Learn from the villains

India Inc needs to realise that the standards of corporate ethics and governance are much below acceptable levels

This generation has not done anything; they are only enjoying the benefits of the wealth created by the previous generations. They have no right to destroy the wealth,” said the family leader of a 13-generation-old global company. This has to be read along with the court ruling on the controversial Religare Singh brothers to pay $2.50 million to Daichi. To recall, it was not they but their father Parvinder Singh who had created the wealth in Ranbaxy. It is ironical that Shivinder Singh had sued his brother Malvinder Singh in a related case! This reflects a dark side of the Indian corporate growth story that has several other examples; unfortunately, the number is growing at an alarming rate. There are both governance and cultural dimensions to address to prevent such individuals from becoming role models, and the slippery slope our society will get into, often without us recognising the consequences.

The chairman of a five-generation-old conglomerate mentioned in a recent conversation the phenomenon of “shirt sleeve to shirt sleeve in three generations” and that the resultant business failure is no longer valid in present-day India. Sadly, his observation is proving to be wrong with reputed business families digging their reputational and financial graveyard early. This is true with Religares and some reputed banks cutting corners on ethical behaviour and responsible conduct. The standards of professional conduct set by legendary chairmen like Prakash Tandon of the Punjab National Bank seem to have become mythological stories. Much water has flowed under the bridge, but it’s increasingly muddy.

Falling standards of governance is creating new benchmarks that are much below acceptable norms for building institutions of excellence. The Securities and Exchange Board of India (Sebi), as the custodian of corporate excellence should define and develop a strategy of carrot and stick to bring erring corporations to look beyond the form and focus on practicing the spirit of governance. Unfortunately, a close reading of the emerging story on the ICICI leadership and governance is not reassuring. 

There is no point in making independent directors sacrificial scapegoats. What is required is that Sebi prescribe certain process standards for governance practices in large listed companies. Most board minutes are short summaries of a discussion. The need is to capture the dynamics of the board processes in detail. For instance, there could be audio recording of the proceedings of critical board decisions for future reference. It can also act as evidence and to determine the extent of involvement of board members in the deliberations. Such an approach will help in fixing responsibility in cases such as the infamous Satyam saga and see how a chairman could mislead eminent board members. There should also be a better and clearer checklist for ascertaining related party transactions.

Most directors do not spend much time reflecting over the philosophy of governance. The stewardship orientation does not come automatically and in full flow to all. Several promoters do not actually recognise that the ownership responsibilities grow multifold in a non-linear way as the organisation grows bigger. They tend to cut corners for personal gains and are tempted to drift into a path of demons and monsters. While jail terms and monetary penalties are certainly impactful, what we lack is sharing the experiences of psychological trauma someone lives with when they fall from grace into shame and ignominy. We need case studies of such people that will deter others from taking the dangerous road. There is enough evidence to suggest that creation of awareness followed by detailed education on corporate governance is a fundamental requirement to make an organisation successful. 

Corporate India needs to wake up to the fact that our standards of corporate ethics and governance are much below acceptable levels and are not going up despite various initiatives. Industry associations should go beyond lip service and work with the Sebi to share knowledge of what it is like being a star who has fallen from the edifice of corporate governance — be it the individual or the organisation.

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The author is professor and executive director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business