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We all have read about Corporate Governance in our previous articles. Various entities who have strong governance standards tend to attain higher market valuations. Yet, once good practices have been adopted, it is difficult for the management to know whether the practices have been followed or not. Thus, a scorecard is established to provide a yardstick for measuring the level of fulfillment in implementing and monitoring corporate governance formalities. CG failure can have a large impact your business .

CG scorecards were first seen in Germany in the late 1990s as large companies faced serious failures and newer companies needed capital funding. Hence, in 2000, such scorecards came out as one stop solution to every entity who needed a robust tool to assess the quality of a company’s governance, which would guide them in making investment decisions.

The scorecard has its own advantages. It helps the analysts and investors by giving a systematic overview of relevant corporate governance issues. Moreover, it helps various corporate to gauge and monitor the quality of their own governance and reason out the areas of improvement. Comparisons become possible and relevant due to standardization. It is available for everyone to access. Thus, it increases transparency. There is less cost of implementation. Also, one can notice the increased awareness about culture of good corporate governance and regulations.

Advantages of a Corporate Governance scorecard

A company can create its own score-card in the following manner :

1. Identify relevant corporate governance code provisions or international best practices (E.g. In India, Clause 49)

2. Involve regulators, stock exchanges, and other key institutions as local partners.

3. Select a local consultant to help develop the scorecard.

4. Create small teams with relevant skill-sets. Also, involve the stakeholders.

5. Conduct deliberations before finalizing the draft

6. Train all the parties, internal or external to use the scorecard in the right manner.
7. Encourage ongoing knowledge transfer to business community

8. Continuously update the scorecard

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BSE CG Scorecard

In 2016, as an initiative for the public good, BSE (The Bombay Stock Exchange, India) has collaborated with the International Finance Corporation (IFC) Washington, a member of the World Bank Group for developing a “CG Scorecard” for Indian corporate. Thus, to avail the expertise of the relevant regulatory bodies , the Institutional Investors Advisory Services (IiAS), a leading proxy advisory firm in India devised a questionnaire under the guidance of IFC and BSE.

The CG Scorecard is developed on the basis of four OECD principles for Corporate Governance namely:
Firstly, enforcing rights and Equitable treatment of shareholders
Role of Stakeholders
Disclosures and Transparency
Last but not the least, responsibilities of the Board
One can read more about the BSE CG Scorecard by clicking on this link.

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