Group F | Anurag | Simmi | Ankit | Sejal

Corporate
Governance
Scorecard

Contents
Executive Summary................................................................................................................................. 2
Objective ................................................................................................................................................. 3
Goals of CG Scorecard............................................................................................................................. 3
Users of Corporate Governance Scorecard ............................................................................................ 4
Red Flags/ Caveats in the Implementation of Scorecard ........................................................................ 5
Global Reporting Initiative ...................................................................................................................... 5
Step by Step Process to Design and Implement CG Scorecard ............................................................... 6
Key Concerns Addressed by the Scorecard............................................................................................. 7
Limitations of Corporate Governance Scorecard.................................................................................... 9
SBI- Corporate Governance in Banking Sector...................................................................................... 10
Recommendations for Companies trying to Implement CG Scorecard ................................................ 12

Executive Summary
A scorecard is a quantitative tool to measure the practices of the company in accordance with a
code or standard of corporate governance. Scorecards compare these governance practices to a
benchmark. Typically the benchmark is set against a national code of corporate governance or an
international code or standard. Scorecards are used not only to measure regulatory compliance but
also the observance of a voluntary code of best practice. They assess a companys governance
practices, how far it has progressed over time, and also in comparison to different companies and
even groups of companies within or across countries.
One of the major benefits of scorecards is that they create and increase awareness about good
governance standards and practices at different levels of the market or industry. They are part of a
long-term, iterative process designed to improve the culture of governance within a country. The
other benefits are given below:
1. Scorecards give information about the quality of governance practices. They can tell
whether companies ignore the codes or follow the codes of recommendations. They provide
information that can be used to compare practices between different companies and
between different countries.
2. Scorecards influence companies to improve their governance practices. Comparisons with
other companies provide important information on how the company ranks against a peer
company and hence, can motivate companies to improve their governance.
3. Companies and stakeholders are the main beneficiaries of scorecard. This is because
scorecards help companies to improve their decision making, risk management, strategy,
control, and organization work ethos.

Objective
The aim here is to understand the role of governance norms in strategic operations of the company
and how compliance with these norms can be measured and quantified.

Identify the broad goals of scorecard at market level and company level and how they can
be achieved
Find the key stakeholders and users of scorecard
Possible roadblocks/caveats
Design a step by step process to conduct a scorecard project
The key questions that will be addressed by the scorecard
The limitations of the scorecard
Recommendations on how the scorecard implementation can be made more effective
To identify how SBI follows and applies the corporate governance scorecard and what are
the parameters that it considers in the scorecard

Goals of CG Scorecard
CG scorecard serves as a device to encourage and motivate companies to adhere to good corporate
governance practices. While the regulators use it to evaluate market response to a corporate
governance code, the companies might use it to guide their adherence to the recommended
practices contained in a corporate governance code. The overall business ecosystem can benefit
from CS scorecard as well, as not only it promotes a better business climate but the transparent
disclosure by companies will help financial markets flourish by boosting investors & analysts
confidence. By using CG scorecards, companies can enhance their performance at the market and
company levels.
CG scorecard goals at the market level:
At the market level, the major goal is the development of safer and more efficient capital markets.
One way to strengthen capital markets is to improve the implementation of the governance
framework. Governance codes and standards are an important part of this framework. Scorecards
encourage implementation of standards of practices by benchmarking companies and countries over
time. Scorecards set expectation levels, generate incentives for reform, help direct change, and can
set in motion a process of continual improvement.
CG scorecard goals at the company level:
At the company level these goals begin with providing companies with a powerful analytical tool.
Scorecards are a useful basis for companies to start an analysis of their governance practices. It helps
identify shortcomings against locally defined standards or generally accepted international standards
of good practice. It will also ensure that companies take CSR activities seriously. Merely donating
money to the charity at the end of the financial year is not enough. The organizations should
incorporate efficiency into their business model and also continue to give back to the society in the
form of initiatives better education, clean water, carbon and water footprint reduction among
others. The findings of a scorecard can, in turn, be used to help the company develop a corporate

governance improvement plan. The ultimate outcome should be better operational performance
and lower risk as a result of better governance practices.

