Corporations pay a heavy price for secrecy and opaqueness in operations

Last Updated: Wed, Dec 12, 2012 21:32 hrs

There are quite a number of corporations in India and abroad that have excelled in incorporating the values of good governance. It is equally true that there are many companies across the world, which have “trust deficit” in complying with the norms of governance. And yet, there is an awareness to permeate good business practices in the global space. Sarbanes-Oxley Act 2002 of the US was a direct response to corporate and accounting scams, which created consternation in the western world. The financial meltdown that triggered in 2008 reiterated further tuning up of the corporate governance system to protect the interest of the stakeholders including ordinary investors.

One of the positive bye-products of these systemic failures is the focused attention that corporate governance is being assigned across geographies. Specialized organizations have sprung up to undertake research on the abstract conundrums of the corporate governance. That has resonated in India as well. The new Companies Bill, is designed to bring about far-reaching changes in the corporate space.

There is a philosophical underpinning to corporate governance. Corporate laws and standards vary from country to country. Historically, we have a maze of country specific laws that govern corporations. Legally conducted transactions in one country may fall into the realm of illegality in another. At a time corporations are going global, it is necessary that we develop global standards for governance. That will serve twin objectives. One, it would lead to integration of best business practices into host country’s legal framework and, two, it plugs the loopholes for manipulation and mismanagement. For instance, Sarbanes-Oxley Act can be a role model for developing countries to evolve a framework for plugging the loopholes in the corporate laws. Similarly, the ecosystem developed by Malaysia and Indonesia for healthy dialogue with the stakeholders while implementing infrastructure project s can be effectively put to use in other emerging economies, where many projects are on hold on account of the resistance by the affected parties. It is heartening that the policy apparatus in India is attempting to evolve a system for making stakeholders permanent beneficiaries in case of their displacement while implementing a project.

Good governance is good business. That helps corporations to minimise wastes, enhances its brand image and to emerge as a respected corporate citizen. The new land acquisition law proposed in India would be able to deal with the issue of land acquisition for large mining, steel, infrastructure and other projects, which would pave the way for implementation of various projects which are currently stuck due to non-availability of land.

Coming to the issue whether MNC’s dilute corporate governance standards in emerging economies, some perspectives have to be flag marked. First, there is diversity in corporate and tax laws in a developing and developed economy. Second, business practices vary from one country to the other. Third, the regulatory systems in the respective economies are at different stages of evolution. Fourthly, the degree of political will that the country commands to address the vexatious issues emanating from corporate governance vary from each other.

While our effort should be to evolve a set of best business practices that can be universally applicable, it is historically proved that corporations, which operate in secrecy and opaqueness, pay heavy price and become extinct sooner or later. It is immaterial whether they belong to the first world or emerging world.

Shourya Mandal 
President, Indo-American Chamber of Commerce

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