“Call for a transform in the Mindset”

Professionals need to understand that even passive onlooker can prove dangerous as he can be charged for negligence. At the same time, it does not mean that a professional like chartered accountants should act as a door mat and allow the management to rough ride over him.

Satyam had been a winner of several awards for corporate governance and excellent business performance over the years. It had a board comprising highly respected professionals who never seemed to have smelt the reptile at Satyam. In fact, Management proved the old adage right that, “Corporation is an ingenious device for obtaining individual profit without individual responsibility.” They used the corporate veneer behind which they committed a massive fraud upon the shareholders as also various other stakeholders. The Satyam episode proved that the Corporate Sector has many pretenders.

Where the Corporate sector go?

One thing that cannot be denied is the fact that India’s economic success is tied up with the performance of its corporate sector. While it is true that there are promoters who would like to use the safety and anonymity provided by the corporate veneer to enrich themselves at the cost of other stakeholders, at the same time there are others who work within the four corners of the law.

Transform in mindset

If the corporate sector in India has to experience wide spread success on a sustained basis it is imperative for a change in the mind set of all the concerned players.

a) Mindset of Managements

Over the years it has been observed that concentration of management powers in one or two persons at the top increases the chances of misuse, notwithstanding the fact that there may be a board of directors in place. It would be in the interest of the investors that the position of Chairman and Managing Director is held by two separate persons to minimise the chances of misuse.

However, this does not obviate the responsibility casts on the shoulders of independent directors. While it is a fact that all the independent directors are invited to join the board by the promoters, once on the board they are directors of the company with accountability towards the shareholders and other stakeholders. It is their bounden duty to ensure due compliance without fear or favour, else they could be hauled over the coals and face ignomity. They are not as powerless as it may appear, independent directors collectively enjoy power which is enough to enable them to keep the management on its toes and work towards the desired goals. It is time that independent directors realise that the law is going to hold them accountable for the deeds and misdeeds of promoters in a company and they will not have easy escape routes.

It is time for the Indian businesses to realise that taking public funds for private business cannot be merely a private affair. When a company approaches a stock exchange for listing of its securities, it seeks much more than merely the right for trading of securities on its exchange, which is the obvious and immediate reason. What a company seeks is also a larger profile in the business world and opportunities for raising further funds as and when required by it.

A listed company also tries to project a favourable image amongst the investors and the public at large. Therefore, it is high time that the promoters realise that companies are not meant merely to enrich their own pockets, but they have a larger purpose to achieve. It is imperative for the directors of public companies in particular to believe and act as trustees while dealing with the funds and properties of the company. Hence, to avoid any misuse it is necessary to devise and implement fool proof systems not amenable to misuse by either the promoters or any of the executives. To achieve the desired results, it is necessary for the top management to inculcate the most ethical behaviour in the staff and employees of the company; the best way to do this is for the top management itself to practice what it wants the employees to follow. Unless the company directors genuinely believe that the funds and assets under their control are the trust properties owned by the shareholders at large with several stakeholders having interest in them, it is difficult to reach the goal that every company should serve the larger good. To obviate the chance of any person in the company going astray and misusing the company properties, it is necessary to have strong systems based approach with effective checks and balances coupled with regular internal audit covering all the aspects of good corporate governance.

b) Mindset of Professionals

In the new system of corporate governance, working and practicing professionals like Chartered Accountants have a very significant role to play. It would not be out of place to state that much is expected of these two professions in achieving the economic goals of the country through the corporate sector. A Chartered accountant by very nature of his duties and position gets opportunities of interacting with all the directors of the company. It is his duty to ensure that all the directors are well informed about the role they are expected to play and the rights they enjoy as ordinary directors / independent directors. A good chartered accountant would normally act as an advisor to the board in its proceedings and ensure due and timely compliances.

Certificates provided to the management by a working practising chartered accountant is not merely any other certificate, but it is a document of faith with an underlying promise that all the relevant records have been duly verified and the compliances are in place; it is a document that is based on trust and professional competence and any shortcoming on the part of the chartered accountant can compromise the position of the directors. It is not uncommon to hear of a professional giving a certificate without having verified the records or even being aware of the reality; may be many a times such professionals get away from the law, but they need to remember that the day they are caught it will be all over. A chartered accountant should remember that he has nothing to lose but his reputation which takes a lifetime to build and just one scandal or even a single lapse to lose. Worse could be in store and the professional may even find himself behind the bars for not doing what he ought to have done in a particular situation.

Professionals need to remember that even being a passive onlooker can prove dangerous as he can be charged for negligence. At the same time, it does not mean that a professional like chartered accountant should act as a door mat and allow the management to rough ride over him. The chartered accountant should know where to draw the line and then ensure that the Laxmanrekha is not crossed under any circumstances. While this may sound easy in theory, one should be conscious of the fact that in practice it is not always as easy to take a stand contrary to the boss.

Professionals have to be conscience keepers and ensure due compliance by companies and if need be, should also be the whistle blowers. Accordingly, the professionals have to change their mindset and not be the blind followers of the management but exercise professional discretion while discharging their duties.

Ethics and Good Corporate Governance

To achieve the desired goals of good corporate governance there is a need for a change in the mindset of all the concerned players. However, all this would be of little consequence unless the business is carried on ethically. While it is important to ask, ‘Is this profitable?’, more important is to ask ‘Is it right?’. Asking such a question itself would reflect a change in the mindset. It needs to be remembered that credentials today run far beyond the financial numbers, while nobody will deny that turnover, growth and profits are important, but should they be at the cost of ethics and integrity. Should credibility be sacrificed at the altar of profit with professionalism and corporate governance being good terms.

To paraphrase what Shri Mahatma Gandhi once said, “apart from what a company does,” it is equally important to focus on “how it does it.” Yes, the means are equally important as the goals. We need to reiterate that ethics and morality cannot be given a go by to achieve a goal, else sooner or later the society will have to pay the price. Therefore, it is important to generate trust amongst the employees by creating transparent systems which are just and equitable and intended to serve the large goal of satisfying all the stakeholders.

Conclusion

In short, Corporate having governance could ensure for good governance only by transformation of mind set of management and professionals. It will be impractical to expect the corporate sector to be a lotus even as it tries to keep itself afloat in all the waste around it. If such a scenario continues, not too many lotuses will be there to bloom resulting in all the avoidable gloom.

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