Control and power, ownership and wealth

These four form the core of governance of any organisation or company

In the ultimate analysis, control and power, ownership and wealth form the core of governance of any organisation or government. Central to corporate governance in companies is the conflict between ownership and control; and power and accountability are its overarching concerns. These four are intertwined with human behaviour. The structures and systems, processes and controls in a company and the regulatory frameworks administered by the securities market regulators and the stock exchanges are in my view external efforts to manage this conflict and address the twin concerns. For these efforts to be efficacious and fruitful, mere tweaking of norms will not do. These external efforts would need to be harmonious with the “collective internal will and belief” of the company, its board and the management. 

For this, there needs to be a recognition that human needs are inherent physical and psychological needs and that such needs will naturally drive, influence and infect the choices and actions of companies that are nothing but groups of people authorised to act as a single entity recognised as such in law. We often chose to ignore this reality and behave like an ostrich about whose “remarkable stupidity” observed by Pliny the Elder that “they bury their head and neck into a bush imagining that their whole bodies are concealed”. 

Two of such inherent needs are — control and power. Converging evidence from animal research, clinical studies, and neuroimaging work suggests that the need for control is a biological imperative for survival. Its existence can be seen in animals as well as in young infants before they are influenced by any societal or cultural values. Organisms tend to adapt to control; find it rewarding and are repugnant to its absence. 

In the case of companies, these twin needs are speciously associated with ownership and money or wealth, which led John Kenneth Galbraith to observe, “Individuals and institutions are captured by a wondrous satisfaction from accruing wealth. They even falsely believe that one who is becoming wealthy is necessarily intelligent and genius”. In his book, The Mother, Sri Aurobindo says “This [money] is indeed one of the three forces — power, wealth, sex — that have the strongest attraction for the human ego and the Asura and are most generally misheld and misused by those who retain them. The seekers or keepers of wealth are more often possessed rather than its possessors; few escape entirely a distorting influence stamped on it by its long seizure and perversion by the Asura.” The recent allegations of frauds in companies and the alleged involvement of principal owners and conflicts of interests — all displaying uncanny commonalities —  bear out the truth behind the powerful statements. “Great wealth, like a crowd at a concert, gathers and melts” — so says Thiruvalluvar in the Kural.

William Z Ripley’s book, Main Street and Wall Street, brought out in 1927, brings out the conflicts that arise when the large body of widely dispersed shareholders of large US corporations, who invest the maximum amount of money find that they have no control over the policies of the company while the managers who own a limited number of equity stock, retain effective control of the company’s policies and its income distribution. In their book, The Modern Corporation and Private Property published in 1932, Adolf A Berle and Gardiner Means observed that wide dispersal of ownership of the large corporations among large number of shareholders presents a dilemma — while shareholders would collectively constitute the majority ownership of the corporation, individually they may not be interested in knowing the day to day affairs of the corporation and the management involved in the day to day affairs of the company and the directors may be able to manage the resources of companies to their own advantage without effective shareholder scrutiny. These are the very matters that even today make the fabric of “corporate governance”. Nothing much seems to have changed, excepting the scale, and the crises becoming larger each time. 

The corporate balance of power between the three principal players — shareholders, the board of directors and the management — is important and delicate. Organisations and business enterprises where this balance is maintained, the triad remains in dynamic equilibrium. Aristotle extolled four transcendent virtues — truth, beauty, goodness, and unity. In a business enterprise these virtues take the form of — equity, transparency, faith, and accountability — and when there is an abundant flow of these virtues, a business enterprise effulges into sustainable excellence.

The author is a former executive director of Sebi. Views are personal