Tighten corporate governance and protect investors’ interests

Governance issues have hit Indian companies over the years. Several promoters have misused investors’ funds to their personal advantage and hugely profited as a result. The latest to hit the headlines is the Fortis group, a major healthcare brand in India in which, allegedly, the two brothers – Shivinder and Malvinder Singh, the founding promoters who were directors of the company — skimmed away Rs 473 crore and were reportedly caught red handed by the auditors, Deloitte, which refused to sign off on the company’s second and third quarter results.

If a Bloomberg report is anything to go by, corporate governance with specific reference to ‘related party transactions’ is the big issue that hit the Fortis Healthcare after the promoters took out the funds without approvals from shareholders and the board of directors. This has led to the resignation of both Shivinder and Malvinder Singh from the board of Fortis Healthcare even as they have put up a strong defence contending that they committed no wrong. That has not prevented the Securities and Exchange Board of India (Sebi) chief Ajay Tyagi from ordering a probe against the Fortis group of companies. The contention made by the healthcare giant that ‘giving out’ Rs 473 crore was part of ‘regular treasury operations’ has not cut ice with the market regulator.

Yet another company that has come under the market watchdog’s radar is Religare Enterprises following a case filed by Japanese drug giant Daiichi Sankyo seeking huge relief in the Ranbaxy deal that went sour. If the case goes the Daiichi way, the Singh brothers may have to fork out at least Rs 3,500 crore and Religare too will take a hit at the cost of investors, other shareholders, banks and financial institutions. Again, Fortis Memorial Research Institute based out of Gurgaon was recently in the limelight after a seven-year-old dengue patient was charged Rs 16 lakh over 15 days.

Governance norms have been set for Indian companies under the Companies Act and, in particular, clause 49 in the listing agreement with the stock exchanges clearly spells out the promoters’ interests, their holdings, decision-making norms and such. Most large companies that started off as family-owned businesses face huge problems where some promoters have been known not to distinguish between the firms’ finances and their own funds. Given that they also occupy top positions and take key calls on deploying finances, there are situations where investors end up getting a raw deal. Several committees set up by Sebi have made a clutch of recommendations to resolve these problems but they seem grossly inadequate in protecting investors’ interests, especially in listed companies, against predatory personal interests pursued by promoters with unabashed arrogance.

The Kumar Mangalam Birla Committee in 2000, N Narayana Murthy Committee in 2003 and Adi Godrej Committee in 2012 had come up with elaborate governance norms for India Inc. The present corporate governance norms are the result of deliberations by these committees. Yet another committee — the Uday Kotak committee — that was tasked to further review these norms has submitted its recommendations.

The biggest issue was monitoring the large number of companies, taking pro-active action against violators and ensuring that independent directors played a positive role vis-à-vis protecting investors’ interests rather than succumbing to promoters’ demands for a consideration. The happenings at Fortis could be the proverbial tip of the iceberg. A nationwide debate on the issues of corporate governance needs to be initiated to evolve a wider consensus on the role of promoters, boards of directors and independent directors. Transparency, accountability and ethical performance are the key to a sustainable and strong corporate India.