Boards score well in Icra study

An Icra study of the largest companies that constitute the BSE-Sensex has shown positive results on the functioning of their boards but progress on some aspects of corporate governance is still wanting.

On the positive side, the average size of the board of 9-12 directors was adequate and in line with the international practice.

The average number of board meetings in a year at 7.69 and an attendance rate of 83 per cent were the other positives as was the functioning of the audit committees. The average size of audit committee was 3.88 and it met six times a year.

The survey, however, said that though 50 per cent of the companies had separate chief executives and chairmen, in a majority of such cases, the chairman was either a former CEO of the company or a nominee of the dominant promoter group.

"This, greatly negates the basic purpose of separating the roles of the Chairman and CEO," the rating agency said.

It also said that the proportion of independent directors on the boards was on the rise and more than 10 companies in the sample had such directors accounting for over 50 per cent of the board strength.

"However, it must be clearly acknowledged that there is a clear limitation in evaluating, for the purpose of this survey, how 'independent' the independent directors actually are, given that the survey was based solely on published information available in the public domain," Icra, which provides corporate governance ratings in India, added. The companies also did not have remuneration committees.

But the sample surveyed revealed that only four companies had a functional nomination committee and it seemed to point at the absence of a structured approach to selecting independent directors.

Also, the "financial literacy" of the members has scope for improvement. While the audit committee chairmen were found to be eminent professionals, only a few were qualified accountants.