Corporate Governance

KPMG IN INDIA
The state of corporate governance

in India
- A Poll
AUDIT COMMITTEE INSTITUTE

About this poll
This poll “The State of Corporate Governance in India: 2008” is an initiative of KPMG in India’s Audit
Committee Institute. The poll, conducted between late November 2008 to early January 2009, involved
over 90 respondents comprising CEOs, CFOs, independent directors and similar leaders, who were
asked about the journey, experience and the outlook for corporate governance in India. The respondents
(page 19) are predominantly from private equity firms, financial services and the manufacturing sector.
Good corporate governance helps an organization achieve several objectives and some of the more
important ones include:
• Developing appropriate strategies that result in the achievement of stakeholder objectives
• Attracting, motivating and retaining talent
• Creating a secure and prosperous operating environment and improving operational performance
• Managing and mitigating risk and protecting and enhancing the company’s reputation.
Some aspects covered in the poll include:
• Corporate governance regulations in India
• Corporate governance concerns in India and role of independent directors and audit committees in
addressing these concerns
• Board practices, board oversight of risk management and the importance given to integrity and ethical
values
• Practices that are fundamental to improved corporate governance.
The results, which are augmented by comment from KPMG in India’s Audit Committee Institute, also
provide a useful contribution to the debate on how Indian companies can improve standards of corporate
behavior which do justice to the spirit behind the rules.
We would like to thank all the respondents for taking time to participate in the poll.
Richard Rekhy Neville Dumasia

Chief Operating Officer and Executive Director and
Head - Advisory Head - Governance, Risk and Compliance Services
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International, a Swiss cooperative. All rights reserved.
Foreword
Corporate governance regulatory landscape in India

Recent events in India have put the spotlight on corporate governance practices of Indian companies. A key aspect that is being
debated in the corridors of India Inc. is whether we need major regulatory changes to improve corporate governance, or whether
improved standards of corporate governance could be achieved through adoption of principle-based standards of conduct.
India Inc. has generally been proactive in promulgating corporate governance regulations. In doing so, a good balance has
been achieved i.e. headway has been made, in terms of helping ensure that regulations are not stifling our entrepreneurial
initiatives. From a purely regulatory standpoint, India compares favorably with most other developing and Asian economies
as far as its corporate governance rules are concerned*.
What is good corporate governance?

Good corporate governance is characterized by a firm commitment and adoption of ethical practices by an organization
across its entire value chain and in all of its dealings with a wide group of stakeholders encompassing employees,
customers, vendors, regulators and shareholders (including the minority shareholders), in both good and bad times. To
achieve this, certain checks and practices need to be whole-heartedly embraced.
Some considerations in this respect are outlined below:

• Codes of conduct and whistle blower policies are important, but more important is how they are communicated and
practiced. It is vital for board members and senior management to lead by example
• The concept of having independent directors is a good one in theory but more important is the process underlying selection of
independent directors – is this process rigorous, transparent and objective and is it aligned to the company’s needs?
• It is important to focus on not just earnings but on the sustainability of business models. Focus on not just “How much?”
but on “How?”, “At what cost?” and “At whose expense?”
• Rating agencies need to develop criteria that focus on substance rather than the form of governance
• Compensation of executive directors should flow from an objective performance evalution process conducted by the board
• Greater transparency and disclosure of executive performance criteria are required which should include financial and
non-financial measures
• Regulators should send clear signals that they shall be proactive in imposing substantial penalties for non-compliance, so
that compliance is strictly adhered to.
* Source - CLSA CG watch Survey 2007
Sammy Medora
Chairman
Audit Committee Institute
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Table of contents
Highlights of Poll 01
Corporate governance in India – regulatory landscape 02
Corporate governance concerns 05
Rethinking board’s priorities and performance 10
Improving and enforcing corporate governance 15
Respondents 19
1
Highlights of Poll
Spirit and practice of governance regulations and
practices needs to be intertwined
• Majority of the respondents believe that while corporate governance should be
practiced through principle-based standards and moderate regulations, there is
a need for stronger regulatory review and exemplary enforcement.
Corporate governance concerns

