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Sarbajeet K. Sen

NEW DELHI, July 22

EGGED on by the Securities and Exchange Board of India (SEBI), ICRA Ltd has stepped up its efforts to popularise the new barometer to measure ethical corporate practices — Corporate Governance Rating (CGR). ICRA is hoping that a larger acceptance of CGR would help clean-up the business environment at a time when global corporate misbehaviour have started showing its ripples back home.

"Though CGR on its own may not help in preventing or detecting frauds but a wider acceptance of this rating by the market would eventually bring about an environment of ethical corporate practices," Managing Director, ICRA, Mr P.K. Choudhury, told Business Line.

He said that ICRA's efforts to popularise CGR would also supplement the SEBI Chairman, Mr G.N. Bajpai's efforts to promote a more ethical business environment. "By helping to give a preview of the governance standards, CGR would also be an indirect tool in the hands of the capital market regulator to ensure protection of investors," he added.

SEBI officials have already held meeting with ICRA and Crisil to assess the possibility of wider acceptance of the CGR system.

ICRA, which is the only agency in the country and the second in the world to have started CGR after Standard and Poor, has already come out with its first rating of governance standards with ITC Ltd. The rating agency has three more mandates in its hands. "It will take time for the market to be mature enough to have a larger flow of CGR mandates. We expect that in the short-term only the biggercorporates which are widely held would be asking for the rating. We would consider ourselves successful, if 100 companies get rated under the CGR system in the next 2-3 years," he said.

Among other things CGR looks at the accounting policies of the company, the disclosure standards, compliance with regulations and listing guidelines, independence of the board of directors, systemic transparency and the extent of delegation of responsibility with corresponding accountability.

Mr Choudhury said that CGR could help companies to convey a better perception to investors as wells. "We feel that investors would accord weightage to CGR rating. The scrip of company with higher CGR rating will definitely command a higher price as investor perception will improve," he said.

Mr Choudhury, however, said that there is no direct correlation between a strong credit rating and good CGR. "Credit rating anyway takes into account the quality of corporate governance whereas CGR rating exclusively takes note of quality of governance though financial performance may be an element in it," he said.

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