Crisil to rate corporate governance

Rating agency Crisil has developed a 'GVC (governance and value creation) model' of rating for benchmarking governance practices in Indian corporates.

The GVC methodology can be used for benchmarking governance and value creation, Arun Panicker, director (ratings), Crisil, said.

It looks at corporate governance as a means to create wealth for all stakeholders. The GVC rating is a framework in which stakeholder relationship is recognised as one which contributes to wealth creating capabilities, Panicker said.

The rating integrates shareholder-centric and stakeholder-based models of corporate governance, Panicker said. The ratings would strike a balance between the qualitative and quantitative parameters and the past performance and future expectation of the company.

The methodology of the rating incorporates feedback from the industry associations and market regulators, he said.

The twin foci of the analysis include value creation and management along with fairness and transparency in dealings.

The corporates can attract investments by highlighting the effectiveness of their governance practices, assessing existing status, setting up a roadmap for further improvements, evaluating treatment of various stakeholders by management, creating visibility across all stakeholders and broadening the appeal of the company to the investors, Panicker said.

The rating will help the investors identify companies with effective corporate governance practices.

It will also help the investor compare two equally well-governed companies and presents an independent insight into the governance practices and their sustainability.

HDFC, Hero Honda, HDFC bank and Infosys are assigned Crisil GVC level-one ratings and Dabur India is assigned Crisil GVC level-two rating, he said.

"While evaluating governance practices, Crisil felt there is still scope for improvement in the composition and functioning of the board," Panicker said.

Indian companies have made significant progress in transparency and disclosure and revamping of corporate boards to induct professionals and non-executive members, Panicker said.

Indian corporates lacked an explicit focus on all stakeholders. Transparency and disclosures are more regulatory and less voluntary, he said.

Compliance with corporate governance code is treated as a structure and not as a way of life.

"The shortcomings of the Indians corporates could be overcome through legislation, institutional activism, market as a disciplining factor and self-regulation," Panicker said.