Users of Corporate Governance Scorecard

Potential users of scorecards include companies, regulators, stock exchanges, institutes of directors,
and finance institutions (FIs). Each is likely to have somewhat different goals. Companies tend to be
more interested in addressing the concrete day-to-day issues they face in their governance.
Regulators and stock exchanges tend to be more interested in measuring code compliance and
drawing conclusions about the effectiveness of the regulatory framework. DFIs are usually interested
in encouraging market-level change in corporate governance practices and transferring knowledge
and skills to local counterparts.
Each user will likely play a different role in the development of a scorecard. It is useful to distinguish
between the roles of different users to see how and what each contributes.

Users

What can a scorecard help achieve

Companies

Membership organizations
(chambers of commerce,
institutes of directors, etc.)

Regulators & Government

Institutes

FI

Banks

Conduct self-assessment
Improve governance practices
Improve board functions
Improve company reputation among shareholders
Create importance of CSR initiatives through improving the
efficiency of the business operations and not just mere
philanthropy
Encourage better governance practices among companies
Raise public awareness of governance issues
Educate companies & public on the impact of governance
practices
Create incentives for better governance
Gather information to guide the development of law and
codes
Provide a basis for companies to report on their
governance
Clearly define the reports that need to be disclosed by the
organization
The companies can also be asked to follow GRI reporting
standards
Encourage the development of sound capital markets
Provide knowledge transfer to local counterparts on how
to conduct scorecard evaluations
Raise awareness of the importance of governance
Supplement bank credit-review and credit-approval
processes with assessments of governance
Make better lending decisions through better risk
assessment

Red Flags/ Caveats in the Implementation of Scorecard

The potential difficulties that may be encountered are given as follows:

Unrealistic expectations: Expectations about what a scorecard can achieve may be unclear
or unrealistic. Scorecards should not be relied on as the only tool available to reform
governance practices.
Lack of commitment and participation: There may be insufficient or less than wholehearted
local commitment and participation, especially from key regulators or companies. The local
environment may not have been closely scrutinized for its suitability.
Lack of guidance: The organization may not be able to solicit the help of industry experts
who can guide in the development of a scorecard.

Global Reporting Initiative

GRI is a sustainability reporting technique that is published by the company or organization about
the economic, social and environmental impacts caused by its decisions and actions. This report also
creates a link between its strategy and its commitment to a sustainable global economy.
Sustainability reporting is also considered as synonymous with other terms for non-financial
reporting- triple bottom line reporting, corporate social responsibility (CSR) reporting, and more. In
fact, GRI can be used as the overarching reporting standard that will take into account all the above
mentioned non-financial reporting methods. It is also an intrinsic element of integrated reporting; a
more recent development that combines the analysis of financial and non-financial performance.
The companies can also seek guidance from the following experts that will help them develop the
reporting standards. This will take care of the problems faced due to lack of guidance.

GRI (GRI's Sustainability Reporting Standards)

The Organisation for Economic Co-operation and Development (OECD Guidelines for
Multinational Enterprises)
The United Nations Global Compact (the Communication on Progress)
The International Organization for Standardization (ISO 26000, International Standard for
social responsibility)

The internal benefits experienced due to this reporting method are as follows:

Increased understanding of risks and opportunities

Emphasizing the link between financial and non-financial performance
Influencing long term management strategy and policy, and business plans
Comparing performance internally, and between organizations and sectors

The external benefits include:

Mitigating negative environmental, social and governance impacts

Improving reputation and brand loyalty

Enabling external stakeholders to understand the organizations true value, and tangible and
intangible assets
Demonstrating how the organization influences, and is influenced by, expectations about
sustainable development

In fact, as we will further see, compliance with GRI standards supports the benefits associated with
the implementation of the Corporate Governance Scorecard.

