More room to improve corporate governance, says the Government

In a bid to strengthen corporate governance across India Inc, the government is considering additional voluntary guidelines for adoption by the industry.

Some of the significant recommendations are as follows:

1. The government now wants separation of roles of Chairman and CEO. The government belives that these are crucial roles and the current practice is that many listed companies have tese two offices being occupied by the same person, usually the promoter of the company who does not want to give away decision making rights to others.

2. The government is also considering rotation of audit firms every five years. Although some companies have adopted this requirement, the government thinks that this is a good practice that all companies should adopt. Obviously, we know why this requirement has been considered now…Satyam!!!!

3. Next, to strengthen the role of directors further, the government has proposed that there is a cap of seven on the number of directorships an individual can accept. Just a few days ago, there was mention of tenure of the independent directors. If we see the interconnection between each of these efforts, there is a strong signal that Corporate Governance begins at the Board of Directors and a strong board oversight is the centre of a good organisation with minimal fraudulent intents.

4. Finally, government is still keep to strive for periodic review of the effectiveness of the company's internal controls in the form of annual reviews. Again, this is very similar in nature to the Sox regulations of the USA. It just needs to be seen how this will be implemented in India.

So, to sum up, it is time to pull up your socks and build a stronger governance framework. To start with, these are voluntary, but soon you will realize that the legal bodies are after your blood “ to infuse new blood” in the form of rotation of directors.

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