Governance: Corporate and Otherwise
Ashim Bhuyan
(Ashim Bhuyan can be reached at bhuyanashim@yahoo.com)
When Lehman Brothers collapsed and the world experienced a deep financial crisis 2008 onwards, life was no more the same in the global financial markets. In India recently, extremely serious questions were raised in public and in the media about the functioning of IL&FS. The government has now intervened and has reconstituted the Board of Directors of IL&FS. The functioning of IL&FS has also raised serious issues related to the role of some of the prominent shareholders and investors of this company. Apparently, the wrongs in IL&FS were known but the long overdue corrective actions were never initiated. Many commentators have opined that the present crisis, in the context of the Indian financial market, may be similar to the one in Lehman Brothers, and may adversely impact the entire financial market in India.
ICICI Bank, the second largest Bank in India and which is tagged as TOO BIG TO FAIL had serious governance issues, and Ms Chanda Kochhar, its erstwhile Managing Director (MD) and Chief Executive Officer (CEO) resigned much ahead of her term. The tenure of MDs and CEOs of Axis Bank and Yes Bank were also curtailed by the banking regulator, the Reserve Bank of India (RBI), though there were opinions that these were not done in an objective manner. IDBI Bank, though a private entity, is another central government-owned bank that had serious functional and governance issues. The functioning of many other banks, especially those in the public sector, have had severe governance issues. The functioning of cooperatives, including cooperative banks, is another ball game altogether.
It is also in public domain that many government-owned and/or government-promoted entities are dysfunctional to the objectives for which these were created or are expected to function. Many observers have opined that the board and management are only rubber stamps of handful mandarins or bureaucrats in different ministries. The human or other resources of these entities are often misused for purposes other than for which these are meant to be, because of political, bureaucratic or other interferences. Not that governance in private companies and entities cannot be questioned. It is felt that many a time the nominees, including the independent ones, in the boards of companies are obliged to the majority shareholders or promoters or CEOs as they owe their position to them. Therefore, the nominees on such boards act as per the directives of the promoters or CEOs of these companies. Many times, in the Indian context, the board is dysfunctional with its objectives, and many decisions are taken outside the board.
It is said that the 2008 global crisis happened because of greed, and poor corporate governance, more especially in the United States. Nitin Nohria, the Indian-born American academic, who took over as the tenth Dean of Harvard Business School in July, 2010, had talked about an oath – similar to the Hippocratic oath taken by physicians – by board members, management and top officials in the corporate world. In its original form, the Hippocratic oath requires a new physician to swear, by a number of healing gods, to uphold specific ethical standards. It is another matter that the medical profession itself has come under a lot of criticism and scrutiny because of the greed to earn more and also for low ethical standards – in India as well as abroad. In the wake of the 2008 crisis, regulators and investigating agencies in the US and other countries across the globe have become more stringent, and accessibility to public questioning has also become more transparent.
As far as India is concerned, many initiatives and steps have been taken by the Security and Exchange Board of India (SEBI), Company Law Board, Ministry of Corporate Affairs, etc. But at the practical level, there are a lot of loose ends, and a large number of companies have not maintained transparent and proper corporate governance norms and ethics. Lack of professionalism, especially of board members, is also a contributing factor. These have led to many companies faltering and failing miserably, though early signs of these were noticed and reported much earlier.
The role of professional auditors and auditing firms are also under scrutiny. In the case of the Satyam scam that was uncovered in 2009, inappropriate role of a well-known audit firm is well documented. Unfortunately, such instances of malpractices in auditing are still continuing unabated. The consumer and other forums are inundated with grievances and complaints because of nexus among the board, management and auditing firms. It has been reported that poor management, poor governance and ineffective audit and supervision – internal and external – has led to crisis in the likes of IDBI and PNB. Poor corporate governance was an issue even in an admired company like Infosys some time back. In the healthcare sector, the cases of Ranbaxy and Fortis, involving the Singh brothers, are quite intriguing.
However, there some companies in India, and many of these are big, that have high standards of corporate governance and ethics. Such companies exist both in the public and private sectors. Therefore, bracketing all companies in the same basket would definitely be unwise.
Governance in many other areas, and this includes many in public services, is also questioned by many quarters – and for good reasons. These include the functioning of educational institutions, universities, scientific and research institutions, public delivery systems, etc.
In India, unfortunately, institution-building exercise is rarely a priority. Individuals, many times, matter more than the institutions. A strong institutional framework within organizations, and outside organizations for supervision and regulations, especially in cases where the public interest is involved, must be allowed to grow, which would stymie opaque and unwarranted functioning of companies, organizations, and governmental services. It is also observed, and validated by statistical data, that countries where institutional mechanism is strong have also prospered more economically and socially. It has been 71 long years since India achieved its independence, and it is high time that the country gave the much-needed importance to the exercise of institution building.
Governance, corporate or otherwise, to be strong and robust, would depend on the development of an institutional framework. The recent turbulence in India related to governance issues would continue unabated unless all stakeholders work together, in the interest of public good, and develop the ecosystem that would encourage transparency, objectivity, and of course the mandate for which organizations and institutions exist.