Companies have to be correct in implementing corporate governance, or be prepared to go bust. A warning to this effect came from trade and industry body ASSOCHAM, whose secretary D.S. Rawat pointed out that pre-dominance of foreign portfolio investors and large number of domestic mutual funds with enough clout in the market have led to a situation where even a perception of things not being right can lead to severe wealth erosion.
Companies listed in the stock market have been asked to be extra careful in ensuring that the corporate governance standards are in line with the best international practices. The chamber pointed out that investors were willing to give a handsome premium on the quality of promoters, boards and CEOs. Since majority of the shareholding is held by the promoters, it is in their interest that their firms are run in the most transparent manner. “Extra care should be taken with regard to correct and transparent valuations for all the inter-group transactions. Nowadays, the analysts are having eagle eyes,” added Rawat.
The Indian stock market is showing an increasing tendency for a zero tolerance towards any perceived dishonesty on the part of companies, expecting them to remain fully transparent and compliant in corporate governance, and has severely punished companies that faltered on transparency. Rawat cautioned promoters to remain committed to enhancing shareholders' value.
"Gone are the days when a firm or its promoters could get away with practices that are not the best of standards. Thanks to increasing awareness among the investors and strict disclosure norms, one cannot afford any wrong doing, knowing or unknowingly," the chamber said. ASSOCHAM also referred to a “few recent examples where share prices of a few companies saw wild fluctuations and erosion in wealth on suspicions of unfair transactions”.
“Things like change in the top management and any allegations of wrong doing must be responded to in the filings to the stock exchanges so that investors remain fully cognisant of the developments in the companies they have stake in,” ASSOCHAM said.
Even as more needs to be done in the area of corporate governance, market regulator SEBI has ensured that the companies are made to provide all material disclosures that have a bearing on the stock prices.