October 2009 L esso ns L e a rned S eries 52113 Partnerships in India Leverage Strengths For Success Local Business Commitment and Securities Regulator’s Support Provide Strong Foundation for India to Move Forward with Corporate Governance The Global Corporate T hrough partnerships that the Global Corporate Governance Forum has been forging in India, local institutions are India (SEBI) for the advancement of training and research to support securities market development, and the Confederation of Indian Governance Forum is a multi- donor trust fund facility located in the IFC’s Business Advisory Services. The Forum leveraging their resources to build capacity, Industry (CII), a not-for-profit industry- was co-founded by the World broaden awareness, and achieve progress in managed organization, the Forum launched Bank and the Organisation for Economic Co-operation gaining broad acceptance by businesses for director capacity-building programs, business- and Development (OECD) corporate governance best practices. investor dialogues, and training workshops for in 1999. Enhancing the corporate governance journalists. Through its activities, the of businesses is an essential part of These partnerships and activities offer insights Forum aims to promote the foundation to support sustainable to steer the success of developing countries and the private sector as an development. Numerous studies show that emerging markets as they initiate their own engine of growth, reduce the vulnerability of developing well-run companies perform better, which programs to strengthen support for corporate and transition economies to in turn leads to expansion, more capital governance, access expertise to inform the financial crisis, and provide investments, and jobs growth. approach and efforts, and open doors to incentives for corporations to invest and perform efficiently With help from the National Institute of potential collaborations with business and in a socially responsible Securities Markets (NISM), which was set government leaders. manner. The Forum sponsors up by the Securities and Exchange Board of regional and local initiatives that address the corporate governance weaknesses of middle- and low-income countries in the context of broader national or regional economic reform programs. Donors to the Forum include the IFC and the Governments of Austria, Canada, France, Luxembourg, the Netherlands, Norway, and Switzerland. S. D. Shibulal, co-founder and board member of Infosys Technologies Limited, provides keynote address at Business Investor Dialogue in Mumbai in February 2008. “Capacity-building in the area of corporate CII, NISM, and the Forum express their governance has assumed critical importance in India. gratitude to the Government of Japan for its This partnership between CII, NISM, and the Forum support of the work on corporate governance is especially significant. Each partner brings to the in India. table its special strengths, which complement those of the others, to support the Forum’s efforts at capacity building in the area of corporate governance in India,” Building Directors’ Capacity In March 2009, the Forum joined forces with said Chandrajit Bannerjee, the CII director general. CII to expand the reach of a training program that Commenting on the partnership, Professor G. Sethu, helps strengthen corporate governance in India by who has been stewarding the NISM, as its Officer in building board directors’ capacity. Director training Charge, said that “The various initiatives taken by the sessions, following on the Forum’s training-of- Forum, in partnership with the NISM and CII, to trainers workshops last year, are planned for Delhi, build capacity in the area of corporate governance are Mumbai, Kolkata, and Chennai in 2009 and 2010. very timely. Investors and securities markets in India Originally created in 2007 by the Forum and will benefit in the long run.” NISM, the program reaches key players in corporate India stands at the crossroads in its public and private governance, including board directors, practitioners, sector efforts to advance corporate governance. (See academics, and the media. The Forum has helped box looking at the state of corporate governance in to tailor the training program to the Indian India.) The accounting fraud at the company Satyam market, building upon the expertise of its Private Computer Services, in particular, raised new questions Sector Advisory Group. In addition, the Forum about the role and integrity of independent directors. has assembled an Advisory Council dedicated to providing strategic guidance for the India project. Advisory Group members (See adjacent box.) Throughout the implementation plan, the three partners have been working closely J.J. Irani, Executive Director, together. Tata Sons “This program will play a key role in doing so,” S.D. Shibulal, Co-founder and Member said Pratip Kar, a former SEBI executive director of the Board, who is working with the Forum. “Strengthening Infosys Technologies Limited corporate governance has come into sharp focus worldwide following the financial crisis and, in Pratip Kar, Consultant, India, the governance failure at Satyam. The Global Corporate Governance Forum Forum’s work in India for capacity building in Ravi Narain, Managing Director, corporate governance will help