Business Standard / New Delhi Aug 11, 2009, 00:46 IST
It is now widely accepted that the faith placed in independent directors, to improve the standards of corporate governance, has often been misplaced. Most of them, and not just in the case of Satyam Computers, tend to go along with the promoters who appoint them. Another experiment with ‘independents’, in this case as experts, appears to be going the same way. Consider the case of the director-general of hydrocarbons, VK Sibal, who recently cited reports by some independent experts to validate his claim that the capital costs of Reliance Industries’ operations in the Krishna-Godavari Basin were not exaggerated, as alleged by ADAG chief Anil Ambani. One of these was from the Mustang Group, which ADAG officials later pointed out had done a lot of consulting work for Reliance, and so could not be regarded as independent. The second independent expert, P Gopalakrishnan, worked at the School of Petroleum Technology in the Pandit Deendayal Petroleum University where Mukesh Ambani, chairman of Reliance, is the chairman. It is true, as Mr Sibal argues, that experts are likely to have done work for companies in the field, but it does raise questions about bias and impartiality. Second, the government needs to do its own due diligence instead of just relying on the word of experts who may or may not be biased. So it is unfortunate that the audit attempted by the Comptroller and Auditor General has been held up for two years because Reliance will not share data.
More shocking is the information that has surfaced about the newly established Food Safety and Standards Authority of India, which has appointed representatives of food industry giants as members of its key scientific panels. Someone from Coca-Cola India is a member of the scientific panel to decide on the methods for sampling and analysis. Readers may recall that when the Centre for Science and Environment (CSE) came out with test results which showed pesticide residue in cold drinks, companies like Coca-Cola said the CSE sampling methodology was incorrect. Given this background, it should be obvious that no Coca-Cola representative should be on such a panel, because it could then become accused, witness, judge and jury. Coca-Cola and PepsiCo, similarly, are on the panel on food additives and flavourings, and other food company representatives populate the other panels that have been set up. These panels are about science and so need to have scientists, who may choose to consult industry experts to understand operational issues. But if the food industry’s work is to be judged, and that is what the Food Safety Authority is supposed to do, it is obvious that it cannot and should not have the food industry’s representatives on its panels.
Independent directors have played pro-management role in majority of cases.There are also instances where they have played no role at all.For example, Mr. M.K.Narayanan, national security adviser is on the Board of Indbank Merchant Banking Services Ltd. He is also on the Audit Committee. Understandably, he is too busy to attend the Board / Committee meetings. Why should directorship be thrust on such persons when the company cannot benefit from their expertise?
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