In recent times several instances of grossly incompetent boards wrecking the management functioning of corporates have come to surface. It does look like these very eminent people were largely driven by their board fees; other perquisites were prepared to turn a blind eye to the machinations of the management. When confronted by someone about why an anonymous letter detailing several malpractices was not examined the very eminent member replied that the allegations were vague and the writer had held his identity. When further quizzed why he did not think it fit to probe further his reply was ‘This situation was in the knowledge of the management and the board at least for the last three to four years. It was reviewed in most of the board meetings, which happened during this period ‘. He further said that he does not intend to step down because as per his understanding, one needs to step down ONLY if something is established against him.

While the board gleefully looks the other way, the auditors both internal and external have their own window dressing mechanism in place. Most audit firms have, other than auditing several other businesses such as fund management, consulting etc in their portfolios. These are held as quid pro quos and happily, they sign on the dotted lines. A careful examination of all the so-called biggies in the audit landscape will reveal that almost all have been guilty of managing contracts through preformatted RFPs, bagging contracts by appointing children of influential bureaucrats and advising management on possible loopholes. In the recent corporate scandal in the news, the main question before the government was which agency to be appointed to do the forensic audit of the group as almost all firms had some sort of nexus with the group and were obligated. Finally, one firm was selected but that was also in the news for highly inflating the group worth of a businessman who is now a fugitive in the UK.

The third player in this You scratch my back while I scratch yours are the bureaucrats. Some corporates have specialised in the business of hiring these civil servants or their kith and kin who systematically nurture their business. It is a different point altogether that after retirement all these babus develop great wisdom and offer ready solutions on how corruption can be eliminated from the system of which they were the active players. This is known as the WAR syndrome. (wisdom after Retirement).

India has many influential business lobbies/associations that regularly bring out white papers from, gain the big 4 or 5 who do a neat cut-and-paste job. When these associations are relatively free from their junkets abroad, they award prizes to corporates. It is noteworthy here to recall Satyam which was awarded the Golden Peacock award for excellence in, hold your breath, corporate governance!

Thus, it looks like almost all the pillars of management and governance are corroded and need a major surgical overhaul. I have a few suggestions to offer that can go a long way in repairing the situation.

  • Firm Accountability: There must be a code of conduct very clearly prescribing the accountability principle. Any aberration and deviation must result in exemplary punishment.
  • Quick Judicial Remedies: Once the case goes to a tribunal it takes years for the final judgement to come. A firm timeline needs to be established and adjudicating officers must be held accountable for quick orders. The readers might recall the infamous Barings Bank Scandal of 1994. Nick Leeson was arrested in 1995 sentenced in 1996 and spent 7 years in Jail. That was the Singapore style of the judiciary. In India, the infamous Harshad Mehta scam broke out in 1992 and it took 27 years to resolve the case
  • Civil servants should not be allowed to get into corporates on deputation. As the money offered is several times more than what they get while on government service it is but natural for few to get tempted. Like in Singapore we must increase their wages and put a bar on them to join private service.
  • Audit firms should be restricted to audits and they should be randomly checked about their auditing quality and exemplary punishment to be meted out in case of negligence or active connivance.

In this context the role of Reserve Bank of India needs scrutiny. They can not be allowed to be free of any checks. In fact, if only they were more vigilant the ICICI Bank scene would have been different.