Let's be Fair

Business Standard - August 21, 2010

When cinema theatres catch fire and it is known that they violated safety norms and yet received municipal approvals, who is the non-executive chairman of the approvals-granting body that has not been taken to task? So why is it considered acceptable to go after the non-executive chairman of a corporate entity where a really disastrous malfunction occurred the likes of which we have just discussed? Is it because the corporate world is seen to be more deliberately callous, more wilfully destructive, more malafide in its intentions than every other sector of society?

Yes of course the legal system must do its job and the wheels of law are turning in the cases file against the non-executive chairman of Union Carbide at the time when the Bhopal tragedy occurred.( Interestingly, no proceedings seem to have been instituted against the rest of the non-executive board at that time. Who are they, and why do the media, government investigating bodies and NGOs not hold them all equally accountable? The non-executive chairman is the first among equals but the entire board carries collective responsibility.) But it is the tone and tenor of the discussion that is taking place in the public domain that simply isn’t fair, and reasonable - it sounds a whole lot like scapegoating. If this is, as a prominent BJP politician called it, corporate manslaughter, then are all the other cases we just discussed not government manslaughter? When intelligence reports are received and not acted on and people die, what label should that be given? Clearly, there are different metrics for accountability for different sections of us.

Can we please also bring some reasonableness into the discussion about independent director culpability when things go wrong in a business? The views range from “they are all crooks who are actively hand-in-glove with the low-integrity management to help steal company money” to “ they are just a bunch of dummies and the only time they open their mouths at a board meeting is to pop a cashew nut ”. After Satyam, a government official I met asserted that all independent directors must have colluded otherwise how could this have happened. Yet when scandals break out in large magnitude in government, we don’t assume that everyone in that government department was actively involved in them. The reasonable view is that any check and balance isn’t perfect but can decrease the probability and frequency of unsavoury incidents. Terrorist incidents do occur despite intelligence networks and planes do crash despite sophisticated radar and instrument landing systems, but the conclusion is not that these are all useless equipment and should be thrown away.

This paper ran a column saying that independent directors could walk out of all Indian boards, and India would not be worse off. That is naive. Not understanding the role of independent directors and going after them will force out all decent men and women from this pool, and then we will have much more to worry about. When I hear many people of my cohort say that it is time to step off all boards, why take the risk and be exposed to such things, I tell them that participating in board governance is equivalent to jury duty that some countries have - you just have to do it. Sometimes you get paid well for this sometimes you don’t. Yes, it is tough when you have cases filed against you because of a cheque bouncing or huge tragic accidents or a super scamster MD. But to walk away isn’t helping build institutions either. Let’s work on this problem. Let’s be reasonable in our discourse and not bay for the blood of a non-executive chairman, even as we let the rest of the ecosystem go scot-free. While many in corporate India would agree with me, most would caution that discretion is the better part of valour in matters where the government is involved. But I think that assumes that our democracy is far less liberal than it actually is!

The author is an independent market strategy consultant.