• Thirty-five percent of respondents consider weak oversight and monitoring as
the biggest risk to corporate governance, while twenty-one percent perceive
management override as a greater risk
• A significant majority would prefer greater empowerment to independent directors
• There is still a long way to go in protecting minority shareholders
• Many respondents believe that skill-sets of audit committee members range
from medium to high.
Priorities and practices of boards need to be revisited

• Over two-thirds of the respondents were generally of the view that there is
scope for improvement when it comes to board members having the right
information and enough time to discharge their duties
• 73 percent of the respondents believe that risk management practices need to
be improved
• There is a mixed response on Corporate Social Responsibility (CSR) priority for
Indian corporates.
Factors to improve and enforce corporate governance

• 85 percent of the respondents think that the remuneration of Chief Executive
Officers (CEO) should be significantly linked to company performance
• Most respondents believe that while steps at introducing the code of conduct
and whistle blower policy have been introduced, there exists a significant need
to enhance integrity and ethical values in the larger eco-system
• 72 percent of the respondents believe it is necessary for an independent and
transparent process to evaluate performance of board members
• Two-thirds believe that exclusive sessions of independent directors are essential
• 47 percent feel that the effectiveness of corporate governance should be
monitored through audits by corporate governance specialists.
2
Corporate governance in India –

regulatory landscape
Clause 49 of the listing agreement with stock exchanges provides the code of
corporate governance prescribed by SEBI for listed Indian companies. With the
introduction of clause 49, compliance with its requirements is mandatory for such
companies.
India Inc. believes that the spirit and practice of

governance regulations and practices need to be
intertwined
We asked respondents whether they see improvement in corporate governance
following the introduction of clause 49. While 19 percent of the respondents feel
there has been significant improvement, 68 percent of the respondents believe
that significant scope for improvement exists.
Change in corporate governance levels in India after introduction of clause 49
There is also the question on whether clause 49 can be strengthened and to what
extent. This question evoked a mixed response from respondents. 46 percent
noted that clause 49 may require a few changes and 44 percent noted that clause
49 could benefit from a significant revamp.
Can clause 49 be strengthened to inculcate good governance practices?
3
In comparison with developed countries that impose stringent penal and criminal
consequences for poor corporate governance, penalty levels in India are
considered to be inadequate to enforce good governance.
71 percent of the respondents considered penalty levels to discipline poor and

unethical governance to be low. 22 percent of the respondents were either
undecided or did not know if the penalty levels are low.
Are penalty levels in India to discipline poor and unethical governance low?
Will the new Companies Act have a positive impact on corporate governance?
The Ministry of Corporate Affairs has proposed the New Companies Bill 2008
which aims to improve corporate governance by vesting greater powers in
shareholders. These have been balanced by greater emphasis on self-regulation,
minimization of regulatory approvals and increased and more transparent
disclosures.
53 percent of the respondents believe that the new Companies Act might have a
limited or insignificant impact in addressing contemporary corporate governance
issues in India.
28 percent of the respondents believe that its impact is likely to be positive. The
remaining 19 percent were undecided.
4
“Typically a ‘principle-based Principle-based approach is required for corporate

approach’ means circulation of governance
a cogent set of principles and Eighty percent of the respondents believe corporate governance should be
practiced through a mix of principle-based standards and moderate regulations.
preferred practices which
companies are asked to adopt
Should corporate governance standards be enforced through regulations or
as they see most appropriate should they be principle-based?
to their particular
circumstance.”
Jane Diplock
AO - Chairman
Securities Commission New Zealand &
Executive Committee, IOSCO
Source:
http://www.seccom.govt.nz/speeches/2003/jds031103.shtml -
December 2008
The existing (Clause 49) and ensuing (The Companies Bill, 2008) legislations do
cover the fundamentals of effective corporate governance and India compares
favorably with most other developing and Asian economies as far as the
adequacy of corporate governance regulations are concerned.
Improved corporate governance, however, does not solely rest on control through
increased regulations. What is required is a principle-based approach developed
on fundamentals, preventing moral fragility that is enforced through pragmatic
levels of regulations.
5
Corporate governance
concerns
Various factors pose challenges to effective corporate
governance in India
We asked the respondents about the bigger risks to corporate governance in India
and key reasons for corporate failures in the West. 35 percent considered weak
oversight and monitoring as the biggest risk to corporate governance. This is lower
in comparison to 55 percent of the respondents who participated in our poll and
considered this factor to be the single biggest reason for corporate failures in the
West.
21 percent of the respondents considered management override to be the biggest

