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The homilies on quality of governance at the CII Quality summit will be received with a large dose of scepticism. For good reason.
The CII's decision to publish a list of the best-governed companies will be seen as a token kowtowing towards what many corporate leaders privately regard as one of the latest fads. Particularly because the list will not rank the companies, nor expose the worst-governed corporates.
Much lip-service has been paid to corporate governance, but, after years of discussion and debate on the subject, there has not been much real progress on that front.
To be sure, the CII has formulated a code of corporate governance. SEBI's attitude towards the investor protection aspect of corporate governance has also been positive, with it now being made mandatory for a company accessing the capital markets to disclose the number of investor complaints against it. Also commendable has been SEBI's decision to have a postal ballot for mutual funds trying to change the terms and conditions oftheir schemes. The number of people voting at annual general meetings today is an indication of the low value placed on shareholder democracy.
In the final analysis, however, corporate governance has to be enforced by the shareholders themselves. And those shareholders who have only a few shares will always prefer to sell their holdings rather than get embroiled in a costly attempt to change managements.
It is only those who cannot sell who are forced to care. This applies to all big equity holders, who cannot sell their holdings in the market without affecting the price. Of course, statutory rules of corporate governance will help. But rules often result in merely the form being followed, without the substance. Compliance will be with the letter of the rules, not the spirit.
Consider the huge number of human resource departments which have been set up by public sector organisations, only to be reduced to departments which merely decide transfers. To be really effective, corporate governance must bepushed by the institutional shareholders.
One positive feature of the recent UTI fiasco has been the impetus which has been given to corporate governance by the UTI. In a bid to deflect criticism, the UTI is now calling for meetings with companies in which it holds a large number of shares. This change in attitude is welcome.
Indian financial institutions, by virtue of owning a very large chunk of corporate India, can make or break managements. However, this power is unlikely to be exercised so long as the financial institutions remain in government hands. Privatising the financial institutions will put pressure on their managements to get the best out of their investments, and only then will they enforce corporate governance in Indian corporates.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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