Corporate governance back in vogue

Founder-CEO tussles boil dThe term ‘corporate governance’ is yet again emerging as a buzzword among corporate circles. Bengaluru-based Infosys, one of the country’s largest companies, is doing an intr

NEW DELHI/BENGALURU: The term ‘corporate governance’ is yet again emerging as a buzzword among corporate circles. Bengaluru-based Infosys, one of the country’s largest companies, is doing an introspection on this aspect, as did many others before it—the Tatas, Reliance, Satyam, Ranbaxy…  Is corporate governance in its current form difficult to adopt and, hence, does it require change?
“Increasingly, over the coming years, these tensions will manifest as many promoter-owned companies become professionally-led and -run companies. The role of institutional investors will be much bigger,” says Shriram Subramanian, founder of InGovern, an independent corporate governance research and advisory firm based in Bengaluru.

According to experts, the challenge lies in the management’s ability to take decisions that might not be liked by the promoters of the firm but are required in the larger interest of the company. This could create a tiff between the professionals hired to run the company and the promoters as they both approach the same objective—interest of shareholders while keeping the values of the company—in two different ways.

In this fight between promoters and professionals, it is the shareholders who get hurt. Take, for instance, the recent turmoil in the Tata Group which led to the removal of Cyrus Mistry by Ratan Tata-promoted Tata Sons. The main issue highlighted in that case was also related to corporate governance. The founders continues to retain influence in the functioning and decision-making in the operations of the firm. “Because, at the end of the day, if it is done by a professional board and a professional CEO, then tensions will arise between various investors,” says Subramanian.

The story was slightly different in the case of Satyam and Ranbaxy, where the top management turned a blind eye to the lack of checks and balances. In both cases, the independent directors in the two companies remained mute spectators to the wrongs committed by the management, which included the founders of the company. “Sebi (Securities and Exchange Board of India) should be more proactive because there are many companies that violate disclosure norms and Sebi is not able to figure it out,” says Subramanian.

In India and globally, large family-owned conglomerates select professionals from outside their family to run companies of their group but avoid giving control of the whole group. “It is a subject that needs long deliberations… private firms do tend to hold control,” says U D Choubey, former chairman and MD of GAIL, and currently the director-general of Standing Conference of Public Enterprises.
 Industry observers feel that one company reversed the trend—Chennai-headquartered Murugappa Group. “They appointed professional CEOs to manage their listed companies. It was unheard of and it set a benchmark,” says s senior official in the Ministry of Corporate Affairs.

According to the official, by setting up the Murugappa Corporate Board, the company developed a window for discussion between the family and professional CEOs and also the statutory boards of group companies.  Currently, there are different companies with different levels of corporate governance in India.
Chief promoters should not force things, says Karan Kumar, group head, Shruth & Smith Holdings, and CEO, iFocus Systec.… “Things are changing. Sikka is looking at cutting-edge technologies and moving away from traditional methods. When the next-generation is working, you need to allow them to do do things,” he adds.

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