risk. Inadequate independence and lack of respect for the shareholder community
were also regarded as major risks by 18 percent and 15 percent respectively.
6
Independent directors need significant empowerment

Clause 49 prescribes that at least a third of Indian boards should comprise
independent directors in cases where the board chair is an independent director.
However, where the board chair is an executive director, clause 49 requires that at
least 50 percent of the board should comprise independent directors.
Majority of the respondents feel that independent directors do not adequately

challenge the executive directors and management in the process of discharging
their governance responsibilities.
Do independent directors merely contribute towards satisfying a regulatory

requirement?
Many Indian companies operate in a family-owned culture. There has been an implicit assumption amongst boards that senior
managers know their job and have the best interests of companies they manage at heart. This has sometimes resulted in boards
refraining from asking the difficult questions to senior managers when the company has been performing well or until there is a
crisis. The selection of independent directors who are known to promoter directors has further compounded the problem. From a
governance standpoint, boards should address the following key areas specifically concerning independent directors:
• Adoption of a formal and transparent process for director appointments. The conflict of interest involved in managements
appointing independent directors should be tackled through nomination committees (comprising independent directors) for
identification of directorial candidates
• Alignment of needs of the company to the skills required in the boardroom
• Segregation of the roles of CEO and chairman of the board of directors. The concept of CEO and board chair separation is well
accepted in Europe and is being steadily adopted in the US. The chairman of the board should be an independent director who
plays a key role in setting the priorities of the board
• Planning for CEO and board succession in different scenarios
• Formal evaluation of the CEO and senior management team’s performance at least annually. CEO performance evaluation
process should be introduced when the company is performing well. Evaluation of CEO performance sends a clear message
that the CEO is accountable to the board and introduces a healthy balance of power.
• Peer evalution of independent directors should be adopted. This would enable independent directors to openly discuss
amongst their group how they are performing and take tangible steps to improve their individual and collective functioning.
• Independent directors should take steps to make themselves aware of their rights, responsibilities and liabilities.
7
“Corporate governance Principle of trusteeship - appropriate protection for

is about owners and the minority shareholders
managers operating as the
75 percent of the respondents believe that significant efforts need to be made to
trustees on behalf of every
address the concerns of the minority shareholders. 12 percent of the respondents
shareholder–large or say that minority shareholders’ concerns are sometimes addressed but not in the
small.” best interests of the company.
Narayana N. R. Murthy Are concerns of minority shareholder groups adequately addressed by Indian
Chief Mentor boards?
Infosys Technologies Limited

Source: http://www.nfcgindia.org/aboutus.htm -
December 2008
Shareholder activism in India is at a nascent stage and comes to the fore only in instances where institutional investors holding
a significant stake are in a position to question the quality of corporate governance. As minority shareholders may not have
complete understanding of their rights or the avenues through which these rights could be exercised, increased activism from
institutional shareholders and reinforcing the role of independent directors on the board is likely to take shape in the near
future.
In the context of meeting expectations of stakeholders beyond the minority shareholders (eg. employees, customers, vendors
etc.) a number of initiatives need to be embraced such as:
• Informative Management Discussions and Analysis disclosures that focus on improving level of detail around operations and
key risks
• Openness and transparency in dialogue with shareholders
• Objective and transparent whistle blower policies that are available to key stakeholders (employees, customers and vendors)
and provide adequate safeguards against victimisation of whistle blowers
• Have minority shareholders’ representatives on boards as independent directors.
8
Committees of boards may not have high effectiveness

