Round Table on Corporate Governance Mr Salman Khurshid, Minister for Corporate Affairs and Minority Affairs

I am not going to say a great deal because the intention is to be here amongst you and to hear what you say- what you think should be undertaken in the corporate sector? what your aspirations are? what your ambitions are? how high you set your sights for corporate governance?

We are trying to emphasize and underline as we see ourselves in this era as partners of corporate sectors. We see ourselves as partners because we are both committed to the same enterprise and that indeed is equitable growth in this Country and sometimes the emphasis is on growth and sometimes it’s on equity. I only wanted to know that for us what does the idea of governance significance? It isn’t that idea of corporate governance is any way different from the aspiration for governance, in other sectors of human endeavor in our country. There is worldwide emphasis on good governance and indeed there should be an emphasis on good governance in our Country also.

One important thing that was discussed is ‘mistake’, and I think we need to have a mistake theory and this is where the public sector and private sector models come in, we don’t give public sectors a chance to make a judgmental error and its very important in modern management to have scope for genuine error for a mistake theory, people are going to make mistakes when they work. We are very bad in dealing with the men who have made mistakes; we don’t distinguish between inevitable mistake, a judgmental mistake and a mistake due to callousness and incompetent.

I think there should something be said on practical reasoning that still apply to private sectors, what is the way to move forward and focus on models of corporate governance. We still have large public sector and we remain committed to the public sector and despite the purist, there is the classist who continue to believe that in a country like India there will be a continuing relevance of public sector.

You have done a great deal of work on affirmative action, I get a lot of flak for being reluctant to follow the reservation model, I do think the reservation model was a model that served well for specific target audiences at a given time and I don’t think we should overload it. I don’t think we should rely entirely on it, particularly, since more sophisticated and more workable model are available in the world all over. Affirmative action in a broad sense, I believe is the future because more and more people I think is willing to be included into the ambit of capacity building and I think that aspiration can be satisfied better through affirmative actions as a whole rather than simply adding reservations. The core affirmative actions started with the core target group which is the schedule tribe and schedule caste and some of you have done an outstanding work on that.

We need to move forward on affirmative action because we are now thinking of equal opportunity commission. In the next few months, you will see that it will take shape; it’s a far reaching and very challenging institution that this country would get. One thing this equal opportunity commission will do, is gradually take us away from segregated demand for justice to collective demand for justice, So everybody will stand together and say what we deserve. Please give it according to an equitable measure rather than individual saying we don’t care who else want something, we want this. There will be very important shift, an institutional shift and a shift both in imagination and in the way we think.

But the equal opportunity commission must have a resonance in the corporate sector of India and since you have already planted the seeds of affirmative actions, I urge you too look at a broader stand without diluting the efforts that you have put in so that others have segments, that we have institutionally as a government recognized that need for capacity building and affirmative action, are also gently brought into that span. These are the few things that I think I will flag for you and as I have said today that this really is an exchange, I am here to listen more and more than speaking but I thought that perhaps if you knew the area of interest, we would be able to give a more useful exchange structure. On the initiative that has been taken including IICA, some more details will be available in Mr. Anurag Goel’s Secretary, MCA address to you.

Thank you for giving me this opportunity and we hope that we will have a meaningful relationship over the years for a better India and more exciting India.

Round Table On Corporate Governance Mr J J Irani, Past President, CII & Director, Tata Sons Ltd

As far as the corporate governance is concerned you will have to take notice of some of the studies which have been made by auditors and so on of international repute, we will find that India figures very highly on the list of corporate governance. But that is because of a box ticking exercise, I would take a minute to as how I got involved in this, in the 90’s when India has started liberalizing we had not liberalized our laws and I was very vocal for a very new company law and I said we cannot exist or prosper under the current set of laws. And the reward that I got for my vocal opposition was a phone call from one of the predecessors of Mr Goel saying that we are going to change our law and would you head the committee. Before I accepted it, I had some apprehensions but then we made a good recommendation, which I am glad to say will be re-introduced in the parliament. One day we will see a new company law, which will be benefiting our efforts to get into the world, of shall we say into the corporate world, as we know in other countries and that in a way will help corporate governance. We look forward to see the new law in the near future.

I would like to talk about few things, which we would like to see in that law and elsewhere going forward. I am a great admirer of audit profession even though I am not an auditor but I am a great critic to the way they go about their business. The statutory auditor for example starts his reports with a disclaimer saying that their comments are based on the information given by the management and they are not responsible for any wrong doing. The auditors should drill much into the organization and give the confidence to the independent directors and public at large that they have done a job, which can be relied upon and it’s not like the house of cards where you remove one card and the whole thing collapses.

Second I feel that the independent directors is a fast disappearing breed and we can’t afford that. I have read reports where there were 100’s of people who have stepped down in the last few months as independent directors and because the penalty is totally out of proportion with, shall we say, the occurrence of crime, if any. So, independent directors need some kind of protection.

Let me now come to the internal auditor. I think he is very important for the organization but he must not be allowed to work independently. We had put in some recommendations to say that the internal auditor certainly should not report to the finance head and hopefully not even to the chief executive. So in the company the internal auditor should report to the board and he should be in the position to comment on the actions of the CFO and the CEO . This will be an early warning system that something is going wrong in the organization.

I would like to say something on affirmative action now. Let’s face it that Indian industry always said that the affirmative action is necessary but did we take any positive actions. PM in one of our meeting asked us do something on it and CII formed a committee, which I was asked to head. We had put out the whole thing into action and in fact my satisfaction came only yesterday when two of their leaders of the SC/ST community was invited into our meeting and we intimated them what had we achieved and they said that there is a lot have to be done and we accepted that, but something has been achieved and we are moving in the right direction. And that is so, because there is an oversight, the PM in his gentle manner has formed committee in the PMO and we have to submit a report every six months to the PMO.

So my final words, are please do not mandate because no one likes to be mandated on and immediately there is a reaction opposing the mandate but encourage voluntary acceptance.

Thank you