Corporate Governance

Currently the corporate governance stressed more for the listed companies. Lot of compliances, disclosure requirements are there for listed companies, by way of the listing agreements. These are not applicable to the unlisted public companies.

The Ministry of Corporate Affairs (MCA) is trying to introduce Governance Code for the unlisted companies too. The proposed Companies Bill 2009 may ask the unlisted companies to follow specific norms of governance in line with the SEBI's code on Corporate Governance.

Let us see the advantages & challenges of this.

Advantages

• Currently the unlisted Public companies do not list their shares due to the fact that the compliances and governance requirements are more. When this governance is made equal for all companies, the unlisted companies may try to approach the public for their funding
• Growth plans can be made by the promoters, as funding will not be an issue
• Transperancy : Lot of visibility to the outsiders in terms of the internal working
• The market price of the share would get visibiity for the company
• ESOPs can be issued, as they will have market value and the employee know the financial by way of disclosure
• Lot of Chartered Accountants, Company Secretaries, Cost Accountants will get job.

Challenges

• Cost of Compliances. Some companies may not afford to meet the cost of complying and having a dedicated resouces.
• Potential companies would get attracted by strategic investors. It may be an advantage also.
• With the limited audit force, getting the accounts & financial audited and Financial disclosures drawn up, the audit may get delayed.

It looks like the advantages outweigh the challenges and it may pave way for getting public funds at an attractive cost.

Let us wait and watch what the MCA, SEBI and other regulatory bodies decide. In all, there is going to be enough job created in the market for the finance folks.

Cheers,

Gopal