MSCI report points out weak corporate governance practices in India
KOLKATA: MSCI, a global provider of research-based indexes and analytics, has raised concerns over corporate governance structure and role of independent director in Indian companies, especially the family run ones.
In its first ever corporate governance report of any country, MSCI said that governance risks vary widely in India depending on the nature of the company’s ownership and the design of capital structure along with the impact on shareholders’ voting rights.
Concentrated ownership dominates in India with 82.7% of MSCI ACWI (all country world index) constituents include a shareholder or shareholder group who control 30% or more of the voting rights.
In case of family run companies, the separation of ownership and management remain a key challenge in majority of companies including some of India’s top ones. Family firms represent 49.3% of Indian MSCI ACWI constituents.
The report pointed out that cross shareholdings and pyramid structures are prevalent in some Indian family conglomerates helping them preserve family control at their various listed entities.
“The oldest of these family conglomerates (Tata and Aditya Birla) have also adopted complex ownership structures such as stock pyramids and cross shareholdings as they seek to maintain family control,” the report said, adding that such structures have also been utilized by some younger family conglomerate groups.
The report has observed a trend at some family conglomerates to appoint the same individuals as “independent” directors on multiple boards within the same family conglomerate, many for an extended period of time. “This raises concerns as to their ability to adequately represent the interests of minority shareholders. A concern is that the lack of diversity of experience and background represents a major area of weakness for these boards,” MSCI said.
The role of independent directors in protecting interest of minority shareholders has always been under the scanner in India.
In its first ever corporate governance report of any country, MSCI said that governance risks vary widely in India depending on the nature of the company’s ownership and the design of capital structure along with the impact on shareholders’ voting rights.
Concentrated ownership dominates in India with 82.7% of MSCI ACWI (all country world index) constituents include a shareholder or shareholder group who control 30% or more of the voting rights.
In case of family run companies, the separation of ownership and management remain a key challenge in majority of companies including some of India’s top ones. Family firms represent 49.3% of Indian MSCI ACWI constituents.
The report pointed out that cross shareholdings and pyramid structures are prevalent in some Indian family conglomerates helping them preserve family control at their various listed entities.
“The oldest of these family conglomerates (Tata and Aditya Birla) have also adopted complex ownership structures such as stock pyramids and cross shareholdings as they seek to maintain family control,” the report said, adding that such structures have also been utilized by some younger family conglomerate groups.
The report has observed a trend at some family conglomerates to appoint the same individuals as “independent” directors on multiple boards within the same family conglomerate, many for an extended period of time. “This raises concerns as to their ability to adequately represent the interests of minority shareholders. A concern is that the lack of diversity of experience and background represents a major area of weakness for these boards,” MSCI said.
The role of independent directors in protecting interest of minority shareholders has always been under the scanner in India.
