Non-executive directors needn't get entangled in fraud

The Gensol-BluSmart crisis has drawn corporate fraud in India's startup ecosystem into the spotlight. It has sparked a debate over a 'fake it till you make it' culture and whether it's driven by sheer greed, naive optimism, or intense pressure to keep the company's stock on an ever-rising curve.

- VIRAL MEHTA & ANURAG SHAH

The Gensol-BluSmart crisis has drawn corporate fraud in India's startup ecosystem into the spotlight. It has sparked a debate over a 'fake it till you make it' culture and whether it's driven by sheer greed, naive optimism, or intense pressure to keep the company's stock on an ever-rising curve. While the causes remain debatable, the consequences of corporate fraud follow a predictable path. Once discovered, law enforcement agencies and regulatory bodies spring into action. Probes are launched, notices are dispatched, and litigation ensues.

One may expect these proceedings to target executive directors, who are responsible for running the business and its affairs. But that is not the case. They invariably implicate all board members, including those who serve in non-executive roles, such as nominee directors appointed by private equity firms. This occurs despite the stark difference between the roles of executive and non-executive directors. The latter play a limited role on the board. They represent the shareholders that nominate them. As their involvement is usually restricted to attending board meetings, they often have no clue, let alone knowledge, of any fraud.