raise the bar for National Stock Exchange corporate governance. We need to take preemptive steps to the extent possible to avoid recurrence of T.K. Arun, Resident Editor, corporate governance failures.” Economic Times The program’s training modules focus on both J. Varma, Professor, building directors’ leadership skills and helping Indian Institute of Management, Ahmedabad them to determine the strategic direction for their companies. The curriculum is based on the Forum’s Board Leadership Training Resources, Satyam’s chairman resigned in January 2009 after which emphasizes highly interactive adult-learning admitting that the firm had falsified accounts and assets techniques that draw on participants’ professional and inflated its profits over several years. experiences to inform discussions and activities. While some suggest that corporate governance is As partners, CII provides access to its vast a “myth” in India, others point to signs of progress, network of industrial and corporate communities including the Companies Bill of 2008. How India while NISM fosters dialogue with the government moves forward will be determined by, among other and regulators to support the initiative. Interface things, how it addresses the family ties prevailing with the regulator is of particular value. Moreover, in companies and the extent to which shareholders’ the NISM, given its relationship with SEBI, provides interests ultimately drive business decisions. The efforts a direct conduit for the project to the country’s listed of the Forum’s partners can go a long way towards companies. The Forum offers its global expertise, helping India’s private and public sectors make progress toolkits, and its PSAG network, among other things. with corporate governance. 2 Lessons learned Collaboration with the right partners can provide • Partnerships start with clearly defined goals and • reach and traction in the local market and thereby allocated responsibilities to maximize cooperation strengthen the Forum’s initiatives. with a shared and clear destination. In a market the size of India, there are many • Each partner should play to its strengths, and • institutions positioned for partnership. Care must through this, each can leverage the strengths of be taken in identifying strengths and weaknesses the others. Sharing contacts, for example, broadens and complementarity, and any risks relating to marketing efforts’ impact. overlapping agendas must be accounted for. It is The partnership should allow for periodic • fundamentally important that partners be selected assessments to validate the success factors and on a basis of informed advice, targeting those eliminate barriers or misperceptions of each groups most closely aligned with program vision partner’s role and obligations. Successes energize and objectives. partnerships and inspire commitment. The most effective partnerships tend to be those • A s partnerships accomplish projects that they • which are based on enlightened self-interest, that targeted for collaboration, the partners should is, where the partners engage on the basis of their collectively rethink how they want to sustain, shared commitment, values and common interest in reduce or otherwise modify respective levels of achieving real impact. engagement. “The National Stock Exchange would like to see that “The National Institute for Securities Markets all its listed companies maintain the highest possible (NISM) has been taking initiatives with the active standards of corporate governance; corporate help of the Forum to improve the awareness of governance helps companies, it helps investors and it Corporate Governance issues in India. Media training aids market efficiency. The multipronged initiatives programmes, the training for trainers programme, of the Forum, in helping build capacity in the area of business-investor dialogues, and the director’s training corporate governance are therefore very welcome programmes, have been organized. The Forum’s help steps for our securities market. These will contribute and participation in these initiatives is well appreciated to raising the bar for corporate governance.” and SEBI is fully supportive of the effort.” – Ravi Narain, – C.B. Bhave, Managing Director and CEO of the National Stock Exchange Chairman of the Securities Exchange Board of India Sitting at the head table for the April 16, 2009 roundtable are (from left to right): Professor G. Sethu, Officer in Charge, NISM; Eugene Spiro, Senior Projects Director, Forum; Uday Kotak, Executive Vice Chairman and Managing Director of Kotak Mahindra Bank Limited (he chaired the meeting): Pratip Kar, Consultant, Forum; Marut Sengupta, Senior Director, CII; Dr. J. J. Irani, Executive Director, Tata Sons; and, Naheeda Rashid, Manager, UK and Europe, Hermes Fund Managers Limited 3 Studies on Corporate Governance in India Indicate Varying Standards of Corporate Governance Several studies and surveys have been carried feedback on strategy. Usually, board members out in recent years examining corporate are not encouraged to question the management governance in India. Results are mixed, some on various decisions. Management is also guilty showing improving or strong compliance, others of failing to send out board agendas well identifying important gaps in governance ahead of meetings. In