‘Conflict of interests must be avoided at all costs’

The Uday Kotak committee on corporate governance for listed companies in India deliberated on parameters relating to ensuring independence in spirit of independent directors and their active participation in functioning of the company, improving safeguards and disclosures pertaining to related party transactions, accounting and auditing practices by listed companies, improving effectiveness of the board evaluation practices, addressing issues faced by investors on voting and participation in general meetings, and disclosure and transparency related issues. After detailed deliberations, the committee made recommendations in its very comprehensive report. It is encouraging to see that the SEBI has notified for implementation many recommendations of the committee and some of the recommendations were accepted with modifications.

Given this background and the existing legal and regulatory framework in place the corporate governance lessons for boards are:

1. Have strong and wholesome boards to achieve strategic goals in a transparent, efficient and engaged mode. Any major divestment must be fully valued following on objective, well-laid out, timely and result-oriented process to serve the interests of every stakeholder. Benefits to none of the stakeholders should be affected due to lack of effective process.

2. The process should have the following characteristics:

a. It should be fully backed by consensus at the board

b. It should set goals which are transparent and easy to implement

c. Ensure the right constitution of the decision-making committee with full empowerment

d. Timeliness of outcome must be honoured

3. A board should be aligned with the interests of all stakeholders. This happens by continuous Board refreshment, segregation of positions of chairman and managing director and a very strong secretarial support which ensures regulatory compliance.

4. Conflict of interests should be avoided at all costs. Ethical board members must consciously avoid situations where the benefit is evenly spread without any personal interest.

5. A continuous communication of the progress of the procedure as milestones are crossed should be incessantly made.

With these lessons in place, the vibrant mergers & acquisition market will flourish.