ForumIAS announcing GS Foundation Program for UPSC CSE 2025-26 from 19 April. Click Here for more information.
ForumIAS Answer Writing Focus Group (AWFG) for Mains 2024 commencing from 24th June 2024. The Entrance Test for the program will be held on 28th April 2024 at 9 AM. To know more about the program visit: https://forumias.com/blog/awfg2024
News: SEBI has recently announced that company boards need not compulsorily split the posts of chairperson and managing director between two individuals. This choice is “voluntary” now. This was a roll-back of a directive issued in 2018.
Why this decision of SEBI needs to be analyzed in the context of corporate governance?
One, in India corporate structures are family-owned, and they dominate the business arena. Hence, the ideas seem inappropriate in this context.
Two, the split idea was floating around for four years, and space was opened for political rent-seeking as corporate groups lobbied for relaxation. In this sense, it will worsen crony capitalism.
Three, the empirical evidence shows that offenses can still occur in companies where those posts had been separated. For example, NSE.
Four, there is another issue whether this rule now is reversed for banks, where role-separation has been in force for some time but failed to prevent scandals like those at Yes Bank and ICICI Bank.
For example, the case of BharatPe. The discomfort of its board with its founder and chief recently led to his temporary exit. Also, there were reports of toxic work culture, irregularities that were uncovered by a forensic audit, and internal talks over a possible equity-sale deal for his final departure.
Five, violation of laws at the NSE shows that board members were involved who had the fiduciary responsibility of monitoring, fixing, and reporting lapses and violations. Hence, the recent SEBI norms need to be analyzed in this context.
What is the way forward?
The BharatPe case will test how regulators, financiers, and the government tighten the frame of governance for startups. Regulators should seek to balance the need for startup flexibility with that for best practices and accountability. It should become the normative regulatory approach for all companies in the country because investor trust is vital to India’s economic success.
Source: This post is based on the article “Corporate governance is a pot on high-heat again” published in Livemint on 21st Feb 2022.
