Welcome Address by Shri R S Lodha, President, FICCI

Ladies and Gentlemen,

I have great pleasure in extending a very warm, hearty and cordial welcome to you to this Conference on Models and Dimensions of Corporate Governance: Fulcrum for sustainable wealth creation, jointly organized by FICCI and Securities and Exchange Board of India.

Friends, all of you would agree that the elements of good governance have been the hallmark of Indian ethos and culture since ancient days. This subject was brought by Mahatma Gandhi and as a matter of fact in the AGM of FICCI, which he was instrumental in forming in 1931. It is FICCI's considered view that we should re-read the vision and insights of our founding fathers and search our own souls to re-discover what is right, civic, contractual, transparent, moral and for the collective good in the midst of our quest to maximize our own individual interests. It is in this spirit of reflection and a search for solution that this conference is being organized jointly by Securities and Exchange Board of India and FICCI.

The aim of the conference is to internalize Corporate Governance practices for a sustainable world, to sensitise corporate directors, policy makers and regulatory authorities on the changing role of governance in the new volatile economy and to provide a platform to deliberate issues of good corporate governance as fulcrum for sustainable wealth creation.

Friends, the era of globalisation and liberalization has re-enforced the business communities all over the world to provide a cutting edge in order to maintain and to ensure survival in business. Excellence is the benchmark for sustenance and maintenance of qualitative governance of a business enterprise in the midst of competition.

The criticality of good governance to a country is being increasingly recognized. It would be difficult to find an adequate model which could be followed but there are certain absolute minimums which one must have. Good governance demands that the system possesses a high level of internal efficiency and resilence. It should have a definitive structure and should be sensitive to the needs and aspirations of the citizens. Good governance always promotes higher productivity, better quality and lower costs.

Mr James Wolfensohn, President of the World Bank, once remarked that proper governance of the corporations is now as important in the world economy as the proper governing of countries.

As we are aware, the aim of good governance is to facilitate growth and nurturing of the corporate while ensuring that it remains accountable for the power and patronage it exercises. For such governance to be achieved, there will always be the need for self-regulation by the company and external regulation by law, i.e. the Government, the regulatory agencies, professional standard setting bodies, organizations of different stakeholders etc.

Recently, the Securities and Exchange Board of India has appointed INFOSYS Chairman and Chief Mentor Shri N R Narayana Murthy as the Head of its Committee on Corporate Governance. The Committee has been set up to review implementation of the Corporate Governance Code by listed companies. The Committee would study the implementation of the Corporate Governance Code and recommend changes to improve practices

Further, SEBI has sought the services of two of the leading credit rating agencies in the country - Credit Rating Information Services of India Ltd (CRISIL) and Investment Information and Credit Rating Agency (ICRA) - to prepare a comprehensive instrument for rating the good corporate governance practices of listed companies. This instrument will enable the securities market regulator judge the compliance status of corporates on parameters such as effective creation, management and distribution of investors' wealth. This rating is meant to indicate the relative level to which an organization accepts and follows the codes and guidelines of Corporate Governance practices.

Without taking much of your time, I would like to highlight the following:

First: We need to apply our minds on the spirit not the letter of the law; substance over form and a quality of overall fairness so that it is not just a question of compliance and checklist; it is a question of rising upwards in the whole quality.

Second: The moot question for consideration is as to whether Corporate Governance should be mandatory or voluntary one. It needs to be appreciated that trade and industry are currently over burdened with a plethora of Rules and Regulations including the most lengthy and complicated Companies Act and Income Tax Act. A question may, therefore, arise as to the necessity and desirability of further Regulations.

Third: There is a need to consider the relevance of our policies not only to the problems of the day but also the challenges of tomorrow. The legal framework instead of being rigid should be made more conducive and responsive so that the companies get the necessary freedom to organize their activities in a manner that gives them the competitive edge to seize opportunities and condition themselves towards sound Corporate Governance.

Fourth: Convergence of the role and responsibilities of directors, both Executive and Non-Executive, auditors and shareholders is pre-requisite for achieving the targeted mission of a modern corporate governance and excellence. Certain core values - desirable and auditable values have to be in-built in the system of governance so that boundaries for performance are well defined.

Fifth: As we all know that the directors are required to sign the Directors' Responsibility Statement. It is difficult for a non-executive director to give statement about day to day management of the company. It would not be fair to make the non-executive directors / independent directors subject to penal provisions.

Sixth: I do not think it is a question of having more and more information; but, perhaps, better analysis of the information that we have. The information provided should be simple and easy to analyse and more focus should be on cash flow related information.

Seventh: Another question to be addressed is that whether the prime responsibility for the prevention and detection of fraud is of the auditors or the fiduciary responsibility of the Board. The solution to the problem lies in the support systems that the company has created by way of internal control and systems, constitution of independent Audit Committee etc.

Eighth: Corporate governance transparency is no longer a soft option. Companies that practice this commands premium. As per empirical analysis studies, 12 to 18% over the others - that is the minimum.

Before I conclude, I would like to state that future course of direction largely stems from Board's strategic thinking, aims, objectives, vision and the mission. The performance of the Board is towards achieving an excellence, which is expected by the society at large from the company as a whole. In this connection, governance and excellence of the company is a journey but not a destination. It is a mean but not an end in itself.