Improving corporate governance has been a crucial item on the government’s agenda. From implementing the Insolvency and Bankruptcy Code (IBC) and setting up the Kotak Committee to planning examinations for becoming independent directors of companies, the government has taken several steps to lift governance standards in India Inc.
In light of these efforts, Fortune India brought together four leaders from the world of business to discuss the changing role of the board in the new corporate governance landscape as part of the first edition of Fortune India Boardroom. During the nearly 2-hour-long discussion held in Mumbai on Friday, VIP Industries chairman Dilip Piramal, Standard Chartered India CEO Zarin Daruwala, former SEBI executive director and SES managing director J.N. Gupta, Metropolis Healthcare managing director Ameera Shah, discussed the lessons that India must learn from past mistakes and the road ahead for improved corporate governance standards.
Piramal pointed out that corporate governance has come a long way, but more needs to be done. “There was no minority shareholder protection earlier. But the reforms implemented through the 1990s brought about the change,” he said.
He then added that while companies need to be regulated, too much regulation is detrimental to the growth of companies. “The market is the best place to reward or punish the management of a company,” he said.
Shah was of the view that while India has been thorough in creating regulations, enforcement hasn’t been as thorough. “Shareholders themselves are not interested in raising their voice… Paltry attendance at AGMs of companies is testimony,” Shah said.
J.N. Gupta echoed her views, saying corporate governance standards have been implemented only in letter, but not in spirit. He added that shareholders have been more concerned with returns of investment than governance standards. “Shareholders don’t realise that they may be foregoing better returns for want of good governance,” Gupta added.
Speaking from a lender’s perspective, Daruwala said it was important for banks to not let the longevity of their relationship with a borrower impact their lending choices. “Borrowers who have a long-standing relationship with a bank can turn errant anytime. Longevity of the relationship doesn’t guarantee anything,” she said.
She went on to say that the IBC code had instilled some fear in the minds of promoters and board members that there can be consequences if a company slips up. “As a lender, we are more concerned about the end use of loans and related-party transactions. Technology has helped us keep a hawk eye on these things now.”
On the role of independent directors, which has been the subject of debate and criticism, Gupta said it was important for the board to not become a mere “rubber-stamp”. “Many times directors fail to appreciate their role on the board and sing to the promoter’s tumes,” he said, adding that dissent was of utmost importance in any board.
The participants, however, closed the discussion on an optimistic note, saying that increased focus on corporate governance on a par with global standards and holding boards and promoters accountable for their actions bodes well for the governance landscape going forward, and that advancement in technology will aid the process in future.
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