corporate governance rating-1 ii(2,3,4)

8/13/2019 Corporate Governance Rating-1 II(2,3,4)

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CORPORATE

GOVERNANCE RATINGDr. H Das


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Meaning and Functions

Department of Company Affairs(DCA) has setup an

institute to rate corporate excellence similar to credit rating

agencies such as CRISIL.


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Functions

To undertake research in the area of corporate

governance with a view to:-

1. To improve the overall legal framework.

2. To advise companies and Directors on how to takecorporate excellence forward.

3. To make available to investors, lenders and the public

the corporate excellence rating documents/ information.

4. To fund from the penalties paid by the companies forviolating the provisions of the Companies Act.


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Cont.

5. To prepare a comprehensive instrument for rating the

good corporate governance practices of listed Companies.

6. To enable the securities market regulated to judge the

compliance status of corporate on the assigned

parameters.

7. To ensure effective creation, management and

distribution of investors wealth.

8. To carry out periodic reviews of the ratings already

granted.


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CRISIL and ICRAs Rating Methodology

Investment Information and Credit Rating Agency (ICRA)

Credit Rating Information Services of India Ltd(CRISIL)

Following are the methodologies adopted by CRISIL and

ICRA :-Shareholding structure

Governance structure and management process

Board structure and process

Examining stakeholders relationsTransparency and Disclosures

Financial Discipline


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Shareholding Structure

To adopt a transparent Shareholding structure where the

key shareholders are clearly identifiable.

To adopt a transparent Shareholding structure where the

clear cross holdings are visible eg. Birlas, TATAs.

To examine the possible impact of cross holdings on to

the shareholders.

To explore the intention of cross holdings having impact

on to stakeholders eg. Satyam Computers, Ultratech

Cement.


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Governance Structure and Management

ProcessTo focus on the internal decision making process.

To see the quality and nature of information presented tothe Companys Board.

To look into the decision making process.

To view how responsibilities are delegated.

To find how accountability is ensured.

To ensure laid down procedures are actually practiced.

To see quality of information submitted to the board is

already told to the board well in advance.To make available of the information on matters of inter

corporate loans, related party transactions, diversification,mergers and acquisitions.


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Board Structure and Process

To examine the composition of the Board and itsworkings.

To see whether the Board is only a rubber stamps orreally working e.g. Reliance Communication.

To look into the size of the Board and its criteria of itsselection.

To ensure appointment of Independent Directors for theircompetency of expertise.

To find out the rationality of compensation policy forDirectors.

To examine the nature of constituted committees andtheir attendance.

To keep record of frequency of Board meetings


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Examining Stakeholders Relations

To take into account the rights of shareholders and the

duty of the company to service them all.

To look into the interest of financial shareholders such as

Banks, Financial Institutions and Fixed deposit holders.

To protect not only the interest of the owners but also

shareholders.

To protect the interest of the workers.

To protect the interest of the Customers.To ensure the interest of the society at large.


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Transparency and Disclosures

To find out- that better run companies disclose more than

they are required by the law.

To emphasize how materialistic the disclosures are.

To ensure whether the disclosures really shed light orhide more than they reveal.


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Financial Discipline

To determine financial ratings of the company.

To determine not the financial rating alone but the

corporate governance rating.

To maximize shareholders value is the rule of the gamefor financial discipline.

To maximize not only the shareholders value but also the

value of workers and the society at large.


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Conclusion

Credit rating for debt management is the consideration

for excellent management of the corporate organization

today e.g. selling of cement unit at Gujarat by JP

Associates to Ultratech Cement

Satyam Computers

Suzlon


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corporate governance rating-1 ii(2,3,4)

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