Today, the Satyam scam broke out… A sad day for Corporate India…
I am cut-pasting below, an excerpt from a piece on “Corporate Governance” that I had written in 2005….
Good corporate governance is about setting strategies, structures and systems that ensure that there is a just and fair value system that reflect in the working of an enterprise. That people are accountable for the work. And that the work is auditable by non-partisan agencies. And this continuum starts at the top. Yatha Raaja, Tata Prajaa…The values in the top floor has to be seen also in the shop floor. Purity of intent has to be seen in all the acts of the enterprise.
Many, many hundreds of years ago, Kautilya wrote the phenomenal treatise Artha Shastra. It is a remarkable manual on the practice of management, on the art of Governance. Kautilya identifies the two pillars of good governance as Dharma, Ethics and Nyaya, Justice. He begins with Self Governance. He advises the leader to introspect to identify his atma doshas, i.e. deficiencies to improve or develop himself. He further advises the leader to study deficiencies of his cabinet members and take corrective actions. He states that Mantris could be incompetent. Senapati, or COO, could be over ambitious. Purohit, or Chief Ethics Officer, may not consider the present day practices or traditions while enacting laws or justice, which might lead to injustice.
Kautilya says that the a robust enterprise should have diverse economic interests. It should be active, efficient, and profitable. Efficient management means setting up of realistic targets and meeting targets without using over zealous means. Policies should be prudent and based on Dharma and Nyaya. Profitability should not only mean surplus over costs. It should also mean provision of investment for future growth. He advises that the leader should have a limited span of control, and warns against centralization of power, saying “one wheel does not move a chariot”. He says that the advisors of the leader should be people with practical experience, character, thinking prowess, sound judgement and the courage to express differences of opinion to the leader.
All of which are recipes that seem as apt for this new millennium as well. A millennium where we are in very exciting times. A dangerous time as well.
These are times where economic globalization is for real. And a time when at the heart of management is risk management, and the greatest of all risks is “reputation risk”. In the age of internet and worldwide media, bad news travels as fast as light. You lose trust of the stakeholders, you lose everything. A reputation that has taken decades and more to build, can be lost overnight, and we have seen multi billion dollar corporations reduced to bankruptcy – because of failed corporate governance. And how did such cases come to be? Some key people, somewhere, somehow forgot the fundamentals. Fundamentals such as the fact that business of company leadership is to manage the company, and not manage the stock price. That a leader thinks for the future, not for the quarter. That real balance sheet, real profits, real cash are important. That compromise of ethics would only hasten the end.
And in this millennium, more than ever before, the enterprises are seized by the need for speed and urgency. This brings tremendous stress to the systems that they have inherited. Good corporations of before surely had tried and tested business processes. But now, the need is for proving to the world that your business processes are good. You must explain the tests that you carry out, demonstrate the internal controls that you have in place. You must have these certified by external agencies. And last but not least, the buck stops with the Board.
When things go wrong, they go so wrong.
The consequences of wrong choices, of bad governance is well brought out in the ancient epic Mahabharata, that most of us are familiar with. Remember the scene when Duryodana and Shakuni defeat the Pandavas in a game of gambling played with crooked dice. Under the very eyes of such eminent and noble people like Bhishma, Kripa, Drona, Vidura and others, the evil Dushaasana drags Draupadi to the assembly. She pleads for justice in vain. And in anger, she proclaims:
Na saa sabhaa yatra na santi vriddhaa
Na tE vridhaa yE na vadanti dharmam
Na asau dharmO yatra na satyam asti
Na tat satyam yachchalEnAnuviddham….
“That is not an assembly which does not have elders (In our context, we may take this to mean “that is not a Board that does not have wise directors, including independent directors”).
They are not elders who do not speak Dharma (they are not Directors who do not speak of ethics)
That is not Dharma which is not the truthful. (That is not ethics, which is not based on ‘Satyam’ – Truth…)
That is not the “Satyam” – Truth – which is crooked and devious (Needs no explanation)”.
Tags: Corporate Governance