Pension Fund and the Unorganized Sector

Unorganized sector constitutes the segment of workforce whose activities or data is not regulated under any legal provision and there are no regular accounts maintained. Currently there are c. 363m unorganized sector workers in India (ca. 85% of the Indian labor force). This sector provides large scale employment and contributes to the national product significantly.

Major characteristics of the unorganized workers are:

- largely live below the poverty line

- suffer from low literacy levels

- are migrant in nature and

- are dispersed all over the country

In order to improve their quality of life it is imperative to cater to the following

- pension

- healthcare

- life insurance

- accidental unemployment insurance

- unemployment security and

- maternity needs

c. 44% of the unorganized sector avails of life insurance schemes via LIC / GLIC. Healthcare provisions are difficult and expensive to set up not to mention the many hurdles they present. However, setting up of dedicated pension fund will not only address the primary requirement of pension but can also be extended to cater to the last three requirements on the above list.

At present the old age support available to this sector in particular are:

- private savings

- family support

- selected central and state government schemes

- extending working life

Private savings are generally not available and where available are not adequate[1]. Family support is on the decline. Government schemes have limited scope in terms of adequacy and coverage[2]. Extending working life is not a viable option[3]. It is evident that there is a pressing need to develop old age security schemes for this sector.

Core functions of a Pension Fund

1. Reliable collection of contribution / taxes and other benefits
2. Correct payment of benefits
3. Incase of pre-retirement loans ensure timely repayment
4. Secure financial management and productive investments
5. Maintaining an effective communication network (data collection / record keeping)
6. Timely production of financial statements and reports

In order to establish a fund that can deliver on these core functions the following challenges need to be met

1. Assess the segment of unorganized workers[4] that has the capacity to make regular contributions. This analysis should contain data on the segment’s earning capacity, their spending and savings habits and what their ideal saving level and contribution be. From there it can be deducted how to generate pension contributions:
1. Via redirection of discretionary expenses
2. Via redirection of existing savings
3. Via future real increase in income

In addition, to incentivise contributions and help the establishment of a fund, corporate sponsors need to be sought to match workers’ contributions

2. A team of like minded skilled professionals needs to be assembled to
1. educate the target the audience and market the fund
2. manage the corpus to generate positive returns
3. administer demographic/earning changes in the sector
4. constantly work internally and externally to expand the quality and scope of services provided

3. An effective MIS system needs to be designed for record keeping and monitoring of
1. individual fund inflows and outflows
2. earnings of individual funds
3. loans and repayments
4. tax or subsidy collection
5. generation of timely reports

4. Accumulated balances should be invested in economically productive, growth enhancing investments[5]

5. Understanding legal and regulatory requirements, restrictions and proposed developments for such initiatives

6. Most importantly design and manage the financial corpus to deliver

1. Adequate coverage and level of protection
2. Affordable, profit making and sustainable service
3. Robust framework which can withstand economic shocks

Government of India recognizes the need to implement social security for the unorganized sector[6]. Thus it has embarked upon the highly ambitious pension plan reform scheme addressing the entire Indian labor force. In case of the unorganized sector in particular, this scheme plans to establish a voluntary contribution mechanism. There is a mention of outsourcing the administrative tasks to the private sector under a licensed and registered program. Government of India has sought help from the Asian Development Bank in this respect.

As a part of this “joint effort” a survey was conducted that generated the following results:

1. 2/3 of respondents have not given any thought to retirement planning
2. c. 20m have shown willingness to join a national pension fund based on
1. Financial capacity
2. Interest rate
3. Age between 30 – 50 years
3. most people (38% - 45%) mistrust private banks
4. most people trust nationalized banks (mistrust percentage 0% - 2%)

A commercial set-up is required to make this initiative productive and sustainable. While government support is crucial to the setting-up and longetivity of such a fund, it cannot be run by the state. Western governments are running into the red with their state run social security schemes. This business to be sustainable and profitable needs to be a private operation run by a team of like minded, experienced professionals dedicated to the success of this operation. India needs to bridge this gap at the earliest to ensure economic prosperity and inclusive growth.

---

[1] Research conducted shows that Indians in general do not start early enough retirement

[2] There is financial limitation and existing schemes are either limited to certain states or sub-segment of unorganized workers

[3] By 2045 it is estimated that India will reach a declining share of working age population of the total population

[4] The most vulnerable segment of this sector is that of women (in particular widows). While not only do women earn less than men, they are 10 times less likely to own property. Thus it could make sense to have special funds created to cater to women and widows. However, to start with the initial corpus might not be significant enough and hence this has to come as an offshoot of a positive return generating fund.

