and setting meaningful
criteria for director qualifications,
to be adopted publicly by the board of
each company.
The initial investment by the company
in Indian markets may be too small for
it to get involved in corporate activism.
CalPERS' allocation of funds to emerging
markets is expected to be $2 billion.
"Our international investments are
managed by external managers who have
full discretion on the amount they invest
in India; so there is not a set allocation.
The managers' performance is a measure
against an international benchmark in
which the countries are weighted according
to market capitalisation," a CalPERS
spokesperson said.
Although the announcement of CalPERS'
decision to invest in India was made in
April 2004, the company is yet to complete
the registration formalities.
"We are currently in the process
of meeting the requirements of the Indian
Government for investing in publicly traded
equities in India," the spokesperson
said.
Recently, CalPERS demanded the resignation
of Richard Grasso, Chariman, New York
Stock Exchange, on the basis of his $30-million
pay package and substantial retirement
benefits.
Similarly, CalPERS had voiced concern
about Michael Eisner, Chairman and Chief
Executive, Walt Disney, before he was
stripped of his chairmanship.
Currently, CalPERS is voting against the
re-election of directors of companies
whose auditors also provide non-audit
consultancy services.
If the company's interest in the Indian
bourses continues to grow and there is
greater allocation of funds, CalPERS can
be expected to make sweeping changes in
corporate governance norms here as well.
( Source: Economic Times)
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Corporate
Governance (CG) pays |
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A study by Crisil reiterates the world wide belief that local
listed companies with better governance practices command a superior
premium compared to average valuation for the relevant sectors.
The
valuation pattern of 40 leading companies accounting for significant
portion of BSE-30 and NSE’s Nifty index indicated that companies
that employ better governance practices could significantly improve
their market valuations. This local experience is in line with
observations that the governance standards play a more important
role in the valuations of companies in emerging markets than in
developed markets.
Governance
premium was defined as the ratio of a company’s growth-adjusted
price to earnings (PE) ratio to the sector’s average for this
parameter. The major sub-components are:
Customers:
The parameters include customer satisfaction levels, other surrogate
measures like market share and cost savings passed on to customers.
Employees: The parameters considered include
absolute salary levels, adjusted growth in average annual salaries,
employee satisfaction levels, employee stock options, attrition
rates and the like.
Suppliers: The factors considered include the
relative change in credit terms, record of passing on benefits
like higher realizations to suppliers and the support extended
to suppliers, among others.
Society: Here, the measures include total direct
taxes paid, employment generated, expense on social infrastructure,
environmental and social impact cost and fair practices.
(Source:
Economic Times, June 15, 2004)
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Directorship
- RBI Directive |
| In
a step towards improving corporate governance in private banks,
the Reserve Bank of India (RBI) has directed private sector banks
to undertake a due diligence to determine the suitability of persons
before their appointment. It also has asked for an undertaking/
covenant to be signed by the Directors arising from the Ganguly
Committee`s report on strengthening the Boards of banks. The directive
read as follows:
RBI/2004/268
DBOD.No.BC.105/08.139.001/2003-04 June
25, 2004
The
Chairmen and Managing Directors /
Chief Executive Officers of banks in private sector
Dear
Sir,
‘Fit
and proper’ criteria for directors of banks
Please
refer to our circular DBOD.No.BC.116/08.139.001/2001-02 dated
June 20, 2002, forwarding a list of recommendations of Dr. Ganguly
Group Report to be implemented by banks based on the decision
taken by the Board.
2.
The Group, inter alia, recommended that banks should require the
directors to execute a covenant binding them to discharge their
responsibilities to the best of their abilities, individually
and collectively. Further, the issue related to the broader issue
of fit and proper status of directors and signing of the covenants
should be one of the criteria to be eligible to be a director
of a bank. Dr. Ganguly Group Report has also recommended that
due diligence of directors should be done in regard to their suitability
for the post by way of qualifications, technical expertise, track
record, integrity, etc.
3.
It has, thus, become imperative to lay down specific criteria
to be fulfilled by the persons before they are appointed on the
Boards of banks and therefore it has been decided that:
(a) the banks in private sector should undertake a process of
due diligence to determine the suitability of the person for appointment
/ continuing to hold appointment as a director on the Board, based
upon qualification, expertise, track record, integrity and other
‘fit and proper’ criteria. Banks should obtain necessary information
and declaration from the proposed / existing directors for the
purpose in the format enclosed.
(b) the process of due diligence should be undertaken by the banks
in private sector at the time of appointment / renewal of appointment.
(c) the boards of the banks in private sector should constitute
Nomination Committees to scrutinize the declarations.
(d) based on the information provided in the signed declaration,
Nomination Committees should decide on the acceptance and may
make references, where considered necessary to the appropriate
authority / persons, to ensure their compliance with the requirements
indicated.
(e) banks should obtain annually as on 31st March a simple declaration
that the information already provided has not undergone change
and where there is any change, requisite details are furnished
by the directors forthwith.
(f) the board of the bank must ensure in public interest that
the nominated / elected directors execute the deeds of covenants
as recommended by Dr. Ganguly Group (cf. our circular DBOD.No.BC.116/08.139.001/2001-02
dated June 20, 2002) every year as on 31st March.
4.
Accordingly, our Directive DBOD.No.BC.104/08.139.001/2003-04 dated
June 25, 2004 is enclosed.
5.
Please acknowledge receipt.
Yours
faithfully,
(
B. Mahapatra )
Chief General Manager
Encl : As above
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© 2001 Academy of Corporate Governance |
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