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| Think Tank |
This week we focus on a complete analysis of the
 industry
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A curate's egg
The report of the Kumar Mangalam Birla Committee on corporate governance covers the usual terrain on the subject. Audit committees, remuneration committees, independent directors etc figure prominently in the report. This is familiar territory. What is interesting is the approach taken. The draft report prescribes minute details, such as the number of independent directors, the composition of the various committees, the number of time boards should meet etc. This is entirely unnecessary. More fruitful is the parallel tack taken by the committee on disclosure. Making companies go in for consolidated accounts, or the disclosure of deferred taxation and divisional performance is much more important than prescribing the number of times board meetings should be held. Unfortunately, while the committee has touched on the need for such disclosures, it has not recommended that these be made mandatory. While it may be true that the Institute of Chartered Accountants is drawing up guidelines on these subjects, thequestion is: will companies be forced to recompute the accounts in line with the guidelines, or will a mere auditor's qualification suffice? If it is the latter, then it is not enough.A corporate governance code should not seek to tell a company board how to run itself. Rather, it should concentrate on making information available to the markets, so as to make them more discriminating. Recommendations such as making presentations to analysts available on company websites are the right approach. It should then be up to the market to decide whether to penalise the company for its lack of transparency. The listing agreement is hardly the right way to ensure compliance with corporate governance requirements, as delisting punishes investors and not company managements. A more direct means of making company managements liable should therefore be adopted. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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