[5] This could lead to scalability of the operation to microfinance, emergency loans against savings etc.

[6] Certain state governments also see this need and there exist a handful of schemes trying to address this in their own way. For e.g. there are 5 welfare funds set up for beedi workers created from the cess that is collected from the manufacturers, Maharsahtra government offers unemployment security etc. However all these efforts are disjoint

Health and Safety Standards

It was still very early in the morning and I was not fully awake on the drive to the airport. Thus when I saw a huge cloud of smoke I dismissed it initially, but the accompanying fat bright orange flames, leaping into the air, jolted me into a state of total awareness. It was difficult to judge from a distance whether the fire had emerged from a construction site or the adjacent slum; but it was relatively easy to gauge that the extent of damage to life and property was extensive. “Maara gaya bechara gareeb” (The helpless and the poor have died), said the driver and drove on; but my mind stopped at that statement. In the city of Mumbai, life comes cheap and especially of those without any means. But just because there is such abundance of life in the country, does it mean that it can be dispensed with easily?

The November 26 attacks of Mumbai created a furore in the city. There was public outcry for a special armed force to be created for the protection of Mumbai; after all, the city has suffered numerous terrorist attacks in the last few years. I was among those who became a part of one such movement, a group that silently but visibly (with black arm bands tied through out the day) declared that we would not rest until such a task force was installed in place. Surprisingly, the government realised the need and the citizens’ stipulation was fulfilled. Yet today I wonder if our demand was adequate. A fight against terror is a must and the country needs to be protected from further attacks; however the loss of life that occurs due to such attacks is no different from the loss of life that occurs due to poor health and safety regulations. So why has there been no crusade in the country towards improving the general living and working conditions in our cities?

Yes we are a developing country and that means that we have limited financial resources. However, that does not mean that we do not try and improve efficiency and productivity. Improving health and safety standards not only protects human life from unnecessary fatalities but also improves the economic output. Take construction workers working on scaffolding without harness for example. A good worker, unable to balance himself will be inefficient at higher altitudes and will eventually be replaced by maybe a less able individual, either by the supervisor or by mortality. Providing the good worker with a harness will help him be efficient and deliver on time. The same harness will also prevent accidental falls and save lives. With India undergoing a construction and infrastructure boom, this safety standard that has apparently been made mandatory by the government, but its use is still not widespread. Setting up of new standards might also lead to an increase in jobs or in creation of new ones–manufacturers, distributors, training experts, inspectors etc. One cannot neglect the increased feeling of safety and security that it will provide to the daily wage earner, increasing his dedication to work.

Joseph Stiglitz, the noble prize winning economist calls communities the fourth pillar of economic development (the other three being markets, government and individuals). The vast economic disparity in India, the caste based society and the restricted access of English to the elite and the upper middle class; have all led to the non-development of this fourth pillar in India. Vested interests dominating inclusive growth and the prevalent acceptance of corruption, both further fuel the economic disparity preventing community development. In the absence of community development and with extreme poverty it is difficult to install health and safety regulations which will be adhered to and be effective. However, just because it will not be effective, does not mean that we should not start somewhere; the same way that just because in the long run we will all be dead does not stop us from living and learning in the process. Any thoughts, any ideas, please do share.

Corporate Debt Market in India - Need of the Hour

Indian regulators have drawn a lot of criticism from global market participants for their limited initiatives towards liberalising the domestic capital markets. From a pure policy point of view, some of this criticism is probably unjustified. However, the lack of attention given to the development of a healthy and liquid public corporate debt market is definitely worth raising some questions.

Both domestically and internationally, volumes have been published on the lack of a public corporate debt market in India, its desperate requirement for the country’s growth and also the remedial measures that need to be adopted by the regulators. While the knowledge base has existed for the last several years, there is no concrete curative action in sight yet.

The current global economic crisis heightens the need for thriving and transparent public corporate debt markets in India for two main reasons. One, there is a lesson to be learnt from lax lending disciplines and overburdened balance sheets, and secondly and more importantly is the need to disassociate the country’s growth from a desperate need of international capital.

