Stringent Punishment For Erring CEOs: Murthy

New Delhi: | Updated: Nov 29 2002, 05:30am hrs
Infosys Technologies Ltd chairman and chief mentor NR Narayana Murthy has advocated stringent punishment for erring chief executive officers (CEOs), chief financial officers (CFOs) and internal management of companies in order to deter them from using unfair means and defrauding the minority shareholders. He was delivering the S Ranganathan memorial lecture on Corporate Governance - A practitioners viewpoint.

White collar crimes go unpunished usually. With such meagre punishment meted out, it hardly acts as a deterrent, he said. One of his suggestions: Erring CEOs should be forced to forego their bonuses or equity-based compensation received during the last 12 months for any kind of misrepresentation of facts.

We cannot afford to ignore the minority shareholder. Mechanisms need to be put in place to ensure that the managements work as trustees of their funds. Let us win the trust and confidence of the small shareholder. It is the responsibility of the corporate leaders to ensure that this happens, he said. Such proactive action specially becomes relevant with the corporate world in recent times being witness to a number of frauds and the increasing skepticism about corporate behaviour.

Stressing the role of independent directors in ensuring that the long-term interests of the shareholder are protected, he said the board of independent directors needs to be revitalised. They should be objective in decision-making and more than mere decorous, decorative entities as is usually the case. Stringent standards for the selection and performance of directors should be put in place.

Training on the role and responsibilities of external directors is another must. External members of the board should maintain their independence, meet the executive of the company regularly, but not in the presence of the management. This would ensure a different perspective on issues and a degree of objectivity.

He also advocated performance assessment of the board members regularly, which could be facilitated by a third party if needed. Underperforming directors, who fail to live up to standards, should be removed in a gentle manner, so as there is no loss of face and at the same time the company does not suffer.

Regarding remunerations, he said these should be determined on the basis of three criteria: fairness, accountability and transparency. Compensation should comprise a fixed and variable component.