I was invited to a panel discussion on 'Corporate Governance' by students of Christ University and since 13/02/2020 was a Bangalore Bundh I got to know the event got shelved when I called to confirm. Each panelist was to have spoken for 15 minutes before the discussions and so I wrote this as my talk. As always, your feedback is critical and let it come in plenty and with full force!
Namasthe Friends
You will hear about the various important aspects of corporate governance today from all the learned panelists. When I was contacted to be on this panel, I was very hesitant, because CG is not my area of expertise, even though in my corporate working life I got to see things in small and medium-sized publicly listed firms and state public sector firms. I worked in what is now called a vanishing company, which is can be another talk altogether.
As students and faculty members, you might already know the statistics about the number of companies in India. I think it helps to look at these numbers to set the context for corporate governance in India. In the textbooks, you read about different types of companies public sector, private sector, etc. We should know the numbers
The total number of companies registered in India as of 2019 was 18 lakh 26 thousand companies. Out of these 11,56,374 are active which means 6,70,018 are not active. Of the active companies, only 2011 are government, only 4771 are foreign companies, public limited companies are 62550 of which 6915 are listed and the private unlisted ones are 10,85,178. I am probably missing turnover, market cap, and other such numbers, however, the number of companies gives us a sense of the number of boards which is the unit for corporate governance. Essentially corporates in India are private unlisted firms even if there are other categories in some small measure. Another important aspect we need to remember is that while a firm may be family owned and managed it does get substantial funding from banks which are custodians of public monies. The point I am trying to make is that Corporate governance is not only about large listed firms, even though we generally study only large listed firms. The focus of CG has always been about rules, regulations and regulatory authorities, even though there is generally a passing mention that directors must have Integrity, ability, and cohesiveness.
Literature is full of different models of CG like the Anglo-US, Japanese, etc. based on which stakeholder is getting greater focus. I read also somewhere about an Indian model which is a blend of the german and anglo Saxon model. What I would urge you to think about as an Indian model of corporate governance is to look at the roots of corporate governance. To me, living value is far more important than abiding by the rules.
The core of corporate governance is not adherence to SEBI rules. For corporate governance to happen in the right way I suggest we look at some essential concepts from India's ancient wisdom which are practiced today also. For simplicity, I call this PPP which Purpose, People, and Personality.
Purpose of Business
Based on ancient Indian texts and the practices of many businesses in India the purpose of business or organizational credo has been set as ‘Sarva Loka Hitam’. You will find it in many Indian company websites. It simply means for the well-being of all stakeholders. This is not about shareholders or entrepreneurs but all stakeholders. Another expression which is also popular is that of 'Lokasamgraha' which means 'welfare of the world'. When a business has this as the purpose of its being, corporate governance is more or less automatic.
Business, profit or even pleasure are not a bad or negative expression in Indian culture. The four objectives in life are Dharma, Artha, Kama, and Moksha
Man seeks dharma: which is to act righteously, being ethical and fair, Dharma also includes repaying our debts to god, debts to parents and teachers, debt to guests, debts to other human beings, and debts to other beings.
Artha is the pursuit of wealth and prosperity. The important aspect is that this pursuit of wealth and prosperity should be without going beyond the dharma. Wealth should be earned in the right way.
Artha is the pursuit of wealth and prosperity. The important aspect is that this pursuit of wealth and prosperity should be without going beyond the dharma. Wealth should be earned in the right way.
Kama is about obtaining enjoyment, and finally, Moksha which is enlightenment. These four goals of life are the purpose of life, based on ancient Indian wisdom. Whether it is the CEO or the business, making a profit is good as long as the principles of Dharma are followed.
People
Recruitment of middle-level managers might be connected with efficient operations, however it is the recruitment of directors and senior management that is key to good corporate governance. Most Indian firms operate on dynastic principles, one gets an office because of birth and/or relationship with the promoter. The actual stake of the promoter after the usual over-invoicing of capital assets is actually negligible, and such a promoter generally brings his family members at the senior levels. When people are qualified professionals, corporate governance is most likely to be good, and if they are qualified professionals who understand ethics and values, it will surely be good.
Gandhiji has discussed the concept of 'trusteeship' for all businessmen. It is important for directors to understand that the assets of the community are given to the business for management and everyone involved is a trustee especially the MD and the board. Swami Vivekananda's concept of servant leadership another idea that is worth considering for people managing businesses. Both trusteeship and servant leadership are concepts from ancient Indian wisdom.
Personality
The 'mental make-up' or essential character of the board members is a soft aspect, however, it is a critical one. Ethical behavior happens after an ethical and clean response to the situation happens in the mind. Selecting people who have ethical values and beliefs will naturally ensure all stakeholders are considered and none is exploited for the undue benefit of the other.
To conclude, In my view corporate governance starts with setting and living the right purpose of the corporation, getting together of the right kind of people, all of who have a personality that values ethics and the interests of all.
Thank You for the opportunity and best wishes to all the students!
