India’s top 100 listed companies have made good progress on corporate governance standards, but there are still areas that need attention. Diversity at the top has seen improvement, while companies’ response to sexual harassment has been found wanting, and funds under corporate social responsibility (CSR) are not being utilized fully, suggests the Excellence Enablers Survey on Corporate Governance published last week. It is an initiative by former Securities and Exchange Board of India chairman M. Damodaran. The study relied on annual reports and website disclosures of all Nifty 100 companies. Here are some key findings.
Gains in diversity
Company boards seem to have made some strides in improving gender diversity at the top echelons. Five companies had no women independent directors (IDs) at the end of FY22, the lowest since a rule mandating the presence of at least one came into being in 2019. The number of firms having two or more women IDs rose to 36 from just 20 three years prior. Meanwhile, over 85% of independent directors fall within the 50-75 years age group, indicating a dire need of infusing young blood.
POSH awareness
Close to a third of Nifty 100 companies reported getting no complaints in FY22 under the law for prevention of sexual harassment at workplace. The number stood at 29, 30, 37 and 31 in the four financial years from FY19 to FY22, respectively. The absence of any complaints at all in companies with such large workforces could in some cases point to a lack of awareness among employees about such a redressal forum or a lack of confidence in reporting cases of this nature.
CSR promise fulfilled?
The number of Nifty 100 companies that didn’t spend the complete mandated corporate social responsibility (CSR) funds was the highest in at least five years in FY22. Around 29% of the companies were left with unspent funds, against 15% each in the previous two fiscals. Companies are required to spend at least 2% of their net profits over a three-year period on CSR projects. The reasons for failure in utilizing funds ranged from difficulty in finding a suitable project to covid-related issues.
Board meetings
In both FY18 and FY19, 51 of the Nifty 100 companies had fewer than seven board meetings. However, the trend started seeing a change in FY20 onwards, when 44 companies had four to six meetings in FY21 and FY22. (A listed company is required to hold at least four board meetings in a year.) The number of companies conducting over 10 board meetings also rose to the highest in these two financial years—at 26 and 25 companies in FY21 and FY22, respectively.
Foreseeing risks
Companies saw almost all risks grow sharply in FY22. As many as 99 of the 100 companies flagged financial risks, compared to 82 in FY21. A similar trend was seen for operational risks—risks relating to business, client, supply chain, vendor and outsourcing, wherein 89 companies identified it as a key risk to profitability in FY22 compared to 77 in FY21. Apart from these, IT, regulatory changes and ESG-related were the other risks identified.
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