Whether it is mounting NPAs or scams that happened in the past decade the outcomes of the laxity in self-regulations in the Indian corporates are pretty much obvious. However, India has taken the brave step towards implementing new corporate governance standards to curb such incidents. Though there have been no multi-billion dollar frauds in India like in the US, market regulators are hurrying to infuse the global best practices of corporate governance standards into the system before such frauds happen. On the other hand, corporate governance procedures and compliances in India have become vital as the domestic companies and Indian MNCs are growing rapidly.
The market regulator, Sebi has made amendments in the Clause 49 in which one section deals with corporate governance standards and they came into force from January 1, 2006. Not complying with these requirements may lead to huge penalties. This initiative has been inspired by the Sarbanes-Oxley Act passed in the US in response to governance scandals such as one involving Enron or other companies.
Many of the Indian corporates started implementing these standards even before the Clause 49 came into existence. Godrej and Infosys were the pioneers in implementing them. For instance, Godrej has more number of independent directors than required by the Clause 49. Infosys pays the independent director a hefty fee of $45,000 per year, expecting valuable contributions to the company. Nimesh Kampani, Chairman and Managing Director, JM Morgan Stanley says, "Most of the large corporates have implemented. It's only some of the medium to small enterprises that still need to re-haul their systems to cater to the requirements." Indian companies are expressing concerns over the high costs borne by the US companies for implementing more extensive provisions of Sarbanes-Oxley Act; some of the US companies are going private to avoid the high compliance costs. Sebi Chairman, M Damodaran says: "Clause 49 is the beginning of corporate governance. It is the basic minimum you need for corporate governance. Clause 49 is a necessary condition but not a sufficient condition for corporate governance." He warned many times that there won't be any extension of dates and exceptions from compliance for any company.
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