The Great Corporate Governance Challenge

Have we ever wondered  why celebrated examples of governance failures — Satyam, Kingfisher Airlines, United Spirits under Vijay Mallya, Ricoh India, Fortis — crop up with such predictable regularity in India ?

This does not include the many cases littered in the listed space of small- and micro-caps which do not hog the attention of the media, but are as alarming and brash in their actions as their more illustrious brethren in duping minority shareholders.

This also does not include the iconic companies such as Tatas, Infosys, ICICI Bank, etc. where the conduct of promoters, retired founders, the independent directors, executive management and the boards have raised subtle issues of governance failures or indiscretions — though in no way part of the first category of promoters indulging in rampant frauds.

The challenges of corporate governance are significant though, irrespective of the intent with which the overt or covert actions were conducted. These cover a wide spectrum of distinct but related issues and primarily centre around a three-by-three matrix in terms of the motivation for deviant behaviour and those groups whose actions can influence proper direction and control.

The three broad categories of motivators for misgovernance are to do with outright frauds, undue enrichment and imposition of will by retired founders on boards. And the behaviour of three groups that can influence the outcomes significantly are the conduct of independent directors and the efficacy of this institution as a disciplining mechanism in a promoter-controlled board; conduct of auditors and members of the audit committee in certifying the financial statements; role of the regulator in terms of proactive and reactive measures appropriate to a given situation.

It would be contextually relevant to briefly recount the broad issues for some of the cases mentioned above. Satyam related to falsification of accounts including overstatement of revenues, diversion of funds to related parties; Kingfisher and United Spirits mainly related to illegal inter-corporate funding to related parties, falsifications of accounts; Fortis and Ricoh were similar with the latter being high on the scale of frauds. Of course, being listed entities, all these had stock price implications also as an underlying theme.

In case of Infosys, the issues were with regard to the decision-making rights of a promoter and retired founder with a 2 per cent holding demanding supremacy over the board. Similar was the case of Ratan Tata, with the additional facet of his having access to privileged information despite having retired. In ICICI Bank’s case, it was the role of the board in hurriedly giving a clean chit to its CEO without the results of an independent investigation released in the public domain in an apparent case of alleged nepotism, and its refusal to take any questions on the matter.

As can be seen, the broad categories are related to outright frauds with or without the additional impact of rigging stock prices, undue enrichment of the entrenched promoter/management and imposition of retired founders’/promoters’ will on the existing management/board. And, quite obviously, the role of the independent directors, and the board in general, have been the subject of widespread controversy in all these three broad categories.

What is at the core of such governance lapses — both overt and covert? Let us look at another facet in the context of the region to which we belong, before answering this question. I had the opportunity to closely observe the Asian governance challenge whilst on the board of a major MNC in SE Asia and whilst doing my studies on the Sloan Fellowship Programme in the London Business School. The institutions that are necessary to promote good corporate behaviour are weak in Asia and this places enormous responsibility on the boards in general, and independent directors in particular, as Asian companies navigate this cultural transformation to the OECD-listed corporate governance norms recommended in the wake of the Asian economic crisis of 1997 /98. The fact is that wholesale adoption of Anglo-Saxon corporate governance practices is not likely to succeed in a hurry given the huge differences in the socio-cultural context.

Dominance of Confucianism and the tradition of unquestioning respect for power have given rise to many family-owned corporations who consider minority shareholders as merely a necessary distraction that needs to be dealt with; and promoters continue to adopt autocratic management styles to drive transactions which would fall within the purview of corporate malfeasance. Where this thin line of distinction blurs with intentional fraud, à la Satyam and Ricoh, is hard to tell, but the ultimate result is surely a foregone conclusion.

Samsung chairman’s son Lee Jae-yong was issued bonds-cum-warrants at a price lower than the market price which enriched him by $116 million in 1999. Directors of many Samsung group companies approved purchase of shares in the chairman’s son’s name (four money-losing companies e-Samsung, e-Samsung International, Secui.com, Gachi.net), to keep them afloat following the dot com meltdown in 2001.

The Pioneer Industries scandal in Hong Kong where the directors approved the sale of its key assets and prime US real estate to an offshore company controlled by its two controlling families for a less than a third of their market value of about $220 million. The directors were, not surprisingly, paid a 200 per cent performance bonus in the same year despite the company posting a net loss in 1999!

