INDIA & CORPORATE GOVERNANCE

Being a trainer, leadership coach and a mentor associated with the corporate world over 15 years, I thought of elaborating the need for a good corporate governance because of the increasing concerns about the non-compliance of standards of financial reporting and accountability by many corporate houses. The collapse of international giants likes Enron, World Com and Xerox are the glaring examples of the absence of good corporate governance and corrupt practices adopted by management of these companies in CAHOOTS with their financial advisers. In last few decades, even Indian markets have witnessed ugly practices wherein investors have lost their life time earnings with no conclusive actions on the culprit corporate houses. Well, SEBI appreciated the need for corporate governance and accordingly appointed several committees to guard the interests of investors and shareholders of a listed company against lack of adequate standards of financial reporting and accountability. Yet, the trend of companies raising capital from the market at fake valuation by projecting a wrong assessment of the company’s assets and profitability could not be arrested. Though in India, the organizational framework for corporate governance involves the Ministry of Corporate Affairs (MCA), the Securities and Exchange Board of India (SEBI) and the National Foundation for Corporate Governance (NFCG), only the listed companies are forced to comply with its provisions. 90% of unlisted companies remain out of the gambit of these set rules and regulations and therefore, the interest of market forces remains by and large at the mercy of these company owners. No doubt that these unlisted and private limited companies make a major contribution to economic growth and employment in India. However, the corporate governance needs of such companies have all through been relatively neglected by the experts and policy-makers alike. How the interests of various stakeholders like customers, suppliers financiers, , employees, and government is being taken care of by these Corporates remains debatable.

Now the question arises as to why a relevant aspect of profitability in business, that is good governance, is not given attention to by most of these unlisted and private limited companies? The short answer is their ignorance coupled with diluted or non-existent rules in managing of such companies by the concerned authorities. It may be worthwhile on my part to carry out a quick SWOT analyses of good governance for readers to understand. The strengths or the advantages of it are enormous. For example, while running a company, it is easy to violate rules and regulations if one has no legal expertise. Initiating governance procedures in place can help comply with these laws to focus on company’s success. Not just this, following laid down regulations, one can boost company’s reputation. A company with a strong reputation will have an easier time attracting investors and developing strong relationships with customers. So, are their any short comings and weaknesses that need to be looked into by company owners? Yes indeed, like two sides of every coin, there are a few disadvantages which if guarded against will enrich the working culture and environment in the corporate. First and foremost, business houses are beholden to both state and federal laws. The basic purpose for forming a corporation is to shield shareholders from the liabilities of the company to the amount of money or other assets invested by them. Apart from limited liability protections, corporations are actually formed so that, the company can trade stocks in order to raise required capital. The problem, however, if a corporation wants to sell stock and protect its owners from liability, is that it must follow a wide range of formalities. For instance, the board of directors must act in the best financial interest of the company. If they are not fulfilling this fiduciary duty, they may be subjected to personal liability. While pandemics like Covid 19, crashing Rupee and framing of non-conducive policies are considered threats to good governance, globalization and healthy competition are a few opportunities for corporates to energise their efforts and tighten their belts for adopting and practicing principles of good governance for growth. Though some measures have been taken by SEBI and RBI backed by strong political will, much is needed to be done by the corporates themselves to pay attention to the grievances of investors and protection of their investment by abiding with the laws and adopting good standards of effective management. If India wants greater pie of FDI resulting into sustainable financial growth, it must implement stronger laws protecting interests of Global investors.

THE VIEWS EXPRESSED BY THE AUTHOR ARE PERSONAL

COL ANUPAM JAITLY (RETD) The writer is Defence expert, Motivational Speaker & Corporate Trainer