“Institutionalisation of governance practices has led to greater stability of scores for the larger listed companies. IPO companies have not been able to hold ground. The median score for IPO firms declined to 54 from 55 last year, with the lowest company scoring a mere 29. Nonetheless, the study shows that the markets
have rewarded the more stable and better-governed companies,” it said.
The report noted that issues remain in IPO companies in which there seems to be a need to institutionalise governance practices.
“In IPO companies, severe issues were reported by auditors in some of the companies. As a result, the number of entities in which auditors have raised concerns on the financial statements has increased to 32 per cent from 24 per cent in 2018,” it said.
It has reduced for the BSE100 companies, from 35 per cent previously to 25 per cent this year.
The score is developed on the basis of factors including treatment of shareholders, disclosures and transparency. The role of the board and stakeholders is also considered. Interestingly, public sector companies have the lowest scores among different promoter groups in the BSE100 pack.
Such companies scored 52, compared to 60 for private promoter-led companies. Widely held firms fared better with a score of 62.
Multinational companies had the highest score at 63. Lack of adequate independent board representation, and lack of transparency on issues, including related party transactions, are among reasons expected to have weighed on the governance score of public sector companies.
There are tangible returns for firms that have better governance practices, noted the report. It stated that those with a governance score of 60 or above, which fall under the well-governed category, have outperformed the rest over periods of two and three years.
“This analysis is not a back-testing of current scores, but an assessment of companies scored in our earlier studies. Therefore, the assessment has predictive value. Essentially, well-governed companies will deliver better market returns going forward,” the report added.