Two senior managers of Thailand’s Bangkok Bank of Commerce lent out about a third of the bank’s total portfolio to themselves and senior politicians, and fabricated the accounts. The Thai central bank spent $3 billion of public funds and bailed it out. Many cases like these are abound including Hyundai, SK Telecom, Philippine National Bank, Renong-UEM where the promoters continue to thrive and prosper in full public gaze even a decade after these incidents took place.

The common thread which runs across all these publicly discussed cases of poor corporate governance in this region is that business and politics sit too comfortably together, with members of the business elite who are also members of the political elite in some cases. Hence, regulatory action is hardly a deterrent to such families, and also, part of the system inhibits the implementation of regulations due to various stages of approval required from different levels of the political hierarchy.

In India things are not necessarily so dire, but then, it is difficult to conclusively make a judgment on this given the alarming regularity with which matters are appearing in the public domain. The nexus of big business with political patronage has existed ever since independence and only in the last few years since 2014 has the incidence of blatant nepotism at the highest levels seen a perceptible decline. The jury is out on whether this is sustainable or solely dependent on leadership at the top.

What is of concern though is the shocking metamorphosis of India’s national character over the last 40 years, and this is solely at the core of our current travails. Unfortunately, the bitter truth is that the generation succeeding the independence movement has failed the nation. Corruption — or the willingness to “play the system” in any form — has become a national obsession. Even those who are not blatantly corrupt find no moral hazards with taking short cuts, bending the intent of the established policy or doing simple ‘jugaad’ – which passes off, and is rewarded, as our brand of ‘innovation’. Such is our frightening descent into this moral morass that this line of thinking has pervaded into most levels of society — from large businesses, government, institutions on one hand to grassroot organisations such as local bodies and residential welfare associations… and is almost now a given in the context of existence in India.

In this socio-psychological set up, it is immensely difficult to build, and uphold institutions that are designed to create checks and balances and uphold transparency with accountability in decision-making. The institution of independent directors on the board, and that of the CFO/company secretary in the executive management are examples of such institutions. Both have legal, fiduciary and professional responsibilities apart from ethical considerations to govern their decision-making but does it really work that way? Here is one example in the public domain which would help in making my point.

Mohandas Pai, the former CFO of Infosys, and I were interviewed in great detail, separately, on 29 September, 2014, by The Mint with respect to certain disclosures and questionable accounting practices which had surfaced in the financial statements of United Spirits (USL) following the Diageo transaction.

It was pretty apparent to us, and many others, that funds had been siphoned from USL to fund Kingfisher, that UB Holdings was used as a conduit for raising loans and laundering them to his group entities, that inter-corporate loans were given to related parties without the board’s approval, accounts were improperly stated, audits were stage managed, etc., during the period Mallya was in charge of USL. It is also publicly known for many years that TDS was not deposited with the revenue department and PF deductions and contributions not deposited with the authorities. Despite the stringent penal provisions under the Income Tax Act and PF Act, this practice was continued over time for many months and no one was either arrested or criminally prosecuted as mandated under law. Such was the influence of the ‘honourable’ RajyaSabha member with the government of the day prior to the current regime.

The pertinent question to ask is whether all this would have been possible without a willing or compliant CFO? And do remember these are all board issues too!

The saga at Ricoh India proves that the halo of good governance that is automatically attributed to MNCs is not a guaranteed outcome. Despite regulatory interventions after the Satyam scam and legislative changes to tighten the governance framework (Companies Act 2013, Sebi LODR regulations, etc.), the Ricoh episode is almost a copy of the Satyam episode in terms of accounting fraud and resultant manipulation of stock prices…interestingly without any promoter being in the saddle. Just a few crooked managers were enough to swindle the system with the usual failure of the main controlling institutions such as the auditors, credit rating agencies, independent directors of repute, committees of directors including the powerful audit committees manned by independent directors, etc.

Even failure to file results on the exchanges was not enough to push the regulators and the exchanges into timely action. By the time they acted, after almost a year, the share price had moved from about Rs 1,000 in July 2015 to Rs 193 when trading was suspended in December 2016 thereby causing immense losses to unsuspecting shareholders.

