Corporate Social Responsibility: Issues & Development

[op-ed snap] Boardroom rotMains Onlyop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : There is a need of overhauling corporate governance in India.


CONTEXT

Recent incidents of corporate misconduct raise questions about governance standards in India’s premium companies.

Background

  • Many of India’s listed firms have a ready template on how they conform to the highest standards of corporate governance.
  • That is increasingly becoming unconvincing as the corporate misconduct in some of the country’s top companies show and reflected lately in a series of ongoing stories on ICICI Bank on a “culture” of doing a deal “at any cost”, mistakes “made knowingly” and “suppressing” facts during the tenure of Chanda Kochhar as the bank’s managing director and CEO.

1.The past few months and 2018 were marked by governance failures or shortcomings in some of India’s top listed private banks, leading to the exit of CEOs in Axis Bank and ICICI, of course, and in firms such as Ranbaxy and IL&FS, besides the National Stock Exchange.

2. Professional Managers at the front of misconduct – Unlike earlier such episodes, a common thread, and a worrying one at that, in this new wave of misconduct is that almost all of them feature professional managers, and boards that allowed themselves to be overrun by powerful managements.

3. Opposed to earlier scams –

  • That’s in sharp contrast to the scenario over a decade and a half ago, when a string of corporate scams, including the accounting fudge at the erstwhile software services firm, Satyam, led to a shift in favour of professionally managed companies with attractive salaries and monetary incentives and a more diversified shareholding base.
  • This model, it was argued then, could better align all interests which could lead to maximisation of shareholder value.
  • Sadly, it is that belief which is now open to question as also the larger issue of ethical conduct and integrity underlying corporate governance in the country, both public and corporate.

Comparison with other countries

It is true that India is not an outlier when it comes to corporate scandals, looking around at what keeps unfolding in the US, Japan and some other countries.

1.Regulatory oversight is seen as deterrents – But unlike in India, huge fines or penalties, class-action suits, shareholder activism and regulatory oversight are often seen as deterrents in those countries.

2. Proactiveness on part of regulators – What’s encouraging, however, is the growing recourse by India’s regulators to claw back bonuses or stock options of executives found guilty of wrongdoing and easing them out.

Way forward

1. Tighter supervision and regulation –

  • That should be accompanied by tighter supervision and regulation and far greater oversight by boards of companies and drawing clear lines on their accountability.
  • The fact that just a handful of companies command a governance premium is a poor reflection of standards.

2. Improving Governance – India needs a huge leg-up on the governance front, not just for companies to raise capital, soak savings and boost the real economy, but also to dispel the unease about growing inequality and ensure that capitalism doesn’t get a bad name.

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