THE WEEK - GUEST COLUMN by Mazher Hussain: Kotak report misses to re-imagine the board of future
COVA Network
GUEST COLUMN: Kotak report misses to re-imagine the board of future
By Mazher Hussain | October 09, 2017
Preventing cronies and political appointees from snuggling into boards might require some more creative and concrete measures
Poised
as an emerging economic power with about three per cent of the GDP of the
world, 2.5 per cent of global stock market capitalization and an ever growing
market, India has become an attractive destination for investors with foreign
direct investment clocking a record inflow of $60 billion in 2016-17. Retaining
this robust investor confidence will require conducive business environment and
the quality of corporate governance.
But corporate governance in India has never been exemplary and is badly exposed
in recent times due to the ease with which well-known companies like Satyam,
Kingfisher, Deccan Chronicle Holdings Limited and many others could indulge in
long-term fraudulent practices due to bad or complicit governance.
Good corporate governance could become possible through the institution of
independent directors of the board of a company who are required to have a
fiduciary responsibility to work for the benefit of and safeguard the interests
of the company without coming under the influence from anyone and without
expectations of any financial gains. But in India, a majority of the listed
entities continue to be promoter–driven with significant shareholding being
held by the promoters and the so-called independent directors could well be kin
or cronies subservient to the bidding of the promoter, even at the cost of
sacrificing the interests of other shareholders or even the company itself.
Hence, we have the phenomenon of billionaire promoters with bankrupt companies.
The situation of public sector undertakings (PSUs) is even more pathetic. The
boards, including the independent directors, of State Bank of Hyderabad, State
Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur,
State Bank of Patiala along with Bharatiya Mahila Bank gave approval for the
merger of all their respective banks with State Bank of India on the same
single day through an item placed as a table agenda in their respective board
meetings. Boards dissolving their companies and themselves not through at least
a listed agenda but a table item must be unprecedented in the annals of the
history of corporate governance. If there is any such incidence, then we have
just missed a Nobel.
In such a situation, the Kotak committee on corporate governance and its report
could not have come at a better time. Along with addressing other concerns of
corporate governance like sharing of sensitive information, reliability of
disclosures, protection of interests of minority shareholders, etc recognition
of the importance, role, orientation, diversity and responsibilities of
independent directors are rightly focused in the report. The recommendations
for increasing the number of directors to six and of the independent directors
to at least 50 per cent, appointment of at least one woman as independent
director and increase in the number of board meetings from four to five could
improve governance to some extent. But preventing cronies and political
appointees from snuggling into boards may still require some more creative and
concrete measures.
Another area where the report falls short is in provisioning for expanded scope
and capacity for the boards of today and of the future that must also include
the ability to factor in and address concerns of environment, sustainability
and possible resistance to projects from local communities. By continuing to
restrict themselves to monitoring financial performance in a sanitized
commercial vacuum independently of the societal requirements and restrictions
that are becoming a necessary environment for most businesses, the boards will
be failing their companies, shareholders, banks and society at large.
A report dated March 15, 2016, in Down to Earth shows that
delay or scrapping of just 10 projects due to environmental issues or social
resistance has jeopardized over Rs 2.5 lakh crores that is mostly money from
banks or markets and therefore from the public. If only the boards were
oriented to also factor in environment and societal concerns as serious issues
that could impact the implementation of the projects and equipped to act as
self regulators, perhaps the projects could have been redesigned or even
abandoned in initial stages to escape some of the debilitating losses that
happen when official regulators come in and stall execution of the projects.
It is time to realize that companies can no longer be seen as profit-making
machines for some individuals and groups but have to be re-conceptualized as
societal assets that will protect environment, ensure sustainability, create
employment and also generate some profits for the shareholders and promoters if
humanity is to survive. Consequently, the members of the board should be those
who can operate in the framework of company as a societal asset and transcend
from protecting just the interests of a company to becoming sentinels for
society.
(The author is executive director of COVA and former member of the board,
State Bank of Hyderabad)
Mazher Hussain
Executive Director,
COVA
18-13-8/A/508/B, Bandlaguda, Chandrayangutta, Hyderabad 500 005 Telangana State, INDIA
Mobile: 0091- 9394544244
mazherh...@gmail.com
