Post Satyam, corporate governance issue is staring at our face. Witness Bureau brings you one of the most experienced persons in the corporate sector, Krishan Kalra, Secretary General of PHD Chamber of Commerce, to clarify doubts shrouded in the minds of people regarding corporate governance, Satyam scam, New Companies Bill etc….
Before Joining FICCI in April 2000, Mr. Kalra spent 38 years in the corporate world; working with companies like ESSO, L&T group and Shriram group. He has been MD of INALSA. He serves on the Advisory or Governing Boards of several management institutes, as well as on the Governing Body of Indian Council of World Affairs (ICWA), National Technical Working Group on Global Gap, set up by Quality Council of India (QCI). His many other achievements add feathers to his cap …
Corporate governance has many dimensions. Good governance includes transparent corporate structures and operations, fair and open disclosures, clear-cut responsibility and accountability of the board and management to the shareholders, and responsibility towards protecting the interests of other stakeholders. It is also well acknowledged that effective governance goes beyond compliance with regulations. It is about setting highest possible standards of conduct and building trust.
Good corporate governance should ensure that the company is working towards furtherance of the interests of all stakeholders and the actions by its directors and employees are guided by the common good.
At the outset, let me say that Satyam was an aberration and our overall governance systems and regulatory structures are adequate and strong. Even if it sounds sadistic, the developed world has seen many such episodes like Enron, Tyco and WorldCom to name a few.
As regards tightening of regulatory or legislative requirements, I feel that too much legislation can be counter-productive, as exemplified by the experience with Sarbanes Oxley Act, where the cost of compliance with stringent requirements was considered to be excessively high for the companies. Emphasis needs to be on self-governance.
Recurrence of Satyam like incidents can be prevented by good corporate governance as well as sharp monitoring by the auditors and statutory authorities. The episode seems to have started with one man’s unfathomable greed, which quickly enveloped several others, who became willing accomplices in the sordid saga.
If only the accountants would have been honest, the auditors more careful, independent directors’ inquisitive and provident fund and income tax authorities more vigilant, then perhaps it may not have snow-balled into the gigantic proportions it did. In fact, a lot of corruption breeds as most of us are too lazy to stand up for our rights or to blow the whistle on a ‘nice guy’.
One cannot really address all the situations that may arise out of the fertile ingenuity of the human mind. However, perhaps the companies could consider a legal audit or legal due diligence to be introduced as a part of their corporate governance mechanisms. Further, in their own interest, companies, particularly listed companies, may like to have periodical forensic audits; which could be used either by management or by auditors to carry out general reviews of activities to highlight risks arising, either out of fraud or from any other source with the purpose of initiating focused reviews of particular areas, targeting specific threats to the organisation. However, this should be only on voluntary basis.
As mentioned earlier, our overall governance systems, as also regulatory structures, are adequate and strong. Many guidance notes, accounting standards and other regulating norms are already in place, which are adequate, comparable to international standards and have served a very useful purpose.
What really matters is the implementation of such guiding principles by the companies and the persons responsible for the implementation. Therefore, emphasis needs to be more on self governance rather than making the laws stringent.
Yes, the Bill has many positive features to ensure good corporate governance, including protection of rights of the minority stakeholders, identifying key managerial personnel and the penal consequences in case they fail to exercise due diligence and quality disclosures.
The Bill also lays greater emphasis on responsible self regulation with disclosures and accountability and the substitution of the government control over internal corporate processes and decisions by shareholder control.
In the entire gamut of issues, relating to corporate governance, the role of independent directors in ensuring good governance has perhaps been the most debated aspect in recent times.
A director with an ‘independent mind’ is the ideal man on the Boards. The independent directors are invited to join the boards generally because they bring capabilities, resources or special insights and knowledge with them that the company does not possess.
Also, they bring the much-desired neutrality or objectivity of views in evaluation of the board performance and also supervision, which balances the ambitious, risk-taking role of other directors or management.
Therefore, independent directors should ideally be highly respected people from various professions like lawyers, chartered accountants, engineers, doctors, management experts, academicians, who can genuinely participate in the discussion process about the company’s activities, strategic plans etc.
I was pleasantly surprised to learn recently that the global board of Pepsi, one of the largest companies in the world, has only two executive directors, including the chairperson. All others are independent directors, who are chairmen or CEOs of various other multinational large companies.
Obviously, people of such standing would not cow down by the machinations (heaven forbid) of the top management. They would not be party to any wrong doing by the management, which affects any of the stakeholders segments. These are obviously people, who have not joined the Board to earn some sitting fee and commission on profits.
In my opinion, Satyam case does not reflect so much on the integrity of the chartered accountants. CAs have been playing a vital role in ensuring good corporate governance. Some aberrations do not imply that the larger profession should be questioned.
However, it certainly reflects seriously on their negligence. They were obviously not alert enough to question the veracity of the fake documents and books produced by the management. It is unbelievable that none of the false records gave a hint to these experienced auditors about the wrong goings-on in the company.
Complicity of the bankers can also not be ruled out. Gross mismatch between the actual and book balances, huge cash transfers to the two family firms and other such transactions should have been picked up by any sharp banker.
PHD Chamber attaches great importance to Corporate Governance and Corporate Social Responsibility (CSR) and promotes the same among the trade and industry. The Chamber emphasises on following highest standards of ethics in managing their businesses.
The Chamber has a special committee on corporate affairs that propagates amongst its members the need and significance of adhering to the various legal requirements in letter and spirit. It also understands the commitment of business towards its stakeholders and society at large. Transparent corporate financial reporting, appropriate internal controls and processes, directors’ responsibilities and liabilities and role of independent directors have been some of the focus areas.
The committee is chaired by the eminent lawyer, Mr Lalit Bhasin, and at the Secretariat level, headed by a senior officer, Ms Shalini Mathur.
The Chamber has been creating awareness about good corporate governance through conferences, seminars and workshops and also shares information about the best practices adopted by other companies as well as the international experience (including international standards, codes and guidelines) on the subject.
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