It is important for us to find our own idiom for corporate governance, which is rooted in the Indian ethos, but speaks the global language.
Lakshmi, one of goddess Durga’s children, is supposed to be responsible for the wealth, peace and prosperity of the households on earth. Durga has three other children, each of whom has been given a separate portfolio. Lakshmi’s sister, Saraswati, has the portfolio of knowledge; and Kartik oversees the department of courage. The youngest of them, Ganesha, in the role of Siddhidvata, seems to have a larger remit to crown all endeavours with glory and success, for which he has to ensure that all obstacles in the path are removed. I am not very clear about the seniority among the children in the Shiva-Durga family, but I am certain that a considerable thought went into the portfolio allocation, for it seems that the affairs of their estate are being run pretty well. Indeed, this allocation should serve as an example for the boards of Indian companies on how to choose the right director on the basis of knowledge, expertise and experience, and give each director a remit based on his strengths and allow him a full and free play.
Leaving aside the debate over the seniority of the sisters, it would be interesting to focus on Lakshmi. She is worshipped by every Bengali household on the day of full moon, which comes four days after Durga Puja. Outside Bengal, she is also worshipped on Diwali, when businessmen open books for the New Year. My grandmother used to tell me that Lakshmi had many idiosyncrasies, one of which was that she was very temperamental — here today gone tomorrow. That is why she is named Chapala. One has to be really a bit careful, because given her temperament, she has a tendency to run away from things that are ugly, mean and base; folklore has it that she is reluctant to visit and bestow her love and beauty wherever she finds these things. The import of what my grandmother said was not very clear to me in my youth, but what was apparent was that Lakshmi was quite sensible and clear about her likes and dislikes. Later, when I bought some good books on economics, and much later, when I read about the crises of Enron, Lehman, Satyam as well as the global financial crisis, I found that the resplendent lady made a lot economic sense too. Wealth can be frittered away in no time. And, as Micawber said, “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Someone might inherit a lot of money, but if he does not invest it judiciously to make the money grow, he, too, might find himself in a “here today gone tomorrow” situation. A company would be in a similar situation, if it leverages indiscriminately to buy assets. For example, Dennis Kozlowski of Tyco Global, not being able to service debt, decided to fudge the accounts (quite like Satyam) with the help of auditors, and then went bankrupt. Surely, an ugly enough situation for Lakshmi to abhor.
My wife and I, while having tea one morning, discovered an earth shattering piece of economic truth. It ran something like this: If I am a miser and don’t ever discard old clothes, continue to wear torn and tattered stuff, I will not have space in my cupboard to keep new clothes. If I do not buy new clothes and if there are many like me, then shops will have no buyers and if the shops have no buyers, then the cloth manufacturers will be affected; and they will close down factories and then there will be series of consequential effects on the economy. So, wealth will decrease. In other words, the lady concerned will again run away. Thus from the behaviour of the lady it turns out, that she will consent to abide only in situations where efforts are made to preserve, distribute and grow wealth, and where there is nothing sordid and squalid. Aha, this sounds interesting and I hope Indian businessmen understand this. (Actually many do, though not all!) This approach of “raksha”, “vriddhi” and “palana” to wealth is what ensures the creation of wealth. That is what brings sustainable success for businesses. This is what corporate governance is all about.
There is a Sanskrit sloka (verse) I read a long time ago which runs something like this: Karagrey vasatah Lasksmi, karamuley Saraswati, karamodhey madhusudanah, prabhatey hasta darshana. It means that you must see your hand in the morning and remember that Lakshmi resides in the fingers (which is understandable because with the fingers one holds the tools, the pen, the brush and earns the living); Saraswati is in the wrist (without the wrist movement, the fingers won’t work; without knowledge as the guide, one cannot work) and madhusudanah or the divine is in the middle. For the present, I will leave madhusudanah aside and focus on the combined role of Saraswati and Lakshmi. If knowledge provides the guide, then the efforts towards sustainable wealth creation will bear fruit. It is then that success will crown the enterprise, and this will please the youngest sibling, Ganesha. In a modern idiom, for an enterprise to have sustainable success, there must be a business strategy and model based on knowledge and understanding of the business and competition, and directed and stewarded by a knowledgeable and experienced board as guide, with a management approach towards wealth creation, maintenance and distribution. This is the essence of corporate governance. This is our own stuff, very much “made in India”.
The conceptual underpinnings of corporate governance, in their present form, are rooted in the western culture and thought or in the western “dharma” (in the wider sense of the word); and in the rational jurisprudence of the Roman law and the western law. Hence they lend themselves to an easy adaptation by the English-speaking peoples. They are a product of European liberalism. They have evolved through the debates on the beneficiaries of a governance process between the Magna Carta and the American War of Independence. Board activism and empowerment, at the heart of which is the demand to strengthen the board, also have their origins in the English-speaking countries such as Australia, Canada, the United Kingdom and the United States. However, those countries whose economic and political traditions, and institutions and ownership structures, are different from the English-speaking countries, find these concepts distant as well as foreign; or in a sense “not invented here”; and not easy to accept.
In India, the way corporate governance came to be formally adopted by firms especially after 2000 reflects the natural dominance of the contemporary western culture and thought over Indian perceptions and readings. It has not often been realised that the principles of corporate governance have always been an integral part of Indian culture and society. This has its advantages as well as weaknesses.
Advantages arise from the fact that in an era of globalisation, when the Indian economy is seeking to integrate itself with the global economy, and when there is a concerted move towards harmonisation of global regulatory standards and accounting principles, it is only pragmatic that the corporate governance architecture should be built on globally-recognisable design, and the standards scripted in globally-understood alphabets. For this reason, long before the two words became a business reality in India, the principles of corporate governance came to be easily adopted by those companies and people behind them, who had by education or by business came in closer touch with the western world.
The weakness is that, unless the founding principles of business are rooted in the dharma and culture of a country, their easy and wider acceptability and adaptability become elusive, if not difficult. It is important for us to find our own idiom for true governance, one that is rooted in the Indian ethos, but speaks the global language.
I must end with an acknowledgement that the idea of this article came from one of the finest managers of corporate India, R Gopalakrishnan, executive director of Tata Sons, as I was reading one of his recent articles.
The author is currently associated with the Global Corporate Governance Forum of the International Finance Corporation and the World Bank and is a former executive director of the Securities and Exchange Board of India. Views expressed are personal.
