Corporates should be more proactive in checking insider trading

The Financial Express, Tuesday, July 24, 2001

With decision makers in the corporate sector getting embroiled in controversies, fear and scepticism reigns the stock market and business channels. Ensuring transparency and quality of corporate governance, according to Dr Madhav Mehra, international management expert and chairman of World Quality Council, is the only hope to rid the corporate sector of the crisis and regain lost confidence. In the interview with Tarun Narayan, Dr Mehra spells out some of the challenges, solutions and initiatives that business establishments would need to undertake to enforce a wholesome corporate governance mechanism. Excerpts:

In India what are the factors acting as deterrents against enforcing corporate governance?

There is a lack of strong-willed legislation to convict those corporate professionals from the top hierarchy who are accused of malafide indulgence, like insider trading. The laxity in implementing strong legislative strictures or punishments acts as a major deterrent. In advanced western nations, chairmen and other top-level officials, if caught in the act of indulging in insider trading, get convicted and even face rigorous imprisonment. Sadly, in India, we do not have such a precedent. The corporate establishments themselves are not proactive enough to institutionalise a complete and flawless system of business functioning leading to good corporate practices.

What are the major implications that corporates and economy suffer from as a consequence of non-enforcement of transparency?

There is a flight of capital and investments to Southeast Asian nations. Foreign investors are no longer fun ding their way into Indian corporates due to the lacklustre image and lack of credibility of some of the Indian corporates and financial institutions. The stock market has gone into depression with bourses consistently registering all-time low since the past few months. The confidence of the ordinary shareholders, too, has been dwindling by the day.

With structural limitations how can an effective corporate governance concept be implemented?

There is no paucity of judiciary provisions to castigate the offenders and usher accountability in corporate functioning. It is just that the provisions are not being implemented with the much needed resolve and speed. Hence, applying legal solutions to take the crisis to its logical destination would be one major solution. Second, corporates themselves need to wake up to the efficacy that value systems, like probity accountability, honesty and integrity holds, to ensure a transparent a smoothly-run business enterprise. They should realise that a corporate not just accountable to the shareholders but also t o employees, customers, suppliers and lenders. The need to bring into action a collectively participatory system where each if the mentioned organs feels a sense of belonging towards the organisation. This would facilitate a genuine contribution from the multiple communities directly or indirectly linked wit the business operations. They would lead to progress in the business, optimism in the market and rise in GDP due to higher production and income and thereby a macroeconomic progress in its integrated finality.

What modus operanti do you suggest to involve employees as part of the decision making process.

The directors and the other honchos of the company should not underestimate the capabilities of the employees when it comes to the decision making process. In the same vein. It is also important that the employees are sensitised to the boundaries that they should not transcend. There should be a single minded and clear communication to all the employees across hierarchies of the business and social objectives that the company is planning to execute. This would make all the employees not just focus on the jobs but also assist organisation in embarking on rational decision making initiatives.