In present times, companies have numerous committees of the board such as
ESOP Committee, Audit Committee, Remuneration Committee, Risk
Management Committee, etc. There is a need for establishing a framework
around the functioning of committees of boards so that their effectiveness is
demonstrated.
Effectiveness of committees of boards (other than audit Quality of Management Discussion and Analysis Report of
committee) Indian companies
Quality of Management Discussion and Analysis in annual

reports is moderate
Management Discussion and Analysis (MD&A), which highlights the structure,
developments, opportunities, threats, concerns, etc. of the company is becoming
an important section of the annual report. 88 percent of the respondents rate the
quality of MD&A section of the annual report as medium or low. The other 12
percent of respondents rate its quality to be high or very high.
9
Audit committee skill-sets may need to be enhanced

Audit committees, largely comprising independent directors, are entrusted with
the responsibility of ensuring the integrity of the company’s financial statements,
managing risks through internal control system and functioning of its internal audit
function and regulatory compliance.
While it is the duty of all directors to act in the interests of the company, the audit
committee, which acts independently of executive management, has a specific
responsibility of acting in the interests of stakeholders through effective oversight
of the company’s financial reporting and its risk management and internal control
systems.
The poll indicates a mixed opinion of respondents over the skill-sets of audit
committees.
How do you rate the skill-sets of Indian audit committees?
Companies should address the challenges that their audit committees face and focus on enhancing skills in some of the most
important areas listed below:
• Better understanding of risk, strategy and business models
• Understanding implications of the external environment on financial forecasts and performance
• Comprehend complex accounting policies and practices – how their application impacts results
• Monitoring fraud risk especially relating to senior management override of internal controls
• Assessing IFRS readiness and transition plans
• Monitoring “tone at the top” in difficult times
• Effective oversight of internal and external auditors
• Ensuring that the board’s strategic direction is in the best interest of all including minority shareholders
• Evaluation of audit committee and its members based on an established framework for its functioning.
10
Rethinking board’s priorities and

performance
Indian boards may not get the right information and
enough time
Independent directors often hold other C-level positions in other companies and
this, coupled with a packed board meeting calendar, may leave them with very
little time to devote to the affairs of their boards. Additionally, independent
directors may not get adequate information before a board meeting.
22 percent of the respondents think that board members never get the right
information and enough time. 35 percent of the respondents think that board
members sometimes get both enough time and the right information. An
additional 28 percent of the respondents believe there is a scope for
improvement.
Do Indian board members get right information and enough time to discharge
their board duties?
• Independent directors need to spend significant time in understanding the various business operations, company’s control
environment, culture and the impact of these elements on the financial numbers
• The conduct of board meetings needs introspection in terms of frequency and duration, information needs, balance between
presentation and discussion, interaction outside the boardroom and most importantly, consultation when in doubt
• Board chairs should actively monitor how individual directors are proactively identifying and fulfilling their knowledge and
competency needs
• Independent directors need to conduct various exclusive sessions on a one-on-one basis with management, internal auditors and
external auditors
• As part of its annual evaluation process, the board should review the quality of information it receives and consider how it can
be improved.
11
Corporate Social Responsibility - not yet top of mind for

Indian corporates
Corporate Social Responsibility (CSR) is a concept through which organizations
consider the interests of society by taking responsibility for the impact their
activities have on customers, suppliers, employees, communities and the
environment. This responsibility goes beyond compliance with regulations and is
about organizations voluntarily taking further steps to improve the quality of life for
employees as well as for the local community and society at large.
47 percent of the respondents believe that CSR is not high on the agenda of
Indian companies. Thirty percent of the respondents were undecided on this
aspect.
Is CSR high on the agenda of Indian companies?
12
Boards should be responsible for sustainability

Increasingly, boards are being made responsible for sustainability of the
companies they govern. The need to ensure a high degree of sustainability in
earnings, values, human and other resources and the environment in which the
companies operate is gaining importance.
58 percent of the respondents believe that boards are fully responsible for triple
bottom line sustainability in profitability, people and environment. An additional 31
percent of the respondents believe that boards are partly responsible for
sustainability. 11 percent of the respondents believe that sustainability can not be
the responsibility of boards as it is a factor of numerous uncontrollable events.
Do you believe that sustainability is an important canon of corporate governance and boards
should be responsible for it?
13
Stock options evoke a mixed response!