The curious case of an insignificant (and hence unreported) company called Camson Bio bears testimony to another interesting modus operandi of promoter malfeasance leading to serious destruction of shareholder wealth. The story of this micro-cap is also a good cautionary tale on how easy it is to drum up fancy investment arguments for a questionable business in our markets. The stock was touted as the next big story as India’s first IPR- (intellectual property rights) driven, agri bio technology company, being the first to globally patent for the manufacture of natural fertilisers from microbial extracts, and thereby provide an alternative to the use of synthetic fertilisers worldwide by addressing issues of toxicity and promoting clean environment. Nice buzzwords! Sustained media releases, public relation campaigns were followed by awards bestowed by Deloitte as the fastest growing technology company, and by ET Now as the winner of ‘Leaders of tomorrow’ award in the food and agri products category. This attracted marquee foreign portfolio investors to take strategic stakes in the company, and the subsequent retail investor frenzy drove up the stock to Rs 160 from sub-Rs 50 levels in 2014-15.

Predictably, once investments were made in Camson Bio, things started to unravel. The company announced a demerger of one of its businesses in March 2015 when the stock was at Rs 120, and the demerged business stopped trading in September 2015 as part of the legal process for the eventual listing of the demerged entity. It eventually got relisted in September 2016 after an inordinate delay of one year. In this period, there was no communication whatsoever from the company on the delay; besides, a massive payment was made to a closely related party of the promoter; directors and top management resigned with alarming regularity on “personal” grounds — five directors including the professional CEO, the promoter chairman, the CFO, company secretary; and, of course, the precipitous fall in the stock price from Rs 120 in March 2015 to about Rs 25.

During this turmoil, the minority shareholder had no option to even exit as the demerged business was listed only after one full year in September 2016. The combined price on relisting was just Rs 58. The institutional shareholders demanded a forensic audit for apparent and alleged financial irregularities, which even after two years — till the last declared results in February 2018 — had not been conducted. In the interim, the spate of resignations — two independent directors, two CFOs and three company secretaries — continues till date, with some quitting within two to six months of their appointment.

Deloitte, the statutory auditors, too have resigned and the new auditor — a small local firm — has also declined to express an opinion on the accounts. The combined price of the stock is now Rs 35 with minimal volumes, and thus virtually providing no exit opportunity to the minority shareholder. For the last two years, the accounts are being filed without an opinion by the statutory auditors and it does not seem likely that it will be any different for the third year’s results due shortly. Both Sebi and the exchanges have allowed this state of affairs to continue, ostensibly as there is “nothing illegal” about this!

Whilst all this is based on facts as filed with the exchanges, sources including past directors, key management personnel, bankers, etc., indicate that the entire scientific team — who ostensibly led the much touted IPR creation at the company, if it at all it ever existed — has resigned enmasse.  Banks have repossessed many assets of the company and are forcing sale of assets to repay debts.

The retail shareholder conversation on leading stock market portals is much more serious. It is not even known if the company presently has a CFO and a company secretary as the website does not mention anything and there has been no filing with the exchanges as on date in this regard.

As far as the financial results are concerned, the company has a negative cash balance, a borrowing of Rs 48 crore as of the last balance sheet filed for September 2017 and made a loss of Rs 6 crore on a revenue of Rs 4 crore as per the P&L for December 2017….no balance sheet was filed for December 2017 and only standalone numbers have been disclosed. The massive related-party transaction of Rs 42 crore should now be seen in this context!  None of this is deemed illegal, but from a shareholder perspective, one can only imagine what this means in terms of disclosure standards of critical financial data, and a willful destruction of wealth of a public company which was a darling of the media for being an emerging global player with enviable technology patents just a couple of years ago!

The main point of this episode is to demonstrate, through a concrete example, the extent of misgovernance in a publicly listed entity which is “legally” possible in our system, in full public glare and with the regulators being either unaware, or unable to protect the interests of the mute minority shareholder. And being small, obscure companies it is so imminently possible for the entrenched management to destroy such wealth by dubious means and disappear into the woodwork without garnering any public attention. Of course, destroying such wealth generally implies creation of wealth in other entities…but that is a topic best left to the investigative agencies to decipher.

As Theodore Roosevelt had once said: “A man who has never gone to school may steal a freight car; but if he has a university education, he may steal the whole railroad.”

Governance failure is at the core of the rot which ails our public life…and it is weak corporate governance in promoter-driven companies which makes large conglomerates, too, a willing participant in this fraudulent system. Having worked for many years as a director, CFO and a shareholder nominee with companies and boards run by various shades of promoters, my experience suggests that despite the tougher legislative framework to tackle the menace of “making merry with funds provided by the mute minority stakeholder”, governance standards in listed companies directly reflects the mindset of the promoter. This is primarily because very few board members are truly independent as are even fewer key management personnel like the CFO and the company secretary. The few that indeed have the courage of conviction to not comply with the dubious practices at the behest of such promoters are ultimately forced to quit, or voluntarily leave.

