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Indian firms struggle with 'independence'

By The Conference Board/Executive Action, February 2006 Tuesday, 28 March 2006

In half of India's biggest companies, the largest shareholder holds more than 50% of the stock. Executive directors occupy at least half the seats on the boards of most big firms and few have a lead independent director.

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Many Indian companies are keen to promote good governance in their organisations because they want to access global capital markets and, it is argued, because such codes also help to improve management processes and business performance. At the same time, India also stands to benefit from a late-mover advantage on governance, allowing it to tap into global best practice.

Governance challenges in the sub-continent are therefore not about having poor regulations but about their disparate adoption and enforcement. It is common for Indian companies to have a single chairman/managing director and the concept of a lead independent director needs to evolve, says the report. By contrast in the US, where a single chairman/CEO is also the norm, most companies have a lead independent, while in the UK there is generally a non-executive chairman.

Listing requirements mean that at least one-third of board directors in Indian companies have to be independent, but the issue of independence remains a major concern, not least when it comes to policing top executive pay. Most firms have yet to formalise an independent compensation committee.

Source: Strengthening corporate governance: a new age of entrepreneurship in India
The Conference Board Executive Action Series, based on presentations and discussions at a round-table forum for directors in Mumbai

Review by Steve Lodge