Highlighting the growing importance of governance in every sphere, Securities and Exchange Board of India (Sebi) chairman UK Sinha urged the corporates to maintain the highest standards of governance in terms of accountability and democracy or perish.

“If one is to look at development in the last one decade, not only in India but across the globe, the society has been in a flux. Demand for good governance has been emerging from unexpected points and this voice is only set to get louder,” he said in his keynote address at the fourth Subir Raha memorial lecture organised by Global Compact Network, India, in the national capital on July 1.

According to Sinha, the rules of the game had changed and if corporates really intended to succeed in the long term, they would have to completely do away with arbitrariness and nepotism. “In the present generation, the paradigm of governance has expanded immensely and more and more people are going to demand accountability and corporate democracy,” he said.

The Sebi chairman further pointed out that the market watchdog was continuously working towards ensuring that corporates were able to deliver on these ever-rising expectations of accountability and democracy. “Recently, we came out with guidelines that mutual funds must have a policy of voting when they are voting on behalf of the small investors in a company’s meetings. We have also prescribed that their voting records be displayed so that the resolutions on which they have voted and their reasons are clear to the investors,” he said reiterating that institutional investors would be playing a crucial role in the near future as they would be representing the group of smaller investors which is steadily ballooning.

In addition, greater importance will be given to proxy advisory services which make recommendations to their clients (shareholders) about their investment and voting decisions in various listed companies. “Proxy advisory firms were not existent in India till about three years ago but now more and more proxy firms are coming up and they’ll be playing a very important role in lending voice to the small and medium investors,” he said. As of now, there are only three proxy advisory firms in the country – InGovern, Institutional Investor Advisory Services (IIAS) and Stakeholders Empowerment Services (SES). 

However, the Sebi chairman made it very clear that regulators and regulations would continue to exist but the key to a corporate’s success would lie in its ability to imbibe the principles of governance and voluntarily function in a responsible, accountable and democratic manner. “Regulations will continue to evolve and regulators will continue to act but it is important for the promoters and directors of companies to realise that a culture needs to be built to ensure that their companies don’t fall on the wrong side of the law. And the good news is that the markets reward such companies,” he finally said.