Step by Step Process to Design and Implement CG Scorecard

1. Define the aims and objectives that the company wants to achieve from the scorecard
This step would include taking account of the companys internal as well as external
practices and how the implementation of the scorecard will be aligned to the companys
long term mission and vision. The various points of consideration are given below:
Legal activities that affect corporate governance practices
Strengths and weaknesses of the corporate governance framework
The attitude of the company towards compliance with the law versus codes of best
practice
Willingness of the company to participate and open itself up to examination
The powers, capacity, and willingness of regulators to monitor the activities of the
companies
The environmental assessment will help identify potential stakeholders in a scorecard project,
define partners, and predict the level of company cooperation. It also provides the context
needed to set clear and realistic goals and establish the scorecard approach.
2. Getting the stakeholders and shareholders on the board
There is a need to engage all the key stakeholders to induce transparency and credibility in
the system. This engagement can be achieved by developing a stakeholder strategy which
will remove potential barriers between them and the company. Similarly, it is important to
educate shareholders about the importance of good governance practices. In doing so, the
company will get access to financial and human resources and expertise and realise long
term benefits for the company. Another key issue that has to be considered here is the
nature of shareholders and then devising the scorecard accordingly to fit their needs.
3. Decide parameters to include in the scorecard and develop the structure
The parameters should be chosen in such a manner that they serve the purpose of the
scorecard that is to measure the good governance practices in the company. Therefore, it is
advised to choose an appropriate benchmark for the same. This benchmark can be set
against national or international codes of good governance practices. For example, the
companies can follow the practices mentioned under the Companies Act for good
governance. The structure is supposed to provide a comprehensive picture of practices and
give a numerical score against each practice. It is always better to get approval from
minority and majority shareholders and other key stakeholders before finalising the
performance measurement parameters so that interests of all the parties are taken care of.
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Another point to be considered here is the CSR initiatives of the company. It is always
desired that the CSR practices are aligned with companys business strategy. In fact, it is
appropriate to call Corporate Responsibility (CR) instead of CSR. Therefore, it is always
advised that companies form a special committee for this sole purpose that will look into
various areas of opportunity where it is viable for the company to invest.
4. Measuring the score
Even though the companies are convinced to take part in measuring corporate governance
practices, there may be complacency in conducting the survey and measuring the scores.
Therefore, the management and the board should keep in mind the following key benefits
that can be derived from this scorecard:
Reduction in internal risk due to better control measures
Reduction in legal risk due to compliance
Improvement and efficiency in business model
Improvement in shareholder relations
More awareness in doing business in accordance with triple bottom line principle
and creating shared value for both the company and the society
Goodwill and reputation among the clients and the industry
Measure the effectiveness of various committees in the organization like audit,
compensation and nomination committees based on how often they met and the
effectiveness in decision-making
5. Collect and analyse the results
The last step is to gather and analyse the data to study potential gaps and areas of
improvement. Doing this gives the company an idea of how far they are from their
envisioned goals. It also gives them an idea about their next course of action that will help in
eliminating the existing gaps.

Key Concerns Addressed by the Scorecard

The implementation of the scorecard will spread awareness about the importance of CG
practices among all the employees. This will in turn guide them in all the decisions that they
make on behalf of the company and hence, make them accountable for their actions.
The top management including the CEO and the board members will focus on creating
shareholder value through good governance practices. This will bring transparency in
financial records and deals. Also, it will incentivise the board members to take their job
seriously and prevent them from using the veil of ignorance.
There will be top to down communication of companys short term and long term objectives
which will create a sense of ownership amongst all the internal stakeholders. On the flip
side, the employees will be able to track the consequences of their actions in terms of
appraisals and bonuses as this scorecard will be directly linked with compensation. This is
true for the CEO as well. In the long run, the compensation of board members can also be
monitored.

