Corporate Governance Scores 2019 – “Stability Despite Headwinds” is the fourth report on the Corporate Governance Scorecard, developed jointly by the BSE Limited, the International Finance Corporation (IFC) and Institutional Investor Advisory Services India Limited (IiAS), with the financial support of the Government of Japan.

A scorecard is a process of measuring the actual level of corporate governance practices in a company, industry, or country. Scorecards are a quantitative tool to assess the level or standard of corporate governance in an individual company, usually in the form of a questionnaire. The information may be used in aggregate to review the level of good corporate governance practices.

The first scorecard report was issued in December 2016, announcing the score of the top 30 companies listed on BSE by market capitalization. In the second edition of the scorecard report, 100 companies were scored, expanding the coverage to 150 companies in 2018. In 2019, the same 150 companies have been scored once again to assess their progress on the scorecard.

This report is intended to provide investors, regulators, internal and external stakeholders key information to help them in their decisions with regards to the market and sector performance and that of individual companies.

Evaluation

The evaluation framework of this report is built around the OECD Principles of Corporate Governance, as mentioned below:

1. Ensuring the basis for an effective corporate governance framework
2. The rights and equitable treatment of shareholders and key ownership functions
3. Institutional investors, stock markets and other intermediaries
4. The role of stakeholders in corporate governance
5. Disclosure and transparency
6. The responsibilities of the board

The questions in the Scorecard have been grouped into four categories – each category corresponding to one of the principles recognized in the OECD Principles as a measure of good corporate governance. The scorecard requires the evaluation to be conducted only on publicly available data. Sources of information will primarily include official company documents on the company website and stock exchange filings. For a few specific questions, the verification sources may even include regulatory orders and media reports.

Methodology

The scorecard comprises a total of 70 questions. These questions are divided into four categories, i.e., rights and equitable treatment of shareholders, the role of stakeholders in corporate governance, disclosure and transparency and responsibilities of the board. Each category has a different number of questions that address the relevant issues related to the specific OECD principle. The weights assigned to each category are based on the number of questions in the category and the relative importance of the questions in that category in the Indian corporate governance framework. To arrive at a final score for a company, the assessors need to:

1. Add the scores for all responses under a category and divide it by the maximum attainable score for the category. This may need to account for questions, which are not applicable for the company.
2. Multiply the ratio so obtained by the total category weight to give a weighted score for that category.
3. Sum all weighted scores across all four categories. The final score will be rounded off to the nearest integer.

Based on the final score, companies are grouped into the following buckets:

• Leadership
• Good
• Fair
• Basic

Conclusion

The report concludes that the score of Sensex companies have improved their overall governance practices from last year. Even though the number of companies categorized under Leadership and Basic categories have declined, but on the other hand, there is a significant improvement in scores from companies in the utilities and materials industries, whereas there is a decrease in scores of the banking sector.

The score of BSE 100 companies has remained unchanged over last year, despite an increase of companies falling in the Leadership Category and a decrease in companies falling in the Basic category.

In contrast, the scores of IPO companies have declined, giving a likely reflection of a check-the-box approach to corporate governance. The IPO companies have continued to be at a fare lower position than BSE 100 companies.