| Corporate governance is the set of processes, | | | | Whistle blowing policy be made compulsory to all |
| customs, policies, laws, and institutions affecting the | | | | companies |
| way a corporation is directed, administered or | | | | The principled conduct of multinational corporations is |
| controlled. Corporate governance also includes the | | | | absolutely essential in planting the seeds of stability and |
| relationships among the many stakeholders involved | | | | prosperity for all. Multinational corporations account for |
| and the goals for which the corporation is governed. | | | | one-third of the world's Gross Domestic Product, and |
| The principal stakeholders are the shareholders, | | | | two-thirds of world trade. Multinationals can be a |
| management, and the board of directors. Other | | | | powerful influence for good - especially in countries |
| stakeholders include employees, customers, creditors, | | | | whose governments lack a strong tradition of |
| suppliers, regulators, and the community at large. | | | | democracy and the rule of law. Therefore, it is no |
| Corporate governance has emerged as an important | | | | longer sufficient for multinational corporations to do |
| both in India and globally. Expectations of stakeholders | | | | merely what is legal. In every instance, multinational |
| are extremely high and the scrutiny by regulators and | | | | corporations must do what is right - through their |
| investors incredibly stringent. As a consequence, Indian | | | | conduct, not just their words. |
| companies are proactively implementing measures for | | | | In a speech titled "Globalization's Next Frontier: |
| the same. Going forward, one of the most important | | | | Principled Codes of Conduct that Bolster the Rule of |
| challenges for Board members is to build a foundation | | | | Law," Parrett told global ethics and business leaders, |
| of trust with management, the investment community, | | | | and representatives from non-governmental |
| regulatory agencies and the public. The stakes are high | | | | organizations (NGOs) and academic institutions that |
| and the margin for error is low and while new | | | | globalization and world security itself could be |
| standards are emerging, one thing remains clear: the | | | | jeopardized unless multinational corporations develop |
| responsibility to adopt sound governance practices has | | | | ethical conduct that adheres to values and principles |
| been placed squarely on corporate Directors and | | | | rather than just written law. |
| officers. | | | | Law makers in India, feel the need to ascertain the |
| My favorite is one from the Harvard Business School. | | | | merits of encouraging a principle-based approach (like |
| It found that "ethics-based" companies increased their | | | | in the case of the combined code in the UK) to |
| net income 756 percent - versus just 1 percent for | | | | compliance - where the nature, size and complexities |
| companies who put profit first. My message today is | | | | of a business govern compliance and disclosures - |
| that principled economic behavior is a long-term | | | | instead of a standard rules based approach for |
| investment in the security of nations. The world cannot | | | | universal compliance (like in the US). Companies in India |
| afford economic misconduct. Now multinational | | | | must have the flexibility to ascertain those aspects |
| corporations everywhere to lead the world to | | | | which are practical to comply with and others where |
| globalization's next frontier - through principled codes of | | | | they can provide suitable and logical explanations for |
| conduct that bolster the rule of law. Not just the letter | | | | non compliance. This will enable them demonstrate |
| of the law - not just minimum compliance with some | | | | their true intend to comply, where practical, and make |
| baseline code. But, instead, something that will really | | | | to transparent disclosures in other cases. |
| make a difference! Principled codes of conduct that | | | | In India, guidelines for corporate governance are |
| answer first to the moral underpinnings that support all | | | | provided in clause 49 of the listing agreement and also |
| law. Principled codes of conduct that set objective, | | | | in various sections of the Companies Act. Industry |
| quantifiable standards. Principled codes of conduct that | | | | experts hold view that once appointed, the |
| use independent monitoring - and require transparent | | | | performance and contributions of these directors |
| communication with the public. | | | | should be monitored and evaluated objectively with |
| Indispensable Principles of Corporate Governance: | | | | peer reviews serving as a means of such evaluations. |
| • Discipline in operations | | | | A stronger corporate governance framework is |
| • Transparency in dealings and disclosures | | | | needed to prevent Satyam-like financial frauds. There |
| • Accountability to shareholders | | | | is a need to strengthen regulators and company laws |
| • Responsibility of company's action | | | | to improve corporate governance, by the corporate |
| • Social Responsibility | | | | ministry. A new Companies Bill, which is pending in |
| • Improving group dynamics and harnessing | | | | Parliament, would make regulation more stringent for |
| individual talents | | | | auditors. The new bill seeks to revamp archaic laws to |
| • Enhancing early-warning mechanisms for critical | | | | help India's growing corporate sector adopt |
| risks | | | | international best practice, and make boards and senior |
| • Mitigating exposure to liability | | | | management of companies more accountable. |
| • Building credibility and trust with stakeholders | | | | What is to be kept in mind is that in India adequate |
| • Embedding sustainability as a corporate value | | | | safeguards are provided for in the form of various |
| What is the Satyam fiasco all about? | | | | laws but the penalty stipulated for is comparatively |
| For me, Satyam's case is a typical example of fraud | | | | meagre and thus the wrong doers have no fear of |
| that are extremely difficult to detect and prevent. The | | | | punishment. Only if the punishments to be imposed are |
| chairman of Satyam diligently hatched a plan to | | | | made stringent and it acts as a deterrent can it be |
| defraud its stakeholders and to gain advantage to | | | | expected that such frauds can be controlled in future. |
| itself. | | | | More so, there is no expertise of the implementing |
| There is a sufficient law to deal with this kind of | | | | authorities for detecting and curing the Economic |
| economic offences and corporate governance. In a | | | | Offences. There is a need to make a separate body |
| global environment, principles are important because | | | | to look into the affairs and implement the laws and |
| rules cannot cover all situations, however there are | | | | other provisions to curtail such offences. There is also |
| following observations that encourages the non | | | | a lack of political will power to curb such offences, the |
| compliance in India: | | | | politicians take a lenient view and leave the |
| Non compliance is never taken seriously by the | | | | investigation and other vital steps into the hands of CBI |
| companies as there is minimum penalty for non | | | | which is not a body made to specifically deal with such |
| compliance. | | | | white collar crimes. Unless there reason enough for the |
| Minimum penalty of few hundreds rupees | | | | miscreants to be scared of penal provisions that send |
| Most of the offences for non compliance can be | | | | a shiver down their spine. Such offences will continue |
| compounded by paying the fine. | | | | to happen and we will keep thinking of devising ways |
| The government department do have the appropriate | | | | to tackle with them. |
| expertise or manpower to detect the non compliance | | | | Arbitrator is a technically name of a person selected |
| The prosecution agency also do not have the expert | | | | with reference to an established system for friendly |
| who specialise in this kind of expertise, hence the most | | | | determination of controversy which, though not judicial, |
| of the offender can not be prosecuted. | | | | yet is regulated by law; so that the powers and duties |
| Lack of political will | | | | of the arbitrator, when once he is chosen, are |
| Typical Indian attitude that is "chalta hai" | | | | prescribed by law, and his doings may be judicially |
| Suggestions: | | | | revised if he has exceeded his authority. Thus, the |
| Strong punishment i.e. life term for offenders | | | | arbitrator is a private, disinterested person, chosen by |
| There should be specialised investigating agency and | | | | the parties to a disputed question, for the purpose of |
| that should be allowed to hire the best professionals. | | | | hearing their contentions, and giving judgment between |
| More power to independent directors and they should | | | | them, to whose decision, called "award", the litigants |
| be allowed to engage the professional to explain the | | | | submit themselves either voluntary, or, in some cases, |
| company's record/ accounts. | | | | compulsorily, by order of court. |
| Effective & ongoing training to all the employees | | | | |