The company will be entitled to make complete, timely and accurate disclosure of their
material transactions like deals on mergers and acquisitions to the shareholders. Also, care
will be taken to address the interests of minority shareholders. The practices that led to
short term increase in share prices of the company which in turn compromised their future
holding in the industry will be curbed to some extent.
The structure and the composition of the board will have to follow the norms stated under
the Companies Act, 1956 where the chairman and CEO have to be 2 different individuals.
Also, 1/3 of the board members should be non-executive independent directors. At least the
latter practice will have to be followed in order to ensure that there is no case of
complacency or favouritism towards the company and that the task of mentoring and
monitoring are done effectively.
Along with audit, compensation and nomination committees, the company will have to
establish a Corporate Governance committee that will oversee the operations and functions
of all the committees and take care of any discrepancies that might arise in the course of
time. This committee should be chaired by a non-executive independent director in order to
maintain its credibility.
The CR committee will address the issue of developing a sustainable business model that will
strike a balance between shareholder value creations as well as various social initiatives that
are supposed to improve the lives of the people in the society through medical, education
and sanitation facilities, etc.

In the end all the entities directly/ indirectly influenced by an organizations practices have to work
in tandem to bring out a holistic change in the industry.

Limitations of Corporate Governance Scorecard

1. Even though there are questions that deal with the conduct of directors, management and
employees of companies, the scorecard is not really designed to measure the ethical behaviour of
those responsible for the stewardship of the companies. This is because, ethical behaviour is not
absolute and even after covering all the avenues, there will be some loopholes always.
2. Continuous implementation of the scorecard over a period of time will also train the responses of
the people and there will be proxies in place that will bring down the authenticity of the result of the
survey. This generally happens when employees see that no actions are taken towards good
governance practices and they realise that their genuine opinions do not matter in the organisation.
3. In spite of all the regulations, there are only few policies and practices that the listed companies
are liable to disclose. Also, there is no guarantee that they are actually following the god governance
practices. The implementation may be only in form and not in substance.
4. Since the direct benefit of implementing the scorecard is achieved after a considerable period of
time, the top management may not have the time or the inclination to do it sincerely. This is
because each executive including the CEO has a limited tenure within which he has to deliver results
to the board and the shareholders. Good governance practices are mere luxuries that they cannot
afford to indulge into.
5. There is a considerable amount of challenge from the side of the shareholders as well. Most of the
times, their sole motive is to only make money irrespective of the means used by the company. This
leads to constant pressure on the management to achieve profits and more often than not, it is
achieved through the forbidden methods. It also creates hindrance in the path of Corporate
Responsibility. The major issue here is the lack of long term vision among the shareholders that may
hamper the implementation of the scorecard. The shareholders do not understand the benefit of
spending money in activities that do not add to their bottom line.

The society in which an organization operates forms the most affected party but they receive the
least focus. As we go higher up the pyramid, the level of control exerted on the decision making
policies increases disproportionately. It is this situation that has led to the concentration of wealth
and power in the hands of few individuals whereas the majority of the population is still fighting for
equitable treatment.

