Corporate governance: Focus on SEBI

Market participants suggest a three-tier system for firms, with a supervisory board at the top

August 21, 2017 12:30 am | Updated 12:30 am IST - Thiruvananthapuram

Visionary concern:  Founders look at quarter of a century,  markets look at next quarter, says   George.

Visionary concern: Founders look at quarter of a century, markets look at next quarter, says George.

The exit of Vishal Sikka as the chief of multinational IT giant Infosys brings forth the issue of corporate governance yet again. Market participants said the capital markets regulator, the Securities and Exchange Board of India (SEBI), needed to intervene in such matters to protect the interest of investors, especially he retail segment.

“Our regulator should install a three-tier governing system for companies where a supervisory board is constituted and should lay down the framework for the functioning of the board of directors,” said Deven R. Choksey, MD, KRChoksey Shares & Securities. The board of directors, in turn, oversees the functioning of the executive management.

“Multinationals like Google and Microsoft are governed in this manner,” he added. “Infosys has a strong pedigree. But ... promoters’ intentions were good but their approach was wrong.”

“The supervisory board, comprising eminent personalities, will monitor performance as well as the value system for the company and this alone will create wealth for the company and keep it on the tracks,” he added.

SEBI had constituted a committee on corporate governance under the chairmanship of Uday Kotak in June this year. The committee is expected to submit its report within four months. Market participants said that the Infosys issue too should be considered in detail by the committee.

‘Subjective views’

“In India, corporate governance continues to see subjective interpretation,” said Dilip Bhat, Joint MD, Prabhudas Lilladher. “While India is moving towards internationally accepted norms of corporate governance, we are bound to see this kind of volatility. Particularly in this instance, extreme positions have been taken in terms of interpreting what corporate governance is,” he said.

“Unfortunately, this had degenerated into an ugly battle played out with the media and as a result we are seeing whatever has happened,” said Mr. Bhat.

Another view is that differences between stakeholders on the vision for the company caused the turmoil. “This has turned out to be a fight between a CEO who delivers financial performance quarter after quarter; and founders who have nurtured the company for more than three decades and are passionate about the founding values and ethics that they consider paramount,” said C.J. George, MD, Geojit Financial Services. “This is a fight between modern, free-market capitalism on the one side and the forces of ‘compassionate capitalism’ on the other,” he said.

The governing board or a supervisory board, he said, would be an important top layer setting the direction for such companies. According to Mr. George, “The founders, perhaps, look at a quarter of a century while the market looks at the next quarter.”

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