NSE's strict-governance platform in limbo after tepid corporate response

Inspired by Brazil's Novo Mercado, the platform would accept any listed company that voluntarily adopted its stricter corporate governance code

The country’s largest bourse National Stock Exchange (NSE) has put the NSE Prime initiative in cold storage following lukewarm response from India Inc, said people aware of the development.

Inspired by Brazil’s Novo Mercado, NSE had announced a separate platform which any listed company could be part of by voluntarily adopting a stricter corporate governance code.

Launched in December 2021, NSE Prime was to formally take off within a year after empanelling companies. “The response to NSE Prime was under par with only a handful of companies showing willingness. As a result, the exchange has decided to virtually shelve the programme,” said a source.

An email sent to NSE on the issue remained unanswered.

The aim of the programme was to improve corporate governance, transparency and disclosures standards to strengthen trust in Indian capital markets. While the exchange had not publicly disclosed the stricter code, it was largely around improving the quality and independence of the board. It was anticipated companies that subscribe to this initiative would attract marquee investors and thereby command higher valuation multiples.

Brazil introduced a similar initiative called Novo Mercado some 20 years ago, where companies commit to adopt corporate governance practices in addition to those prescribed by law.

Experts believe an initiative like NSE Prime can help boost governance standards but would have always faced implementation challenges.

“The concept itself was flawed from the outset, and it would have been a surprise had it taken off. NSE would have been in conflict managing the regulatory functions and the business interests, as the stricter parameters were defined by NSE itself, not by a third party. From an issuer company’s point of view, there was no added incentive for listing on Prime. The logic that a few companies joining the platform would put pressure on others to follow doesn't hold. Already, many companies make voluntary disclosures and have good corporate governance practices, but that doesn’t mean the other companies follow them,” said Shriram Subramanian, Founder & MD, InGovern.

Market players said the change of guard at NSE too could have impacted the initiative. NSE Prime was the brainchild of erstwhile MD& CEO Vikram Limaye, whose tenure ended in July 2022. He was soon replaced by Ashishkumar Chauhan who joined from rival bourse BSE.

Others feel NSE Prime could have been a slow starter as companies would be wary of more norms.

“It may not be entirely appropriate to infer that corporate India didn’t want to jump onto this bandwagon. You don’t need 100 companies to sign up on day one. All you need is 6-12 companies and then build on it. The list expands as companies see the use-case benefit, and there is more pressure from investors to become part of this ‘club.’ Having said this, it is true that India Inc doesn’t need more regulations given that corporate governance standards in India are well-defined and higher than most other markets,” said Amit Tandon, Founder & Managing Director, Institutional Investor Advisory Services.

In 2018, the market regulator Sebi had overhauled the corporate governance framework based on recommendations made by an expert panel headed by Uday Kotak. Some members of India Inc have expressed concerns about stricter governance standards that they are required to follow.

Last year, Sebi had to shelve the rule around separation of chairperson and MD & CEO posts due to “unsatisfactory level of compliance.”