Corruption in India and Corporate Governance

In the backdrop of Mr.Anna Hazare's heoric fast  for Jan Lokpal Bill which ignited the imagination of middle-class, I wanted to bring a related but less-talked about aspect of corruption in India. Corruption in Govt offices has got media glare and rightly is the subject of Jan Lokpal Bill. But the part that is left out is the truth that the money that corrupts the Govt. offices largely come from corporate sector. Many of the corporate heads would argue that a company has only one goal: increasing shareholder's value. To increase shareholder value, company must grow revenue and profit. Faster the growth [compared to its competition], more the value returned to its stakeholder. When there is cut-throat competition in the market, growing faster than others require the company to find means to influence the decision-makers overtly and covertly . When everything is transparent, companies have no option but to play by rule but when the enviroment is opaque with many hidden rules, a company will have to use those hidden rules to grow faster than the others. So it is really the stock market that drives the corporate use unconventional means and sometimes cross the line.
Is that a good defence? The answer will change depending on which side of the line you are. But reality tells us that across the world, corporates often failed to live up to high ethical standard when the going got difficult for them. The case of Enron, Financial Crisis in US and Europe, Global Trust bank, Satyam and many more in India tells us that there are far too many instances to gloss over.
It is common knowledge that in any electoral democracy, the cost of electoral campaign is borne out of corporate donation to a large extent. Now why would a company donate for a candidate? In the corporate world free lunch as a concept does not exist, let alone a freeloader. So when a company spends money on a candidate it is imperative that it expects something in return and there the story follows. Further corporate dole follows dole to the company through Govt. policies and omission of statutiory procedures. Gradually the symbiosis between corporates, bureaucracy and political powers grows and slowly takes over every function of Govt. aparatus. There you have a working model of modern-day electoral democracy.
It is obvious that without a cleaner corporate governance, the nation cannot aspire to bring down the menace of corruption. How does the Indian corporate sector look at this issue?  Here we have the 2010 survey report titled "Enhancing Transparency and Accountability in Indian Corporates" from KPMG and ASSOCHAM. One of the startling data that this report throws is

•  75% of the audience said that Fraud in Corporate India is rising
• 45% said that suspected/actual Fraud in their organizations are rising

"Weak internal control systems, eroding ethical values and a reluctance on the part of the line managers to take decisive action against the perpetrators are cited as the most vital underlying reasons for fraud being on the rise.", the report said.
It clearly identified that in India both regulation and ethical standard is less stringent and is a weakness in the system. This table provides an intersting comparison between India and US [borrowed]

Aspect of Governance	India	US
Board Performance evaluation	Recommended	Mandatory
Whistle blowing	Recommended	Mandatory
Executive sessions of Independent Directors		Mandatory
Disclosure of Board/committee charters		Mandatory
Majority Independent Directors	50% only if the CEO is board of Chair	Mandatory

As it is evident in India many of the crucial aspect of governance is not mandated by the Law. KPMG survey identified the weak regulatory mandates and low respect for the shareholding community as two major reason behind the poor accountability in Indian Governance structure. Many of the Governance failures are attributed to scenario in India where the promoter/owner override is an accepted norm.
The report ended with few recommendations. Many of those are about incorporating and strengthening Independent board members. The Ministry of Corporate Affairs (MCA) has proposed the New Companies Bill which aims to improve corporate governance by vesting greater powers in shareholders. Additionally the proposed Companies Bill heralds an era of shareholder democracy through an emphasis on self regulation, minimization of regulatory approvals and, increased and more transparent disclosures.
Shareholder activism is unheard of in Indian context but that is the way forward if we are to get rid of corruption/unethical practises in corporate sector. Here the middleclass really can make a lot of difference since most of the corporate workers belong to this section of the society.