Corporate Governance: Balancing Profit and Principle

In India’s race towards Industry 4.0, we’re becoming a center of tech-driven innovation, embracing Demand-Driven Digital Supply Chains, a thriving Startup Ecosystem, and smart factories. Buzzwords like sustainability, social responsibility, and self-reliance are as common as chai stalls on every corner. While we champion ease of business and entrepreneurial spirit, corporate governance remains a crucial element we’re brushing under the carpet in all this excitement.

So, what’s this corporate governance thing anyway?

It is the invisible rulebook that distinguishes respectable enterprises from rogue startups. It ensures businesses operate ethically, balancing profit with principles, and aligning with societal good.  Corporate governance demands that companies operate in a manner that is not just profitable but also principled, aligning with the larger good of society. It’s the unsung hero of the corporate saga, ensuring that while companies chase after profits, they don’t trample over ethics and social responsibility. While the average person might think a CEO’s job is to make sure the company rakes in billions, corporate governance steps in and whispers, “Hi… you should also consider not ruining the planet or exploiting your workers?”

Drawing inspiration from ancient Indian texts like the Arthashastra and Manusmriti, corporate governance today echoes their teachings on integrity and strategic thinking. Think of it as the business world’s version of yoga—keeping everything flexible, balanced, and in harmony. As more Indian businesses adopt these practices, they contribute to sustainable economic growth and social responsibility, essentially transforming into business yogis. In the grand tapestry of Indian business, corporate governance has evolved,  thanks to regulatory reforms, industry initiatives, and the judiciary’s occasional slap on the wrist.

Now, let’s talk about the the role played by the government behind the scenes like a director of an epic business movie, shaping the corporate governance storyline and enforcing the frameworks that keep companies ethical and transparent. The government’s star-studded cast includes regulatory bodies and legislative measures that establish a rock-solid corporate governance regime.

The primary script for this includes the Indian Partnership Act of 1932, the LLP Act of 2008, the Companies Act of 2013, and the SEBI regulations, setting the scene for corporate governance, and laying down the rules of engagement. The Companies Act of 2013 brought in some blockbuster changes, such as:

• The mandatory casting of independent directors.
• Establishing audit, nomination, and remuneration committees.
• Tightening disclosure norms and financial reporting standards.
• Introducing a corporate social responsibility (CSR) subplot, requiring companies to spend a part of their profits on social causes.

Regulatory Bodies: The script supervisors, ensure everyone sticks to the plot.

• Ministry of Corporate Affairs (MCA): The script doctor, issuing guidelines and clarifications.
• Security Exchange Board of India (SEBI): The strict producer, monitoring and enforcing standards, corporate governance norms, especially for listed companies. They roll out key regulations like:
• Listing Obligations and Disclosure Requirements (LODR): Ensuring companies spill the beans on financial results and material events.
• Prohibition of Insider Trading Regulations: Preventing shady trading practices.
• Takeover Code: Regulating share acquisitions and takeovers to keep things fair and transparent.
• National Financial Reporting Authority (NFRA): The continuity manager, ensuring financial reporting stays transparent.
• Investor Education and Protection Fund Authority (IEPFA): The fan club president, protecting investors’ interests and promoting transparency.

And let’s not forget the ensemble cast:  Each plays a crucial role in shaping corporate governance and boosting investor confidence.

• Insolvency and Bankruptcy Code (IBC) of 2016, for example, set a time-bound framework for resolving insolvency, maximizing stakeholder value, and promoting governance.
• Foreign Exchange Management Act, 1999 in regulating foreign exchange transactions, ensuring compliance and transparency,
• Foreign Contribution Regulation Act, 2010, oversees the utilization of foreign contributions, safeguarding national security.
• Investor Protection Fund, another key player, steps in like a superhero when brokers default, compensating investors and upholding trust in the market.
• Financial Reporting Standards such as Indian Accounting Standards (Ind AS), issued by the Ministry of Corporate Affairs (MCA), are like the scriptwriters, setting the principles for financial statements.
• Audit standards by the Institute of Chartered Accountants of India (ICAI) govern the audit process, ensuring quality and reliability.
• Cost Accounting Standards from the Institute of Cost Accountants of India (ICAI) and Secretarial Audit Standards from the Institute of Company Secretaries of India (ICSI) keep financial reporting and operations transparent and accurate.
• Indian tax laws, the plot twist you never saw coming, promote corporate governance by encouraging transparency, compliance, and ethical conduct. They reward companies for playing by the rules with stringent regulations and incentives for CSR activities.

Enforcement and Adjudication: The critics and reviewers, keeping the actors (companies) in check.