In the case of Mallya, the CFOs must share a large degree of responsibility for continuing in the organisation and approving transactions that were plainly designed to beat the intent of the law, if not the law itself. Inter-corporate loans to related-parties on very generous terms, appropriating amounts due to the listed entity towards other loss-making group entities by sham transactions through a conduit holding company, pledging assets of the listed company to securitise loans to another bankrupt group company without board approval, etc., are only some of the examples highlighted by the auditors.

Furthermore, the norms for CEO/CFO certification of the financial statements under clause 49 of the listing agreements are onerous responsibilities which these two key managerial personnel cannot abdicate. The facts of the case in Fortis and Ricoh are quite similar.

Following the arrest of A.Raghunathan, the erstwhile CFO of Kingfisher, CEOs and CFOs will hopefully now realise that their sense of right and wrong cannot be shaped by the immediate interests of their masters except to their own peril. It is only when key managerial officers pick up the courage of conviction to stand up will we see some meaningful change in the way corporates, and indeed the public institutions in India, are managed. Fortunately, perhaps for the first time, we have a determined political leadership which is promoting such behaviour to cleanse our system of its deeply entrenched corruption through collusive behavior. It is incumbent now on professionals like us to pick up the gauntlet.

At this stage, it is important to note that there are a few promoter groups that have chosen to operate differently with the differentiators being their single-minded focus to build the delicate balance between profits, transparency, clean practices and social good in the decision making ethic throughout the organisation. These  are quite unique and the commonality of ethical values are shared by only a handful of large companies run by business leaders such as Azim Premji, Deepak Parekh, Anu Agha, Uday Kotak, House of Tatas, Mahindras, Godrej, TVS, Infosys, and a few others.

Other lessons from the Asian region that significantly affect governance, and hence the effectiveness of boards in corporate India, is the high concentration of ownership, shortage of experienced directors, non-existent procedures of appointment of ‘real’ independent directors, underdeveloped legal regimes and the lack of an efficient market for corporate control. But above all, independence, being a state of mind, is difficult to ‘legislate’ since the exclusion of all types of personal ties to promoters is not possible in an environment where patronage is a way of life.

Culture of ornamental directors
Most Indian promoters have chosen the option to follow form over spirit in implementing clause 49 (a great governance code by itself) and have stuffed their boards with ornamental directors (eminent people in their respective careers) whose independence is often questionable in deciding promoter-minority shareholder conflict of interest situations. The case of the Satyam Maytas proposed deal, duly approved by its august board, is reminiscent of this along with the still unfolding Fortis saga. Such structural responses to corporate governance codes, without being accompanied by a genuine passion by promoters and managers to drive what is purely a cultural change in thinking and behaviour, is not likely to change things in this part of the world in a hurry.

Lessons from developed countries will be helpful as we navigate this phase of cultural change of corporate behaviour. But their usefulness will also be limited as Anglo Saxon experiences were built on very different set of environmental factors: the institutional and legal framework in Western economies, corporate ownership and control structures, the market for corporate control, active private equity market, high transparency and accountability in public life, enforcement frameworks which are built around the willingness of all parties at the local and national level to commit to the rule of law, and deep-rooted cultural dynamics.
 
Interestingly, the example of Sweden is worth emulating due to its similarity with Indian corporate ownership and capital structures. The core problem in the Swedish model was to retain closely held, family-centered governance structures whilst attracting foreign institutional capital from internationally advanced markets such as the US, the UK, etc. Sweden has been successful in dramatically altering the governance in family businesses and integrating these companies with best practices internationally whilst not relinquishing control of the incumbent family.

Though India too, since the early 90s, has welcomed foreign institutional investors (FII) wholeheartedly — and they form the second largest block of investors second only to promoters in most cases — our regulation has not had comparable results with respect to FIIs nudging companies to promote openness and transparency in corporate governance. The reason FIIs have chosen a decidedly profit motive, rather than also an activist mode, is primarily due to an underdeveloped market for corporate control in India, and the difficulty of using hostile takeovers as a means of disciplining errant or underperforming managements. The other prime reason for this is the opacity of actual promoter holdings due to the way control is structured through loosely regulated shell companies, investment companies and trusts. Due to this structural element in our control structures, the real extent of promoter holdings is never fully known. Transparency of shareholdings are central to developing an efficient market for corporate control,and the lack of which,in turn, reduces FIIs to being mere financial participants.

