Corporate governance: ‘Transparency was all but missing’ in NSEL
The managing director went on record to say that NSEL has sufficient stocks in warehouses to cover the entire open exposure and in the event of any default, stocks will be sold to fulfill payment obligations. The hollowness of this claim is an open secret now.
“The Company’s philosophy on Corporate Governance envisages adherence to highest levels of transparency, accountability, trusteeship and ethical corporate citizenship in all areas of its operations and all interactions with its stakeholders” says Financial Technologies group corporate governance policy. The words like ‘Transparency’,’ Accountability’ ,’ Ethical corporate citizenship’ sound so unreal and utopian in context of what happened in National Spot Exchange(NSEL) which is a group company. Transparency was all but missing in the entire episode. The managing director went on record to say that NSEL has sufficient stocks in warehouses to cover the entire open exposure and in the event of any default, stocks will be sold to fulfill payment obligations. The hollowness of this claim is an open secret now. The first payment itself was a default. What about accountability? Dismiss some employees and accountability is over. No accountability for the man running the show behind the corporate veil. 
Now, look at the one of the most important pillars of corporate governance called independent directors. What were they doing? Should these directors have asked questions on at least the basis compliance processes being followed in the company? After all, corporate governance policy of FT group says,” Financial Technologies believes that the management is responsible to the Board of Directors and the Board of Directors is in turn responsible to the shareholders. And by having these accountabilities demarcated drives the Company both performances wise as well as in enhancing shareholders value”. What happened to the concept of independence and accountability? In fact, this is very weak area in the entire process of corporate governance. India lacks a pool of really independent directors and those act as being independent, are not welcomed by the company.
But Financial Technology is not just an example in isolation. There are several companies in India for whom corporate governance has become a cut and paste approach. It is just one more document in a series of documents that a company publishes. Nicely drafted words to show how the company cares about corporate governance policies. Look at Gitanjali Gem’s corporate governance policy which says that the corporate governance policy of company is based on following principles: (a) Satisfy the spirit of the law and not just the letter of the law; and (b) Be transparent and maintain a high degree of disclosure levels.
How can a company, claiming to satisfy the spirit of law, find that the main promoter of the company is banned by the capital market regulator for activities which are completely unlawful? Where is the implementation of the tall claim about its corporate governance policy? Is there any understanding about the claim that the company has made about its corporate governance policy? But who cares. After all this is a policy document which just needs to be added as a part of the document and what you need is just redrafting of the policy words to make your own policy as a company. To these words legal acceptability, a certificate of compliance on terms contained in clause 49 is required to be signed by the director and auditor/company secretary of the company.
Every listed company makes tall claims about taking care of shareholders interest and value, but the modus operandi of the company refutes this claim. FT group policy says “The main purpose of the Shareholder Grievance Committee is to look into shareholder and investor complaints and redress them in the best possible manner at the earliest”. But look at the way FT has dealt with shareholders in terms of clarifying their doubts. The shareholders have been suffering in the process of the entire crisis with the value of the company’s shares taking a big hit.
The corporate governance approach needs to change from a tick box approach and mere documentation. Basically, the new approach towards corporate governance should provide enough indication to the investors and potential investors if a company is found wanting in implementation of corporate governance policy. Inability to follow corporate governance practices should have provision for severe monetary penalty for independent directors and board of directors in general. Also, if there is any significant breach of corporate governance is found in one company, the independent director should not be allowed to act as independent director in other companies.
nagesh kini
8 years ago
The concept of CG is only for the records.
Despite the worse of practices, I've yet to see any auditors qualify their reports!
Why only NSEL?
8 years ago
In any other country having good governance, the company's board would have been facing lawsuits and a trial lasting around 6 months. In our country, even one year from now, the duped investors will still be found running for their money.
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