Deven Sharma found himself at the centre of the global economic storm when he headed Standard & Poor’s (S&P) at the time it downgraded the US’ sovereign rating from AAA to AA+. Since then, he has developed an interest in Indian corporate governance, taking a stake and board seat at Institutional Investors Advisory Services (IIAS). He tells N Sundaresha Subramanian why companies ignore minority investors at their own peril and his vision for IIAS. Edited excerpts:
What attracted you to the Indian corporate governance space as an investor?
Governance is central to creating confidence among shareholders to invest in companies and a country's economic future growth. Market transparency through independent corporate governance research has an important role in raising confidence among Indian and global investors in the Indian capital markets and their future growth. As India works to regain its growth momentum and many of its companies become global or seek to attract domestic and global investors, improved governance will play an important role.
What business potential do you see for IIAS and similar proxy firms in the coming years? What role do you see for yourself?
In a growing capital market, as more companies go public and seek investment from markets to grow and compete globally, the need and importance of strong governance will increase and over time, create growth opportunities for IIAS to provide independent research and transparency on governance. I look forward to bringing my global experience to the board, to guide IIAS to become a leading global provider of governance research services.
What is your assessment of corporate governance in Indian firms and how does it compare with the US?
Corporate governance expectations continue to rise and shareholders and other stakeholders have become more vocal in expressing their expectations globally, as well as in India. In India, like elsewhere, issues have occasionally been sensationalised without rigorous research and discussion of the real issues. Indian companies need to raise their transparency on governance and responsiveness towards the minority investor, particularly as they compete in the global arena and seek to attract global customers, as well as domestic and global investments.
While firms like IIAS have been successful in creating awareness about governance issues, they are yet to taste substantial success in terms of influencing institutional investor behaviour. Are there systemic issues that need to be addressed?
Market behaviour, as we have seen from recent global experience, changes over time, sometimes in small and sometimes in large steps. It also takes a critical mass of institutional investors to be vocal, given that they are the stewards of investors’ public trust. The public puts its hard-earned savings into investments to secure a better future and investment managers have to collectively raise their voice to institute changes to protect the interests of the public, when company managements don’t respect investor interests.
Credit rating companies, like CRISIL, have demonstrated that the market does value an independent voice. I am confident that the market will value the independent voice of IIAS on corporate governance and accountability to shareholders over time as well.
Indian business is dominated by business families, which typically own over 50 per cent in their companies. They often take the easy route of complying with the letter of the law but breaking it in spirit. Can IIAS bell the big cats? How?
In Europe and the US, a great deal of attention has focused on the separation of management and ownership as well as the board composition, the accountability and responsibility of boards to investors and its dynamics. In contrast, in India, the controlling shareholders have to raise their respect and responsiveness to other investors to continue to attract capital. IIAS aims to play a role in bringing greater awareness of expectations, practices and behaviour towards non-controlling investors.
How has been life after S&P. Is the IIAS investment part of your homecoming plan?
Taking the helm of S&P as the crisis began and leading it through the crisis and having had the opportunity to make a difference has been professionally exciting. S&P plays an important role in the global markets and contributes to the economic and policy dialogue globally. Having led S&P to transform itself while serving this important market purpose has been a privilege. I am now looking forward to making contributions to businesses like IIAS that also serve an important role and purpose in raising the country and the market’s future economic potential, through independent research and transparency.