Putting the house in order

The global financial crisis will expose cracks in India’s corporate governance standards, argues Jamie Allen of the Asian Corporate Governance Association

India’s corporate governance standards, like those in many other Asian markets, have improved significantly over the last decade.

The country’s desire to become more competitive internationally was a major catalyst for corporate governance reform at the policy level, even before the Asian financial crisis of 1997. Stock market scandals in India in the early 90s were another driving force, as was the UK’s Cadbury report, an early code of practice for corporate governance published in 1992 that inspired reform in India.

Initiatives to improve internal controls have been encouraging. However, India, like much of Asia, still has much progress to make. In particular, the concept of the independent director requires immediate redress. Individuals who aren’t particularly independent are often appointed as independent directors in India. The same criticism applies to many other countries, but due to the pervasiveness of family concentrated ownership in India, the autonomy of audit, remuneration, nomination and other standard board committees is often questionable. State-owned companies subject to government control are similarly perceived to lack effective governance.

Jamie Allen is the founding secretary general of the Asian Corporate Governance Association (ACGA). Prior to the establishment of ACGA in mid-1999, he ran a consulting firm that conducted customized economic research on finance-related topics, including corporate governance, for blue chip clients in Asia.