Stock options are offered to management and others to align their interest with
those of the shareholders. This gives an incentive to behave in ways that are likely
to boost the company's performance and hence its stock price. Stock options are
considered as a favored remuneration tool for board members.
37 percent of the respondents consider stock options to be a boon as they

inextricably link board performance with the company’s performance. 38 percent
of the respondents believe that stock options should be used but they should
form a secondary share of board remuneration.
26 percent of the respondents believe that stock options should not be favored as
they can either be creatively allocated to reward board members in lean times (i.e.
when the company is not performing well) or encourage insider trading.
Are stock options a boon or a conflict of interest?
14
Risk management practices in Indian companies

Seventy-three percent of the respondents believe that risk management practices
need to be improved. The results of this poll are similar to the results of the global
Audit Committee Member Survey conducted jointly by KPMG and the National
Association of Corporate Directors in USA (NACD) in 2008.
The Audit Committee Member Survey highlighted that risk management is the top
oversight priority for audit committee members. The survey highlighted that audit
committee members felt more confident in their "traditional" areas of oversight—
accounting judgments and estimates, and internal controls/404 processes. They
felt notably less confident (and cited various opportunities for improvement) in
their oversight of risk management—including IT risk and governance, risk
reporting, and communication/coordination of risk oversight activities with the
How would you rate the current stan-
dards of risk management practices in board and other committees.
Indian companies?
Boards
• Boards should demand and obtain a holistic view of risks both on and off the balance sheet, their ownership and how they are
mitigated
• Diversity of skills on the board is fundamental to effective risk management
• Boards should have a clear understanding with senior management regarding their risk appetite in various areas and help ensure
that these are articulated and considered in design of controls, policies and procedures
• Boards should consider the risks inherent in strategic choices and whether these are acceptable
• Evaluate evolving risks – what impact changes to strategy have on the suite of operational, financial and compliance risks and
whether this is consistent with the company’s risk appetite?
Senior Management
• The standing of risk management in the organization should be elevated and should figure prominantly in business decision
making. Risk management should not be viewed as a support function *
• Risk professionals should have appropriate authority in the organization and should have the powers to curb risk taking by
business units*
• Risk management must be defined as being the role of senior management, usually the chief executive. The chief executive, as
the "owner" of risk in the organization, must be seen to elevate the authority of risk management, and his or her focus on risk
must filter through the organization*
• Senior management should set aside time to discuss potential economic scenarios and consider the impact of these outcomes
on the business. Senior management should seek a range of views and perspectives in order to test its assumptions*
• Executive management should have complete visibility of the processes to identify risks, their severity, potential impact and
procedures to address them. The board through its committees should be peridically monitoring the results. *
* Source: Managing risk in perilous times - Practical steps to accelerate recovery (A report from the Economist Intelligence Unit.
Sponsored by ACE, KPMG, SAP and Towers Perrin)
15
Improving and enforcing

corporate governance
“Corporate Governance is Factors to improve corporate governance
concerned with holding the Respondents were asked to rate certain factors that may result in improvement of
balance between economic corporate governance practices in companies. The importance of all identified
factors (refer to table below) were rated almost equally by the respondents.
and social goals and between
In order of importance, improvement in financial and other disclosures and
individual and communal improvement in risk management and oversight processes received highest votes
goals. The corporate (24 percent each). These were followed by enhancing the powers of independent
directors (20 percent), separation of the position of chairman and CEO (17
governance framework is there percent) and strengthening minority shareholders’ rights (15 percent),
to encourage the efficient use respectively.
of resources and equally to How do you rate the importance of following factors in improving corporate
require accountability for the governance standards?
stewardship of those
resources.
The aim is to align as nearly
as possible the interests of
individuals, corporations and
society.”
Factors were ranked in the order of importance

