According to a recent poll of Indian business leaders by KPMG, a majority of Indian firms believe there is a need to evaluate the performance of board members on a regular basis, while 85% of respondents also believe that the CEO’s remuneration should be directly linked to performance.
Moreover, 2 out of every 3 respondents think that Indian companies need to improve their processes for giving Board members the right information and the time to discharge their duties, while a majority also feel that the role of independent directors should be strengthened.
The poll goes on to show that a majority of the leaders surveyed believe that while corporate governance should be practiced through principle-based standards and moderate regulations, there is a need for stronger regulatory review and exemplary enforcement. 73% also believe that risk management processes need to be improved.
Given the events of recent months, this data in itself is not particularly surprising. In country, one might expect calls for increased responsibility and greater scrutiny – it certainly happened in the US after the Enron scandal, across Europe after Parmalat’s spectacular failure… the list goes on.
Inevitably, initial outcry, followed by the political and regulatory establishment needing to “be seen to be doing something” will cause a tightening of the system so that it’s harder next time. The cynic may question whether it is ever possible to regulate the end of such activities, but the ultimate end game – making it harder to do wrong and increasing penalties as a disincentive to those who may be thinking about it – is undoubtedly not only necessary but good for the future of the Indian economy and the global reach of Indian companies. One challenge will be providing enough staying power to these sentiments to ensure that they survive the complex regulatory and political structure in the country, and that they come out the other side effective, rather than just bureaucratic.
Anyone who has worked with Indian companies realises that there are several political and cultural factors that mean that the solution must also be unique for the country. A tight-knit business establishment, a distinct preference for the family-owned, family-run business model, a society that is still substantially cash-based and a number of other distinctive political and cultural factors mean that a SarbOx cut-and-paste simply won’t work (one might be forgiven for asking if SarbOx achieved its objectives for US companies, too, but that’s a topic for my colleagues on the other side of the pond).
Equally important – and just as unique – are the communication needs of the modern Indian company. There are still major organisations that maintain uncomfortable distance from their political and regulatory audiences (for fear of reputation damage, oddly enough); internal communications and communications between business partners remain limited in scope; and many businesses continue to have unrealistic perceptions of the media and how it can be influenced.
While stories of this nature may be quite commonplace (and despite the fact that some leading Indian companies and financial institutions, have corporate governance standards that rival those in any other country), they can add up in ways that damage the images of the companies concerned. And corporate image, particularly in the current economic climate, is important to everything from employee recruitment to stock valuation.
In the face of the recent outrage over corporate governance failures, Indian companies more than ever need a thoughtful and planned approach to the management of their reputations. In the current environment, attention to reputation management and reputation building will contribute to the will and ability to develop world-class governance standards – and indeed enhance the future potential of their global growth.