Getting governance code right

Clear Oversight Regulators Need To Temper Expectations From Exalted Models Of Corporate Governance

- CKG NAIR

FINANCIAL SECTOR REGULATORS have been quite proactive in rule making for improving and improvising governance of their regulated entities (REs). Rightly so, given their lofty mandate of investor protection, system integrity, financial stability, and so on. Regulators could succeed greatly in their mission if they get that magical governance code right and make REs govern/behave well. On the contrary, they become sleepless after each episode of governance failure under their watch. And the search for new, more potent weapons resumes, often without throwing away the rusted ones. Recent episodes of alleged corporate missteps (IndusInd Bank, Gensol Engineering, Religare) and (continued) misselling in insurance services etc. are fresh eye-openers. That too, before such episodes relating to Yes Bank, IL&FS, DHFL, BharatPe, Fortis, and so on were forgotten.

The Reserve Bank of India (RBI) is planning to intensify its monitoring of bank board proceedings through its system of senior supervisory managers (SSMs). Designated officers of the regulator will closely look at the board proceedings of their REs in terms of quality of discussions, contributions of board committees, mismatch between recorded discussions and minutes, and so on. Though post-facto, it is like the regulator moving closer to the boardroom—despite the fact that directors on those boards are appointed with the RBI's approval and many of the independent directors are former senior regulatory officials, former bank heads and former senior civil servants.