I refer to the above Article of Ms. Rama Bijapurkar, Independent Market Strategy Consultant, appeared on the Edit Page of The Economic Times, Mumbai, on 27/2/2012. I would like to comment on 3 aspects, she wrote about improving the Corporate Governance.
FAMILIARITY QUOTIENT (FQ):
The author discourages familiarities amongst the directors. She feels high familiarity between board members is a disadvantage. In my view, FQ is desirable and inevitable and it can be used for better governance. The Board is a strong team to manage the business of any company and no team can succeed unless there is high FQ. The problem is not the FQ for poor governance. The problem is our directors even on the eminent boards of most of the listed companies fail to discharge duties or exercise and assert their rights as DIRECTORS whether as executive director or non-executive director or independent director. The biggest corporate fraud in the Indian industry: Satyam Computers is the classic case. Satyam board had 6 out of 10, Independent directors, very eminent parsons of impeccable integrity. They miserably failed to smell the fraud which was cooking for more than 8 years. Unless all the directors whether outsiders or insiders, realize why they are there on the board and it they fail to discharge their legally entrusted duty under clause 49 of the Listing Agreement or under the Companies Act, there cannot be effective corporate governance and you will have more corporate failures.
THE SECOND issue raised by Rama Bikapurkar is the PERFORMANCE APPRAISAL OF BOTH OF THE COMPANY AND ALSO EXECUTIVE DIRECTORS.
Yes, today it is not done as intended in our codified rules of corporate governance both under clause 49 of Listing Agreement or as contemplated under the Companies Act. In fact this is what has been mandated in all the bibles of corporate governance in India or abroad: Code of Best Management Practices recommended by Cadbury Committee Report, Combined Code of Corporate governance of 2003 of UK, Kumaramangalam Birla Committee Report and clause 49 of our Listing Agreement. The problem again is not the lack of compulsive or mandatory requirements for performance appraisal in our rules of corporate governance. It is the reluctance of the Boards of our corporate world to assert or exercise their role as a BOARD. No law or rules can imbibe sense of duty or ethics in the minds of the Directors, it has to come from within. Unfortunately this is totally lacking in most of our boards. In my view, the bench mark for performance appraisal should be the predetermined annualized component of the corporate mission/dream of the company.
THE THIRD ISSUE THE Author raised IS THE WAY THE MINUTES ARE PRESENTLY RECORDED.
It is difficult for me to agree with her that the CORPORATE GOVERNANCE will be improved by "recording more informed board discussions and fewer hastily disposed table items" in the minutes. The board minutes under the Companies Act is the statutory record of the decisions taken, either by majority or by unanimity. Normally, the board minutes cannot contain any matters which do not contain any DECISION of the board on what is discussed. Otherwise minutes is legally flawed. Many companies do have Board of Management, which can perhaps follow the method she has suggested, provided that such management board is not a committee of the board or legally reports to the board, otherwise the same rules of Board minutes will apply. Even otherwise, recording the dissenting views of board members is fraught with potential danger in future for the management and board from those dissenters. It is also subject to inspection by the auditors and the Government. Better not to wash the dirty linen in the public. Under the law, any view which is not with the majority is invalid and of no legal consequence to the board.
Prof. Ram Mallar
Mallarr Law Associates LLP
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