The situation is ripe for large institutional shareholders (both Indian and foreign including mutual funds and private equity funds) to play a meaningful role in driving the substantive changes in thinking about governance in promoter-driven companies. This activist role becomes even more critical in times of turbulence and, as Sweden has shown, leading such transformation can be a win-win if handled properly with adequate regulatory oversight.

However, despite all the shortcomings in the overall contemporary governance environment in our polity, I am still hopeful of the Indian corporate sector’s willingness to adopt reforms in this crucial area. Once there is an acknowledgement that we are a third world Asian country and that there are no short-term fixes for driving what is really a fundamental change of mindset and behaviour of the promoters, political class and managers in any corporate setup in our socio-cultural context, many solutions can emerge in the interim. In my view, the following four-pronged strategy will be critical to the development of a responsible governance culture in our companies.

One, engage public participation by acknowledging leadership examples of exceptional individuals who have led the reform process of their own accord in adopting, by personal example, the progressive norms of corporate governance and have simultaneously succeeded in making their corporations valuable à la AzimPremji (who I had the privilege to work with and who shaped my thoughts on corporate governance in my formative years), Deepak Parekh, etc.

Simultaneously, policymakers, the private sector and academics should actively engage the press in further developing public awareness about the necessity of good corporate governance as a way of life, and introduce the basic thinking which forms the principles of good governance in MBA schools as part of the core curriculum. It is ultimately about building the “character” of an organisation. Only a generational change and modern management education will hopefully drive the next-generation entrepreneurs and managers to adopt a proactive desire for good, transparent governance: though this is a function of the polity we live in, and of the importance parents accord to developing core character traits in their children at home.

Two, migration of the model for appointment of directors from an individual basis to appointment as a slate (i.e., jointly as a group). Since the weakest link in our governance doctrine is that of subservient or ineffective boards, this aspect gains most prominence in my view. To my mind, most issues can be fundamentally traced back to how board should function and its role in aligning the interests of the promoters, shareholders, and employees within unambiguous moral frameworks. Complementary of skill sets and independent disposition of directors, along with an objective measurement criteria of their combined performance as a board, is crucial.

I would thus urge Sebi to consider the model of a director’s slate, as practiced in many countries, to address this core issue relating to the difficulty in legislating a character trait — subservient as it is to cultural dynamics — called ‘independence’, whilst imposing an Anglo Saxon doctrine on a non-Anglo Saxon world.

In this model, shareholders, over a certain threshold either individually or jointly, have the liberty of suggesting a slate of directors for appointment. To borrow an analogy from cricket, this is akin to proposing an entire team (rather than specific individuals) with complementary skill sets, specific pre-defined roles and objectives and therefore a transparent, measurement criteria ‘as a whole team’. The slate with the maximum votes wins the right to govern the company for a defined time period, usually about three years. Members of such slates in some countries publicly publish their raison d’etre, past accomplishments and qualifications to support their candidature on the slate. The principle is of a rigorous competency-based approach whilst proposing membership of the slate which emphasises leadership, problem solving, global perspective, strategic thinking and business acumen. Other considerations include the geographic mix of the board, as well as the professional experience of the directors. The promoter is thus placed on the same footing as any other shareholder in the appointment process.

Guarding Shareholder Interest
Adoption of such a model will immediately address issues of cronyism relating to the appointment of directors, and their seemingly everlasting longevity on boards in direct proportion to their proximity to the dominant shareholder, the complementarity of skill sets necessary to govern as a team and finally, the success criteria in providing superintendence of the company in the interest of the entire complement of shareholders. Issues of shareholder communication, decision making and the necessity to perform in line with the pre-declared objectives would largely ensure governance on a set of transparent metrics, and not in sole conformity to the directions from the promoter and his shifting priorities.

There are different models for this construct in different countries. It is for the Sebi to decide the most appropriate model for India given its corporate ownership structure and the behavioural market dynamics it wishes to encourage.

Three, the adoption of a two-tier board structure akin to the practice prevalent in Germany could be considered, though fundamentally it will not have the far-reaching consequences that may result from the slate of directors proposal. In a two-tier board structure, the ‘management board’ has the responsibility for executive functions whereas the ‘supervisory board’ performs the control role. This physical and legal separation mandates a clear distinction between the strategic, executive and control functions of a one-tier board like we have at present, thereby reducing the scope for conflicts of interest between independent directors and executive directors including promoters. Since this will call for legislative changes, the clear separation of legal responsibilities and attendant liabilities would usher in a fair degree of change. However, appointment of ‘independent’ people to the supervisory board would be the key which may not be totally resolved by mere creation of a two-tier system.

