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Book Review
Perspectives on corporate governance
S. L. RAO
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Prescriptions for good quality governance of the corporate and financial sectors in a globalising economy
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GOVERNANCE & ACCOUNTABILITY — Essays on the Indian Financial and Corporate Sectors: D. N. Ghosh; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110001. Rs. 595.
D.N.Ghosh is one among the versatile officers to come out of the Indian Civil Services. In the early days of nationalisation of banks he was a middle level government bureaucrat dealing with them. He went on to become a long-serving and highly effective chairman of the State Bank of India (SBI). He succeeded in introducing computerisation, though it has taken almost two decades for it to become pervasive in the bank. He initiated SBI’s foray into capital markets and
mutual funds and oversaw a push into overseas banking. As chairman of the Management Development Institute (MDI) he brought some intellectualism into the then bureaucratised institute, but interference by its owners did not allow improvement in its educational quality. As chairman of large companies like Philips, ITC and Peerless, he demonstrated his capacity for turning round sick and badly run companies, in many cases due to the problems of management, poor governance by promoters and owners, and lack of transparency. As chairman of Investment Information and Credit Rating Agency of India Ltd. (ICRA), he brought in vision and good governance to move it from a second-rung rating agency to a world-class one, innovative in a fast developing corporate and financial scenario.
Reflections
As chairman of the Sameeksha Trust, owners of the iconic Economic and Political Weekly, he put it on a sound financial footing and initiated its major statistical database. In all these years he read extensively, digested what he read and implemented the ideas in his many responsibilities. He also wrote frequently on current policies and issues especially in the Economic and Political Weekly. The present volume is his intellectual autobiography and reflects views developed over years of reading, discussion, thought and practice. Many pieces have been revised after their first appearance, and some have been specially written for this book.
The book is divided into four parts: globalisation and national economies; global finance and its culture; adjusting to globalisation; and corporate governance and global business. He starts by considering the critical turning points that marked a qualitative transformation in the nexus between polity and business, and commends the trusteeship concept proposed by Gandhiji. He asks for adherence to moral and ethical values by the business and political communities.
He says that to sustain the growth process, India needs a good quality of governance. This demands encouraging entrepreneurship development while the state through independent regulatory institutions prevents subversion of the market process. Large public investment in rural infrastructure is essential, while the delivery system of public services must improve.
Achieving equity
The Washington Consensus of free trade, liberalisation and privatisation with low fiscal deficits and free currency has shown itself inapplicable to China, India and other countries with weak institutions and inefficient private sectors. At the same time, he does not agree with Joseph Stiglitz’s relatively simplistic redefining of International Monetary Fund’s role and governance. Ghosh advocates that world markets must be managed to promote integrity of states and the cohesion of currencies, capital movements, trade and environmental conservation. We must not allow the process of globalisation to jeopardise achieving equity and balance in our growth and development.
Financial sector
He is at his best in analysing the global financial world. Financial markets put a premium on knowledge of the future and contempt for the past. He commends a historical perspective. Financial excesses become inevitable when there is a craze for excessive speculative profits. Simple formulae like leaving the markets alone or insulating countries from the global market are irrelevant. The international community must curb excessive fluidity and volatility of international money flows. National regulators are unable to control the games of the strong and the privileged in financial markets. Continuous vigilance will strengthen the market within the context of a functional civil society. We must generate a political climate that encourages the growth of countervailing interest groups aimed to promote efficiency in the economy.
In the public sector the state must distance itself from the organisations it owns. International benchmarks are not enough to ensure stability in the banking system. The primary responsibility is through a revamped governance structure at the board and management levels. The basic components of good governance are independence, accountability, transparency and integrity. Regulators cannot rest content with rule setting and punitive punishment. They must take pre-emptive steps when the stability of the economy is being threatened. Similar conditions apply for good corporate governance. Whatever the rules, good governance rests on the value system and ethics of the promoter shareholders groups.
Ghosh is perceptive and practical. He is perhaps idealistic in expecting political, financial and corporate systems to reform themselves. Strong laws, constant monitoring, integrity and courage in regulation and severe penalties for misbehaviour must also be in place.
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