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Most large Indian corporate houses are family run businesses. Be it the Tatas, Birlas or Ambanis; one after the other, the mantle of the company is held by an insider. While Lord Meghnad opines that “regardless of whether there are family run businesses or not, good corporate regulation rules are needed;” Jackson asserts, “India needs strong corporate governance laws to counteract both the nepotism intrinsic to large family run businesses and the fall-out from Satyam’s fraud.” And this is precisely why India needs good corporate governance laws to be enforced. Explains Moriarty, “Uncertainty is one of the biggest threats to public trust & investor confidence.” Stakeholders trust the Directors to create leadership that is competent & ethical in its approach. “While getting regulations right is necessary, it is not sufficient for ensuring ethical practice in the day-to-day operations of firms,” adds Moriarty. There is a dire need for India Inc. to differentiate itself from other emerging markets of the world and therefore restoring investor confidence is of utmost importance, at least for the time being.
The corporate scandal at Satyam has put a blot on the equity of brand India Inc. and has reinforced the need for strong corporate governance laws. For India to regain confidence of its global allies, it will have to resort to certain measures. Asserts Jackson, “Indian companies should take steps to improve internal management controls…” Companies should also focus on enhancing communication with their business allies, partners & stakeholders and practice transparency in their business actions. “Greater transparency will not only show which firms may be at risk, but also, more positively, which firms are strong,” explains Moriarty.
There is also a need for financial watchdogs like SEBI to pull up their socks and enforce laws, which makes it mandatory for companies to allow transparency in the company books. Jackson adds, “India’s Parliament must weigh in judiciously by strengthening corporate governance laws. The government must provide a fair playing field that attracts capital and this cannot happen without corporate governance standards at par with OECD countries.” Asserts Lord Meghnad, “Companies should demand that regulators are independent of all political influences.” Moriarty also recommends that “audit committees, corporate governance committees and compensation committees of the board be comprised of independent directors.”
The damage has already been done and image of Brand India Inc. has been tainted on the world map. And here, there is a lot that India can learn from Korea, which also has innumerable records of corporate scandals (Samsung, Hyundai, Daewoo, et al). Says Jackson, “Like India, Korea is highly reliant on the global economy and has a reputation for nepotism… Korea is no stranger to corporate fraud tarnishing its reputation.” As long as the Satyam case is taken as a one off case, the impact on India Inc.’s global image may not be too substantial or long-lasting. But for other Indian companies, this is a lesson well-learnt. Often, the public is too irrational in its thinking. There may be no connection between two companies, but the public may view one through the lens of another. Besides regulations, instilling corporate ethics is also important, which can be aptly instilled by the Directors of the firm. “Unless India Inc. appears collectively responsive to the outrage over Satyam by improving transparency and corporate governance measures, India Inc.’s reputation as a Mecca for service-based outsourcing may be permanently damaged,” concludes Jackson. Lesson learnt: Never ride a tiger if you know for sure that you can’t get off without being eaten!
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Source : IIPM Editorial, 2009
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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