THE EXCHANGE. Being too pushy about good governance?

Governance implies establishment of appropriate policies and monitoring of implementation, by those chosen to govern. Corporate governance is the framework under which a board of directors can collectively ensure fairness, accountability and transparency in a company’s operations, relations with stakeholders, and the resolution of (and balance between) conflicting interests among stakeholders.

Problems caused by indifferent business governance globally, and at home in recent times, hurt the crucial but fragile three-way trust between government, business and society. Business usually finds itself at the receiving end of intrusive steps, ostensibly to avoid recurrence of unsavoury outcomes.

It’s certain that transgressions by a few undeserving souls create difficulties for a much broader constituency. Blame games and cat-and-mouse tactics become systemic responses. The business community essentially abhors these infractions; but it cannot impose on others because they neither are privy to all facts nor have due standing in the affairs of such others.

It is stating the obvious that enterprises must strive to cultivate an appropriate balance between business interests and their conduct. Governance must be seen as a cornerstone of long-term success and not just fulfilment of the letter of law. The attributes of good governance are entrenched in most of us. Our culture encourages owners of capital to act in trust for family and society while trying to do the best for the nation. The trust of society helped private enterprise growth through decades, even when the State largely viewed it with mistrust. This trust has cannot be commonly assumed now.

A citizen’s mind gets conditioned when the State works hard to improve interactions of citizens with itself — as the present government does — and he sees results. In this backdrop it is difficult for him to comprehend that pressures, regulations and realities of conducting business have not adapted at the same speed; this triggers quick criticism of business by citizens and distorts overall perceptions and the socio-political environment.

Today, there is a lot of discussion on improving the ease of doing business, economic reforms, growth, competitiveness and global competition. Still, it could be argued that we are not yet at a stage where written words in policies reflect what leadership promises in the name of reform, simplified rules and true ease in conduct of running businesses.

The State carries the legacy burden of thinking rooted in the command-control-blame-penalise philosophy. Such attitudes do not suit contemporary needs. Unfortunately, the default instinct seems to be one of quickly undervaluing trust, and it may be easier to fix blame than fixing the problem. A purely comic analogy for the inertia is Asrani’s “ itni badliyon ke baad bhi, hum nahin badle ” from Sholay ! This is the broader environment in which promoters and independent directors must govern.

Areas under corporate governance are extensive, but let’s restrict to key areas of concern and debate: (i) the collective welfare of all shareholders over narrow ownership interests; (ii) balancing key stakeholder interests, including fairness in dealings with lenders and creditors; (iii) compensations and succession planning; (iv) ethical standards; and (v) the evolving role of independent directors. It is incumbent on broader business, and not just (say) top 500 companies, to build simple but sound processes around these issues.

It’s a painful reminder that each of these areas has attaching strict regulations, contracts and processes, which any entrepreneur or professional director cannot overlook. Yet, a sensible reflection shows almost every major transgression or misapplication (of mind or intent) that has led to societal, governmental, institutional or societal pushback in recent years is traceable to these issues. Despite many useful and positively-oriented laws, the Companies Act and SEBI rules react to failures by over-prescribing or micro managing. Thus begins a chain of arguments and counter-arguments between the regulator and regulated. Every infraction has a reason — it’s an outcome either of circumstances or of intention. The former deserves forbearance; the latter, swift punitive disposal. Breast-beating or posturing achieves no outcome. Swift conclusions build systemic trust but require judicial infrastructure and processes, not more laws and rules.

It is a no-brainer that enterprise must avoid gifting any opportunity to the ecosystem to resort to knee-jerk responses or leverage fine print, more so when the issues demand pragmatic solutions. Equally, the government needs to understand it is very easy to offset trust which its positive statements generate, no matter how progressive new-fangled rules seem on the surface. I, for one, have yet to witness any global jurisdiction where tax or corporate laws have been able to prevent leakages or transgressions perpetrated by people determined to do so. The solution progressive jurisdictions provide is that the laws makes it certain — for an abider to abide, and for quick punishment for the guilty.

I confess being disturbed over an editorial in a business daily saying; “the threat of arbitrariness and excess hangs over Indian business today”. This comes at a time when India requires businesses to invest, scale up and hire!

It is necessary for private enterprise to be cultivated (not cajoled!). The biggest injustice inflicted on the nation is when people remain in jobless poverty or in under-employment. Our livelihood creation, even at the “highest growth rates in the world”, has not yet lent comfort.

The business community must hammer away at achieving certainty in laws and elimination of discretion. It must also introspect and accept that the weight of governance lies on each company’s shoulders. It is not just “someone else’s problem”.

The fictional Judge Leonard White (Morgan Freeman in The Bonfire of the Vanities ) captured the essence of governance: “The law is man’s feeble attempt to lay down the principles of decency... decency isn’t a deal, or a contract or an angle! It’s in your bones.”

The writer is an entrepreneur and former president of Ficci. The views are personal