corporate governance

Here’s the executive summary of a report I prepared as a mid-sem assignment for the Corporate Governance class taught by Prof. A. N. Sadhu at IIT Kharagpur. Posting it here because I saw it after quite a few months while spring cleaning my hard drive. Would appreciate comments.

EXECUTIVE SUMMARY

Corporate Governance
Corporate Governance is the set of processes, policies, practices of law, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes and incubates the relationships among the many players and pilgrims involved (the stakeholders) and the goals and glory for which the corporation is governed.

Its importance is affirmed and attested to by the fact that companies which have strong Corporate Governance Practices tend to return significantly superior returns as compared to companies without Corporate Governance Practices.

The Origin of the Need
The need for Corporate Governance derives directly from the Agent-Principal conflict which itself originated with the creation of the Managerial Class.

Corporate Governance in the United Kingdom
Corporate Governance in the United Kingdom began with the Cadbury Report in 1992, which resulted in the creation of what is now known as the Combined Code on Corporate Governance. It is implemented by the Bank of England through the London Stock Exchange’s listing agreement.

Corporate Governance in the United States of America
Corporate Governance in the United States is a statutory requirement, unlike in the United Kingdom, and is implemented by the Securities and Exchanges Commission (SEC). The Sarbanes-Oxley Act of 2002 defines the Corporate Governance imperatives for organisations.

Corporate Governance in the Republic of India
Corporate Governance in India is a heroic hybrid of both a statutory and a regulatory framework. The Statutory aspect is implemented and imposed through the Companies Act, 1956, and other allied pieces and parts of legislation and law. The Regulatory aspect is implemented and ingrained through the listing agreement of the stock exchanges, specifically through Clause 49 of the listing agreements. It is implemented by the Securities and Exchanges Board of India (SEBI). It is a result of three committess, the Kumar Mangalam Birla Committee, the Narayana Murthy Committee and the Naresh Chandra Committee.

Instruments of Corporate Governance
There are various instruments available for enforcing Corporate Governance. These are listed below.

• Board of Directors (Composition)
• Audit Committee
• Non-Executive Directors
• Accounts and Auditors
• Auditors’ Statutory Report
• Related Party Transactions
• Attestation by CEO and CFO
• Directors Report and CEO’s submission
• Compliance Officer & Assurance
• Shareholders Grievance Committee
• Auditors’ Corporate Governance Report

Momentum or Motionlessness
Corporate Governance doesn’t result in moored motionless malaise more than a Laser results in a photon’s propulsive property to disappear. It merely aids and abets in maintaining magnificent Momentum in the right direction, thereby maximising the distance travelled as compared to the effort required.

Corporate Governance is the master mechanism meant to prevent a system from escaping egregiously from the owners’ caring control.

esprit de corps

Is it possible to improve the esprit de corps (morale) of a corporate organisation (or even a part of it) through posters, catchlines, verbiage and a whole lot of fluff?

Military units develop esprit de corps over years through hard training and long-standing traditions. Is that even replicable in a corporate environment, where people aren’t willing to change their dressing habits for the org, leave alone their attitudes?

I’m guessing it isn’t. Would someone send a memo to HR in all organisations to stop wasting time on fluff like this?

oil subsidies - why they’re a bad idea

We have oil prices shooting past $120 a barrel, but petrol and diesel prices in India haven’t budged over the past few years. That’s because the government has been subsidising petroleum products (Petrol, Diesel, Kerosene, LPG) by forcing oil marketing companies to sell at low pices.

They have tried to recoup the oil marketing companies (OMC) losses by issuing oil bonds and also by forcing upstream suppliers (ONGC) to share some of the burden.

Despite these measures, OMCs have continued to haemorrhage badly. So now the government has come up with another brilliant solution - an Oil cess on income tax. What’s so bad about an oil cess?

Distributive Justice and Retributive Justice

Distributive justice concerns what is just or right with respect to the allocation of goods in a society. Thus, a community whose individual members are rendered their due would be considered a society guided by the principles of distributive justice.

Retributive justice is a theory of justice that considers that proportionate punishment is a morally acceptable response to crime, regardless of whether the punishment causes any tangible benefits.

If the price of oil is going higher, both these forms of justice demand that those who consume more pay more. It’s that simple, right? Unfortunately, a cess is levied across board - anyone and everyone who pays income tax pays to keep prices of petroleum products down.

So people who pay income tax but don’t actually travel as much (hence don’t consume petrol and diesel much) are forced to pay for people who consume a lot of petrol or diesel but don’t pay income tax. An example that comes to mind is farmers.

