Corporate governance and all that

08 January 2005

Board room cronyism ends corporate governance. By Uday Chatterjee

You could call it black humour. The ICSI (Institute of Company Secretaries of India) national award for excellence in corporate governance for the year 2003 was bagged by Reliance Industries. And if even a fraction of the stories regarding ownership and control leaking out from the Reliance stable were credible, then it is time to take a hard look at our corporate governance standards and practices.

Companies like Enron, Arthur Anderson and Worldcom have fallen under the weight of poor corporate governance. This should open our eyes to the fact that Indian companies, however big, need to follow good corporate governance practices to stay afloat.

Every public company mentions in its offer document that the company is board managed. However, there are few Indian companies, which are board managed in the true sense of the term. Most of the companies in India are family enterprises or one man shows. To be sure, a board is constituted but the majority of the members are packed with, as Anil Ambani would put it, cronies chelas and chamchas.

If a board member is a retired bureaucrat, you can bet that he has been picked up for his ability to liase with government bodies. Other board members' family members and relatives become suppliers and dealers for the company and cozy up with the promoter members.

Agenda items in board meetings are passed within minutes after which the meeting ends up as an exercise in exchanging pleasantries to be followed by a substantial lunch.