Indian companies made $9.9 billion worth of overseas acquisitions in 2006 compared to $4.5 billion in 2005. By all available indications, the number will go up manifold in the New Year.
While the flurry of global acquisitions continues, Indian companies would do well to remember that over the past decade, the global corporate governance landscape has changed dramatically. As companies grapple with the complexity of doing business internationally, their boards would have to familiarise themselves with new regulations and best practices abroad.
Help is at hand, with Spencer Stuart, one of the world's leading executive search consulting firms, coming out with Governance Lexicon, 2007 - a 200 page guide that helps directors understand major governance issues and the intricacies of international codes and regulations in 19 key markets. The latest edition, which was released in the US last month, has four new entries - India, China, Russia and Singapore.
As the Spencer Stuart handbook reveals, there are quite a few common themes and issues despite the differences in governance around the world. One of these issues relate to markets where state- or family-owned businesses tend to dominate. The introduction of independent directors in these countries has been slow, made harder by the lack of qualified, available candidates.
Take the examples of two of the new entrants in the Lexicon - China and Russia. The Lexicon says the control-based system in China is gradually making way for a more market-based governance system and the main shift in attitudes is from the old system of Guanxi (connections or networking), where success may depend on relationships and patronage, to a more rational and meritocratic system.
Governance has evolved in an environment in which most listed companies were reformed state-owned enterprises, and in which the board's practical function was to act as the agency of major shareholders. China has also come out with a detailed corporate governance code.
But while the structure is in place, the implementation is not. First, there is weak enforcement. For example, while the China Securities and Regulatory Commission requires quarterly reports of its listed companies, insists on external directors, outlines guidelines for the appointment of independent directors and advocates fairly broad financial disclosures, no information is required on deviation from governance codes, on the selection of directors or on the establishment of the audit or nominations committee.
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