2013State of Governance

The Role of Corporate Governance

“Bringing about changes in rules is no guarantee of future good behaviour. Even boards that boast of independent leadership can do better”
Prabhu Guptara
Expert on management issues

When the British East India Company (EIC) became Bengal’s dominant power in 1757, the geographical area which came to be known as India was divided into about a thousand kingdoms. Whether Hindus or Muslims, Sikhs, Buddhists or Jains, our forefathers knew caste, kingdoms, and empires, but not one person in our vast land then had the political vision of uniting warring kingdoms into a nation-state, because the idea was a foreign one (it was invented in 1648 on the basis of the renewed understanding of the Bible which emerged in Europe from the 13th century and resulted in the Protestant Reformation). From 1757, it took the British just about a century to create the colony which went on to become the nation that is now known as India. The entire enterprise was driven by economics and politics – the EIC was a private company which got itself entangled with politics, as large-scale private enterprise always does.

However, in the 18th and 19th centuries, the British did not see history as a process driven by blind accidents. They saw it as working out God’s vision for humanity – God’s standards of truth, law, justice, and mercy creating more and more collective good. Adam Smith’s invisible hand, in their understanding, was nothing other than the hand of God, who wanted us to act with Him to build our social, economic and political structures on truth, righteousness and justice.

The mission to make India a great nation required bringing our individual sinfulness as well as our socio-religious evils under the searchlight of God’s truth. That could be done only if the Bible was translated and published, and then applied to specific areas of institutionalised darkness such as idolatry, inequality before law, untouchability, infanticide, widow-burning, child-marriage, polygamy, mass illiteracy, corruption, and feudalism. However, the efforts set India on course to become a great nation by nurturing and strengthening three essential areas:

  1. cultivating love for truth and virtue through mass education, development of vernaculars; printing press, and journalism;
  2. creating a legal environment for development through land reforms, property rights, penal code, modern judiciary, and a monetary system; and,
  3. building a nation-wide infrastructure for administration, transportation and communication.

The British got many things wrong. But they also got at least a few things right. At the same time, a rising generation committed to materialism, even if often sheltering under the garb of religiosity, has undone some of reduction in institutionalised evil (for example, by corrupting education, administration, Parliament and law) and has created new institutionalised evils – scams and corruption of various new sorts. So we now have in our country, a patchwork of institutionalised good and institutionalised evil, and what we would like to discuss is the role of corporate governance in reducing institutionalised evil.

Except for a few diehard feudalists found in the RSS and BJP, (and even in those organisations, their influence is less than it once was) all the public discourse in our country honours concepts of inclusive growth, secularism, equality, liberty, fraternity and democracy. The problem in our country is that our culture divorces sound from meaning, and imposes a gap between what is said and what is done, as well as between appearance and reality.

How does our culture divorce sound from meaning? Take “Aum” for example. It is a very powerful sound in our culture, and you will find people discussing the healing and other qualities of the vibrations of that sound. But what does Aum mean? Well, it means whatever you want it to mean, from nothing to everything. I have heard at least 50 different explanations of what it means. The fact is that you can come up with your own interpretation, and if people like it, then it becomes an acceptable or even the most acceptable explanation. That is why the role of PR is so important in our country. Our culture does not emphasise what is real, what is true, so all that we are left with in our dominant culture is propaganda.

Governance is not only about where we should focus our attention, or about values. It is also about creating the right structures. That is why we have a division of powers between the legislature, the executive, and the courts

Not only does our culture divorce sound from meaning, our culture also imposes a gap between what is said and what is done? How often have you heard a statement similar to: “Sahib ek minute lagega” (when the speaker has no idea of how long it will take, or even knows that it will take half an hour). Of course, part of the explanation is our Indian concept of “politeness” (which actually means an inability or unwillingness to tell the truth) and part of the explanation, in this particular case, is that our culture has no concept of the importance of time, because the kal that has gone (yesterday) is the same word as the kal that is to come (i.e. tomorrow) – the lack of the importance of time is structured into our language, into the way we think. If this life is only one among innumerable births, then why is time in this life important? The time that is given to us in this world is only important if this is the only life we have and if, after this life is completed, we have to give an account to somebody of how we have spent each minute and each second. But these are ancillary matters, the key point to keep in mind is that, whatever the reasons, our culture has a deep and profound gap between what is said and what is done. Of course that is part of a universal human tendency, but one’s culture can either reinforce that tendency (as in our own culture) or it can struggle against it, as in Protestant cultures (e.g. of Northern Europe).

So our culture divorces sound from meaning, and it accepts a large gap between what is said and what is done; how does our culture split appearance and reality? Well, we could discuss at length the notions of izzat and shaan versus the real quality of relationships in the home, or even the real quality of life in the home. If I am willing to murder an unborn child or my grown-up daughter for the sake of izzat, what kind of izzat is that? Is it not an attempt to preserve an appearance, for the sake of which, people are willing even to eliminate the reality of the life of their own flesh and blood?

Our Constitution clearly institutionalises values such as democracy, freedom from hunger and education for all. But it is for you to tell me to what degree we actually have liberty, equality and fraternity in our country. Do we have the rule of law or has the law itself been turned, at least in many places and occasions, into becoming itself an instrument of exploitation, for example by the police on the road?

