India has come a long way from the shoddy company practices of a few years ago in a bid to attract foreign investors. It seems to be taking the right steps but there is still much to do
'He is an icon of corporate governance. Nobody has done more to advance it in India. This man is committed to transparency and governance more than anyone else I've seen.''
That's Omkar Goswami, chief economist at the Confederation of Indian Industry (CII), introducing NR Narayana Murthy, chairman of Infosys Technologies, at a recent conference on the subject of corporate governance. It is quite an accolade, and it seems well deserved in certain respects.
Murthy launched Infosys 21 years ago with a half a dozen other software engineers, and today the company is an icon of corporate success in India. The stock is among the most highly valued on the Mumbai exchange. And four square governance practices have been key to Murthy's strategy.
'We need to make respectability fashionable again,'' Murthy told his audience, 'though, ultimately, no laws can force us to be good citizens. It has to come from within''.
Interesting comment, though I don't wholly agree with it. True, the ethical rot so evident today among corporate executives in many nations can't be repaired by legislation; making moral standards a matter of legal standards is to ask the judicial system to do something it can't do.
But we have hardly exhausted the capacities of the law to clean up the corporate messes, not in the US, to note the most famous case, and in India.
Infosys and a handful of other software companies have demonstrated something important to the rest of India's private sector: good governance practices can be profitable, not least because investors can be certain of what they are getting when they buy the stock. Hence those high valuations.
Corporate governance is consequently all the rage among Indian companies. It began in the mid-1990s, when CII started developing a voluntary governance code.
Two years ago the Securities and Exchange Board of India issued a mandatory code of its own, which is to be fully implemented by next year.
These rules cover a variety of questions: the composition of boards and the frequency of their meetings, disclosure and auditing requirements, internal control systems, stock options and so on, the list is long.
'By and large, Indian-listed companies have been legally mandated to follow fairly strict standards of governance and disclosure,'' says Goswami, who led the CII's effort. 'Comparisons will show that the standards are far stronger than all Asian countries, and, in general, stronger than most OECD countries.''
The Organization for Economic Cooperation and Development is the club of advanced industrial nations.
That's all well and good. Malaysia, among other Asian nations, might wish to give India a run for its money so far as standards are concerned. But India has come a long way from the shoddy practices of a few years ago, when companies would often issue and discard annual reports without even distributing them. The intent is to make the Indian markets as attractive as possible to foreign equity investors.
In this respect India has taken steps in the right direction. But there are other directions it hasn't even begun to pursue.
The governance conference here was sponsored in part by the CII and the OECD, and in the interest of full disclosure, I note that I was a participant. While many insights were delivered and debated, what struck me was what was left out.
So far as I know, there wasn't one representative of an Indian trade union, citizens' or consumers' group, advocacy association, or any other organisation representing those affected by the way corporations are run.
The implicit assumption of those gathered was that corporate governance concerned shareholder value alone, and delivering value to shareholders is too narrow a definition of the function of companies for the law to accept.
One may or may not welcome the views of stakeholders, as interested parties other than investors are known, but they ought to be heard. This leads to the larger issue India and other nations re-evaluating their regulatory regimes are leaving untouched.
Shareholder ethos or stakeholder ethos, which lies at the core of our notion of what companies are for? Americans thought they resolved this question decisively in the 1990s, in favour of the former, of course. Consider the abuses of shareholders' rights, even among those most strenuously in favour of them, and you have to conclude that this was among the grandest illusions of the decade.
Asians make no claim to have resolved this issue yet, and that is in their favour. In cases where the question has arisen ' Singapore is one, Japan another ' there are interesting indications that the stakeholder ethos will emerge as a distinguishing characteristic of the corporate culture.
Several speakers here made a curious reference to the US as the 'gold standard'' in terms of corporate governance. They could dwell on another planet most of the time, or they could merely be behind the times. But gold standard the US is not. India and the rest of Asia will have to set their own. It is the essence of the exercise.
Bloomberg newsroom, New York
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