The committee set up by Nasscom, the IT-BPO industry body, under the leadership of Infosys mentor N R Narayana Murthy after the Satyam scandal last year has made a series of recommendations which aim to make the industry, already known for its high governance and ethics standards, the flag-bearer of best practices in corporate governance across industries. A lot of what it says is obvious and well known but bears formally enshrining in a code, even if it is voluntary, that is likely to become a template. One is that a business is not just about shareholders but other stakeholders also — like customers, competitors, employees and other patrons. This is more widely recognised today, after the fallout from the excesses of market fundamentalism in the 80’s and 90’s, but still needs underlining. Also to be noted are a few do’s and don’ts (again not entirely new) listed regarding various stakeholders, like ensuring data security and privacy for customers, cooperating with competitors on ethical hiring and respecting IPR, and following clear guidelines for related party transactions and gifts and donations.
Since a business is only as good as it is at the top, the report has clear thoughts about the functioning of the board and the institution of chairman-CEO. The two should ideally be different persons but if that is difficult, then there should be a lead independent director. The latter should so function as to deliver the sort of checks and balances that a separate chairman and CEO would have exercised over each other. Significantly, the report has said that the board should disclose more on evaluation processes and succession planning. The latter is a thorny issue with many listed, promoter-run companies in India, and the report mentioning the need for it should make it easier for people to raise the matter. Underlining the watchdog role of independent directors, the report also holds that when it comes to the crunch, no one should be able to say in self-defence that he was not aware of the need to keep an eye on legal compliance.
The report will ultimately be judged by the context in which it was conceived. To what extent will it lessen the chances, if not totally eliminate them, of another Satyam happening? It is here that it makes a key recommendation on the need to create, nurture and protect the institutions of whistleblower (barely seen in India) and ombudsman. The latter needs to be truly independent, have access to information and resources to carry out detailed investigations. The former is the report’s institutional answer to the reality (recognised after Enron and Satyam) that a few powerful and determined leaders of a firm can keep their organised wrongdoing hidden for a pretty long time. The only people who can be in the know of what is going on are those who work closely with the top few. It is these whose identity has to be safeguarded if they, say, alert an independent director or ombudsman. Above all, systems should be set up to protect whistleblowers from victimisation.
