Although the principles of governance are hard-wired into most corporate rulebooks, even the titans of India's industries seem to be having a hard time adhering to them, with steps being initiated after the unsavoury events have come to the fore. But are these "post-mortem" analyses enough? In a country where corporate governance adherence has never been a strong point, what's causing these lapses, and what more can be done to strengthen and foolproof the machinery? These are the questions companies and regulators need to ask urgently.
Top reasons for corporate governance breakdown
Interestingly, despite the issues we're seeing now, India has been credited with having some of the most stringent corporate governance practices worldwide. Starting with the 2013 Companies Act, all the way to the comprehensive governance guidelines and mechanisms set in place by SEBI as recently as 2022 - there has been no shortage of rules and regulations to avoid conflicts of interests and uphold the pillars of governance. But unfortunately, these mechanisms have not paid off the way they should have.
There are many reasons for the repeated governance failures we are seeing in India's corporates. Some of the critical ones are outlined below.
Conclusion: How can corporates avoid governance failures?
Corporate governance refers to the oversight of the company management in line with the directives set by a regulatory body, whether exercised by a board of directors or an individual.
For a high-functioning board, the independence of its directors, segregation of duties, transparency of conduct, and fairness of representation in terms of diversity and inclusion - underpinned by a strong commitment to protocol - are indispensable traits.
Unwavering adherence to regulations is fundamental to the success of any board or organisation. Because, whenever public trust is placed on an entity, the role of a central regulatory body automatically becomes critical for the sake of protecting the interests of the minority stakeholders and the long-term sustainability of the company.
Half-hearted efforts to comply with regulations can prove disastrous to companies, as we have been seeing from experience.
Beyond stricter supervision, authorities have it on them to ensure governance is not done in the letter of the law, but rather in the spirit of the law. Only then can the true purpose of corporate governance and its fundamental principles of transparency, accountability, fairness and equity, and responsibility be achieved.
(The author is CEO, BCT Digital.)
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