BEST PRACTICES IN GLOBAL CORPORATE GOVERNANCE AND RISK MANAGEMENT

A panel discussion jointly organized by
NASSCOM & AMCHAM

Date: Tuesday, February 24, 2009 from 6:30 pm onwards
Venue: Mowbray’s Hall, ITC Park Sheraton Hotel & Towers

Distinguished members of the Panel

• R. Seshasayee, Managing Director, Ashok Leyland (Moderator)
• John Klein, Chairman of the Board of NASDAQ-listed Cognizant
• Troy Beatty, Sr. Counsel, Office of International Affairs at US Securities and Exchange Commission, Washington D.C.
• N. Vittal I.A.S. Retd., former Chief Vigilance Commissioner, GOI
• G. V. Ramakrishna I.A.S. Retd. , former Chairman, SEBI & former Chairman, Disinvestment Commission

The Executive Committee of the Amcham Tamil Nadu Chapter under the stewardship of Mr. R. Ramkumar, Chairman of the Chapter had decided to organize a high profile event on Corporate Governance. The EC also decided to partner with NASSCOM and to invite Amcham members and NASSCOM members for the panel discussion. Entry was by invitation only and restricted to CXO’s, COO’s and CFO’s.

Objective:
• To create an awareness of Corporate Governance to members
• To share the best practices of Corporate Governance to the industry

Summary: The program begun in the evening with the presence of almost 60 key business leaders from the industry.
The opening remarks by the distinguished members of the panel set the tone for the discussion and exhibited the ground reality and significance of Corporate Governance in the industry. Mr. Troy Beatty, Sr. Counsel, Office of International Affairs joined the panel discussion via video conference from the US Securities and Exchange Commission, Washington D.C. The panelists had a serious discussion from various perspectives of the matter.

The key observations were:
• The role of the Independent Director on the Board of Companies and that the appointment of Independent Directors has to be made more transparent and in a manner that the person is not beholden to the promoters of the company.
• The first line of defence against poor management is a good board of directors. In the past, there have been too many instances where the board has not been independent of the executives, and has been supine in its exercise of the role which has been vouchsafed it.
• The directors have been content to collect their fees for attending undemanding meetings where their opinions do not count for too much. In many cases they owe their appointment to the CEO and are unlikely to rock the boat. That includes such people as the CEO’s brother, or even their spouse. In their own minds they may well feel they are truly independent, but the outside shareholder cannot depend on them always putting their relationships behind them when the chips are down. The same goes for very long-serving directors. We have all seen cases where someone who has served for many years on a board becomes part of the establishment. It is very difficult for people to avoid building strong personal relationships with colleagues with whom they have worked for many years. Good relationships and good stewardship by a director are not incompatible, but there is a point at which so much of the grit has been eroded that the director becomes more of a lubricant than a real tester of management.
• The role of the independent director has become a feature that is common to all the recent governance codes around the world. Recent improvements in the definition of the independence of directors have been an important step forward.
• The role of the Statutory Auditor does not match the expectations of the retail stakeholder and other players in the market place. Forensic audit is an expensive proposition and is resorted to only when the statutory auditor feels that everything is not hunky-dory. Audits largely depend on the information provided by the management and as a corollary it is important that management controls are in place and reflected in the reports submitted by the Internal Audit team.
• Regulatory Agencies have put into place regulations for the smooth operation of companies which would not lead to a conflict of interest and be in compliance with the controls in place. Regulations are framed for honest business practices and not for aggressive enforcement. The laws in force are transparent, provides for accountability – “You cannot legislate for honesty” was highlighted. The current thought in views of the recent developments in this area lends credence to “When in doubt – disclose”.
• The Sarbanes-Oxley Act was drafted and passed in a very short period following the eruption of the Enron and WorldCom scandals. The introduction of criminal sanctions for directors who knowingly sign off false financial statements has certainly concentrated the minds of boards in the United States and beyond. The extra-territorial effect was not a consideration to the US Congress when it passed the measure, but it has had a negative impact on the desirability of foreign companies with a representation of any sort on US markets. If Sarbanes-Oxley is to be the only serious legislative change resulting from the collapse of one of the biggest bubbles in world history, investors and companies should consider themselves relatively fortunate. The Securities and Exchange Act was passed and the Securities and Exchange Commission set up after the 1929 crash.
• The role of senior corporate managers in ensuring that standards are well defined and practiced in an organization will reflect on the health of the balance sheet. These standards begin right from the stage of recruitment of an employee to the preparation of the balance sheet of the company.
• It has been observed that frauds happen despite the best practices and current regulations in force. One of the reasons why frauds continue to happen is because of the “value conflict” that creeps into the highest echelons of management. An executive or promoter does not set out to work diligently to commit a fraud.

However, frauds happen due to the numbers game that he is up against:
• Firstly to manage the numbers
• Secondly in making the numbers and
• Finally in making up the numbers

The discussions ended with an interactive session with several interesting questions posed by the invitees to members of the panel. All questions to the panel and the responses were well received and led to a very educative and thought provoking session.

Cocktails and dinner followed along with one to one interaction and networking.