Sir Adrian Cadbury in 'Global Corporate
Governance Forum', World Bank, 2000.
Source: Linking CEO rewards to performance:
http://www.corpgov.net/library/library.html - 85 percent of the respondents think that remuneration of CEOs should be significantly
December 2008 linked to company performance and involve a medium term lock-in option.
4 percent of the respondents do not believe that the remuneration of CEOs
should be significantly linked to company performance. 11 percent of the
respondents are either undecided or do not know if the remuneration should be
linked to performance.
Should remuneration of CEOs be significantly linked to company performance and involve

a medium term “lock in” option?
16
Integrity and ethical values

Indian companies have been focusing on code of conduct and whistle blower
mechanism as a fundamental of good governance. Respondents were asked if
similar importance was given to integrity and ethical values.
Majority of the respondents say that although Indian companies give similar
importance to integrity and ethical values, significant scope exists to enhance
integrity and ethical values within the organization and the eco-system.
Are integrity and ethical values given due importance by Indian companies?
Some of the improvement levers include:
• Striving to ensure that the code of conduct is understood and adhered to by all members of the organization
• The performance management system should recognize and reward ethical behavior
• Extensive background checks should be performed on the senior employees joining the organization
• Companies should screen third parties (customers, vendors, JV partners) with whom it does business for their commitment and
adherence to ethical practices
• The scope of whistle blower policies should be extended to the wider stakeholder group
• Chairman of the audit committee should have direct oversight of whistle blower incidents
• Investors, lenders, analysts should pro-actively question/challenge management on areas pertaining to corporate governance
comprising protecting minority interests, management compensation, government dealings, risk management practices, related
party transactions, fraud risk management and CSR.
17
Improving corporate governance levels - some positive

steps
Introduction of certain practices are considered to be very positive by respondents
towards improving levels of corporate governance.
72 percent of the respondents believe an independent and transparent process to
evaluate the performance of board members can improve corporate governance.
68 percent and 71 percent of the respondents respectively believe that exclusive
sessions should be conducted with independent directors, and board members
related to the promoter group should not vote on the appointment of a director
related to the promoter group.
Board to have an independent and transparent process to evaluate the performance

of all its members
Board to have a process of conducting exclusive sessions with its independent

directors
Board members related to the promoter group to abstain from voting on

appointment of a director related to the promoter group
18
“Corporate governance is Monitoring effectiveness of corporate governance

about "the whole set” of legal, Monitoring the effectiveness of corporate governance practices is also a key
cultural, and institutional concept emerging in India. We asked respondents who should monitor the
arrangements that determine effectiveness of corporate governance practices.
what public corporations can 47 percent of the respondents believe that effectiveness of corporate governance
do, who controls them, how should be monitored by way of corporate governance audits carried out by
that control is exercised, and corporate governance specialists.
how the risks and return from 26 percent of the respondents believe that it should be monitored by the boards
the activities they undertake themselves through self-assessment tools.
are allocated.” 15 percent of the respondents believe that the monitoring should be by way of
investors / minority shareholder groups having access to full information and
another 12 percent believed that the monitoring should be through rating
Margaret Blair
agencies.
Professor of Law,
Vanderbilt University Law School Who should monitor effectiveness of corporate governance practices at
Source:http://www.corpgov.net/library/library.ht companies?
ml - December 2008
Some of the aspects that may require regulatory change:
• Board and audit committee evaluations should be mandatory
• Current limits on independent directorships need to be revisited
• The CEO and board chair roles should be segregated
• Stricter penalties for non-compliance
• Transparent CEO evaluation process including disclosure of performance criteria
• Role of nomination committees to drive independent director selection process.
19
Respondents
The poll involved over 90 respondents comprising CEOs, CFOs, independent directors and similar leaders.
Business Profile of Respondents
CEO/ Managing Director 32%
CFO 23%
Executive Director 11%
Independent Director 9%
Company Secretary 8%
Any other 17%
Industry sector profile represented by respondents’ organization
in.kpmg.com
KPMG in India Key Contacts