The sub-prime crisis was more than just lending gone wrong; it was money lent incorrectly. In the hay days of the housing boom, US institutions were extending mortgages to students who had no income in sight for years to come. The idea was that these would be bundled with more credit worthy assets and risks would be averaged. In India, the banking system is similar in this “risk averaging” approach; however, the shallow markets raise the stakes involved. The large, mid and the small cap (and hence diversified risk base) companies borrow (working capital and term loans) from the same banks domestically and in foreign currency. The same banks also fund the promoters who own majority of the equity in these companies. Further, the treasuries of these banks subscribe to the equity of the listed entities and are even dependent on the same corporates for fee income. In the absence of any derivatives, all this risk is kept on the balance sheet of the banks and majority of the lending is done by a handful of domestic (mostly public sector) banks. This overdependence on the small banking network creates a potential systemic risk.

There are those who argue that Indian banks have survived the current crisis better than their foreign counterparts. This has largely been due to the high savings to GDP ratio that the country has, which exists with the domestic banks in the form of deposits. So in short, if there was a crisis that was to happen, it would be the average Joe in the country that would suffer like those in the West are currently. A thriving public corporate debt market would take away some of this risk away from the banks.

It would be incorrect to say that there is no corporate debt market in India currently. There is one, but it is not “public” in the true sense and most definitely it is not liquid. Most of the corporate bonds are subscribed to by banks (no surprises here) or by institutions such as LIC. The pricing of the bonds is done not based on a market benchmark but based on the return expectation of the subscribing investor. Thus there is an entry mode but no exit mode. The exit is blocked by the mostly OTC traded market making sizeable transactions difficult and also by the fact that the return expectation of one institution may not be aligned with that of another institutional investor. In fact this probably also brings forth another point – had there been a public corporate debt market in India, maybe the marked to market valuations of Indian banks would have been different; probably leading to more sober balance sheets?

In any eventuality, a corporate debt market in India will necessitate ratings. This will be an impetus to improving corporate governance and financial discipline amongst Indian corporates. A liquid debt market in India will provide benchmark pricings, creating more transparency in the large cap sector and providing more assurance to the small cap sector when borrowing from banks. Public benchmarks will prevent price wars on loans which currently impair the domestic debt markets. Efficient pricing mechanism will also provide more comfort to overseas investors who are reluctant to participate in the illiquid and non-transparent domestic corporate debt market.

International investors do bring in much needed capital, however, in India, in recent times most of this has been speculative money as opposed to long term investments. This is evident in the fact that FII investments in the country exceed FDI investments. In order for the economy to grow and the income disparities to reduce, there are three key sectors of focus – agriculture, education and infrastructure (which includes energy). All these three sectors are capital intensive sectors with returns being generated over the longer run. These require long term commitment to each project invested in. Such commitment is missing from overseas investors. In fact even foreign banks participate only in a limited way in debt funding of long term domestic assets.

To use domestic capital more efficiently, for the growth of these three sectors, a liquid debt market will come in very handy. Companies, issuing non-convertible debentures currently, all subscribed to by LIC or the likes can then tap the public markets and raise incremental proceeds. India currently has approximately a 30% savings to GDP ratio, most of which is channelled to the countries’ public sector banks. With a thriving debt market, maybe the domestic savings can be used more efficiently and the savings to GDP ratio stabilised. With more diversified investments (away from banks and equity markets) and stable returns, the country’s population at large can benefit. And while it might seem that retail investor participation in debt markets would be difficult, active debt mutual funds provide an answer. In fact with the advent of the new pension reform scheme, pension funds can provide a large corpus for investing in the domestic debt markets. Investor education can also pave the way to making individuals realise the value of balancing their savings over asset allocations and averaging return expectations over a period of time.

India is a young country today with an average age of c. 25. As we grow older as a nation, we will need savings that generate stable returns and that are to some extent decoupled from risks to the financial sector. So along with corporate India, it is the nation on the whole that will benefit from a thriving local corporate debt market. Let us hope that the upcoming budget addresses this need of the hour with some proactive actionable suggestions. The rest we will then need to wait and watch.

Brand Perception and India

With the existence of monopolies and public sector dominance, and in the absence of competition and multinational companies; Indians pre 1991 were resigned to buying what was available. Those who had desires and the monetary power, opted for the parallel black economy that sold “imported” goods. It was a mini nation of the elite living in another nation which was crawling on its knees. With the lowering of import duties and removal of the licence Raj in 1991, the flood gates opened. A swarm of international and private companies occupied the Indian consumers’ time. Instead of selecting only between Thums Up and Limca, the Indian consumer now had three colas to choose from – Thums Up, Coke and Pepsi. Even the “lime and lemony Limca” fought a fierce battle of supremacy against 7 Up and Sprite.

