CNV3-I1-1-Editorial

We are pleased to release this June issue on the theme of Corporate Governance. Hope, the readers will find this interesting reading. We are thankful for the articles from industry professionals from the leading corporate houses to release this issue in time.   Today both IL&FS and ICICI Bank, which are professional organisations are going through a crisis and have been making headlines in news for their corporate governance practices. Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled which involves balancing the interests of a company's stakeholders. A few news in the recent past about corporate governance and boardroom ethics raised questions in mind of shareholders and other stakeholders alike. The dispute in Tata Group with the ouster of Cyrus Mistry has focused attention on corporate governance, the role of independent directors and need for company disclosures. When such corporate governance issue crops up the validity of the existing regulatory structure is put to test.   The second case was of Welspun India, wherein US-based retail chain challenged the company’s claims of supplying bedsheets with 100 percent Egyptian cotton leading to breaking business relations. The company after that announced that it had appointed a member of the Big Four audit-cum-consulting firms to examine the claims and to settle the issue. These two recent cases raise some questions in the area of corporate governance on corporate communication and management structure   The third case was on the merger between HDFC Standard Life and Max Life. The deal involved paying Max India promoters ₹850 crore in non-compete fees in addition to the promoter group holding 6.5 percent in the merged company. The non-compete fee was the question of corporate governance due to an imbalance in compensation between shareholders of two companies. Here comes the role of the board to discharge their duty in safeguard the interest of minority shareholders.  The fourth example is the merger between Aditya Birla group firms Grasim and Aditya Birla Nuvo (ABNL). Minority shareholders in Grasim believe this merger will end up diluting non-promoter shareholding substantially. In addition, it will also expose them to ABNL’s financial services and telecom businesses and, both of which are capital soaking investments.  The above examples show the tug-of-war between corporate governance as a moral obligation to safeguard equality between all shareholders, and owner-managers’ entitlement. Corporate governance norms in India were introduced rather late under pressure from FII. However, over the years SEBI continuously developing and fine-tuning the corporate governance framework to deal with sensitive issues in this area.

Dr Vinod Sople,  Chief Editor,  Dean Research, ITM Group