Trust deficit and family pre-dominance in corporate controls
India Inc is not ready yet to give complete management control to professional boards and managers, as majority of the corporate firms have promoters’ holding well over 50 per cent, according to a survey of the Chief Executive Officers.
Even those with much lower stake in India-owned corporations and companies are not willing to bet fully on professionals, said the survey by ASSOCHAM.
“An overwhelming majority of 78 per cent of the 155 CEOs both from professional and promoter driven firms, answered in the negative when asked whether the promoters are willing to cede complete control of the corporate India to independent boards and CEOs”, the survey findings noted.
Trust deficit and the family pre-dominance were the two of the main plausible factors coming in the way of transformation of India Inc where the day to day operations are insulated from the principal shareholders or group of shareholders like in the US.
In the companies which are being run by the professionals in the US and some other developed economies, it is not as if the promoters keep completely away from their firms.
Instead of direct intervention, the promoters’ oversight in those economies is through institutional routes like a strong regulator and tough disclosure norms, high standards of corporate governance and activism even on the part of retail and small shareholders who can hold the professional managers accountable from time to time.
Sixty-seven per cent of the respondent CEOs said trust deficit between the promoters and the professionals creep in even among the few promoters who have taken a lead for handing over their companies to the professionals.
On the other hand, over 75 per cent of the CEOs in the survey said, the family dominance is a major factor for keeping the professionals away from the top managements.
“One must give credit to N R Narayanmurthy for continuing with his belief that Infosys must be run by the professionals despite the fact that the experiment has failed once. His firm belief in shareholders democracy and high standards of corporate governance would be bearing fruits again now that an iconic Nandan Nilekani has taken charge as the Executive Chairman”, said ASSOCHAM Secretary General D S Rawat.
However, he said, India needs a few success stories before the professional run boards can enthuse the corporate India for a significant shift.
The Indian economy is yet to catch up with the developed nations as a large part of it is still to join the formal sector. Even those joining the formal sectors from the informal segments would take time to adopt to the global standards.
In any case, the corporate governance norms should be ownership and management neutral. “This would be possible only when we achieve the world class regulatory framework and corporate democracy,” said Assocham. fii-news.com