• Serious Fraud Investigation Office (SFIO): The investigative journalist, uncovering financial frauds.
• National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT): The judges, adjudicating on corporate disputes.

Industry Bodies and Associations: The mentors, developing guidelines and standards, providing training and capacity-building programs.

Investors and Financial Institutions: The audience, conducting due diligence, engaging with companies on governance issues, and influencing decisions through their votes.

Civil Society and NGOs: Like a cheerleader in Raise awareness and advocating for stronger regulations, Monitoring corporate activities and reporting on governance practices, and at the same time partnering with businesses to develop sustainability programs like a matchmaker pairing up unlikely couples.

Academic institutions and think tanks jump in like the nerdy sidekicks, researching corporate governance trends and advocating for reforms with zeal.

Despite all the fanfare, corporate governance faces challenges more annoying than a fly at a picnic. You’d think with all the rules and regulations in place, we’d be scam-free. But nope, scams are springing up like weeds in a garden.

Who doesn’t know about the Satyam Scam – the Puppet Board Edition? It popped out in the year 2009. The founder cooked the books to the tune of $1.5 billion (around ₹ 7000 crores), showcasing a board as independent as a puppet on strings. Shareholder value vanished faster than free snacks at a meeting and regulatory watchdogs sniffed around like bloodhounds at a barbecue. Investor confidence? Took a nosedive deeper than a skydiver without a parachute.

Then, The Sahara Scam of 2010 made promises of sky-high returns but delivered more drama than an entire season of a soap opera. The Chit Fund Scam of Shraddha Group 2013, turned savings into a magical disappearing act, making investors’ money vanish faster than a magician’s rabbit. IL&FS’s financial crisis of 2018 engaged in related party transactions more tangled than the plot twists in a Bollywood thriller. Financial stress hid behind closed doors until the liquidity crisis hit—resulting in financial instability, regulatory shake-ups, and investor confidence lower than limbo dancers at a dance-off. Nirav Modi scam of 2018, a jeweler and diamond merchant, defrauded Punjab National Bank of over $2 billion. His tool of choice? Fraudulent letters of undertaking that magically turned into overseas loans. Yes Bank Scandal (2020): Yes Bank’s founder, Rana Kapoor, seemed to think bank management was a game of Monopoly. Handing out loans for bribes turned the bank into a financial disaster zone, eventually requiring a rescue by the Reserve Bank of India.

Apart from the headline-grabbing scams and major noncompliance, other issues are driving the failure of corporate governance. Let’s dive into some of the most common culprits:

• Gig Economy Blues: In the gig economy, workers at Swiggy, Zomato, Uber, Ola, etc. face challenges bigger than a traffic jam in rush hour. Financial stress and lack of benefits like social security make their paycheck feel as satisfying as a diet without dessert. Imagine a Swiggy delivery person racing against time for a reward that feels more like a chocolate coin than a medal.
• MSMEs vs. Big Giants: MSMEs are like small fish in a pond of sharks. Big companies dominate like champions with all the gear, while MSMEs struggle like a kid with a slingshot facing a tank. Big companies dominate like heavyweight champions, while MSMEs are stuck arm-wrestling with paperwork. Imagine a small business trying to compete with a corporate giant—it’s like bringing a spoon to a sword fight, with the big guys enjoying the spotlight while the little ones are lost in the shuffle.
• Manipulative Governance: In the corporate world, manipulative governance sneaks around like a mischievous gremlin. Poor employee relations, unfair workloads, and misuse of powers are as common as office gossip. Imagine a manager playing favorites more blatantly than a parent with a favorite child. Workplace safety? It’s as forgotten as yesterday’s lunch in the office fridge.
• Labor Law Maze: Violating labor laws is like playing bingo—sometimes you win, sometimes you lose, but workers end up as satisfied as a car with a flat tire either way. Labor disputes? They disrupt operations like a cat trying to navigate a room full of rocking chairs. And non-compliance with laws? It’s like juggling flaming torches—impressive until something inevitably goes up in smoke.

Amidst the corporate chaos with more plot twists than a soap opera, these tales remind us that the business world isn’t just about corner offices and boardroom bravado—it’s a stage where rules are twisted like a magician’s illusions. Corporate governance, it seems, is less about the rules we have and more about the creativity of those trying to dodge them.

But let’s not forget the serious side. Corporate governance isn’t just about avoiding scandals—it’s about safeguarding workers, fostering productivity, and preventing the psychological toll of dissatisfaction. Ethical decision-making isn’t just good for business growth; it’s crucial for our entire economy.

Who knows? Embracing strong corporate governance could be India’s secret sauce—not just making us an industrial powerhouse, but a global beacon of ethical business practices. After all, who doesn’t love a good show with a happy ending?