|India opens public consultation for corporate governance code|
As a response to one of India’s biggest corporate scandals – the Satyam case – the Indian government is planning to launch a corporate governance code by the end of this year. The country’s Ministry of Corporate Affairs has engaged the Confederation of Indian Industry (CII) to prepare a study with recommended better practices. The document was posted for public consultation in December and, according to minister Salman Khurshid, there will be few changes to the CII’s proposed draft. Compliance with the code will be voluntary in the first year, then compulsory after that.
Among other things, the new code will focus on board independence, the “Achilles heel” of Indian corporate governance. Having nomination committees comprised of independent members will attempt to diminish this gap, as company directors are usually appointed by the controlling shareholders. In the Satyam case, much criticism was addressed at the work of highly renowned – but not very knowledgeable in finance – board members.
Related party transactions, a crucial issue in the Satyam episode, will also receive special attention. Whenever an RPT is being considered, the company’s audit committee must convene prior to the board meeting, to perform an exclusive analysis of each transaction and thus approve or reject it. The new code will also recommend CEO/chairmanship separation and auditor rotation every six years.