Every industry segment witnessed new entrants (both domestic and international) – from FMCG[1] to media to aviation to automobiles. With each player trying to maximise its market share, organisations embarked on the road to establishing their unique selling points (USP). During the industrial revolution non-local manufactures undertook “branding” exercises to increase awareness and acceptance of their products. This was an attempt to try an associate a certain experience or quality with the product in order to create a follower base. Some of the first brands thus to be established during that era were Coca-Cola, Quaker Oats and Campbell Soup[2]. Similarly to entice customers, Indian companies post 1991, embarked on a journey to create their own brand image.

This quest reached a level where even election rallies were being driven as marketing campaigns. Remember the “India Shining” tag line of the Bhartiya Janta Party (BJP) in the last general elections! It’s sad that despite an innovative approach to Indian politics, the BJP lost elections[3].

It is not just BJP, but a number of Indian firms have spent millions of dollars on brand building exercises, unsuccessfully. Remember Onida television – “neighbours’ envy, owner’s pride”, or Amul chocolates – “a gift for someone you love” or my personal favourite – ECE “Bhool na jana ECE bulb lana[4]” the jingle was sung in a multitude of Indian languages one after the other!

Today, while there has been some success, urban Indians still recognize very few Indian names as “brands”. This conclusion is the result of a survey[5] with Indians in the age group of 18 to 62, living either in Indian metros or overseas and across professional backgrounds. Each participant was asked to respond to a simple question “what do you think of first when you hear the term Indian brand and the term international brand”. The results were quite fascinating. About 11% of the respondents replied stating that the term “Indian brand” made them uncomfortable denoting inferior quality or service, however, international brand to these individuals meant quality, expense or luxury. Only one of the 55 respondents actually said that his/her instantaneous reaction to “Indian brand” was trust in quality while “international brand” made him/her suspicious.

Leaving aside these responses, an analysis of the remaining answers came up with a very interesting tally. There was one Indian name that came out as being the strongest brand in India – Tata, with 44% of the respondents thinking of Tata as their Indian brand. In fact, if two other responses that belong to the Tata group of companies are added to this set[6], then the Tata Group walks away with almost 50% of the votes. On the international side, it is a same number of voters, 44%, who came up with varied answers which no one else in the analysis group had covered. So urban Indians relate to more foreign brands than Indian, might be a fair analysis. To further substantiate this thought is the fact that the most popular “international brand”, Coke, received 22% of the votes while only 22% of the respondents came up with Indian brands which were different from the choice of any other respondent! Thus, in a country with the most listed companies globally, the urban Indian middle class seems to miss the palpable brand equity domestically.

One reason for the weak brand recognition in India is that the middle class which has the largest targeted audience group is undergoing a brisk attitude change. Globalisation is rapidly altering the life style expectations of this segment of the society. For any “brand” to have a tangible “brand equity” there needs to be consistency in the message delivered to the aimed market segment. With the end consumer’s needs and desires changing from day to day, the product marketing also changes accordingly. This causes disruption in uniformity of message delivered, leading to a weaker “brand” perception.

Uniformity of message is also very difficult to maintain in a country like Indian which is culturally very diverse[7]. Thus the second reason for weak brand development in India is the different needs and mental makeup of Indians residing in different parts of the country. If a glamorous product appeals to the more materialistic north India, it loses its sheen in the more conservative South India. Similarly, while local handicrafts are still preferred in the east, there is a very conscious following of western fashion in west India. Food habits, lifestyles, intellectual curiosity are all different in this country of over 300 languages. Thus western brand building concepts cannot be used in India and we Indians need some more time to develop a branding system that works within our cultural diversity and sensitivities.

While it is true that a country which has seen a plethora of brands only in the last two decades, will take some time to develop its own unique marketing and brand building framework, a very important third reason for underdevelopment of “brands” in India is the shareholder attitude. Majority of Indian firms are family run with controlling stakes and management say vesting with the family, who are very conscious of the cash flows. Brand development requires significant investment into researching the target audience attitude, analysing varied marketing strategies and then finally undertaking a thought through long term marketing campaign. In the absence of the desired investment happening, the “branding” exercise is half hearted and hence the outcome is similar.

