Regulation necessary but not sufficient for corporate governance: J N

Regulation necessary but not sufficient for corporate governance: J N Gupta

Last Updated: Sun, Dec 16, 2012 23:02 hrs

Stakeholders Empowerment Services (SES) is the newest entrant in the Indian corporate governance space. But within a short period of time, it has been able to create a significant impact. The most notable achievement was that it was able to get an overwhelming institutional investor response on a resolution authorising the chief of Jindal Steel & Power Ltd (JSPL) to fix the remuneration of directors. Heeding a call by SES, 97 per cent of non-promoter shareholders voted against the resolution. SES has also actively analysed recent events such as the Wipro demerger and Diageo-UB Group deal, bringing governance issues to the fore.

IIT graduate and former Securities and Exchange Board of India official J N Gupta, founder and managing director of SES, talks to N Sundaresha Subramanian on his vision and mission: Edited excerpts:

Former Sebi officials usually take up lucrative positions in intermediaries after the mandatory gardening leave. What made you take this unconventional step of working on investor issues?
People have different passions in life. I wanted to pursue a passion which has been haunting me for the last three decades of my corporate experience. Companies are the modern temples of growth and prosperity. I intend to contribute my mite to improve their working and, thereby, the prosperity of my motherland.

You don't have the first-mover advantage in this space. There are already a couple of firms with equally impressive parentage. How do you plan to make a difference?
First, one need not be the first mover to serve society. Second, SES is actually the first mover because of its unique value proposition. It is not a standalone proxy advisory firm, as the two others you allude to. SES provides comprehensive services in the area of corporate governance, including proxy advisory, and believes in empowerment of all stakeholders, including the management. For example, it has developed a scientific multivariate corporate governance model to track and monitor the progress in implementation of corporate governance in a company. But it does not have any kind of association with any listed company and, thereby, avoids scrupulously all potential conflicts of interest and prohibits any kind of return to its shareholders/promoters. This, coupled with a highly capable and passionate talent pool, holds it in a class of its own. In fact, it is a unique organisation in the world today. As regards impressive parentage, I borrow from Shiv Khera: A balloon goes up in the air not because of its colour but because of what is inside it.

Your campaign against Naveen Jindal received overwhelming response from institutional shareholders, which voted against the resolution. How did you managed this?
From our name, it is clear that we are here for empowerment of all stakeholders. Management is a key stakeholder in a company and it is also our endeavour to empower the management. But we empower all stakeholders to achieve a state of corporate governance where all of them are treated in a just and fair manner. This is what we do in proxy advisory and we did exactly the same for JSPL. It is to the credit of the management of JSPL and its institutional investors that they found value in our proxy advisory.

What are the key areas you want to work on?
Regulation is necessary but not sufficient to promote corporate governance. We wish to facilitate evolution of a conducive regulatory framework for corporate governance, provide the technical know-how and tools and build the capacity for better implementation of corporate governance norms. We aim to create an urge among companies and stakeholders, empowering them to pursue a higher level of corporate governance. In short, we wish corporate governance to be a revolution which will enhance the performance of the corporate, while treating all stakeholders fairly. We are presently offering proxy advisory, corporate governance scoring and education of stakeholders and intend to add more products to our suite, depending on the needs of corporate governance.

Has the Indian corporate sector woken up to the proxy advisory movement? What kind of responses do you get from the companies targeted in your reports?
Market reforms is a sequential process. Our reforms have now reached a stage to welcome proxy advisory. This is evident from the demand for our proxy advisory.

This demand would grow very fast if the firms in this space provide objective, unbiased, absolutely free of conflict of interest, professional advisory.This would, in fact, require cessation of all kinds of relationship between the proxy advisory firms and the listed companies.

Sebi wants to bring advisory firms under a proper regulatory framework. What are the pros and cons?
We welcome regulation. This gives trust to users. However, it is a chicken and egg issue. What – proxy advisory or its regulation – should come first? What do you regulate if there is no proxy advisory? How does proxy advisory develop if there is no regulation? In fact, regulation and development move hand in hand in a virtuous circle. We should allow proxy advisory to develop to an appreciable extent to absorb regulation. We should start with feather touch regulation. Having said that, I must emphasise that the proxy advisory firms must have the highest standards of transparency, independence and integrity even before the regulator starts with the feather touch regulation. This is absolutely critical for building the trust.

You have chosen a not-for-profit model for SES. How do you plan to attract investment and quality human resources, which come at a price?
We are a not-for-profit organisation not because it is fanciful, but because it is an absolute necessity for the business we are in. This model enables us to avoid any kind of conflict of interest. This ensures that we work not for our shareholders or promoters, but for a cause. The people who have passion to contribute to this common cause would contribute to the capital of SES and join SES as employees. There is no dearth of such people in India.

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