There are many issues domestically and internationally. The Corporations being the same everywhere the following issues are applicable across geographies:
i. Digging up of Unaccounted Money by Income Tax Sleuths: In the past three months the income tax department has unearthed unaccounted money of Rs. 1,000 Crore through raids on HDIL, ABG Shipyard, Supreme Infrastructure, Temptation Foods, Bombay Rayon, J Kumar Infra, Radhey Developers and the IPO bound Polycab Wires. This is a big corporate governance issue and implies a direct loss to investors. The regulatory authority must investigate the matter, or confidence of investors will be affected.
Despite news reports of raids on companies, some of them do not clarify their position to exchanges. This is despite the fact that according to listing agreements, companies have to report “material developments”. In case of Austral Coke, the IT department found its financial accounts manipulated. Misuse of IPO funds is a common tendency, and this company is no exception.
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Thereafter, the SEBI barred it from raising funds. The issue has two sides to it. It is not only an issue of tax evasion, but also misappropriation of the assets belonging to the shareholders.
ii. Corporate Social Responsibility Reporting: While some companies do report their CSR activities, others do not. There is no uniformity. Lack of standardised reporting means that those who do not contribute to society do not suffer any adverse impact at all, nor are those who give back to society benefitted in any manner.
iii. Anti- competition practices: The banks levy a penalty on consumers for pre-repayment of loans ahead of schedule or retiring loans to take advantage of lower interest rate loan from another institution. When the banks do increase interest rates on floating rate loans, why this practice? When the interest rates come down they do not pass on the full benefit to borrowers.
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iv. Regulating the Regulators: “Regulators just react; by their very nature they don’t anticipate events”, says Narayanan Vaghul.
v. Number of Directorships – the Independent Directors” The four prominent lawyers – R A Shah, S N Talwar, Anil Harish, and Darius Udwadia – in totality hold 61 directorships among themselves and the number runs into scores as for as unlisted companies are concerned. [Restrict the number to 5-6 directorships only]
vi. The Anglo Saxon model of Corporate Governance has not worked in India like many other countries. There is a need to look at other models like the two board structures in Germany or the hybrid structure of South Africa wherein some elements become statutory.
vii. Appointment of Directors: Javed Akhtar and Yash Chopra continue to sit on the audit committee of Jet Air, Mrs Savitri Devi is the Chairperson of JSW and Dr Deva Anand, a Congress Party functionary and a SBI Board member sits on the special committee of directors for monitoring large value frauds. All these incidents do not transpire confidence among the investors.
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viii. Some of the progressive promoters do take their independent directors seriously. To illustrate, Azim Premji of Wipro depends heavily on independent directors for advice on strategy. With his controlling stake he can roll over the directors but he doesn’t. There are instances when his views are not accepted. Most directors would like the chairman to speak last. But in many boards, the chairman gives his opinion first, thereby killing any debate.
ix. Independent Directors: Independence comes more from true professional integrity, combined with a degree of healthy scepticism. The letter may be best achieved by limiting the continuous term of independent directors to six years in any one company, with a “cooling off’ period of three years.
x. Auditors: The term of external audit firms must be limited, may be three years, and the concerned partner rotated after two years. Punitive action should be mandated against audit firms (not just individuals) found guilty of negligence.
xi. The Satyam lessons: That values and ethics are paramount and the best defence against wrongdoing. Second, that intervention by government at times becomes necessary, but its role is best served by putting in place.
xii. The board members are invited rather than selected. “They are invited by the promoter, who is quite often both the board chairman and managing director”. In case of Satyam “the individuals were all solid bricks. But they don’t make for a solid wall because the mortar that held them together (Raju) was weak.”