GS Paper 4
Syllabus: Corporate Ethics
Source: Indian Express
Context: Just days after the arrest of former MD and CEO of ICICI bank, Chanda Kochhar, and her husband, Deepak Kochhar, Videocon Group Chairman Venugopal Dhoot was arrested by the Central Bureau of Investigation (CBI) for his alleged involvement in the ICICI loan fraud case.
What was the case about?
According to the CBI, several companies of Videocon Group promoted by Dhoot have been sanctioned loans to the tune of Rs 3,250 crore by ICICI Bank in violation of the RBI guidelines, Banking Regulation Act, and credit policy of the bank.
As part of the quid pro quo, Dhoot allegedly invested Rs 64 crore in Nupower Renewables, a company owned by Deepak Kochhar, through a circuitous route between 2010 and 2012.
Chanda Kochhar was a member of the committee that cleared the loan to Dhoot, the CBI has alleged. According to the agency, Chanda Kochhar abused her official position to sanction the loan to Dhoot.
Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.
Ethical issues with Corporate Governance in India:
- Conflict of Interest: The challenge of managers potentially enriching themselves at the cost of shareholders
- Weak Board: Lack of diversity of experience and background represents a major area of weakness for these boards.
- Separation of ownership and management: In the case of family-run companies, the separation of ownership and management remains a key challenge
- Independent directors
Suggestions to improve Corporate Governance in India:
Recommendations of Uday Kotak Panel:
- Diverse board members: Minimum 6 directors to be on the board of listed entities; every listed entity to have at least 1 independent woman director
- Transparency: More transparency on the appointment of independent directors
- The audit Committee must review the use of loans.
- Robust risk management policies
- Effective governance infrastructure
- Evaluation of the Board’s performance
- Communication: Facilitating shareholder communication with the board is key.
Good Examples by corporates in India: TATA Groups
Tata companies continually aspire to better ethics, just as they are committed to better business practices.
Philanthropic trusts control over 66% of Tata holdings. While the Tata family has a very small shareholding.
Owners, Employees, Customers, and Society
Gandhi’s seven sins also emphasize Corporate Governance:
- Commerce without morality
Q. Explain the concept of corporate governance. Does it have the potential to address the problems of conflict of interest in the business sector? Give your view with recent examples