We may have good laws but, even those good laws, such as those relating to Panchayati Raj, can become a means of oppressing the lower castes (and that is the case even when a lower caste person becomes the panchayat Sarpanch, she or he is simply manipulated by the upper castes and if the person refuses to comply they have been known to have been beaten up, raped or even killed). Of course such malpractices do not mean that the institution of Panchayati Raj is somehow wrong. No. Malpractices rather mean that citizen power is required to identify malpractices, report malpractices, and pursue malpractices through the institutions of redress till wrongdoers are identified, judged and punished. Every case of a wrongdoer being punished is a victory for the right, and a demolition of the culture of injustice in our country. Exactly for that reason, every instance of the honouring (for example by a Prize or Award or Padma Bhushan of a person who has done something good) should be celebrated because it strengthens the Kingdom of Right. Of course, a Padma Bhushan or an award or a prize might be given to someone unworthy, and then it is our duty to expose that and to talk about it. However, the human tendency is to talk too much of the negative and not enough of the positive. As the Bible puts it, “whatsoever things are true, whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report; if there be any virtue, and if there be any praise, think on these things”. We should focus our minds on such things – because if we don’t do so, it is too easy to become depressed, to become apathetic and withdrawn from the effort to build up our country, our people and ourselves.

Of course, governance is not only about where we should focus our attention, or about values. It is also about creating the right structures. That is why, at the highest levels in our political structure, we have a division of powers between the legislature, the executive, and the courts. And that is why our founders also institutionalised the freedom of the press. Of course, evil always tries to subvert each of these, and it is up to us to use the instruments offered to us by all these to fight against what is wrong and to fight for what is right. You may have noticed that China has detained Xu Zhiyong, the prominent lawyer known for his support of human rights and greater government transparency, merely on suspicion of “gathering people to disturb public order in a public place”. Though India also has somewhat similar incidents occasionally, they are unconstitutional in India whereas they are entirely in accordance with the law in China. By contrast, if an IPS officer is doing something wrong in India, you have the right to gain access to that officer’s superiors or, if even that person refuses to act rightly for any reason, you have the right to gain access to the courts – you certainly have the right to gain access to the press – as well as the right to have access to the public, to organise a mass protest. Perhaps you might have also noticed that Zhang Xiaoming, China’s top representative in the Chinese colony, Hong Kong, met pro-democracy lawmakers recently for the first time since the territory was taken over by China in 1977. This would be simply incredible in India, where we have had talks right from the start, perhaps not as often as would have been desirable, with separatists in the south, north-east and north of our country.

Our Constitution clearly institutionalises values such as democracy, freedom from hunger and education for all. But, do we have the rule of law or has the law itself been turned into becoming an instrument of exploitation

To continue with the theme of the right structures of corporate governance in our country, these include not only those of the Constitution at the highest level, or exalted things such as the separation of powers but, more recently, quite down to earth things such as Public Interest Litigation (PIL) and Right to Information (RTI) and Right to Education (RTE) and now the Right to Food (RTFood). Naturally, not everything is fine with these, let alone their implementation, but you and I need to be active and help to implement the system that is envisaged, and then identify how best to improve the operation of the system, whether in its implementation or even in the way it should be organised.

In the commercial sector, governance norms have been proposed for all publicly traded companies by SEBI (Securities and Exchange Board of India), which are actually tougher than what corporations face in more advanced economies. For instance, the CEOs in only about half of India’s top 50 listed companies still double as chairmen, and they will be required to split their roles (those that want to continue combining the roles will need the explicit approval of their shareholders). Further, SEBI wants companies above a certain size to appoint at least one independent director from among small shareholders. Still further, SEBI is apparently going to require independent directors who resign their position to publicly disclose the reason(s) for their departure – and “personal reasons” won’t be considered a satisfactory answer
if directors are only giving up one of multiple directorships. Till recently, founders of companies in India have been happy with eager-to-please boards, a case in point is the way independent directors of Satyam Computers rubber-stamped the former CEO’s desperate attempt to cover up fraud in December 2008.

Of course, bringing about changes in rules is no guarantee of future good behaviour. Even boards that boast of independent leadership can do better. Infosys Technologies, the only Indian entry last year in CLSA’s selection of 20 large Asian companies with best corporate governance, lists K V Kamath, a former banker, as a non-executive chairman. However a former Infosys CEO holds the position of executive co-chairman. Meanwhile, Kamath continues to be “independent” chairman at ICICI, even though he was its founding CEO. So there are all kinds of gaps and challenges, but the fact is that the web of corporate governance is gradually becoming more and more tight, and that is the case not only in India but also globally.

Corporate governance, whether at the level of an NGO, a company or the country as a whole, has three dimensions, of whether the right values are embedded and nurtured, whether the overall structure helps or hinders, and finally individual initiative and willingness to sacrifice (one’s own time and energy and money and interest) that is required in order to fight corruption and enable development. These dimensions are essential to fight corruption and yet again these are also necessary to enabling development.

Prabhu Guptara

Prabhu Guptara is an expert on management issues
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