The Great Corporate Governance Challenge

Satyam, Kingfisher Airlines, United Spirits, Ricoh India, Fortis... the list of companies that have duped minority shareholders is long and worrisome. Is there a way to keep unscrupulous promoters /managements under check?

- Prabal Basu Roy

HAVE WE EVER WONDERED why celebrated examples of governance failures — Satyam, Kingfisher Airlines, United Spirits under Vijay Mallya, Ricoh India, Fortis — crop up with such predictable regularity in India ?

This does not include the many cases littered in the listed space of small- and micro-caps which do not hog the attention of the media, but are as alarming and brash in their actions as their more illustrious brethren in duping minority shareholders.

This also does not include the iconic companies such as Tatas, Infosys, ICICI Bank, etc. where the conduct of promoters, retired founders, the independent directors, executive management and the boards have raised subtle issues of governance failures or indiscretions — though in no way part of the first category of promoters indulging in rampant frauds.

The challenges of corporate governance are significant though, irrespective of the intent with which the overt or covert actions were conducted. These cover a wide spectrum of distinct but related issues and primarily centre around a three-by-three matrix in terms of the motivation for deviant behaviour and those groups whose actions can influence proper direction and control.

The three broad categories of motivators for misgovernance are to do with outright frauds, undue enrichment and imposition of will by retired founders on boards. And the behaviour of three groups that can influence the outcomes significantly are the conduct of independent directors and the efficacy of this institution as a disciplining mechanism in a promoter-controlled board; conduct of auditors and members of the audit committee in certifying the financial statements; role of the regulator in terms of proactive and reactive measures appropriate to a given situation.