There is never a dull moment with issues of corporate governance in India. Boardrooms and living rooms have been equally spell-bound by the latest revelations emerging from the country’s premier bourse, National Stock Exchange (NSE), that an ascetic was said to have guided its management with business counsel and regulatory advice. The NSE is expected to act as our stock market’s first point of control, a preliminary regulator before the legal oversight exercised by the Securities and Exchange Board of India (Sebi). Yet, forensic reports on the NSE’s operations and governance offer disturbing evidence of multiple breaches, raising the spectre of a first-stage regulator in need of close supervision. Infractions at the NSE—which was accused in 2015 of an alleged split-second early-data edge given to some traders—go beyond the misdeeds of one person and implicate board members who had the fiduciary responsibility of monitoring, fixing and reporting lapses and violations. With a long rope granted to the exchange’s top executives, its board apparently betrayed the trust of shareholders whose interests they had to protect. The recent Sebi report that has focused attention on the sway held through email by an address-less mountain dweller, sadly, does not help solve the bigger jigsaw of what went on.
This ties in with Sebi’s announcement last week on institutional norms that company boards need not compulsorily split the posts of chairperson and managing director between two individuals, with this choice “voluntary" now. This was a roll-back of a directive issued in 2018. Three points are worth raising here. One, the idea itself seemed a bit inappropriate in the context of corporate structures where family-owned firms dominate our business arena, especially with such a long record of entrepreneurs who run their own businesses. Two, with the split idea floating around for four years, space was opened for political rent-seeking as corporate groups lobbied for relaxation. Sebi, in that sense, could be viewed as having wittingly or unwittingly worsened crony capitalism. But, finally, the proof of the pudding lies in the empirical evidence of offences occurring in companies even where those posts had been separated, with NSE a prime example. All this raises another question: Will this rule now be reversed for banks, where role-separation has been in force for some time but failed to prevent scandals like those at Yes Bank and ICICI Bank?
Elsewhere, another drama of corporate governance is playing out that will not only test the resolve of Sebi and the Reserve Bank of India, but also determine the future governance framework for technology startups. Consider the dirty laundry tumbling out of the closet of payments company BharatPe. The discomfort of its board with its founder and chief recently led to his temporary exit, amid reports of a toxic work culture, alleged irregularities uncovered by a forensic audit of its finances, and of internal talks over a possible equity-sale deal for his final departure. How this case is resolved will test how regulators, financiers and the government tighten our frame of governance for startups. Hopefully, regulators will not resort to a tick-box approach, but will seek to balance the need for startup flexibility with that for best practices and accountability. In fact, that should become the normative regulatory approach for all companies in the country. The cause of investor trust must never get short shrift. It’s vital to India’s economic success.
