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Corporate Governance
 
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CII Launches Guidelines on Integrity and Transparency in Governance and Responsible Code of Conduct
Feb 14, 2020

CII feels this is time to review the earlier Desirable Corporate Governance Code 1998 and recommend updated Guidelines on integrity and transparency in governance and responsible Code of Conduct for sustained trust for industry to be released at the Summit. If India is to move to a leadership position in the global corporate space, business strategies can only be effective if complemented with responsible governance and ethical actions, stated CII. Self-regulation would be a key factor in greater responsibility, integrity, and accountability for rebuilding and sustaining trust.

The CII Guidelines are an attempt to serve as the base for corporates (large and small; listed and unlisted) to redesign their governance strategies in the face of ever changing business and regulatory environment. These Guidelines are a combination of global practices; existing legal provisions (some of which may currently be applicable only to listed companies); good to have principles; regulatory policy suggestions and forward-looking concepts – aimed at enhancing the overall governance standards of companies in India by encouraging voluntary adherence to the Guidelines, in letter and spirit. The Guidelines enumerate 15 recommendations on topical issues covering Integrity, Ethics and Governance; Responsible Governance and Citizenship; Role of High performing Board; Balancing interest of stakeholders; Independent Directors and Women Directors; Safe harbours for Independent Directors; easier settlement norms and amnesty provisions; risk management; succession planning; Role of the Audit Committee; Improving audit quality, and enhancing accountability of other third parties who play a fiduciary role; Disclosure and transparency related issues; vigil mechanism; Stakeholder, vendor and customer governance; Investor Activism and Start-ups and MSMEs.  

CII has urged companies to adhere to the Guidelines as below (in brief):

1. Integrity, ethics and governance – Companies should establish a culture of responsibility with accountability. Training should be imparted to employees to understand the culture.

2. Responsible governance and citizenship – Corporates to integrate environmental, social and governance principles in business and avoid giving and receiving bribes, corruption, market manipulation and anti-competitive practices. They should take anti-money laundering steps and precautions.

3. Role of Board – The CII Guidelines cover multiple recommendations for company Boards including balancing roles of supervision and stewardship, allowing for dissenting views, set out Key Result Areas and balanced scorecard, etc.

4. Balancing interest of stakeholders – CII has advised disclosure of conflicts of interest of Directors and management and taking into consideration the interest of shareholders and other stakeholders in corporate activities.

5. Independent Directors and Women Directors – Corporates to include independent directors with industry expertise and strive to improve gender diversity by inducting more women directors.

6. Safe harbors for independent directors – Enforcement agencies should put in pace clear safe harbours so as not to hold independent directors personally liable if they have done their duty. Laws need to be changed accordingly along with decriminalisation of laws.

7. Risk management – Risk Management Committee may be set up and assess various risks including IT and financial risks.

8. Succession planning – Succession planning should be instituted for chairman, managing director and other senior management.

9. Role of audit committee – Audit committee briefing to the Board to be formalized and spend sufficient time on integrity of financial statements, internal controls and so on, apart from handling whistle blower complaints and internal investigations.

10. Improving audit quality – Managements and audit committees should work closely together on understanding financial statements.

11. Disclosure and transparency related issues – The organisation should institute a social media policy to deal with information responsibly including price sensitive information.

12. Vigil mechanism – A whistle blowing mechanism may be formulated and periodic updates provided to the Board in its implementation.

13. Stakeholder, vendor and customer governance – The organisation must extend the concept and principles of governance to a larger number of stakeholders including bankers, creditors, lenders, customers, and employees, among others. A gifts policy should be devised.

14. Investor activism – Governance concerns of investors including institutional investors to be addressed and external stakeholders to be able to raise questions. The organisations should educate stakeholders to exercise their vote on all matters.

15. MSME and startups – MSME and startups should consider good governances as a complement to their business growth and appoint non-executive directors with appropriate skill sets.


14 February 2020
Mumbai

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