Practically all of the steps towards corporate governance suggested are specifically intended to be followed in spirit and not in just letter by ticking off a checklist. And, here, perhaps, the weakest link in the chain may lie. And, as the saying goes, the chain is as strong as its weakest link. Nevertheless, let us review some of the important recommendations.

It is suggested that the posts of chairman and chief executive of the company should be made separate. in other words, the company should have a non-executive chairman. The objective is that the chairman should be able to exert an influence over the chief executive and keephim under effective control of the board rather than the chairman-cum-chief executive dominating the board and the company. However, cynics would be quick to point out that it would be easy to get a name-sake chairman who would be happy with the perks of his office and act according to the instructions of the management.

The recommendation of forming an audit committee has as its intention the strengthening the concept of audit. it is indeed absurd if the auditor has to point out to the management itself of the wrongs in the company when the management may have been responsible for it. The audit committee is expected to hear the statutory auditor, give directions to the internal auditor, ensure compliance with good accounting practices, etc.

It is expected that the audit committee would mainly, if not wholly, consist of non-executive directors. It will also decide on the appointment of auditors. This certainly can work well. However, here too, the deciding factor would be the real independence of themembers of the committee. If they are, in fact, proteges of the management, the whole exercise may have no meaning.

Then there is the recommendation regarding forming a remuneration committee for deciding the remuneration of the management. This is to combat against excessive remuneration claimed by the management.

There are several other recommendations and these change depending upon which system of corporate governance one is looking at. Corporate governance has caught on so much that there is hardly any developed country which has not made a serious study on this subject. In India, too, Sebi, CII, etc. have serious steps in this direction.

However, as stated earlier, there is a basic difficulty in implementation of corporate governance. The dilemma would be whether the scheme should be introduced as a law or should be a recommended practice. If it is a law, than one could argue that it might suffer the same fate as existing laws - loopholes would be found and the provisions avoided.

If it is tobe a recommended practice, here too, one may find that some companies may not follow the scheme at all and still others may follow it only in letter. In fact, proponents of corporate governance are quite emphatic on the issue that corporate governance should not become a matter of merely ticking off a checklist. It should be followed in letter and spirit.

In UK, a compromise has been found by making some of the principles of good corporate governance being made part of the requirements of the listing agreement. In essence, this is intended to ensure that companies would not easily get around it by finding loopholes but would follow it in its spirit.

Failure of existing legal framework of corporate governance, particularly in our country, is evident, for example, from the fact that it is very costly, if not impossible, to raise equity from the public. The faith of the common man that the management can be effectively called to account has been totally shaken.

It is interesting to note that, particularlyin the USA and, hopefully, increasingly in India, large shareholders such as mutual funds, institutional investors, etc, have been directly calling on companies to behave, or else. In fact, these large shareholders are further grouping together by forming associations and alliances. However, the question that then has to be answered is who will make such funds, etc, who are themselves the users of other people's money, accountable. Perhaps, partially, the market forces will keep them accountable since poor performance by them will lead to sale of their shares leading to loss of disposable money.

Then, one should also bear in mind that corporate governance is not just about reconciling the interests of the shareholders and management. It is usual to include others such as lenders and even employees, the society in general etc. Corporate governance is about making the management accountable to these stakeholders and to ensure a a transparent mechanism to ensure that they are taking step which are not adverseto these stakeholders. To conclude, corporate governance is not the answer to the problem of reconciling the interests of stakeholders and management but is just one of the steps in this direction.

The author is a Mumbai-based chartered accountant