Sound Corporate Governance for Company Branding

A company is a separate legal entity from its promoters .It’s an artificial person created by the process of law. And all those who contribute their money in it are its legal members who have a say in its functioning .Firstly, a company is capable of owing, enjoying and disposing of property in its own name. Secondly, there exists a corporate veil in between the company and its members, which makes it distinct from its members. Thus, following the Company law is the basis of ethical practices for successful corporate governance-the relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy and rule of law.


Good corporate governance will ensure and create an environment in which its shareholders, institutional investors, employees, and customers will feel that the values and principles of the caretakers of the company, such as the chair person, director and company secretaries, are real. But the trouble is that it is not so easy to do this and it takes blood, sweat and years of toil to build a reputation. And it is in the hands of company’s leadership perse promoters, chairperson, directors and company secretaries to build this reputation and follow ethical practices objectively, carefully treading through nepotism and defeating competition through their professionalism, keeping business separate from emotions. And it becomes even more important in this globalized and liberalized economy, where you have people around the world as your stakeholders and competitors, and media is so sensitive, yet powerful, to make or break your reputation with news manipulation and lobbying.


Coming to the latest Satyam-Maytas issue which gave rise to this whole debate on corporate governance. The fact that the promoters of Satyam who hold less than 10 per cent stake in the company, went ahead with the deal to take over Maytas Infrastructure, without the approval of its minority shareholders, just because it was “not required as per regulations (under company act 1956)”, shows that corporate governance was not exercised in “true spirit”, and yet again, brings to surface, loopholes in the system.


The proposed deal to buyout 100 per cent stake in Maytas Properties for $1.3 billion and 51 per cent stake in Maytas Infra for $300 million came as an albatross around the neck of stakeholders. The deal, had it been closed, would have siphoned off all the surplus cash on the reserves of Satyam, which is estimated to be $1.1 billion. The acquisitions would have helped the Raju family with $570 million (they hold a 35 per cent stake in Maytas Properties and 36 per cent in Maytas Infra), while draining Satyam’s cash reserves and leading it to raise $400 million of debt, not to forget the debt that would have added to its books on account of the acquired entities.


And according to Mr. Raju, the promoter and chairperson of the Satyam, the reason for the deal was to reduce the risk of the business of the company, where IT/ITES is its business object. But to diversify so drastically at a time when IT companies are trying to storm through this global slowdown is bewildering. According to the experts, not only was this the problem, but also companies under acquisition were overvalued, So was this the act of siphoning off the funds by promoters for the personal benefits or a long term strategic planning, keeping in mind the objective of maximizing shareholders wealth?


Whatever might have been the objective, but undoubtedly, it has put a question on the credibility of ethical corporate governance practices followed in India at large. On one hand, India is being praised all over the world for outperforming its competitors in this global melt down. When the intelligentsia talks about privatizing many government departments and outsourcing work to the corporate sector, which is representing the brand India at a global level, for their smart management practices and professionalism, then such irresponsible steps taken by one of its associates can ruin its brand. It is shocking when it comes from a world’s renowned company of the IT sector; the sector which is a feather in the cap of Indian Inc. and is one of the biggest contributors to its GDP. As our elders always say, “it takes blood, sweat n years to build a reputation but seconds to ruin it.”


It’s not for the first time that a company has taken a decision without share holder’s approval. They got away because retail shareholders were not organized in any association and are scattered and don’t hold any powers. And domestic institutional investors usually adopted an accommodating attitude; in short, they were there for namesake, usually like a puppet in the hands of promoters. But now, times have changed. And with a liberal economy, there are foreign institutional investors who believe in stringent corporate government practices and who revolted and made hue and cry when the media added fuel to the fire .As a result, now these FII’s are planning to dump the company by selling their stakes because of a breach of trust with Satyam’s rivals.


What’s in store in the fate of Satyam, nobody knows, but yes, it proves that anybody can get away with loopholes in the law, and the standards of corporate governance exist only in books, not beyond that. It also brings in light, the importance of a good company secretary, who is not just the company secretary but a chief ethics officer as well, who should be above everybody in professionalism, who should give sound advice and independent judgments for a brighter future of the company and the country. After all, it’s all about the brand image of India Inc., not just of one company.


Khushboo Luthra



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