Two regulatory orders over the weekend have yet again exposed the dark underbelly of India’s corporate and financial sector. And the common thread this time has been corporate governance violations, involving two high-profile individuals — Chitra Ramkrishna, the former CEO of the National Stock Exchange – a systemically important financial infrastructure institution – and Anil Ambani, promoter and chairman of Reliance Home Finance.
In an order uploaded unusually late on Friday night, the Securities and Exchange Board of India said that its probe found that the former boss of NSE was guided by a yogi or a spiritual guru, and shared confidential information relating to the exchange with him, and imposed a fine of Rs.3 crore. “The sharing of financial and business plans of NSE is a glaring, if not unimaginable act that could shake the very foundations of the stock exchange,” the regulator’s order said. The other serious lapse which has been flagged off is the appointment of Anand Subramanian, someone with little or no experience in the financial sector and professional qualifications to suit a senior position in NSE, breaching most norms. According to the Sebi order, this was a “glaring conspiracy of a money-making scheme” involving Ramkrishna and Subramanian, along with the unknown guru.
In the second order — which did not receive as much attention perhaps because of the “bizarre misconduct” of the former NSE CEO with a mystic thrown in — Sebi said that Ambani, the promoter and chairman of Reliance Home Finance, exceeded his remit by sanctioning loans in gross deviations of norms. “Looking at the conduct and propensity of the company to indulge in such activities of diversion of funds and misrepresentation of books of accounts, falsification of financial statements resulting into non-disclosure of true & fair information to the public at large, and also considering the collective misconduct exhibited by the key managerial persons of the company, there is an urgent need that the company should be prevented from pursuing such despicable activities which are visibly in violation of securities laws,” it said in the order. Ambani and a few other directors of the company have been barred from the markets for three months. In the past too, Ambani had come under regulatory crosshairs over charges of diverting funds from overseas borrowings to the stock market.
What is more worrying is that these two cases cap a series of corporate governance violations and abuse over the past few years involving ABG Shipyard (with the CBI stepping in now), BharatPe, Infrastructure Leasing and Financial Services (IL&FS), ICICI Bank, Punjab National Bank, Yes Bank, Dewan Housing Finance Corp. Ltd (DHFL), Kingfisher Airlines and its promoter Vijay Mallya, and several other defaulters. In almost all instances, the company boards appear to have been subservient with weak oversight, ignoring conflicts of interest and governance norms. The other serious concern in many of these cases — especially ICICI Bank, IL&FS and now the NSE — has been the leadership flaws and ethical conduct of some of the celebrated and larger-than life professional CEOs who steered some of these firms. It further weakens the argument for encouraging a more professional CEO-led model of management and diversified shareholding, compared to the much-criticized promoter-driven company model.
The value destruction because of governance failures and the consequent erosion of investor trust or confidence has meant that there are just a handful of Indian companies which attract a governance premium in a universe of well over 5,000 stocks. That is a sad reflection on the standards of corporate governance including checks and balances such as whistleblower policies and protection, besides regulatory oversight. Equally, it is distressing to notice a business-as-usual approach on the part of all stakeholders and the government each time a corporate scandal breaks out. A healthy and vibrant corporate India is vital to the economy in creating jobs and boosting incomes. That would mean influencing changes in Indian corporate boardrooms, learning from past episodes. The experience, however, has not been encouraging.
Ultimately, the key to governance, as a Sebi expert committee once pointed out, is commitment to values and ethical business conduct. That’s something which cannot be legislated.
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