Corporate governance is again
in the news, for all the wrong (?) reasons, with the saga of Infosys transiting
from the owner’s hands to “Board of Directors or professional management’s hands,
struggling to reach cruise mode.
It is now a topic for
discussion everywhere, from news-papers, TV channels, social media, conference
halls, restaurants and airport lounges. Everyone has her/his opinion on the
subject and yours truly also believes in the right to opine on this subject.
While the recent cases of Tata’s
and Infosys are a matter of discussion and gossip, there are many more such
cases happening around us that are not reported, discussed or even identified.
But these high profile cases
do bring our attention to the “very present problem” that corporate world is
facing and continues its struggle in addressing them, in a manner that is satisfactory.
Some research, analysis, case
studies and few discussion in the TV channels is what I foresee seeing as an aftermath
of any such incidence and life then goes on.
New rules, regulations and
norms may be laid out, a tweak in some Act may follow and we will have to
assume that we have learnt something and taken course correction.
But this is a blatant lie that
we tell ourselves because, we intuitively know that such remedial measures are like
applying bandages on the wound but not a medication for the real ailment.
Western nations have been in
the fore front of identifying “corporate governance” as an important factor in
corporate world (primarily in democratically run countries) and have created
structures, disclosure norms, rules and standards to help corporate world adopt
and adhere to certain minimum standard of corporate governance.
Despite that, there have been
innumerable cases of firms not adhering to or violating rules/regulation both
in letter and spirit. Firms have failed either due to an individual, collective
action/inaction or duplicity and complicity of regulators.
Whether it is manipulating
LIBOR rates, fudging books of accounts, selling junk bonds as triple A rated
bonds, sharing board meeting outcomes in advance, showing non existing fixed
deposits, siphoning of corporate (public) funds for personal ventures or setting
policies that suits one’s own salaries and bonuses, every manner of mal
practices have taken place, SOX or no SOX.
Corporate governance is just
not about owners moving out of their firm and letting professionals take over to
run and create value for the firm, but how firms run their businesses despite their
owners, professionals, rules, regulations & norms.
In India, large no of
businesses in the MSME sectors and retail/kirana shops have been running for
centuries under a model, where family members automatically takeover the
businesses and/or the more prominent positions in a family run firms are
occupied by “persons from the same village” or from the same community.
Governance issues appear even
in political space. The cases of Lalu, Karunanidhi, Thackery and not to mention
Nehru family, pushing their family members into leadership position is rather
glaring.
So the point is that corporate
governance suffers (?) from the same issues that governance faces in other
spaces. The eco system or the culture that we have developed for so long, influences
governance standards and our acceptance of them as a society, adds credibility.
To me, the fundamental issue
is the “moral structure” that we cultivate, administer and grow in the society.
That is what determines governance at large and corporate governance in
particular.
The current moral structure is
run on what I call as “the doctrine of ownership, convenience and enjoyment”. This
doctrine simply means, that owners consider their automatic right to run firms
that they incubated, for generations to come, irrespective of talent or not
(inequality in opportunity). It is convenient to have your bloodline or family,
takeover to avoid/minimise issues of wealth distribution amongst family members
(inequality in wealth distribution) and the owners’/family’s consider it as their
right alone to enjoy the fruits of the firm, perennially, since they brought
the firm into existence (seeding inequality in future)
This doctrine is currently
acceptable as a standard in India and any change is countered by the eco
system, actively and sometimes questioning the need for the change itself. The
acts, rules, regulations and norms move in tandem with this moral structure,
ably assisted by the legal and regulatory fraternity.
At its core, all three parts
of the doctrine are human desires, that has always run the show, so to speak,
and not been questioned by society as a whole. This doctrine may have been good
for the years gone by but is not certainly the right one going forward.
Corporate governance, in its better
form will remain a distant dream unless, there is a fundamental change in the
above doctrine and adoption of a new doctrine across the eco system.
The counter to the existing
doctrine is “the doctrine of detached ownership, quality in convenience and cooperative
enjoyment”. The doctrine turns its head on the existing one and that reflects a
maturity and civility in the society to come.
Detached ownership simple
means, an opportunity for the original owners to realise that transfer of
ownership to family member or close bloodlines may not be the best value
creation avenue in the long run (equal opportunity to run businesses after
owners have incubated).
Quality in convenience, means
that as Individuals and society, we admit and accept that wealth is not created
by individuals alone, it comes from every person involved in running the
business, not just the owners and wealth is not generated in isolation but contributed
by varied stakeholders (equality in opportunity to wealth).
Finally, cooperative
enjoyment, admits and accepts that enjoyment by select few individuals in the long
run only develops negativity and harms the enjoyment of the future generations,
including the wealthier ones, while shared enjoyment leads to greater happiness
for all the society members. All three parts may not be borne out of past
experience but surely that is what human beings aspire for, at least in the future.
Fundamentally this change is a
change in human desires and direction of the collective thoughts of society.
This change cannot happen overnight
and first steps will always be laid out by individual(s) who have little
baggage to carry from the past.
Individuals who foster and
challenge the existing eco system and make a success of their business/venture,
the corporate world will acknowledge be seen as the breakthrough that may
trigger this change. This knowledge that such success is possible under the new
doctrine, will draw others to follow and then the change suddenly blossoms
across eco system. Society accepts the new doctrine as the new normal and change
is finally entrenched into societal thinking.
At this juncture, this looks utopian,
distant, mere words and theory. May be, but humans are capable of turnaround for
the good, when least expected. There are enough evidence that there is a
simmering need felt in many quarters of the corporate world, for a paradigm
shift in the way businesses are run, management is compensated, goals are
achieved and society co-opted, in this venture.
For the record, in my opinion,
the very decision of the original owners of Infosys to let go, the running of
the firm, is the first step and a laudable one. Nothing can take away the
courage that they displayed in giving up the reigns of running the firm, when
the whole eco system in India is quite the opposite.
The current tug of war and war
of words, in my humble opinion, is only a passing phase and something that
Infosys can manage to navigate without too much value foregone. But I am
neither a soothsayer nor clairvoyant, but I hope my predictions are not
completely wrong.
What I am sure off is that,
the case of Infosys turnaround to success, in the coming years, will be an
important landmark for the India’s corporate world and it may reflect the first
shoot of the new doctrine.
