Improve governance

India Inc needs to take a hard look within

The final verdict is still not out in the trade secrets theft case involving Tata Consultancy Services (TCS) in the US, with the company denying any infringement of US health care software firm Epic Systems' intellectual property. India's largest information technology services company will also appeal against the US jury's decision to slap on it a fine of $940 million. What is relevant, however, is the view of many experts who have looked at the case. Most agree the jury has been harsh on TCS, but also say a company as well-managed as TCS could have clearly been more mindful of its internal compliance procedures - which help raise early warning signals that can detect and stop possible negligence on the part of sundry employees.

The larger point is many Indian companies have been found to be lacking on this score, creating reputational damage that can have a knock-on effect on others keen on breaking into markets abroad. Only last week, Alkem Laboratories, one of the fastest-growing drug makers in India which made a sterling debut on stock exchanges in December, was accused by Germany's health regulator of "fudging" data on clinical trials of an antibiotic and brain disorder drug, becoming the third Indian firm to be scrutinised since 2014 for suspected manipulation of clinical trials data. This came close on the heels of the US Food and Drug Administration issuing a warning letter to Emcure Pharmaceuticals for alleged violation of current good manufacturing practice norms at its Pune-based plant. The list of drug companies facing increased scrutiny from global regulatory agencies is pretty long and includes marquee names. In fact, the last calendar year saw 40 investigations by overseas regulators at more than 25 companies across the country.

The virus has spread to many sectors - for example, a couple of years ago, Infosys revealed that senior executives of its business processes outsourcing unit were either complicit or at best they provided weak oversight in serving inflated bills to Apple, one of the firm's big clients; an independent testing agency in Europe found that India's top-selling small cars don't meet international safety standards; and the US Federal Aviation Administration cited lack of safety oversight for downgrading India's aviation safety rating to "category two" from "category one". It was more than a year later that the rating was restored after Indian aviation authorities furnished proof that it had recruited more flight operations instructors and streamlined certain procedures.

Sympathisers of domestic companies cite this and some other instances to say that domestic companies have been quick to correct their shortcomings once they faced regulatory action. They also say several global biggies have also not been paragons of virtue either. But that is a short-sighted approach, especially at a time when regulators all over the world are becoming more demanding and beginning to question some of the manufacturing practices of Indian companies. Low-cost solutions are fine, but they should come from sustainable innovation, not from cutting corners on regulatory issues. Disregard for basic standards and norms of doing business underlines the need for a more responsible corporate governance culture. This is as important a factor in helping India Inc to expand globally as technology advances and productivity gains. The solution is simple: Indian companies need to improve their learning processes systematically and vigorously. One could easily take refuge in the clap-trap theory of this being a global conspiracy against the success of India Inc. But a hard look within may just be what the doctor ordered.