Raising the bar

Company directors must do more than simply ‘tick boxes’ if they are to raise the standard of corporate governance in India, says Omkar Goswani

While the standards of corporate governance in Indian companies have improved significantly in the last few years, the basic problem, both in India and globally, is that people are increasingly mistaking the form of corporate governance for its substance. Driven by laws and the listing requirements of stock exchanges – in India these are defined by clause 49 of the listing agreement of the Securities and Exchange Board of India – directors are often preoccupied with ticking boxes. They need to do better than this.

Essentially, corporate governance is about three things. The first, and most important, is how honestly, ethically and legally a company does its business. You can tick off every box; yet if the company’s business is not done honestly and ethically, the board and the enterprise would be in trouble, sooner or later. Before Enron collapsed, if you read the discussions of its board of directors, you would have thought it was a very well governed company. But the reality clearly lay elsewhere. Both at the level of management and the board, it is important to ensure that a company is doing its business ethically, honestly, and in a transparent manner and, in doing so, attempting to deliver long-term shareholder value.

Omkar Goswami is the founder and chairman of CERG Advisory Private Limited. He also serves as a director on the boards of several companies including Infosys, Dr Reddy’s Laboratories, IDFC, Cairn India and Crompton Greaves.