Right Reasons, Wrong Fights

Raghavan Srnivasan (Hindu, India)

Lack of governance in Indian corporates deserves wider debate

As a country, we never were much disposed to questioning people in positions of power very strongly. While we are a functioning democracy, with an electorate which regularly exercises its right to pitch anyone it deems unfit out of office, the fact is that till such a point is reached — like elections actually being announced — the chosen leader faces little or no public scrutiny or questioning of his or her actions.

Theme cartoon added by TW from internetImage result for corporate governance cartoons

Across-the-board tendency

And this tendency to automatically defer to authority is not restricted to politics either. From business to sports, the situation is pretty much the same. The Indian cricket team’s captain, for instance, arguably enjoys more power than his counterpart in any other cricket-playing country.

Likewise, in the world of business, no one questions the authority or decisions of the founder/family heir, even though the reality is that in many ‘promoter-run’ companies, the original promoter’s stake may have been reduced to a minority by capital expansion or sell-offs. But regardless of whether they have de jure control or not, de facto, their authority is pretty much untrammelled.

They continue to hire and fire as they please, appoint kith and kin to remunerative and powerful positions, do deals with related parties where the gains flow to the pockets of the promoter family and not the public shareholders whose money is actually funding the company, and so on and so forth — and compliant boards, despite the mandated presence of independent directors, continue to rubber stamp such decisions. In other words, corporate governance is something which captains of industry love to talk about, so long as nobody questions governance in their own companies!

Which is why, when corporate leaders of the stature of Ratan Tata or N.R. Narayana Murthy raise issues of corporate governance, it becomes such a big deal. Given their heft, everyone from regulators to policymakers to the general public sits up and takes notice — and hopefully acts. When a Ratan Tata talks about empowering independent directors, or when a Narayana Murthy raises the issue of CEO compensation, it is bound to generate debate and hopefully result in change for the better.

Which, as anyone following l’affaire Cyrus Mistry or the Murthy-Sikka face-off knows, hasn’t actually happened even though these corporate titans had raised points which, in and of themselves, deserve wider discussion in the country. Mr. Tata talked about independent directors, and the need to protect the interests of other shareholders and not just the chairman. Mr. Murthy rightly argues whether exorbitant remunerations for CEOs can really be justified in a poor country like India. Both valid points need discussion, which isn’t happening.

Valid concerns, personal feuds

This is because of the manner in which these have been raised. While both Mr. Tata’s charges against Mr. Mistry (and the latter’s response to them) as well as Mr. Murthy’s concerns — which have been shared by some of the other co-founders of Infosys — have all been couched in lofty terms, these are actually being seen as spiteful attacks in a very personal feud.

Take Mr. Murthy’s open letter released to the media last week, slamming the sharp pay hike awarded to COO Pravin Rao. The letter, coming as it does on the back of Mr. Murthy’s criticism of the Infosys board clearing Vishal Sikka’s own compensation, has once again reignited the face-off between Mr. Murthy and Mr. Sikka.

The differences, which appeared to have been papered over late February when Mr. Murthy said complimentary things about Infosys Chairman R. Seshasayee, which were echoed by Mr. Seshasayee and Mr. Sikka, are back in the open. Mr. Murthy’s case for what he calls “compassionate capitalism” versus the aggressive, U.S.-trained Sikka’s approach of exceptional reward for attaining stretch goals would have made for an engrossing debate, if not for the very clear personal differences between the two. As it is, it is investors in Infosys stock who have paid the price, having thousands of crores wiped off from the value of their holdings.

Ditto at the Tata Group, which has shed thousands of crores in market capitalisation after the surprise sacking of Mr. Mistry. The many issues raised by Ratan Tata, as well as the detailed concerns pointed out by Cyrus Mistry, deserve greater attention on matters of principle therein, but were not given their due because of the personal peeve which overlay all these actions. Besides, whether it is Mr. Tata or Mr. Mistry or Mr. Murthy, the fact is that all of them had the opportunity to address many of the concerns they raised later.

The Economist said, in an article on the Tata-Mistry fight, that in India, “good corporate governance” was simply a euphemism for “not crooked”. By that logic, both the Tata Group and Infosys, and for that matter all the protagonists in the high-profile spats in these groups, are exemplars of “good corporate governance”. But that hasn’t stopped investors from voting with their feet on how they viewed these tiffs. Clearly, when it comes to fighting for “principles”, timing is as important as the issues one is fighting for.

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