Multiple horns of multiple dilemmas

Principles and practices of corporate governance are easy to define, articulate, seemingly simple to comprehend, but difficult to practice

Columna Gubarnare is a column on governance and corporate governance. The column was in the works for a long time, despite the encouragement from the editor. The reason for my hesitancy in its publication was simply that, with so much already been written on the subject of corporate governance and sickeningly discussed in seminars, there could hardly be any newness left in the subject, and regurgitating would add little value. Besides, I also wondered if the concept had not shed its Boston Brahmin tag and become far too simple and facile for the comprehension of even the hoi polloi — so much so that men and women, young and old, the educated and the rustic, the well informed and the less informed alike, all have a thing or two say on the subject.

The flood of allegations on corporate misdemeanors that began from February this year, followed by frenzied and scrumptious media reporting, set me thinking afresh on the fundamental issues, concerns and dilemmas that bedevil corporate governance. Hence the column. 

The column intends to explore different aspects of corporate governance, beginning with its genesis and meaning — which has quite a degree of vagueness, disagreement and confusion associated with it. The articles in this column will look at the evolution of the concepts underpinning corporate governance to the present day and the fundamental concerns — “ownership, control, power” — that have remained unmutated through their evolution since the establishment of the East India Company in 1600. It will, among other things, survey the infamous corporate failures across countries, the signals such patterns send to the boards of the companies and the perils of failure of the boards and the companies to recognise these signals correctly and on time. The role of human behaviour and the emotions inherent in human nature — ambition and greed, fear and uncertainty, hope and hubris — which I believe are the ultimate determinants of corporate governance — will lace all the discussions in this column.

A host of questions spring to mind in rapid succession. Why do people who set up companies or the professional CEOs or chairpersons or those in key management positions or are in control of a company or a financial institution, often act or take decisions, individually or collectively, which rationally and by the dictates of common sense do not appear to be ethically or morally right? Does the answer lie in what J K Galbraith wrote in A Short History of Financial Euphoria that “Individual or individuals at the top of these [financial] institutions ......are then endowed with the authority that encourages acquiescence from their subordinates and applause from their acolytes and that excludes adverse opinion or criticism. They are admirably protected in what may be a serious commitment to error”. Is conflict of interest an easily definable term but less easily understood or often deliberately misunderstood? Why do people borrow or are allowed to borrow beyond their capacities to repay or do not have the willingness to repay? Let truth be told as Shakespeare did when he made Falstaff say in Henry IV, “I can get no remedy against this consumption of the purse: Borrowing only lingers and lingers it out, but the disease is incurable”. 

If the thoughts and ideas behind the concepts of corporate governance or governance are supposedly simple and easily understood, why do these often become the sole cause of multiple corporate failures and financial disasters in situations dispersed in space and time? Why is it that their failures unsettle seemingly stable large corporations in different countries and be the cause of setting up of multiple committees by governments and regulators —  each committee vying with the earlier ones to frame a “new” and “improved” code of corporate governance or to craftily rehash or tweak the existing one, and bring law makers to make stiffer laws, believing these to be the invincible bulwarks against future failures? Yet failures never cease to recur in varying forms and at varied intervals. 

I had posed some of these questions some years back, to a dear friend of mine, well renowned in the corporate world, a witty and prolific writer and a contributor in this paper. He said with a chuckle, “The principles and practices of corporate governance are somewhat like the principles and practices illustrated and discussed in Vâtsyâyana’s Kama Sutra — very good to read, look at, indulge in the contemplation of the consequences, but if you try to practice them, your back may break.” 

The author is a former executive director of Sebi. Views are personal.  

Email: pratipkar21@gmail.com