CII Launches Guidelines on Integrity and Transparency in Governance and Responsible Code of Conduct

Focus on Ethics; ESG; Changing Investor Profile and Technology key to Governance: U K Sinha, Former Chairman, SEBI

Risk Capital and Building Trust Bridge Core to Future for India’s global position: Uday Kotak 




Acknowledging positively on global harmony of Indian regulations, Mr U K Sinha, Former Chairman, SEBI asserted that Indian laws and regulations are comparable to global governance regulations. It is the implementation of the same that needs focused attention in India. Mr Sinha was addressing the 13th National CII Corporate Governance Summit organized by Confederation of Indian Industry (CII) at Mumbai yesterday. Mr Sinha enforced that corporate India must gauge horizontal trends of global developments and keep up with them to remain globally relevant.


He highlighted how there is growing focus on economic and social governance globally and commended CII for including the same in the Code released at the Summit. Speaking on the changing profile of investors, he explained how the earlier nexus between managements and institutional investors may not be relevant anymore. Competitive domestic and international institutional investors are now constantly challenging Boards and managements all over the world. He also spoke about a cultural shift wherein the Boardroom atmosphere now allows room for healthy discussions and questions by independent directors and auditors. He also discussed how creditors have also now been recognised as an important stakeholder after promulgation of the Insolvency and Bankruptcy Code. Mr Sinha also cautioned how technology has made measurement of data and its availability easy and lucid which needs to be factored in by companies in their decision-making processes.    


Mr. Uday Kotak, President-Designate, CII and Managing Director & CEO Kotak Mahindra Bank Limited asserted that there is no alternative than to be a well-governed company if India needs to achieve the growth rates it aspires for. Explaining that return of capital is more important than return on capital, he said suggested the need for enhanced risk capital for industry. There is need for heightened responsibility of fiduciaries of companies and stakeholders which they need to focus on. He highlighted the need for encouraging the growth of start-ups and MSMEs for risk capital. Mr Kotak cautioned that lack of trust towards corporates may be leading to the risk aversion – in which case, building the trust bridge is core to the future of India’s growth. 


Chairman, CII National Council on Corporate Governance Mr Keki Mistry, Vice Chairman and CEO, HDFC Limited reflected on global trends and how boards are operating under far greater scrutiny than ever before with increased regulatory requirements. He highlighted that a whistle blower policy is a critical element of internal control. But it is also equally important to ensure that there are sufficient checks and balances in the system so that mala fide intentions are discouraged and complaints with dishonest intents penalized. On independent directors, he said they cannot be held accountable for the performance or functions which are typically the responsibility of the executive management. In the current scenario, independent directors ability to objectively look at risk management is diminishing. Some immunity needs to be provided to them unless there is a wilful case of fraud. Until this is done, people of calibre will be reluctant and fearful of joining boards.


Mr Mistry also discussed that being on a lessor number of boards is gaining traction amongst investors and there may be significant level of reduction in the level of over- boarding in years to come. He explained how there is an increasing expectation around the oversight approval of the board which includes overall strategic planning, investor engagement and executive succession planning. Particular attention is being paid to directors’ skill profiles, diversity and the making of a robust mechanism for board refreshment that goes beyond the box ticking exercise. Boards are increasingly expected to play a more active role in risk management particularly cyber security risks. Speaking about recent technological innovations like mobile applications; big data and cloud computing, he said technology awareness at the Board level has become indispensable for the growth of the company. Speaking on shareholder activism, he highlighted how investors exert influence in governance both directly and through their proxy advisors and hence, shareholder activism is bound to become more pronounced in India. Mr Mistry enumerated the increasing focus on environmental, social and governance issues and asserted how markets are giving greater weightage to companies that provide sustained value creations.


Delivering the Regulatory Outlook, Mr Ashishkumar Chauhan, MD & CEO, Bombay Stock Exchange said that  governance is an ever-evolving field. He enumerated that corporates are a part of soft infrastructure and there is need to ensure symmetry of information and symmetry of power among stakeholders. Corporate Governance is beyond regulatory compliances and sets the tone of how the Corporate’s board of directors and management deal with shareholders and all stakeholders. Several committees in India and abroad have discussed, suggested and improved up on previous frameworks of corporate governance. Kotak committee recently suggested several improvements to the extant regulations. As soon as the recommendations become regulations, they become part of compliances. Companies Act 2013, Sebi LODR and several other laws as well as regulations govern the conduct of corporate boards and managements. These ever-evolving reform measures create a corporate regulatory environment that promotes business activity, market integrity and investor confidence – especially small investors, he explained.


Mr Shyamak Tata, Chairman, Deloitte India charted some of the global trends relating to Board effectiveness, alignment of culture, technology governance to better leverage exercise of oversight roles etc. Explaining the constituents of governance, he highlighted the role to be paid by each of them. For the entity along with the management and the Board, there is need to adopt and adapt the changing environment; For third party fiduciary role holders, it is to gauge the undercurrents in the company; for corporate lenders to remain agile and for Regulators, to evolve with the changing society. He also commended the initiative of the Government in decriminalising Companies Act 2013 which will encourage directors to conduct business without anxiety of adverse repercussions.


Talking about 125 years of CII’s partnership with the nation, Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII) delivered the welcome remarks at the Summit. He charted CII’s role in the evolution of corporate governance in the country asserting the need to ensure that efforts are sustainably aimed at creation of a facilitative streamlined and harmonized regulatory environment that promotes voluntary adoption of best practices and self-regulation by corporates without warranting additional regulations. Explaining that a Code of Corporate Governance cannot be static, he said it must be reviewed in time to keep pace with the changing regulatory scenario. 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.



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