2006 ushers in corporate governance clause

A score of publicly-listed companies would have ushered in tighter internal controls through the implementation of Clause 49 of the Listing Agreement, stipulated by the Securities and Exchange Board of India.

Clause 49, popularly known as Corporate Governance clause, makes it mandatory for all companies to have at least 50 per cent independent directors on its board.

A section of experts in Bangalore while discussing the revision focussed on the evaluation of internal control within organisations and examined the use of internationally accepted internal control frameworks like Committee of Sponsoring Organisations (COSO ), and Control Objectives for Information and related Technology (COBIT ) and evaluated the business and operational risks that organisations are exposed to.

Said Anant R. Koppar, president, BCIC:"Today corporate governance demands utmost quality, where companies need to attract investment and customers in the face of increasing challenges from global competitors. Increased integration of the world economy and globalisation of business makes it necessary for companies to follow the best practices."

"The government's move underscores India's desire to continue being seen as a governance trailblazer among emerging economies. Today the world looks to India to be a role model in market regulation and corporate governance. The image can be sustained only by maintaining the highest standards in regulations and enforcement," he added.

Comparing the Clause 49 with US' Sarbanes-Oxley Act, Jayashree Narayanan, sr. manager, Deloitte Haskins & Sells, explained: "The amended Clause 49 is aimed at ensuring transparency at every level of a company's functioning. This has seen companies bring in risk management systems, control framework including IT safeguards to ensure better governance."

Elaborating on implications for companies, she said: "Companies must recognise the timing requirements and effective date for achieving compliance which was "" December 31, 2005. The Quarterly Compliance Report has to be submitted to the stock exchange by April 15."

She further enumerated that the revised Clause 49 brings to the table several action points for companies. Corporates need to constitute the board of directors & audit committee in consonance with revised Clause 49, develop a code of conduct and framework for monitoring and reporting compliance, establish a Risk Management and reporting framework, put in place an internal control assessment and reporting system and lastly build processes for disclosures.

Added K Viswanath, managing partner, K P Rao & Co: "COSO is a voluntary private sector organisation dedicated to improving the quality of financing reporting through business ethics, effective internal control, and corporate governance. Indian companies can use the framework to gain reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations."

On the use of COBIT, the internationally accepted framework for evaluating controls in a computerised environment within the company, he said, "COBIT is an IT governance framework and supporting toolset that allows managers to bridge the gap between control requirements, technical issues and business risks. COBIT enables clear policy development and good practice for IT control throughout organisations. The framework helps an organisation to understand the benefits of information technology (IT) and help them use the knowledge to drive their shareholders' value."