SBI- Corporate Governance in Banking Sector

Corporate Governance in banking sector involves the manner in which board of directors and senior
management govern the banking process because that affects their daily operations, corporate
objectives, interests of shareholders and stakeholders and also to check that while doing all this if
banks are following all the rules and regulations and are protecting the interests of depositors.
Though banking sector is one of the most regulated sectors in India but the rules and regulations
have not been implemented effectively over the years. The sturdiness of banking institutions in
following the good governance practices is of paramount importance because the economy of the
country depends on how they function. Otherwise, we might as well be the harbinger of the next
recession in the coming years. And Corporate Governance Scorecard helps in finding out where do
the banks lag in implementation part. Banks activities need to be evaluated regularly because the
activities are not transparent and so it becomes difficult for the shareholders, creditors, investors
etc. to monitor the banks and corporate governance scorecard helps in doing so. And protect the
depositors interest so that they are not ignored by the interest of shareholders and board members.
How is it calculated?
A predefined set of questions is made and to every question a certain weight is allotted and
investors, fund managers, brokers/sub-brokers are asked to give ratings and this is compared across
different banks. Inputs from various industry experts are taken into account while deciding what
should be included in the questionnaire. And then based on this scorecard value, a five point LikertScale is used to grade the bank.
Purpose to answer the following questions
1. What all criteria are given importance by fund managers, financial agents, financial brokers,
advisors for advising to invest into listed companies?
2. If our Indian banking sector is implementing the corporate norms and the level to which it
has accepted the rules and regulations?
3. If there is any difference in the corporate governance practices that are followed by private
and public banks and if there is on which parameters they are different?
4. How are the banks supplementing bank credit-review and credit-approval processes with
assessment of governance?
5. If banks are making better lending decisions through better risk management?
6. How transparent are the banks in disclosing their financial transactions and deals?

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Questionnaire Table:
Score Assigned - It represents how important the parameter is, higher the score value, important the
parameter is.
No

Corporate Governance Parameters

Statement of Company's philosophy on code 2

of governance

2
3

Structure and strength of Board

Disclosure of Tenure and Age limit of directors

Post Board meeting follow up system and 2

compliance of the board procedures

5
6

Appointment of lead independent director

2
Disclosure of other provision as to the boards 1
and committees

7
8
9
10
11

Code of Conduct
Board committee
Disclosure and Transparency
General Body Meetings
Means of Communication
Shareholder information

12
13

CEO / CFO Certification

2
Compliance of corporate governance and 10
auditor's certificate

14
15

Disclosure of Stakeholders' interests

10
Chairman & CEO Duality
5
(i) Promoter executive chairman cum MD/CEO
(ii) Non-promoter executive chairman cum
MD/CEO
(iii) promoter non-executive chairman
(iv) Non-promoter non-executive chairman
(v) Non-executive independent chairman
Disclosure of Definition and selection criteria 3
for (Independent) Directors

16
17

Scores
Year 1
Assigned

and

Disclosure of Remuneration
Remuneration of Directors

2
2

2
25
25
3
General 2

Policy

Total
Net Profits

& 2
100

11

Year 2

Year 3

Five Point Scale used to grade the bank

Score
Excellent
Very Good
Good
Average
Poor

Grade
81-100
71-80
61-70
51-60
Below 51

Interpretation
Weighted average value is calculated for each value and also each scorecard parameter is arranged
in a ranking order. This helps in realizing that on which parameters a bank is doing well and on which
parameters a bank needs to work on. Corporate governance scorecard is filled every year to check
the parameters and also to improve the low performing parameters.
It helps in finding the following:
1. The effectiveness of audit committee in preventing fraud
2. The criterias that are given importance by fund managers, financial agents, financial
brokers, advisors for advising to invest into listed companies
3. If banks are making better lending decisions through better risk management
4. Ways in which bank are supplementing credit-review and credit-approval processes with
assessment of governance
5. Parameters in which private and public banks are different in following the different
corporate governance practices
6. The one thing that the questionnaire does not measure is the steps taken by SBI towards
Corporate Responsibility. The main focus of this questionnaire is to satisfy the shareholders
through transparency in financial transactions and deals.

Recommendations for Companies trying to Implement CG Scorecard

Assessment using the Scorecard should be a continuous process, which will require several
iterations before the Scorecard becomes self-sustaining.
Different companies should lead the initiative by rotation.
While assessment and ranking has its own value, especially given that good corporate
governance practices increase shareholder value at least in the medium term, opportunities
for synergy with other regional capital market initiatives should also be explored. The
interconnectedness of regional initiatives increases their sustainability, the sum being
greater than the individual parts.
The international scorecards like the ASEAN scorecard can also be used as a reference point
for the development of national corporate governance frameworks.

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