Corporate governance has become a priority for most in India

25 November 2019 4 min. read

Business in India are nearly unanimous in their acknowledgment that corporate governance is crucial to ensure that operations run smoothly, according to a new report compiled collaboratively by Grant Thornton and the Confederation of Indian Industry (CII). Most also agree that company culture plays a big role in corporate governance practices. 

Transparency and diligence have become key words in today’s business environment, as manifestations emerge of just how much damage malpractice can do for a company. Organisations are increasingly being urged to invest in ensuring that their practices align with regulatory stipulations.

The push to deliver better corporate governance practice is coming from all directions, although the business environment doesn’t seem to need much convincing. Accounting and advisory firm Grant Thornton reports that 95% of businesses in India agree that good corporate governance practices help to deliver better financial results.

The importance of corporate governance

The report is based on a survey conducted amongst businesses from a variety of sectors, in collaboration with the CII, which has been amongst the most prominent advocates of better corporate governance practices in India for several decades now. The survey results demonstrated a commitment to good practice.

Alongside the high number that recognised the financial value of good corporate governance practices, 75% of the companies surveyed argued for the introduction of mandatory corporate governance policy even for unlisted companies. This is to ensure that good practice permeates to every business segment.

Delving into specifics, most businesses appear to recognise the significance of independent directors in promoting good governance practices, given their distance from the company and ability to bring a neutral perspective. Nearly 75% of the respondents argued for better regulatory protection to be given to independent directors.

Space for reform

In keeping with the reform motif, more reported a lack of clear performance indicators to measure the effectiveness of better governance measures. Meanwhile, a number of responses indicated that the approach to corporate governance has become more innovative.

A staggering 93%, for instance, asserted the importance of company culture in improving corporate governance practices. A Grant Thornton report from 2017 revealed that 80% of Indian companies had elevated corporate culture to being a boardroom agenda, dealing with aspects such as internal controls that would promote a coherent culture.

Other analysts have responded to this significance, devising comprehensive ways of establishing a clear corporate culture. The innovative approach to inculcating corporate governance is also evident from the fact that nearly 80% of the companies revealed that technology had played a key role in their corporate governance journey.

Innovative approaches to corporate governance

The openness to innovation, combined with appreciating the significance of corporate governance appears to have had a positive impact on the overall corporate governance landscape in India. The report states that India has now been ranked 15th in the world for corporate governance, according to a World Economic Forum assessment, 

The country ranked 2nd worldwide when it comes to shareholder governance, indicating its priorities and decentralised approach. Dinesh Anand, National Managing Partner for Risk at Grant Thornton India writes, “Good corporate governance in the changing business environment will always serve as a powerful tool for competitiveness and sustainability.”