the KPMG survey, 22% of structures and modalities requiring ongoing respondents felt that the board, and particularly attention. independent directors, never get the right information before the board meeting, nor do For example, two surveys released in May they get enough time to devote to the affairs of 2009 and August 2009 by, respectively, Bain & the board. Company* and KPMG** question the extent to which boards for companies in India understand “India Inc. has generally been proactive in corporate governance and the impact that promulgating corporate governance regulations,” this lack of understanding is having on the the KPMG report said. “In doing so, a good companies’ outlook for growth. balance has been achieved i.e. headway has been made, in terms of helping ensure that regulations Bain conducted its survey with the International are not stifling our entrepreneurial initiatives. Market Assessment of India and included From a purely regulatory standpoint, India more than 100 interviews with directors on compares favorably with most other developing the boards of 44 prominent Indian companies, and Asian economies as far as its corporate across industries. They also interviewed governance rules are concerned.” regulators, commentators, analysts, and company secretaries. KPMG interviewed more than 90 A study, partly funded by the Forum, by persons -- including CEOs, CFOs, independent researchers N. Balasubramanian, Bernard S. directors, and similar leaders -- between Black, and Vikramaditya Khanna, which is based November 2008 and January 2009. on a 3-year survey of 370 listed companies in India, identifies areas where Indian corporate The surveys suggest that the boards of most governance is both strong and weak, and areas big companies have little understanding of the where regulation might usefully be either business of the companies on whose boards the relaxed or strengthened. The findings suggest directors sit. Boards for Indian companies tend that compliance with rules is fairly good among to have very limited or non-existent involvement the firms surveyed, but there is room for in CEO and other top management successor improvement. Better corporate governance is planning. Further, directors seem to have little associated with higher firm value generally and interest in formulating corporate strategy. for certain types of firms in particular. Certain “By not involving the board in shaping strategy, aspects of corporate governance seem to matter Indian companies miss the opportunity to fully more: disclosure and shareholder rights. use the valuable experience board members “On the whole,” the researchers concluded, bring to the table,” write the authors Vivek “Indian corporate governance rules appear Gambir, Ashish Singh and Karan Singh of the appropriate for larger companies, but could use Bain report. “Globally, at the best managed some strengthening in the area of related party companies, board members play a challenger’s transactions, and some relaxation for smaller role on strategy — unlike on many Indian boards, companies. . . . India’s legal requirements for where board members default to a passive board independence are sufficiently strict so listening role.” that over-compliance does not produce valuation Management in only a few companies in India gains.” interact with board members regularly to seek * Available at: www.bain.com ** Available at: www.kpmg.com *** Available at: www.gcgf.org. Go to: Second International Conference on Corporate Governance in Emerging Markets 4 “Partnering with CII, in addition to our ongoing Key objectives of the Dialogue cooperation with NISM, is helping us to better reach key stakeholders to raise awareness about corporate Identify areas of difficulty and offer • governance, promote best practices, and help local possible measures for improvement companies improve their performance,” said Philip Provide an opportunity for local and • Armstrong, the Forum’s Head. “Through our international business leaders and investors collaboration, too, the Forum can better align our to share their views and experience on the work to local needs.” investment climate in India “The Forum’s work in India – in collaboration with NISM and CII – is focusing on the need to strengthen Generate discussion and policy • board practices,” said Bannerjee. “This will help in recommendations by an assembled local business and investor audience terms of increasing tangible and intangible value for companies. The Forum is providing valuable support to CII’s own efforts to raise the standards of corporate governance in India.” Media Training In July 2009, the Forum, as part of its ongoing Business Investor Dialogues cooperation with Thomson Reuters Foundation, and As part of the collaboration among the Forum, CII, in partnership with NISM and CII, launched two and NISM, business-investor dialogues have been media training workshops in India. These initiatives, organized to facilitate discussions between the private as noted by Daiki Suemitsu, First Finance Secretary sector, domestic and international investors, and at the Japanese Embassy in Delhi, recognized that SEBI. Issues explored in these dialogues include the “the media plays an important role in raising public effectiveness of various governance structures, the role awareness and supporting