Resolution, not revolution, is the current need of corporate governance reforms: Uday Kotak

Kotak Mahindra Bank Managing Director Uday Kotak said that the unacceptability of the status quo was the main tour de force behind the SEBI-led panel's suggested reforms for corporate governance.

At a seminar titled “Revising regulation — the challenge and the opportunity”, Kotak spoke of the various hurdles and grey areas that arose as he headed the committee that looked at providing recommendations for improving corporate governance.

Under Kotak, the SEBI-led panel had filed in a report titled "Report of the Committee on Corporate Governance"  that aimed at to improving corporate governance.

The committee's recommendations in the report are aimed at “resolution and not revolution” in corporate governance, so as to give people time to carry out the required changes in their governance profile, he said.

Kotak drew parallels with the raja-praja parable, where the promoter as well as powerful professionals like CEOs, should not carry out any disproportionate bidding in favour of the management given their considerable power.

The orientation of the management towards short-term goals, focusing only on quarter-by-quarter numbers was also a cause of concern of concern for the members of the committee. It had debated on the need for management and the board to create an agenda to behaviour supporting the long-term vision for companies in India.

In a bid for more transparency in corporate governance, regular interactions between management and the stakeholders is an important reform that was needed to be carried out, Kotak stressed.

Also board members, over the period of five meetings, should decide and release the information surrounding the decisions taken in core evaluation, succession planning, as well as deciding the short-term and long-term vision of the company. Currently, board member-stakeholder interactions take place once or twice in year, he said.

The committee had also debated on whether the time has come for sharper lines to be drawn between the roles of management, the board and the shareholders. In light of this issue, the role of a non-executive chairman vis-à-vis the CEOs was also put under scrutiny.

The responsibility of the third party fiduciaries — that is, the Auditors — was also put up for review by the committee. Kotak believes that “In India, the third party fiduciaries may not be taking their responsibilities as seriously, due to the wider ramifications of their signature“ and debated on how to make to make them more accountable.

He brought to light cases the Auditor stated that only listed companies came under the Auditor’s purview, but in the case of certain companies, close to 80-90 percent of the companies’ income comes from the non-listed companies. This compromised the standing of the minority shareholders, he said.

The report also spoke of the overlapping responsibilities of the regulation of the unlisted companies ,taken up by the Institute of Chartered Accountants of India (ICAI) and the listed companies (taken up SEBI) On a parallel side, the report also took into the consideration of the regulatory scanner of SEBI does the Ministry of Corporate Affairs (MCA)

The accountability of Public Sector Undertakings (PSUs) listed companies to the “three C’s” which are the CBC, the CAG and the CBI was also discussed where even private companies must come under the ambit of these three Cs was also a point that was considered for equality in accountability.

Kotak also pointed out that if such PSUs were taken away from their administrative obligations to the Government and allowed to function under a separate holding company, these companies would reflect more worthy valuations of the nation’s assets on the exchanges

Moderator M Damodaran questioned the validity of the release of reports on a quarterly basis for the benefit of shareholders to which Kotak stated that the need of the hour was for greater transparency.

He also stated that there should be a stabilization of the accounting system and the quality of auditory assessments by third-party fiduciaries would make for true transparency.