The corporate governance imperative

Business Today
1 July 2007

Mahatma Gandhi was no bleeding heart socialist. He was a hard-nosed realist who brought the world's greatest empire to its knees with the sheer force of moral authority. Today, as India Inc. scampers to incorporate "inclusiveness" in its agenda, it is worth noting the Father of the Nation's prescient observation on corporate governance, decades before the concept itself was born. "The rich are the trustees of the nation's wealth," he had said. Sir Adrian Cadbury was probably the first to enshrine the "Code of Best Practices for Corporate Governance" in 1992 at the behest of the London Stock Exchange.

Why is Business Today writing this edit now? Because the lopsided distribution of the wealth c;reated by India's steroid-charged growth has increased inequalities, which, if not addressed immediately — to the satisfaction of those left out of the system — can lead to serious social, political and financial dislocation.

This is not to suggest — as Prime Minister Manmohan Singh recently did in an address to CII members — that India Inc. must temper its hunger for profits. But what it must do is resist the temptation of using the massive sums now at its disposal to ride roughshod over the common man. It could, for example, have handled the ongoing agitations over land acquisitions in several parts of the country far better than it did.

The Kumar Mangalam Birla Report on Corporate Governance can be a good starting point. There is a solid financial rationale for companies to put in place transparent and practical corporate governance structures in place. Birla's report points out that companies with good governance structures are rewarded with higher market valuations. At a time when India Inc. is aggressively expanding its footprint across the globe, it will do well to ensure that corporate boards become truly independent — this will need the induction of more independent directors, of unimpeachable public standing and social conscience, who can nudge managements into initiatives that will make India's growth rates more "inclusive", without in any way impacting the bottom line. The Mahatma's observation can be the bedrock on which to build such an economic edifice.