An Independent Director Is An Oxymoron

The fiascos at Infosys and Tata Sons show that succession planning in Indian businesses is not easy and that promoters still hold maximum control

- Nirmalya Kumar

OVER THE PAST TWO DECADES, I HAVE BEEN LECTURING on Indian business to overseas audiences. Without exception, someone would bring up the question of corruption in India based on the rankings of agencies such as Transparency International. This would often lead to a discussion on whether all Indian companies were tainted by poor corporate governance and business practices.

While not disagreeing with the general thrust of the argument, I would observe that we cannot paint all Indian companies with the same brush. For example, one should consider corporates like Infosys or the Tata Group that meet, or even exceed, global standards. In my 2009 book, India’s Global Powerhouses, I wrote extensively about their exemplary business practices. Consequently, it is with considerable distress that I have observed the battle in the boardroom of these two corporates over the past year.

The separation of control from ownership in publicly listed companies requires effective corporate governance. As investors have limited visibility, it gives rise to the ‘agency problem’, where managers, as agents, may not run the company in the best interests of shareholders. In theory, the board of directors is supposed to protect the investors since the management has considerable discretion in running the firm. The board ensures that the management does not ‘steal’ funds through private planes and plush carpets and also directs it to suboptimal projects from the investors’ perspective.