The Road Ahead for Corporate Governance

In recent times, many cases have come to light where stocks of companies were hammered in a short span of time. Banking and Financial Services sector, IT majors and even a few conglomerates have been all over the headlines throughout the year. Companies like Infibeam, PC Jewelers, Nirav Modi, Fortis, and even stocks of Infosys and Tata group companies were not spared. Reputed financial institutions like ICICI have been accused of allowing transactions which were not in the interest of the bank’s profitability. In case of Infosys, institutions were even worried that the board was allying with the founder-promoters rather than focusing on the shareholders. A common thread between all these events was ‘Weak Corporate Governance’. The vicious cycle which starts with weak corporate governance ultimately ends with the director stepping down from the board. The same has been seen in cases where, as a corrective measure, the RBI had refused to extend the tenure of CEOs.

Corporate governance is all about ensuring that the company’s management is acting in the interest of the shareholders. However, there are many challenges that are prevalent. Firstly, independent directors have failed to make their mark as they are easily pressurized by the majority shareholders and the last thing they want is to be seen as troublemakers for the management. Secondly, institutional shareholders have not been very assertive on the boards. Thirdly, proxy firms are yet to take off in India and a handful of proxy firms, at best, play the role of a sounding board for shareholders. Lastly, managements have not really given much thought to corporate governance, since there is no direct correlation between corporate governance standards and the market value of the stock.

The entire scenario boils down to the following questions: Is there a need for a central regulatory authority to oversee corporate governance issues? Does the board perform in the larger interest of the shareholders? Are the independent directors actually non-partisan? Do the companies have adequate risk management systems in place? What should be the board’s approach towards CSR? It is to address these issues, with the aim of obtaining solutions to these questions, we look forward to SIM’ergence ’19.

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