Mumbai Richard Rekhy
KPMG House, Kamala Mills Compound Chief Operating Officer and
448, Senapati Bapat Marg Head - Advisory
Lower Parel Tel: +91 80 3980 6500
Mumbai 400 013 e-Mail: rrekhy@kpmg.com
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000 Neville M. Dumasia
Executive Director and
Delhi Head - Governance, Risk and Compliance Services
DLF Building No. 10, Tel: +91 22 3983 6402
8th Floor, Tower B, e-Mail: ndumasia@kpmg.com
DLF Cyber City, Phase 2, Gurgaon 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101
Pune
703, Godrej Castlemaine
Bund Garden
Pune 411 001
Tel: +91 20 305 85764/65
Fax: +91 20 305 85775
Bangalore
Solitaire
139/26, 3rd Floor,
Inner Ring Road, Koramangala,
Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999
Chennai
No.10 Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999
Hyderabad
8-2-618/2
Reliance Humsafar, 4th Floor
Road No.11, Banjara Hills
Hyderabad - 500 034
Tel: +91 40 6630 5000
Fax: +91 40 6630 5299
Kolkata
Infinity Benchmark, Plot No. G-1
10th Floor, Block – EP & GP, Sector V
Salt Lake City, Kolkata 700 091
Tel: +91 33 44034000
Fax: +91 33 44034199
© 2009 KPMG, an Indian Partnership and a member firm

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or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is affiliated with KPMG International, a Swiss cooperative.
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KPMG IN INDIA

The state of corporate governance

AUDIT COMMITTEE INSTITUTE

• Developing appropriate strategies that result in the achievement of stakeholder objectives

• Attracting, motivating and retaining talent

Some aspects covered in the poll include:

• Corporate governance regulations in India

• Practices that are fundamental to improved corporate governance.

Richard Rekhy Neville Dumasia

Corporate governance regulatory landscape in India

What is good corporate governance?

Some considerations in this respect are outlined below:

* Source - CLSA CG watch Survey 2007

Corporate governance in India – regulatory landscape 02

Corporate governance concerns 05

Rethinking board’s priorities and performance 10

Improving and enforcing corporate governance 15

Corporate governance concerns

Priorities and practices of boards need to be revisited

Factors to improve and enforce corporate governance

Corporate governance in India –

India Inc. believes that the spirit and practice of

Change in corporate governance levels in India after introduction of clause 49

Can clause 49 be strengthened to inculcate good governance practices?

71 percent of the respondents considered penalty levels to discipline poor and

“Typically a ‘principle-based Principle-based approach is required for corporate

21 percent of the respondents considered management override to be the biggest

Independent directors need significant empowerment

Majority of the respondents feel that independent directors do not adequately

Do independent directors merely contribute towards satisfying a regulatory

“Corporate governance Principle of trusteeship - appropriate protection for

small.” best interests of the company.

Infosys Technologies Limited

Committees of boards may not have high effectiveness

Quality of Management Discussion and Analysis in annual

Audit committee skill-sets may need to be enhanced

How do you rate the skill-sets of Indian audit committees?

Rethinking board’s priorities and

Corporate Social Responsibility - not yet top of mind for

Is CSR high on the agenda of Indian companies?

Boards should be responsible for sustainability

Stock options evoke a mixed response!

37 percent of the respondents consider stock options to be a boon as they

Are stock options a boon or a conflict of interest?

Risk management practices in Indian companies

Improving and enforcing

Factors were ranked in the order of importance

Should remuneration of CEOs be significantly linked to company performance and involve

Integrity and ethical values

Some of the improvement levers include:

Improving corporate governance levels - some positive

Board to have an independent and transparent process to evaluate the performance

Board to have a process of conducting exclusive sessions with its independent

Board members related to the promoter group to abstain from voting on

“Corporate governance is Monitoring effectiveness of corporate governance

Some of the aspects that may require regulatory change:

• Board and audit committee evaluations should be mandatory

• Current limits on independent directorships need to be revisited

• The CEO and board chair roles should be segregated

• Stricter penalties for non-compliance

• Transparent CEO evaluation process including disclosure of performance criteria

• Role of nomination committees to drive independent director selection process.

Business Profile of Respondents