Out of the 29 Initial Public Offerings (IPOs) graded by Crisil since May 2007, close to 50 per cent of the issuer companies were found to be weak in corporate governance structures, according to a Crisil Research study.
The study said only about 10 per cent of these 29 companies had robust corporate governance structures, while 15 per cent had above average and 25 per cent average structures. Specifically, the quality of the company board and its independence and propensity for related party transactions emerged as key differentiators between well-governed and weakly-governed companies.
The aspects analysed by Crisil Research for this purpose were shareholding structure, board composition, typical board processes, disclosure standards and related party transactions. Even qualifications by regulators or auditors also served as useful inputs.
Crisil Research observed that in contrast to well-governed companies, weakly-governed IPO graded companies displayed limited independence of the board, limited understanding of its independent directors of the business of the company and a higher propensity for related party transactions.
In over 45 per cent companies with relatively weak governance scores, independent directors exhibited less than expected awareness about the company’s businesses or other businesses of the promoter group.
Moreover, in 15 per cent cases, independence of the company board was an area of concern as it could impact the extent of balance and quality of oversight that independent directors were expected to bring in. In about 55 per cent of the companies assessed to have governance issues, related party transactions emerged as a key issue.