Best solution? Let the prices rise and fall with the market. People will adjust their consumption patterns proportionately, helping moderate the price fluctuations. More on that later.

The Army Wants Inferior Tanks

Yeah, I know - Inflamatory headline. But that’s the gist of this post by Ajai Shukla (It also appeared as an article in today’s Business Standard)

Col Shukla’s post points to the Indian Army’s repeated attempts to discredit the Arjun MBT. It is now clear as crystal that the Army has its mind set on buying the T-90 MBT from the Russkies even though its own trials a few years earlier pointed to the fact that the Arjun is qualitatively superior to the T-90 in mobility and firepower, the two fundamental characteristics of a tank.

Also to be noted is the fact that though the Arjun’s developers, the CVRDE, have time and again called for comparative trials of the Arjun against the T-90, the Indian Army has refused to do so.

The nuke deal is dead

The Indo-US Nuke Deal

The UPA government’s external pillar of support and its most vocal and vitriolic critic, the Communists, are the most vociferous opponents of the Indo-US Nuke Deal. The UPA cannot hope for them to continue supporting the government even while the government itself signs on the dotted line and operationalises what the left perceives to be a deal with the devil.

The UPA tried to delay operationalisation till a suitable time when it could sign the deal and then announce snap elections a year in advance. They hoped to catch the left in the unenviable spot of having to face an election on foreign policy issues, something that isn’t known to be a winning formula, especially for parties that pull rugs from beneath governments.

Unfortunately, that seems very unlikely now. With inflation above 7 % and predicted to remain there for the next few months at least, if not more, it would need a brave government to announce polls a year ahead of schedule. And we’ve learned that the UPA government is anything but brave.

So long as inflation remains high, so long as food prices remain stratospheric and climbing, the government seems unlikely to want early elections. Inflation isn’t predicted to come down dramatically before polls will have to be held, but then which government wouldn’t cling on to power for as long as possible?

Meanwhile the communists continue their disgusting dance with the dragon. In doing so, they continue to work against our national interests. The BJP looks well positioned to make the most of this, but they’ve put party interests above national interests by opposing the nuke deal: something they would have sold their own selves for, had they been in power.

magnificence of the 9th

Often do I wish I were alive in Vienna when Beethoven strode this earth and heard heaven’s symphony. An imagination that could come up with the 9th Symphony, ‘An die Freude,’ must, in itself, have been magical. But to weave it all together as he did, to take in the complexity, to take the myriad instruments and performers and to blend all their individual notes, their thoughts, feelings and their individualities themselves, creating a magnificent melody - now that’s real magic. But that’s not all.

Not only does the thought behind it all come through, not only the emotions, not only the yearning for brotherhood of mankind and, if I may borrow from the French whom he admired, Liberté, égalité, fraternité, but also the sheer intensity of that desire, the energy of the mind that thought this up - it’s there in the creschendo and it hits you like nothing else.

Anyone who has had the privilege to hear the 9th in peace and quiet must have realised all these things. To think that a single man dreamt of all this and created it is to reaffirm faith in the infinite capacity for creation we humans have. I wish I could have listened to him talk, could have seen him work. There are no words magnificent enough to describe the 9th’s magnificence.

Drucker and Keats, Ohmae and Shelley

You know something is dramatically wrong when people read Ohmae, Drucker and Porter like they are Shelley, Keats and Faulkner, when they read Managing for the Future, The McKinsey Way, Fortune at the Bottom of the Pyramid and The Mind of the Strategist like it is Walden, The Tragedy of MacBeth, Faust or even Midnight’s Children.

good movies

I watched zero movies between November and January, so the last few days I spent compensating for that folly. Here are a few that I liked a lot and would heartily recommend.

Charlie Wilson’s War

Love Actually

Eternal Sunshine of the Spotless Mind

playing the sax @ springfest ‘08

I participated in Rhythm, a “Western Instrumental” contest at Springfest 2008, IIT KGP, on Sunday 27th Jan. The event was composed of two rounds, a solo, followed by a jamming session with another contestant. I had the solo nicely done and scored 9 / 10 on it (topped it) but screwed up in jamming and ended up getting 4th (consolation).

Here are two videos of my solo performance.

First Part

http://www.youtube.com/watch?v=IDKP1fAp6s4

Second Part

http://www.youtube.com/watch?v=YAW7AbDyDvY

if you want to be a painter …

“If you want to be a painter, cut out your tongue.”
~ Henri Matisse, French painter