The fiasco at the National Spot Exchange Ltd that threatened to disrupt the financial system once again highlights the need for greater oversight on corporate governance.
Further, the fact that the Finance Minister himself acknowledged that the company was close to being unregulated since its inception, makes this even more alarming.
There is no a dearth of regulatory systems/reporting. If anything, there is actually an overdose of it. Notwithstanding the reasonably high levels of automation, the challenge has been in monitoring the enormous amount of data.
It would be a great opportunity to mine the “Big Data”. Even the Government has recognised the need for this and indicated that it would be willing to make the available data public for development of analytical applications.
That brings us to the issue of “corporate governance”. While there has really been no dispute on the need for it, it has still been the subject of debates. It gets shriller every time there is a scam.
Inevitably the quality of governance, especially that of the board, becomes the focal point.
Recently, on the issue of giving banking licenses to corporates, even the Parliamentary panel expressed reservations on ability of corporates to manage inherent conflicts.
Board matters
In India, the quality of the board, including its independence, has been a matter of discussion. This is in the context of high stakes that promoters have in Indian companies.
The Government has also been trying to empower the minority shareholders in the past. One such change was the introduction of electronic voting on resolutions.
While empowerment was not the primary intent of the move, which was meant to be a green initiative as it reduced paper work, it was also capable of ensuring that minority shareholders had a say in the affairs of the company. One does not recall too many cases wherein this was actually done, but it is matter of time before this actually takes effect.
The election of Directors at GSK Consumer Healthcare Ltd, based on the cumulative voting method, a couple of months back marked a significant departure from the mandated provisions of law on appointment of directors representing the interests of the minority shareholders.
Under the cumulative voting system, a shareholder entitled to votes for multiples candidates can cast all his votes in favour of a single person.
This would enable minority shareholders to express their preference for one or a few persons. The system was truly empowering minority shareholders, for which the company needs to be complimented.
Financial Reporting
Now the question is — how does one take these to its logical conclusion by bringing within its scope financial aspects too?
This question assumes relevance given the fact that the only forum available to shareholders for seeking clarifications or airing their views are the general meetings of the company.
Considering that these usually take place only once a year, it becomes critical to offer alternatives to shareholders.
The other concern for shareholders would be credibility/integrity of the numbers.
These doubts are bound to linger considering the increasing number of corporate frauds that are being reported and debates in the public forums not being very charitable.
Crowd Sourcing Governance
This brings us to question of how to “crowd source corporate governance” or whether it should be left exclusively to “analysts”? The latter assumes importance given the volatility seen in stock prices just before some major corporate information or transaction.
A number of shareholders believe that corporate management tends to skirt over uncomfortable questions at general meetings.
The best way to overcome this would be to permit shareholders to post their queries online and make it incumbent on companies to respond to it in public. There is no conflict here considering that listed companies are mandated to publish their financial statements on their websites. Queries and responses to it are bound to raise supplementary ones and will go a long way in enhancing transparency and accountability.
If the Government is really keen on greater transparency and accountability it could even allow free access to corporate information filed with the Registrar of Companies under the Ministry of Corporate Affairs.
This is, in any case, available without any great difficulty as any one is permitted to obtain a fair amount of financial and other information, albeit through payment of a nominal fee of Rs 50. Access to these data could potentially bring lot more corporate accountability to quasi-public funds, especially those from the banking system. The exposure of the banking system also assumes importance in light of the high non-performing assets.
In terms of timing it is not out of place as the financial year has just ended and most corporates would have just had their general meetings and would be filing their statements over the next couple of months. It is possible that many would find these suggestions either idealistic or utopian but then it has to viewed against the backdrop of serious concerns over governance deficit that corporate India has also been accused of. Therefore, it is incumbent on companies to move forward and not restrict its governance to just what is mandated. The stakeholders, too, should not be just sitting and hoping that the New Companies Act 2013 is panacea for all ills.
(The author is a Partner at R Venkatakrishnan & Associates.)