In a bid to prevent corporate governance failure among India Inc in future, HDFC chairman Deepak Parekh, who is also a key board member of government controlled Satyam Computers, has suggested vital remedial measures.
While addressing the CII session on corporate governance in Mumbai on Wednesday, he said companies should strengthen the charter of their compensation committees, recognising the importance of nominating committees and imbibe a culture that provides effective boards. He admitted the non-existence of a nomination committee in HDFC too.
Parekh said, ?It is increasingly important for boards to constantly assess and reflect upon their performance, keep abreast with the changing environment and recognise that skill requirements of a board are constantly changing and thus board practices need to keep evolving. Clearly, none of these prerequisites require additional regulation, but need a stronger commitment to voluntarily improving the effectiveness of the board.?
He added greed to boost profits, increase share prices and get higher bonuses did the markets in. No doubt there were warnings from skeptics, but their voices were drowned out by the fact that the market was booming. Now many of the causal factors seem to point towards a breakdown of corporate governance. What remains perplexing is that despite regulations having been meticulously followed and box ticking done in all earnest, some of the basic tenets of corporate governance were breached. ?Do the principles of effective corporate governance need to be re-written or at least re-interpreted? Either way, the pace of new emerging challenges is making the role of the board more onerous?, he said.
He said here are concerns such as why certain boards did not raise seemingly obvious questions or whether risk management was not considered when strategic or operational decisions were being taken. The outcome of the present financial crisis emphasises the strong link between corporate governance and risk management. Both are ineffective without the other. Also, the paucity of competent independent directors is a major hurdle for boards as also choosing independent directors with appropriate skill sets and knowledge of the business.
Parekh also mentioned that independent directors also get stressed by serving on too many boards and are often unable to do complete justice to their roles. Given the scarcity in board talent, there is a need to plan vacancies well in advance. It is important to stress that the search for independent directors needs to be an on going process and not just a one-off exercise to fill up vacancies. Most succession planning efforts are directed at the chief executive officer, many a times on an ad-hoc basis and many independent directors tend to forget succession planning for themselves.