Substantiating the longetivity and stability of campaign and the investment are the two leading “brands” of the mentioned survey. Coke and Tata have had consistency of logo and experience for the consumer in their marketing despite customisation to address the local audience suitably. On the flip side, it can be seen by the experience of the Indian IT industry that lacklustre effort in brand development leads to non recognition. Globally India is the most known today for its ITeS[8] industry, however, only 2 of the respondents thought of an Indian IT company as a brand[9]. And if one comes to think of it, there is nothing that can actually be described about the Indian IT players except for their low cost base. Given that now even eastern European economies are proving to be equally cost effective with a significant workforce capable of managing outsourcing, Indian IT firms are facing competition. Thus in the absence of another quality associated with Indian outsourcing, the industry is threatened in losing its cash cow status.

Most developed economies are home to some of the most globally recognised brands. As India is progressing on its growth path, Indian companies also need to pay more attention to the “brand” awareness that they create; especially when they enter the overseas markets. India Inc’s brand awareness will improve its own revenue stream, build investor confidence in the country and support India Brand Equity Foundations’ attempts to promote the nation as the Fastest Growing Free Market Democracy.

[1] FMCG = Fast Moving Consumer Goods
[2] Source: Wikipedia
[3] Of course the reasons for BJP’s defeat were much more complex than just their marketing campaign
[4] Literally translated as “Do not forget to get an ECE bulb”
[5] Details in Appendix 1
[6] Titan and Taj
[7] Madhukar Sabnavis had a very interesting column in Business Standard on this topic. The article can be found on http://www.business-standard.com/india/news/madhukar-sabnavis-culture-sensitive-marketing/351047/
[8] IT enabled Services (IT = Information Technology)
[9] Surprising, given that almost 13% of the respondents are or have been IT professionals.

Corporate Governance - Further Info

Further to my last piece, it is quite startling to know that the last three years' Satyam annual reports state that the audit committee has no financial expert on it. According to the disclosure, the company had been unable to find an appropriate candidate. Now that seems to be incredibly lame. When the company could get a phenomenal board of directors consisting of domestic and international big-wigs, it is just impossible to believe that they were unable to find a financial expert. Maybe the company was unable to find a financial expert who would agree with their ways of transacting.

This puts even more of an onus on the auditors and the CFO. Both should have been in a position to highlight the discrepancies in the accounts. The question that amazes the most is how did the auditors provide for the cash balances without bank statements? If those bank statements existed, then were they forged? If they were forged, was the CFO aware of the same? Are audit firms in a position to identify forged bank statements?

Another important issue that comes to mind is that in the absence of a mandatory attendance requirement of independent directors, what was the board composition at the Satyam results' board meetings. Were the results questioned?

Leaving the Satyam issue aside, an important disclosure point has been raised with the merger of Bank of America and Merrill Lynch. Albeit a legal question, this still makes an investor want to have higher disclosure standards. Read the FT article on:

http://www.ft.com/cms/s/0/2ac14f58-e363-11dd-a5cf-0000779fd2ac.html

Corporate Governance in India - Still a Half Hearted Measure?

With the end of November of 2008 came India’s own 9/11; and with the dawn of January 2009 was born India’s own Enron (or WorldCom if you wish). While the two events are not comparable at all, they do have one common causal factor – the failure of governance and administration at the helm. Both tragedies have impacted the unsuspecting and the innocent the most, but those who are accountable and responsible are yet to take stand in the courts of justice.

In the particular case of Satyam, an expectation of legal proceedings commencing this early might be premature; however, it is probably high time that corporate governance reforms are implemented in India. Given that Clause 49 of SEBI’s[1] listing agreement already calls for measures akin to the Sarbanes Oxley (SOX) act of the US, is there any further room for regulatory improvement? A brief analysis underscores a few avenues where further amendments, to increase the corporate governance and transparency standards, are possible.

To begin with, independent corporate governance assessment (CGA) and its disclosure should be made mandatory for all listed firms.[2] While this might seem an extreme reaction, it will have an impact; as desiring at least presentable public disclosures, firms would be forced to improve internal controls. All assessments being widely available will potentially promote competition, thereby improving governance standards on the whole. And most importantly, increased transparency and control will have a positive impact on the share price. Historical and current data support this share price increase argument. The mere announcement of the introduction of Clause 49[3], in May 1999, caused large cap companies’ share prices to increase by c. 10% over a 2-week window.[4] Infosys, the most revered company for its corporate governance, by both CRISIL and CARE[5], gained 1.33% from 7th January 2009 (the day Satyam CEO disclosed the fraud) to 9th January 2009 (the next trading session). In the same time period, Satyam shares lost 50% of their value while the NIFTY Index lost c. 1.62%[6]. In fact even the introduction of SOX in the US in 2002, caused an upward swing in the share price movement. Thus CGA is not just a cost centric exercise alone but can translate into significant tangible gains for an organisation.

