Of corporate cronies and kids

It was an interesting week for corporate India. The long pending companies bill was passed by parliament. It’s enactment into law is only a presidential assent away. This the first comprehensive change in over a century for law that governs organised private enterprise.

It is a actually a tribute to Indian entrepreneurs that they took India to the global stage despite being hobbled by archaic laws.
The passage of the bill happened only a few days apart from news that the co-promoter of a nearly $ 1 billion mobile phone company was arrested for allegedly bribing a municipal official.

While this does not have anything to do directly with the company Micromax, it does give an insight into the mind of the people who run it. Many other companies and promoters are being probed for dodgy behaviour that has hurt investor interests.

These two events this week lead to the question of whether corporate governance in India will transform for the better after the new law?

Will promoters of public and private companies care for the interests of all stakeholders including consumers, retail investors, financial institutions? Or will they still try to enrich a few owners at the expense of everyone else?

The turning point for India was the collapse of Satyam Computers. Nobody thought that a company operating in the celebrated IT sector with high standards of transparency and audited by global auditors would have been prey to promoter-led embezzlement.
Satyam’s collapse hastened the changes in the companies act event though parliamentary hold ups delayed it.

The new companies bill forces promoters to have one third independent directors on their board with fixed terms and limits on numbers. Equally importantly, companies will have to rotate their auditors to prevent conflict of interest. Individual employees will be able to file class action suits in a case of criminal behaviour by corporates.

Industry leaders have been talking of reforms but are yet to take a cue and apply improved corporate governance to themselves.

Most boards are still full of promoter cronies masquerading as independent directors.

Hostile takeovers where investors remove non-performing management are still largely unknown in India. Whistleblowers are harangued and virtually no one is allowed to question the leadership. Promoters of even listed companies are bringing in their inexperienced kids into positions of importance.

If promoters don’t lose love for their cronies and kids, they may soon find themselves as easy fodder for takeovers. The new law will aid that. Its time for corporate India to grow up.

The author tracks India’s political economy and its engagement with the world.