When crumbled governance made news

Each industry is exposed to specific business instances when corporate governance norms could be given the go-by.

Mahatma Gandhi once remarked, “It is difficult, but not impossible, to conduct strictly honest business”. The difficult part is not to short-cut established processes and procedures or turning weak-kneed and succumbing when presented with a situation that is against established ethical practices.

The newspaper group, News Corporation, seems to have made a business of illegally tapping phones of the glitterati and non-glitterati and paid the price for its indiscretions with a newspaper belonging to the group shut, a spate of resignations and full-throated apologies from the men who mattered. A big-ticket acquisition was scuttled thanks to the negative publicity generated.

The company's tendency to pay millions of pounds in damages to silence protestors did not last long due to the nature of the offences perpetrated. Observers are taking a hard look at the company's corporate governance rules and their efficacy.

During the parliamentary enquiry, the owners seemed to be giving an impression that they and the executives at the ground level operated in different zones which cannot be emulated as a model of good governance. Corporate governance norms would apply even if the business constitutes 1 per cent of the total turnover of a business. Codes and standards of business conduct are a part of any entity's corporate governance policies and a sign-off by the employee is obtained in confirmation of his having read and comprehended these policies.

Code of conduct

News Corp has enunciated its policies on the basis of trust-trust in the workplace, in the integrity of its employees, in their business ethics and in the law. All directors, officers and employees of News Corp companies are supposed to act according to the principles set forth in these Standards.

The company also expects everyone working on its behalf, including consultants, agents, suppliers and business partners, to adhere to its ethical standards.

News Corp admits that business gifts and entertainment are often necessary and appropriate, and instrumental in cementing good relationships with their business partner and go on to state that it can never allow gifts and hospitality to place it in a situation where its objective judgment or compliance with the law might be questioned. The Police Commissioner of London was amongst the various resignations that the phone-tap episodes forced after it was revealed that he had accepted £12,000 worth of accommodation and meals from the company at a health spa while he was recovering from an operation earlier this year.

Ironically, News Corps policy on hospitality is “We do not provide or accept gifts or hospitality unless they are clearly appropriate in the context of a reasonable business relationship. Particular care should be taken with gifts or hospitality to or from government or public officials, whether foreign or domestic, elected or appointed. Always remember that gifts and hospitality that are perfectly acceptable among private parties can be completely forbidden when the other party is a government or public official”.

The phone-tapping allegations have snowballed into bribery charges on which the company states that it has a News Corporation Global Anti-Bribery and Anti-Corruption Policy and that it does not offer, give, solicit or accept bribes or kickbacks, either in cash or in the form of any other thing or service of value.

Corporate Governance

There is a growing feeling that corporate governance policies exist in some entities, but only on paper. The Cadbury Committee and the Organisation for Economic Cooperation and Development have set international benchmarks for corporate governance internationally while in India, Clause 49 of the Listing Agreement, many Committees and the Ministry of Corporate Affairs have followed suit.

The Audit Committee forms the fulcrum of corporate governance supported by guidelines for the board of directors, their responsibilities, auditors, secretarial audit and the institution of a mechanism for whistle-blowing.

There is a general statement that the company and its employees shall adhere to ethical business practices. Violations of norms are normally mentioned as brief line-items or foot-noted when the entity gets the next opportunity to talk to its shareholders. Normally, the legal laws of the country ensure punishment for the offender, leaving the entity with no action to take save pink-slipping the employee.

Phone-taps are not alien to India as the Niira Radia tapes and many other instances show. Each industry is exposed to specific business instances when corporate governance norms could be given the go-by — be they phone-taps in the case of the media, bidding for contracts in the case of telecom companies, allotment and valuation of land in the case of realty companies or insider trading in the case of financial services entities.

Industry-wise specific corporate governance standards could be next in the long list of regulations on governance. Like independence of directors and auditors, not crossing the “ Lakshmana Rekha” set by an entity's governance norms is a state of mind which differs between individuals.

(The author is a Bangalore-based chartered accountant.)

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Published on July 21, 2011

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