The rot at the top

Rajrishi Singhal | Updated on January 12, 2018 Published on January 15, 2017

Title: The Essential Book of Corporate Governance; Author: GN Bajpai; Publisher: Sage India. Price: ₹595

A new book scans India’s corporate governance scenario to understand the crisis and its fallouts

The book under review — The Essential Book of Corporate Governance by GN Bajpai — couldn’t have come at a better time in the history of Corporate India. Here are four random samples:

First, the most recent one. Regardless of the side you’re on, the recent spat in Tata Group is bound to raise questions of corporate governance and boardroom ethics. The ouster of Cyrus Mistry has refocused attention on corporate governance, the role of independent directors and need for disclosures back to centre stage. Just when you thought corporate governance was a done deal comes along a new twist, a fresh imbroglio that tests the legal validity of the existing regulatory structure.

It is now clear that the Cyrus-Ratan dispute will be decided in the courts of law. On display will be elaborate and diverse regulatory charters drawn up by numerous panels and legislated by different lawmakers: the listing agreement mandated by stock exchanges, code of conduct laid down by markets watchdog SEBI, the Competition Commission of India’s various rules and the corporate affairs ministry’s Companies Act.

The second case involves Welspun India. In August, the company stunned shareholders by releasing a statement that its buyers — large retail chains in the US — had contested the company’s claims of supplying bedsheets with 100-per cent Egyptian cotton and were threatening to sever business ties. The company also disclosed it had appointed a member of the Big Four audit-cum-consulting firms to examine how and where things went wrong and to set them right.

This case does raise some uncomfortable questions over the management structure and the information flow up and down the chain of command.

The third incident is the three-step mega merger announced between HDFC Standard Life and Max Life. The deal also envisages the merged entity paying Max India promoters ₹850 crore in non-compete fees. This will be in addition to the promoter group holding 6.5 per cent in the merged company. The non-compete fee has raised questions of corporate governance since one set of shareholders of Max India will be compensated more than others.

Again, the role of the board comes into play here since independent directors are expected to discharge their fiduciary duty in safe-guarding the interest of minority shareholders.

The fourth example is the proposed merger between Aditya Birla group firms Grasim and Aditya Birla Nuvo (ABNL). Minority shareholders in Grasim believe this merger will not only end up diluting non-promoter shareholding substantially but will also expose them to ABNL’s financial services and telecom businesses, both of which are capital soaking investments.

Bad signals

There are many other examples that merit mention, the most egregious being ostentatious salaries that owner-managers are gifting themselves over other directors or executives. For example, the Sun TV Network’s husband-wife duo of Kalanithi Maran and Kavery received a combined ₹142.93 crore during 2015-16. Brothers Pawan and Sunil Munjal received a total of ₹111.77 crore from Hero Motocorp.

But these examples only illustrate the tension between corporate governance as a moral imperative, or as an egalitarian safeguard seeking equality between all shareholders, and owner-managers’ unilateral exercise of privilege or entitlement. Corporate governance norms in India were introduced rather late in the day, largely under pressure from foreign institutional investors.

There were local institutional investors earlier, but they were all state-owned development financial institutions, insurance companies or the only mutual fund game in town, UTI. These institutions did government’s bidding, acting under instructions from malleable ministers in Delhi.

This also highlights a paradox of the capital markets: the relatively superior political bargaining power of institutional shareholders compared to retail or individual investors, even though all capital market stakeholders have repeatedly sought to protect and empower the retail investor.

GN Bajpai’s book appears highly relevant because corporate governance in most organisations has been reduced to filling forms, ticking some boxes, meeting the regulators and government officials at regular frequencies and merrily continue doing everything else. Companies seeking shortcuts do not seem to realise, or care, that shareholders give a higher valuation to examples of good governance.

Weak links

There are two proximate reasons for this indifferent attitude. One, corporate governance is a sub-set of the country’s overall governance culture and when the super-structure is toxic (regardless of the party in power), then faith in the sub-set is bound to be weak. Also, most business schools do not include, or give enough importance, to ethics or corporate governance in their pedagogy; the weightage gets skewed in favour of knowing how to make business profits because that facilitates easy employment on campus recruitments.

The author has been a keen observer and student of corporate governance during his long career in public service and subsequent involvement with corporate boards. Under his watch, SEBI continued to develop and fine-tune the corporate governance framework initiated by his predecessors. The book provides the trajectory and finer nuances of corporate governance in India.

What’s missing is real-life examples; while it is understandable that revealing cases handled during his chairmanship might constitute breach of service confidentiality, he could have probably found a way to narrate some case studies. This would have enhanced the understanding of corporate governance in practice.

Despite the (many) editing glitches, the book is a handy tool for all corner office denizens.GN Bajpai is former chairman of SEBI. He was also the chairman

of LIC and has been a board member at ICICI Bank, Unit Trust of

India, Tata Chemicals, Jindal Steel, among others


GN Bajpai is former chairman of SEBI. He was also the chairman of LIC and has been a board member at ICICI Bank, Unit Trust of India, Tata Chemicals, Jindal Steel, among others.

The reviewer is a senior fellow with think tank Gateway House. Disclosure: He worked for three years in an organisation where Bajpai was a non-executive chairman

Published on January 15, 2017
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