Four, a view that I have voiced often and which even Uday Kotak reiterated last year, is the need for hostile takeovers as a credible tool to spur the market for corporate control in India. This will provide a persuasive alternative to minority shareholders by shaking up the cozy promoter-management nexus out of its comfort zone in sub-optimally managed, publicly listed entities. But are hostile takeovers feasible in India’s regulatory, cultural, institutional and political environment? On the face of it, the current takeover code Substantial Acquisition of Shares and Takeovers) Regulations, 2011, read with amendments in 2013, is modelled on the progressive UK City Code on Takeovers which promotes hostile takeovers through a ‘no frustration’ doctrine, and not the US code which is more aligned to protect entrenched managements. Despite this orientation, expectations of an increase in hostile takeovers have been belied. Why? The answer to that question provides some key insights into the way we operate in India.

Do remember that our present code firmly addresses the twin objectives of transparency and minority protection. The provisions designed for a permissive takeover regime, and thus, ostensibly against the interests of entrenched managements or controlling shareholders include the mandatory bid rule (MBR), voluntary offers allowing full acquisition of capital, competing offers, lack of takeover defences like the poison pill and other scorched-earth tactics. But in reality, due to a combination of various ‘qualitative’ factors the real intent is thwarted. Primary amongst them are concentrated promoter holdings, tacit support from the political establishment through institutions such as the LIC, the overall economic and legislative framework of approvals, short two-week window for competitive offers, limited circumstances to allow for withdrawal of a bid by the proposed acquirer, etc., which are but some examples of an opaque regulation that indirectly assist entrenched promoters. Additionally, the absence of a vibrant debt market with innovative instruments, including junk bonds, to fund leveraged hostile takeovers creates a significant institutional roadblock for an ideal market for corporate control.

Despite significant advances in the regulatory framework, the minority shareholder in listed entities continues to remain at the mercy of the entrenched promoter or controlling shareholder group. The agency problems between controlling shareholders with concentrated holdings and minority shareholders need to be broken, and hostile takeovers are ideally placed as a governance mechanism to augment this process. As I mentioned earlier, Sweden has demonstrated significant success in this regard as its intent and will was clear, to clean up governance in promoter-controlled entities. The intent and will is important.

Interestingly, former Chief Justice of India P. N. Bhagwati, who chaired successive committees from the mid-1990s in the country’s journey towards a modern takeover code, said in January 1997 that the takeover code was “designed to be a tool for allowing promoters to consolidate holdings and better resist foreign takeovers”. Given the generation he represented, and India’s baby steps to globalisation at that time, he perhaps cannot be faulted for this view.

However, 20 years later, a modern and confident India needs to fully embrace the best global standards of corporate governance, of which hostile takeovers are an integral part.

Class action Suits
A subset of this is the introduction of class action and derivative suits in our legislative process to provide adequate incentives to institutional shareholders to adopt an ‘owner mindset’ (as distinct from a ‘trading mindset’) and promote shareholder activism in our country. Institutional investors manage mobile pools of capital acutely sensitive to the quality of governance in various market places and, if allowed, can significantly positively influence governance norms in companies by directly affecting their stock prices.

In public interest, it is for the Sebi to raise these fundamental proposals for consideration. In my view, this will foster a structural change in corporate functioning. If simultaneously backed by suitable changes in the law for the market for corporate control, including a liberalised hostile takeover doctrine, then India can decisively dismantle the cozy nexus between promoters, directors and managements. This will enable us to truly have a legislative framework in the interest of all shareholders and maximise value creation in our publicly traded corporations led by effective boards engaged in transparently and professionally overseeing management efficiency, thereby promoting an efficient, value accretive investment climate in India and ushering in a truly good corporate governance doctrine.

I know such wide-ranging changes are radical. However, the speed at which Prime Minister Narendra Modi is dismantling entrenched structures across the spectrum, in the interest of the common man, I am hopeful that this too will receive his attention very soon. The growing influence of shareholder activist groups, proxy advisory firms, and FIIs should ensure adequate representation in the next round of enhancements to our governance code.

Else, despite the increasing plethora of well-meaning legislations and compliance requirements, corporate governance will continue to conform only to the letter of the law and not its spirit, and thus remain merely a box ticking exercise.