The Hindu Business Line : Salutary safeguards

COMMITTEES galore in India have made heaps of recommendations on corporate governance, with special focus on tightening up the watchdog functions of the Board of Directors. The NDA Government had introduced in Parliament amendments to the Company Law incorporating the more important of the recommendations. The Bill immediately became the object of attack by the establishmentarians of India Inc as an attempt on the part of government bureaucracy to micromanage their day-to-day affairs which ought to be left to the judgment and decision of the companies.

The amendments that have drawn flak all round have in particular to do with the requirement that a majority of the Board of a listed company and certain categories of public limited companies should be non-executive (independent) directors; the imposition of the bar on independent directors to continue as such for more than three consecutive terms of three years each; the adoption of a whistle blower policy; and applying the same yardsticks about the checks and balances to be observed by the Boards of parent companies to the subsidiaries also.

These are minimum salutary safeguards against any aberrations in Boardroom behaviour in the era of liberalisation. In fact, not only should more than half the Board comprise independent directors but there should be a clearly enumerated qualifications and criteria governing their (s)election to ensure that they are truly independent. The reason for the limitation on the tenure of directors is that vested interests develop around anyone remaining too long in the same position.

The objection to the whistle blower policy, in the words of Dr Omkar Goswami, is that it "will create a fertile ground for causing mischief, and can unwittingly drag the audit committee and the independent directors into needless controversies." It is strange coming from a person as worldly-wise as Dr Goswami. Finally, there is every justification for treating subsidiaries and the parent company alike in applying the stipulations relating to good corporate governance.

Remembering the horrible happenings in companies such as Enron, Tyco and Worldcom, and the laxity in the administration and enforcement of laws in this country no amount of care bestowed on forestalling corporate misbehaviour and safeguarding investors' interests will be enough. The Government should stand firm in enacting into law the Bill in its present shape.

B. S. Raghavan