Governance: On the path of progress

For eight consecutive years now, we at Institutional Investor Advisory Services India, the proxy firm where I work, have been scoring the BSE100 companies on their governance.

- AMIT TANDON

I wrote about this in detail in 2017 and alluded to it in the context of the Hindenburg-Adani report last year. We published the "scores" based on data for FY23 earlier this month. Using this data, it is time to look back at corporate India's governance practices over the past five years.

First, is it possible to measure something as fuzzy as governance? The scorecard approach attempts to do just this, by first breaking down the various elements and then assigning it a score. For example, when evaluating a firm's dividend distribution policy, you first look at whether the company has a policy in place. If so, you look at elements of the policy, for instance, disclosure of a dividend payout ratio or a range. And finally, you look at evidence of adherence to the policy or explanations for non-compliance.

As these elements span across parameters like transparency, board composition, risk management, among others, assigning a number can be challenging because there is an element of subjectivity involved. Using well-established frameworks, helps minimise such subjectivity, but does not eliminate it altogether.