The 7,000-plus public listed companies in the country may have to follow a ‘voluntary’ corporate governance code, being drafted by the ministry of corporate affairs. This will be in addition to the mandatory code prescribed by the market regulator, the Securities & Exchange Board of India (Sebi), under clause 49 of the listing agreement.

The code, being worked on by the ministry for voluntary compliance by companies, will deal with certain aspects of corporate governance and conduct, including political donations, that the Sebi norms do not cover, a ministry official told Financial Chronicle. The code will be compiled by December, after which it will be shared with industry associations.

Drawing lessons from the biggest scandal in the history of corporate India that broke out early this year in Satyam Computers, the ministry is keen that corporate governance standards are strengthened beyond those prescribed by Sebi. At the same time, it does not want to invite controversy by being seen to be imposing a code on companies. That is why the code will be ‘voluntary’. “But if a company chooses not to adopt it, investors are bound to question that company’s corporate governance,” the official explained.

Once a company accepts the code, it will not only have to follow every provision in it but also keep the ministry informed if any deviation takes place.

“Once you chose to accept the code, you have to follow it. Any deviation will require the company to inform us,” he added.

Though provisions of the code are still being worked upon, it is likely to include provisions relating to political donations by companies. “If a company makes a political donation the ministry needs to be informed about it,” the official said.

The code may also include provisions for voluntary disclosure of corporate social responsibility activities and initiatives.

Attempts to reach corporate affairs minister Salman Khurshid failed. His office told this newspaper that he was on a visit to Shimla and was not available for comment.

Corporate India, however, is apprehensive of the possible implications of the code. “A code should be largely on the lines of prevalent practices in other countries,” Naresh Chandra, who heads CII’s task force on corporate governance, told FC. Chandra headed an official committee on company law reforms and many of the panel’s recommendations form part of the Companies Bill now pending before Parliament.

He said companies should be required to report deviations from the corporate governance code to the stake holders in their annual reports. “Why should they be made to report to the ministry?” he asked.

“Governments in the west have created a legal framework wherein they have drawn the boundaries for corporate houses to function. In countries like the UK and the US, corporate governance standards are developed from within by the industry. This creates peer pressure on companies to adhere to those standards,” Chandra said.

Former Sebi chairman M Damodaran, who heads the Ficci task force on corporate governance, said, “Every step the government takes (to create more transparency) would be positive, but the voluntary code should not come into conflict with clause 49 of Sebi’s listing agreement.”