SpeakIn and Indian Banks Association in partnership with Capgemini on Friday presented a captivating session with Infosys founder N.R. Narayana Murthy on ‘Corporate Governance in Indian Banks’. The 30-minute session, which witnessed the attendance of top banking leadership, was presented as a part of SpeakIn’s new series titled ‘SpeakIn Expert Talk’.
Chief Executive of Indian Banks Association Sunil Mehta, all praises for Narayana Murthy in his opening remarks, expressed, “N.R. Narayana Murthy’s prominence is much echoed and vibrated in not just Indian industry but equally by the International business community. He is a man of distinct vision, a fountain of illuminating ideas, and an idol of knowledge, value system, and an inspiration to all of us.”
Introducing the idea of corporate governance, especially in Indian banks, Rajkiran Rai G., Chairman of Indian Banks Association and MD & CEO of Union Bank of India said, “When you talk of corporate governance, primarily we are referring to the code and conduct of decision-makers of a company. It is about set up systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. It is about promoting fairness, transparency, and accountability. It is about commitment to values, ethical business conduct, and making a distinction between personal and corporate funds in the management of a company. While these aspects are known to every management and firm, very few have been practising it in letter and spirit.”
He spoke about Covid-19 challenge, “Last year, in particular, a challenge was posed to all good narratives of the corporate world in India with several high and mighty firms and their distinguished management violating the trust of people. Unfortunately, those entrusted to keep a vigilant eye have not covered themselves in glory either. We needed to build a systemic response in terms of legal architecture and regulatory capacities. A lot has been achieved in these years, however, we need to discover the inherent virtues of business that values ethics, honesty, and integrity over any profit and loss.”
Vishal Dixit, Managing Director of Capgemini Financial Services shared his views, “Last 20 years of corporate governance in banking has changed drastically. Some names that come to mind are Lemon brothers, Enron and if you look closer to home then Satyam. This triggered action and various committees were set up to institutionalise corporate governance and transparency framework in various parts of the world. Strong policies on corporate governance of banks are essential and critical because the size and complexity of financial institutions are growing by the day and if these are not checked it can have serious financial instability implications. Even after so many measures, we still have instances in the banking and financial sector which we have recently foreseen. Clearly, people are finding loopholes in the policies. Therefore, there is a need to have continuous discussions and reviews to identify areas of improvement and make immediate amendments to the policy. RBI released the discussion paper in June 2020 on corporate governance banking, the need to empower the board of directors and set the culture of value transparency in the organisation.”
In a conversation with SpeakIn Founder Deepshikha Kumar, Murthy spoke about how organisations can improve corporate governance and the steps they need to follow to raise its bar. He said, “The most important initiative that we all have to take is to change the culture of the country. Unless there is a cultural transformation in India, I don’t think the economic transformation will be easy to implement. I believe that the culture of a nation determines how its public institutions develop, sustain, and operate. It takes years to make the institutions strong. Even in the countries where institutions are strong, one misguided individual, as we saw recently, supported by the silence of the powerful and the elite can weaken these institutions. It will take a long time to rebuild it. Countries like India, who were under the control of foreign invaders for almost 1000 years, lost the sense of commitment to society. This was because Indians thought that the society, or what was public, belonged to somebody who was either in Europe, Uzbekistan, or Afghanistan. Therefore, Indians focused on making their families strong and plundering commons that Indians considered as belonging to these invaders. This mindset developed over 1000 years and will take a long time to change. Therefore, wealth belonging to a corporate or deposits in a bank have been considered as a perfect gain for plundering by the rich and powerful.”
Murthy added, “The problem of poor corporate governance steps from this mindset. The deficits in corporate governance in India stem from the primary problem of increasing agency cost and related transactions that benefit the owner-managers and professional management. This problem translates to using public resources illegally to make oneself richer. This problem will be reduced when there is a cultural transformation in India. When using public money for personal benefits will be punished heavily and when society ostracises such offenders very severely.
Kumar asked how we get an alignment of all stakeholders in building awareness, implementation, and measuring the effectiveness of corporate governance. Moreover, what rules should we deploy to measure corporate governance? To which, he responded, “First of all, the best way to eliminate such deficits or reduce their number is for a board member to ask if such an action would enhance respect for him or her in the eyes of the society. We have to accept that respect is more important than wealth and power. Second, the board members must be made to realise that they serve to enhance the interest of every shareholder and stakeholder. Today, there is a feeling among board members in India that they operate at the pleasure of either the CEO or Chairman. Of course, there is also a feeling among the bureaucrats that serve the boats of public sector banks that they are not accountable to individual stakeholders, even though they may be in minority, and that they are accountable only to their bosses sitting in Delhi or the state capital. Increasing accountability for every shareholder is important. Third, Directors should not be appointed by the government for listed public sector banks but they should be appointed only by shareholders through voting. These directors must be held accountable to every shareholder. Full transparency must be provided to the report of an investigation of any governance problem taken by any outside agency. Fourth, the board should recuse itself and appoint a set of respected and accomplished members of the society when any member of the board or any of the CFOs is accused. Fifth, SEBI may want to mandate the trading of every incoming board member on the basics of business and governance, give them a test, and then certify if they can indeed be admitted to the board. The candidates for chairmanship must undergo additional training and certification. Sixth, boards have to conduct an annual peer survey among the board members on their performance of each member of the board. The chairman generally sits with each member of the board, discusses his or her performance, suggests remedies for weaknesses, and crops him or her if the performance is not improved after two examinations. The Chairman’s performance is handled by the independent director along with two respected and accomplished members of the society who are experts in that particular business field. Seventh, any deficits created by board members must be punished heavily by drawing back the fee received by the board member and an additional fine should be charged. In some cases, the board members may have to face criminal charges. I believe that if we implement these suggestions, there will be a deterrent for board members and CFOs to indulge in creating corporate governance deficits.”