Infosys has done it again. It has set a new precedent for corporate conduct by making an example of none other than its own CEO, Kris Gopalakrishnan, who was reportedly fined Rs 5 lakh for an apparent ?insider trading? oversight. The Infy board deserves to be commended not only for its vigilance, but even more so for its refusal to wink at this breach of corporate governance norms. Unfortunately, Infosys is an exception rather than rule in a corporate scenario where, despite guidelines galore, insider trading is a fact of life. The thing about insider trading is that unless there is an obvious misuse of privileged information, it is fiendishly difficult to pin down. The boards of most Indian firms are notoriously clannish, and the maze of cross-holdings makes it hard to see what?s going on.
For its part, market regulator Sebi has come out with a set of proposals to make it harder to profit from information that others are not privy to. However, there is a catch?several guidelines involve lengthy compliance procedures, placing the onus on firms themselves to report transgressions. Also, rather than incriminate insider trading, which requires the clear establishment of specified guilt, Sebi intends to deter it through a system of profit disgorgement and punitive fines to be imposed if a set of red lines are crossed. The idea is to monitor behaviour through a model code of propriety. The probability of an error of nabbing someone with a clear conscience rises, but the punishment is also lighter. Will it work? Pragmatic as it sounds, the result is likely to be a lot of paperwork to show compliance, but only minor attitudinal changes. To take one example: anyone who owns more than a 5% stake in any firm is supposed to report any sale of shares. This rarely happens, and guideline in force is not taken seriously. It is important that minority shareholders become more vigilant and press businesses to raise their compliance levels. Firms have an incentive to maintain high levels of propriety for the reason that this eases their access to market capital, at least in theory. A well-behaved firm is that much more likely to be trusted by investors at large with their money. Infy has set a fine example of self-regulation by fining its CEO. But that does not make it an endorsement of Sebi?s proposals.
