Indian Corporate Governance: Substandard, But Better Than Most Emerging Markets

Posted by: David Rocks on January 13, 2009

After the Satyam scandal, I started wondering how corporate governance in India stacks up against other emerging markets. I did a bit of digging around online, and found an interesting site run by a group called GovernanceMetrics International, or GMI. The New York consulting firm rates about 4,000 companies worldwide on dozens of metrics related to corporate governance: board accountability, financial disclosure, internal controls, shareholder rights, executive compensation, and more. Each company is given a score between 1 and 10.

The 58 Indian companies studied by GMI got an average rating of 4.91, placing India 19th out of 38 countries on the list. Topping the table is Ireland, with an average ranking of 7.55 for the 19 Irish companies assessed by GMI. Canada, Britain, and Australia are right behind. India is No.3 in Asia, behind only Singapore and Thailand. And it comes out ahead of Belgium, Denmark, and France. It’s also well above the emerging markets average of 4.09.

I spoke with John Jarrett, the research director at GMI. He cautioned that the list shouldn’t be taken too literally, since in some countries the group studies relatively few companies. But he said it provides a decent sense of the quality of governance in various countries. And, of course, he insisted that the group’s research on companies is quite valuable (but you won’t get that for free!)India, he said, scores relatively well due to its British legal tradition—which helps ensure shareholder rights. But he also said that Satyam scored relatively poorly because of questions about its board of directors.

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