"4th Corporate Governance Summit: India's Tryst with Corporate Governance" -Mr. C B Bhave Chairman, Securities and Exchange Board of India (SEBI)

I am happy to be here. I know that however much I appeal to you to keep Satyam issue out of your minds that is not going to happen and therefore in the first part of my speech let me deal with the Satyam issue and then we will deal with corporate governance.

Whenever anything goes wrong in a system on a substantial scale there are roughly 3 kinds of responses that this system should focus on. One is the immediate response, that asks the question what went wrong, what do we need to do in the near term to correct what has gone wrong and minimize the dimension; second question is what do we need to do in the medium term and the third question is when we have understood what exactly happened in its fullest detail? Do we see any systemic problem there or do we see any human failure and if there are systemic problems then what do we need to do to correct our system, if there was human failure was it bonafide, was it malafide? If it is malafide, then, what is the punishment that must visit the individuals who indulged in this kind of malafide behavior? I hope that our system will pass all the three tests.

The first test of what needs to be done immediately seems to have been addressed fairly well by the authorities that were in-charge of carrying out the immediate task. The board was superseded in a matter of one working day. The new board was in position in a matter of two working days and the investigations have commenced. There was a need to restate the accounts. The new board decided to engage professionals in order to restate the accounts. There was a need to see that company gets proper CEO, the board is engaged in that matter. We now have challenges in the medium term and these are whether our investigating agencies under different enactments will do their work with speed and efficiency and will be able to communicate to the outside world that that is work is being done with speed and efficiency and last part will be whether we will bring the culprits to book in a timely fashion. These challenges still remain and as one part of those investigating agencies

I can assure you that SEBI is conscious of this, seized of this and is determined to see that it plays its part with the efficiency and the balance that is required in performing such thing.

Once the details are out we will have to analyze whether there are some systemic problems and we would have to address them. At the same time, as regulators, we would have to avoid the temptation to come to conclusion and try to provide solutions without understanding the problem fully.

The 2-3 issues that have been thrown up, we need to first check what went wrong in Satyam and whether this is really desirable for the system needs to be opened up for public debate and over the medium term, we need to decide whether any tweaking of regulation is required here.

One of the issues that has been raised is desirability of rotation of auditors. We need to open this issue for public debate and understand what are the pluses and minuses and then decided whether rotation of auditors is good thing?

The second issue is whether you need an external agency doing the internal audit in a listed company. There are differing practices, practices with differing results and opinions on both sides. To my mind also this issue needs to be dabated. We have good companies which get this job done internally and also we have good companies which for running an educational course for the directors of companies. I am happy that CII is collaborating in this. We would be happy if any other industry association wants to joint that. We would want to run this because if there are any gaps in the understanding of independent directors as to what they need to do, we need to fill those gaps. Probably our debate for the past 2-3 years was entrust this job to external agency but what we will have to decide whether this needs to be regulatorily enforced or whether the practice as it is now, should continue.

The third issue that has been thrown up in the context is the role of non-promoter shareholders. More importantly, the institutional part of the non-promoter shareholders as to whether they need to get more active in the market. They can get more active in different forms. They can get active by putting out their voting record in the public domain or by trying to mobilize the other non promoter shareholders if they feel uncomfortable about some resolutions that the company wants passed at its AGM and so on. There are examples around the world where this kind of shareholder activism exists and we may not have to go too far in searching for this.

The last issue is any incident of this kind results lot of changes in laws and regulations. The temptation for the regulatory authority and government to legislate or regulate in areas that the listed companies think are legitimately their domain, is tremendous. The challenge is how do we arrive at a balance. There is certainly a need for intervention.

There is also something called excessive interventions and ability to walk that tight rope in a proper manner is necessary. On the basis of industry consensus, two steps have already been taken by SEBI. First problem we were faced was the acquisition against India incorporations and our listed companies in particular that all of you are like this, all your accounts are suspicious and all your auditing has been done in a shabby manner. The response to that on the basis of consultation with the industry as well as auditing profession, we have a committee where all these people have represented which said that let us get a peer review of the working papers of the auditors done for the NIFTY and sensex companies and some randomly chosen non-Nifty and non-sensex companies. That process has already started. When this review process is complete, we will be able to analyze the results that come out of it and we will be able to determine whether we need some major overhaul of the system or is it that we are OK, this was one of incident.

The other issue is that if prompters have pledged their shares then this is certainly price sensitive information that is available only to the promoter and the lender. It needs to be made available to the other shareholders as well and therefore as a disclosure requirement the disclosure of shares pledged by promoters has been mandated by SEBI through our regulations. As we go along we would be looking for fault lines, if we find them, if we are convinced that these fault lines, need mending we would do that quickly. I must compliment CII for holding this conference at more appropriate time. The structure of the conference is also very good. At the end of the day we all have to be conscious of the fact that rules, regulation and laws are merely like a university or college having good syllabus. That does not mean that it will produce good students or it will have good professors. Good syllabus is just the blue print with which we start. You need something more to make a good university or college. As regulator we need to understand the limitations of what law can lay down. At the same time the continuous effort to improve our syllabus and improve our standards must go on. Therefore we are actively looking at collaboration between CII and the National Institute of Security Managemen along the lines that we have to ensure that there is presence of independent directors in the Company who would ensure implementation of corporate governance practices. We will constantly have to examine as to how we can make the Corporate Governance process more effective.

Thank you.