'Corporate governance is not just about compliance'

The International Finance Corporation (IFC) and Bombay Stock Exchange (BSE) have revealed the findings of a pilot project for the Corporate Governance Scorecard, which aims to improve the levels of corporate governance within Indian companies. “From where we were some years ago, we’ve improved significantly,” says M Damodaran, former chief of the Securities and Exchange Board of India during an event to launch the initiative. “But what remains to be done is far more than what we’ve got so far.” The scorecard will be a voluntary tool by which companies can self-assess their performance on a variety of parameters.

Vladislava Ryabota, IFC’s corporate governance lead for South Asia, spoke to Forbes India about the implications of the scorecard. Edited excerpts:

Q. What was the process of creating the scorecard for India? Was it different from your earlier efforts?
There are many markets where we help; but they were smaller markets. The biggest so far is Asean (Association of Southeast Asian Nations). But these were separate scorecards and they were combined to create a regional scorecard. For India, which is the largest market, it starts with drafting, for which you need to involve professionals. We chose Institutional Investor Advisory Services because they had in-depth knowledge of Indian realities. We engaged with BSE and then with international experts on best practices. Now we have the pilot results and December will see the official launch of phase 1; this means the scorecard link will be available to all companies and they’ll be able to do the self-scoring. By phase 2 (available in either six months or a year), we will be able to train validators and consultants on how to use the scorecards, and then they will be able to offer their verification services.

Q. Can the scorecard be verified by outside sources too?
Yes, but verification is a tool just for the company to approach reality. If I self-assess myself, I’m always biased. When a company assesses itself, it usually scores around 15 to 20 points more than it should in reality. Verification will be the third-party, independent, unbiased view on the scorecard. We want to be sure that when the company publishes the score, it is approved by an independent third-party expert.

Q. What are some of the challenges that the tool might face?
There is a tendency to over-score and window-dress: Basically the company puts a document on the website, but it is of bad quality. The scorecard is about the quality of information available. I don’t think the companies will be playing bad games, but I understand that they are not informed on how this has to be done because the market is not educated on best practices. The more the companies share their experiences, the better the results will get.

Of course, there will be wrongdoings too. But the beauty of the scorecard is that anyone, any investor, can score a company without it knowing about it. Investors can then approach the companies to improve governance based on the way they score them.