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CORPORATE GOVERNANCE &
BIIRLA COMMITTEE Managers Must Atleast Deliver Their Promise By Chandra Mohan Corporate Governance and Transparency have taken centre-stage importance with the globalisation of Indian Business. Latest in the chain is the Report of SBI's Committee under Chairmanship of Kumaramangalam Birla. Kumaramangalam Report is wide ranging in sweep, and deep in its concern for companies creating long-term wealth for their share-holders. Its focal-point of action is the Board of Directors: directly and through its Committees. In its Vision, the Board is:
Independence of Board from promoters and principal shareholders is proposed through a majority of outside non-executive directors, appointed by shareholders at the AGM and subject to annual re-confirmation. Most conclusions are recommended as mandatory. It also prescribes an elaborate set of mandatory responsibilities for the Board and, D-lines for mandatory compliance are proposed for companies with equity above Rs.10 crore on April 1, 2000, and for companies with equity of Rs 5 crore on April 1, 2001. Recommendations would, indeed, cheer the heart of an investor anywhere in the world. The questions to be answered are: Are the recommendations it wants to mandate implementable? Who will enforce their compliance in law and in their spirit? Are the D-lines practicable in a scenario where:
Looking back into the present regulations for corporate governance:
Thus, while intentions have been all noble all the way, what has failed is delivery. Will detailed spelling out of responsibilities in their broad sweep, and making them mandatory help? For the new rules to have meaning, and not end-up as a mere statements of pious and lotty intent, it is important to ensure that they are observed in spirit and practice. Flaunting and bye-passing of law and weak enforcement have unfortunately become a national disease. This aspect becomes all the more important when corporate managers are recommending laws for their own governance. My 30-year old innings as a CEO with our own boards, and as a director on many others, specific suggestions on the Kumaramangalam Committee recommendations are:
Independent outside directors in majority and reduction in the number of boards on which anyone can be a Director, are positive steps. But. is an election at the annual general meeting (AGM) the answer? Knowing AGM's and discussions therein, nomination of Directors in the AGM is not likely to serve the intent. Financial Institutions/ Mutual Funds/ Banks must actively participate in the nomination. It is their collective voice, which can ensure compliance, independence of action, and long-term wealth generation. Their calibre and voice has to carry enough weight in the board to be able to remove the CEO, if need be. Strong boards alone could remove CEOs like Steve Jobs at Apple (and many years later even recall him), Jack Smith at General Motors, and Ackers in IBM, when they failed to deliver.
Sound governance can only come through deeper involvement for which outside directors must have a direct feel of the pulse of the organisation, untainted by the coloured lens and bias of the CEO and executive directors. This, in turn, means spending time with lower levels of the organisation. It also only comes through long-term association, not annual election. Can one expect outside directors to spend such extended time with current remuneration? Remuneration will, therefore, require to look again: link to profits and stock options for wealth creation. Forward looking companies across the world have started moving in this direction. For implementability, the possible solution would lie in:
It is, therefore, our duty as managers to, at least, ensure that laws guiding our own conduct in the next millennium, follow those fundamental tenets of our profession, and not live in a wishful world of dreams. |
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