Satyam Saga: What about India Inc's corporate governance?

If you spend days diving into annual reports while researching Indian boards and corporate governance standards, here are some questions you are
bound to ask. IT major Infosys’ nomination committee chose yet another co-founder as CEO— is it dynastic succession of another kind?

Was renowned Professor Krishna Palepu in the know of the financial misadventures of Satyam’s Ramalinga Raju? What value do gents like Prof. Mohammed Salahuddin Ansari, Principal, Madhupur College, Jharkhand and Dr Deva Nand Balodhia , free lance journalist, ex Officer on Special Duty to CM Uttarakhand add to the State Bank of India board that they sit on?

What are people like Shahrukh Khan, Yash Chopra, and Javed Akhtar doing on the board of Jet Airways? How does leading lawyer Suresh Talwar, manage to find a place on more than 50 boards of listed and unlisted companies? Why do many large Reliance ADAG companies like Reliance Capital, Reliance Communication, Reliance Natural Resources , and Adlabs, have just five (Chairman Anil Ambani plus four non executive directors) people on their boards while the Andhra Bank board seems to require 19 members?

Hidden in some of these questions are the reasons that have led to corporate governance being reduced to mere lip service in most Indian companies. But exceptions remain. In response to the Infosys succession question above, Co-Chairman NR Narayana Murthy demonstrated why his company is considered the gold standard in corporate governance: he got Claude Smadja, the then chairman of the nomination committee to send a detailed answer to explain the procedure of election of Kris Gopalakrishnan as CEO.

And yes, Mr Palepu wrote back too, defending his actions as an independent director. His note said: “During my tenure as a director with Satyam, I fulfilled my responsibilities fully and appropriately. I look forward to providing my complete co-operation to regulatory agencies as they investigate this matter. The actions of Mr. Raju and his brother have caused Satyam, thousands of Satyam employees , customers and investors, and India, enormous damage,”

While in this sea of stink there are shining examples like Infosys, Wipro, Mahindra and Mahindra, Godrej, Bharti, ICICI Bank, HDFC Bank that have set themselves apart, they are few and far between. As one moves down the ET 500 ranking, the standards begin to fall. No doubt, corporate governance standards are far too complex a matter to be captured in plain numbers, but numbers do tell a story.

More than 70% of ET 100 boards don’t have women in their boards and of the 2211 BSE listed companies that have filed data with the Exchange only 4.9% of all directors are women. More than 70% of the ET 100 boards still haven’t split the Chairman and CEO posts. More than 80% of ET 100 boards still don’t have lead independent directors in place. The fact remains that hundreds of listed companies still have to comply with clause 49 norms; in BSE itself there are 390 companies still to file data.

Governing The Corporate

And now research by an investment bank proves what industry watchers have suspected all along: large-scale manipulation of accounting standards. A report by the Noble group says that one in five BSE 500 firms has accounting issues — companies tamper with revenues, manipulate sales and play around with cash. So are the members of auditing committees of these companies sleeping?

No, the independent directors say, they have to rely on the management for information, and often information and time is short supply in board meetings. “For some promoters , revenues are a matter of opinion not fact and somehow they always have to rush to meetings after the board meetings . We have no choice but to take the management’s word for most issues,” says the CEO of a company who is on prominent boards.

The fact remains that all three pillars of protection for investors — the independent directors, the auditors and the regulators are misaligned. “The institutions of corporate governance are not good enough. We have to reapply ourselves to restructure the institutions of corporate governance,” says Arun Maira, Senior Advisor, BCG who is on five boards.

And corporate governance (which in its true form starts after basics like board composition, size, committees, systems of check and balances, have been put in place) is often just reduced to meeting the minimum legal requirements in most cases. “Only the ritualistic portions of corporate governance are being met with, I haven’t seen a material change in thinking towards corporate governance,” says N Vaghul, Chairman , ICICI Bank, one of India’s most respected business leaders.


The promoters’ play


Boards historically have been networks of influence for promoters, so family and businessmen friends are often nominated, leading to a cosy relationship in which both objectivity and independence are lost. Indian promoters, unlike in the West, hold large equity stakes and to quote a well known CEO of a FMCG company who is on several boards himself, still have an ‘I know what’s best for my company’ attitude.

source: http://economictimes.indiatimes.com/