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S. Murlidharan

S. Murlidharan on the need for a more broad-based code for governance

A LOT OF noise is made in corporate and governmental circles about corporate governance. But what we have on ground in this regard makes one rather cynical — the term is only a buzzword in common with other lofty terms that are bandied about in rarified corporate circles by pinstripe executives with gay abandon.

Clause 49 of the Listing Agreement — fashioned on the lines of the Kumaramangalam Birla Committee recommendations — applicable to all listed companies is unduly obsessed with audit committees and composition of board of directors.

Enron happened in the US right under the nose of a star-studded audit committee. And experience the world over is that independent directors, on whom so much faith has been reposed by the Listing Agreement, often turn out to be uninterested directors.

Surely, it would be naïve to believe that the panacea for all the corporate ills lies in having an audit committee and a board having a few independent directors.

After all, the members of an audit committee are drawn from the board and it would be idle to expect them to blow the whistle against the shenanigans of their colleagues on the board.

And independent directors have even less reason to be vigilantes.

The sub-clause agreeing to disclose in the annual report all pecuniary relationships or transactions of non-executive directors is bound to raise eyebrows of those in the know. Why not the transactions of executive directors?

It is another matter that the Accounting Standard on Related Party Transactions fills this omission.

Should such an ostensibly seminal legal requirement prescribe the minutiae of board meetings, such as the frequency thereof and gap between two meetings.

It is not as if the corporate world would come out smelling of roses if the boards meet frequently.

There is no whisper about insider trading. Should not corporate governance address this issue given the fact that it is the bane of the Indian share market?

To be sure, this malady is addressed by SEBI through a separate regulation. But then should not a responsible board try to win over the concerns of garden-variety shareholders by volunteering to foreswear this practice?

It is not enough to constitute a committee of directors to look into mundane investor complaints, as the Listing Agreement does, when more profound ones are crying for attention.

If the garden-variety shareholder has been fobbed off, so have the other stakeholders, given the truism that corporate governance stands for fair deal to all the stakeholders. The widening gulf between top management remuneration and that of lesser employees, for example, has not been addressed.

Mr N. R. Narayan Murthy of Infosys had the courage to prescribe 15 times as the outer limit for this gulf. But he was pilloried by his peers for this. And the poor creditor, as always, has been ignored. He is nowhere in the loop.

In short, what we have in place is a one-sided and limited corporate governance code. Cynics, however, ask whether things would improve even with a broad-based and all-encompassing code.

Well, that is something to mull over.

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