enforcement.” of the board, disclosure, enforcement, and investor Nearly 40 journalists attended the sessions in either relations. Mumbai or New Delhi, representing India’s general These events aim to identify challenges facing and business print, electronic, and online media. companies, offer possible measures for improvement, Through this learning experience, the participating and provide an opportunity for local and international reporters and editors enhanced their knowledge and business leaders and investors to share views and reporting of such corporate governance issues as experiences on the investment climate in India. The transparency and disclosure. dialogues generate discussions and may result in policy In sessions on governance best practices, accounting, recommendations for improving corporate governance and reporting principles, successful examples of from an assembly of local business representatives and investigative business journalism, and writing investors. The partnership structure, as it involves the exercises, the journalists sharpened their reporting on regulator, is particularly well-suited in this regard. the stories behind the numbers. “The Business Investor Dialogue helped bring the The faculty included V. Balalkrishnan, Infosys’ industry representatives and the investors to a common Chief Financial Officer, who shared his experiences platform, to share the views on the issues in corporate with governance best practices, and P. R. Ramesh, governance” said Professor Sethu of the NISM. partner at India’s Deloitte and Touche, who spoke about accounting and reporting principles. The Forum and Thomson Reuters Foundation held programs in Mumbai and New Delhi to build capacities among journalists. 5 “Asking well-researched questions, paying careful will help in enhancing the quality of reporting.” attention to the answers, and reading through a Overall, progress has been made as governance company’s disclosed information can reveal a lot about standards have been raised in India, however, much a corporation’s health and governance practices,” said work remains to be done. The quality of governance one participant. among Indian companies covers the full range: Some Professor Sethu of NISM feels that in India as companies (typically, though not only, the larger elsewhere, “the media plays an important role in ones) have positioned themselves at the vanguard enhancing the standards of corporate governance. The of governance reform. With other companies, media workshops on investigative journalism conducted compliance must be brought more proactively beyond by Forum in collaboration with NISM and the CII the “boxticking” phase. This is the key objective of the have been very well received by the participating Forum’s program. journalists in the print and electronic media and these ABOUT THE PARTNERS Confederation of Indian Industry carry forward CII’s initiatives in integrated and The CII works to create and sustain an inclusive development, which include health, environment conducive to the growth of industry education, livelihood, diversity management, skill in India, partnering industry and government development, and water. For more information, alike through advisory and consultative processes. visit: www.cii.in. CII is a non-government, not-for-profit, industry- National Institute of Securities Markets led and -managed organization, playing a NISM is a public trust established by SEBI, proactive role in India’s development process. the regulator for securities markets in India. Founded more than 114 years ago, it is India’s NISM seeks to add to market quality through premier business association, with a direct educational initiatives. It is an autonomous membership of more than 7,800 organizations body governed by its Board of Governors. An from the private as well as public sectors, international Advisory Council provides strategic including SMEs and MNCs, and an indirect guidance. membership of more than 90,000 companies from around 385 national and regional sectoral NISM consists of six different schools as follows: associations. •School for Investor Education and CII catalyses change by working closely with Financial Literacy government on policy issues, enhancing • School for Certification of Intermediaries efficiency, competitiveness and expanding •School for Securities Information business opportunities for industry through a and Research range of specialized services and global linkages. • School for Regulatory Studies and Supervision It also provides a platform for sectoral consensus • School for Corporate Governance building and networking. Major emphasis is • School for Securities Education laid on projecting a positive image of business, assisting industry to identify and execute For more information, visit www.nism.ac.in. corporate citizenship programs. Partnerships with more than 120 NGOs across the country LEARN MORE Global Corporate Governance Forum 2121 Pennsylvania Ave., NW Washington, DC 20433 USA Tel: +1 (202) 458–1857 Fax: +1 (202) 522–7588 cgsecretariat@ifc.org Next issue: www.gcgf.org Working with the Reuters Foundation, the Global Corporate Governance Forum is training journalists to increase and improve their coverage of corporate governance issues, helping them to look for warning signs and interesting angles.