Corporate Governance in India - the Holy and the Unholy

I was one of the eight members of the Corporate Board of a family conglomerate in India as a professional director. Three of the eight were members of the family, two were professional directors, one for HR and one for finance and the remainder were independent directors.

The Corporate Board acts as the Superintending Board for all the Independent Companies (some listed and many unlisted) and one of its main responsibilities was to constantly evaluate the younger generation for readiness to take up positions of higher responsibility within the Group.

At one point of time, the Board was asked to evaluate the readiness of a younger member of the Family to be inducted on to the Corporate Board. The process was very formal and the decision making people were members of the Appointment Commitee of the Corporate Board....all three Independent Directors and the HR Director. The younger member had to go through interviews with the Independent Directors, a panel interview to boot and then came the final decision - no, he was not yet ready because:

(1) He had yet to show the passion for the job,

(2) He had yet to prove himself in the smaller business that he was handling, and

(3) He seemed to have other interests in life that were more important to him at that point in time which were not 100% business related.

The result was we decided not to induct him on the Board and conveyed our decision to the Chairman. This was accepted. True democracy at work and more importantly a very clean, neat and transparent Corporate Governance process at work.

In the year 2010, I was approached by another Family run business which, strangely enough, had a similar request. They wanted the Chairman's son to be inducted on the Board. Since this was a publicly traded company, due process had to be followed and the approval of an Independent consultant was sought. However the EVP - HR called me and said, "Ram, we do not want the son to face any interview panel. After all its his father's company....he built it and grew it. So we want you to just sign off on the dotted line AS IF you have been one of the independent people (a senior HR Professional) who have interviewed him and found him fit for the job."

Two episodes of the same nature. Two business houses. Both Family run. BUT two totally different approaches to Corporate Governance. It is not that there are no qualified and good intentioned people in the second company...but I ask, "Can they call themselves true "Professionals" ?

Corporate India is full of Family run businesses....few of them I can vouch for and say with certainty that they run on the model of the first example I have given in this article. Many, many of them unfortunately run on the second model.

Even if we have a hundred laws in the country, they will all be made a complete mockery of if we have Corporates of the second type. What is needed is a self regulating Board of Independent Directors who can balance the demands of the family on the one hand and the demands of the shareholder on the other hand.

A self regulating Board of Independent Directors seems to be an oxymoron in a land which has recently been hit regularly by major scams. While organizations like the IOD (Institute of Directors, UK, and India) have for long pleaded for a Board having Independent Directors paid out of a budget or a pool of money maintained by the Companies Law Board (CLB) so that they can be truly independent to state their views forcefully at Board Meetings, this has not happened because of the reluctance to tackle the bull by its horns by the CLB.

It is true that company Boards in India have not evolved as much as their wester counterparts and may be the time has come when we should seriously look into the feasibility of the CLB growing "teeth and fangs" to regulate what happens in the hundreds of different Company Boards in the Country.