With majority control being held by insiders, earnings management is a highly probable event. While not totally illegal, the practice leads to deficient disclosures and ambiguity in financial statements. In order to align interests of the promoters (typically also the senior management of the company) with the wider shareholder base, there needs to be minimal earnings management. To successfully implement this, the audit committee must have on board at least one independent director with financial expertise. Clause 49 requires that the audit committee has one independent director and one financial expert. However, it does not make it mandatory for both characteristics to be represented by the same member. A study conducted by Carcello, Hollingsworth, Klein and Neal in 2006[7] concludes that the inclusion of an independent director on the audit committee with in depth financial knowledge and experience is the most efficient in extenuating earnings management. The study also highlights that this is in particular true for firms with weaker corporate governance standards. Given that most Indian firms are family owned mid sized companied, maybe the Clause 49 requirement should be amended to require an independent financial expert being a member of the audit committee. Additional experts and/or independent directors will only strengthen the team.

It is interesting to note at this point that the Satyam board, which had many a reputable name from the industry as members, could not identify a fraud of this magnitude right under their noses. There are questions surrounding the monitoring of the Satyam audit committee. Here Khanna and Black’s study, Indian Corporate Governance an Overview, provides an interesting input. Apparently less than 70% of the 293 Indian corporates they sampled, have bylaws governing the audit committees. The reality and implementation of these bylaws is further questionable. Clause 49 probably needs to further detail the working of the audit committee and its reporting. A more focussed watch and detailed analysis might cost Indian companies a little extra, as independent directors begin to demand higher remuneration for their time and efforts. However, that will be money well spent and hopefully will lead to improved corporate performance and a more credible shareholder base.

Corporate performance also depends on the investments, fund raisings, capital utilisation resolutions passed by a CFO’s office. These key financial decisions impact the balance sheet of the company; shaping the return on capital. The 2008 derivatives’ scandal in India, which caused multi million dollar losses for the small and mid-cap companies, illustrated how unknowing CFOs took decisions to the detriment of the shareholders. In the absence of knowledge and expertise, an investment made by an individual without the board approval, puts the company’s balance sheet even in greater danger. In numerous cases, the derivatives investments made by SMEs were not approved by the company boards. Thus the board, under Clause 49, probably needs to be empowered to regularise the dealings of the CFO’s office.

Away from the company, one avenue that requires new legislation is that of generally accepted accounting principals. The Institute of Chartered Accountants of India (ICAI) has made proactive efforts in bringing international accounting standards to India; to integrate local policies with the global practices. To this extent, ICAI has even adopted 15 International Accounting Standards (IAS) out of the 33 IAS. However, due to the absence of prescribed statutory obligations, accounting standards in India still remain inadequate and non-uniform; dependent on the interpretation of the company auditor. Take the case of FCCB issuance in the country. While most securities issued will redeem at a premium to the issue price, there is no requirement for companies to account for the accretion of the bonds. This has the potential of creating significant liability mismatch upon maturity of the bonds. In the absence of a market norm, every company follows an accounting standard different from its peers. In some instances, the company follows one standard that has a partial impact on the balance sheet and then ignores another standard only to protect the financial statements from being further impacted.[8] There needs to be a concerted effort by ICAI and the law-makers to limit the alternate interpretation of accounting standards.

Corporate governance is not only about finance and economics. However, since most global corporate governance scandals revolve around these two issues, maybe the capitalistic society needs to address these two aspects before any other pillar supporting corporate governance is touched for refurbishment.


[1] SEBI: Securities and Exchange Board of India
[2] Currently only 50 of the 4,700 listed firms have undertaken the CGA exercise. Of these 50, only 19 have disclosed these assessments. Source: www.livemint.com
[3] Clause 49 of SEBI’s listing agreement
[4] Source: Black, Khanna; Can Corporate Governance Reforms Increase Firms’ Market Value: Evidence from India
[5] Source: www.livemint.com
[6] Source of statistics: www.nse-india.com
[7] Audit Committee Financial Expertise, Competing Corporate Governance Mechanisms, and Earnings Management
[8] A study conducted by Shankariah and Rao, using a sample set of 40 private an public companies, showed that the majority of the sample companies (65%) disclosed using five to ten accounting policies. 22.5% of the sample companies disclosed using more than ten standards. The remaining disclosed using less than 5 standards. 87.5% of the sample public limited companies complied with five to ten accounting standards.