After 1991, the era of liberalisation in India required the family business owners to change the way they ran their businesses. With License-Raj crumbling, the promoters had to quickly find their feet as they saw the world businesses come rushing into the country. The global businesses brought with them their products, their services and also the practices of corporate governance. It was this - focus on corporate governance – that caused the greatest discomfort to the promoters. The reasons were not difficult to understand.
A new product, service or manufacturing technique - all this could be addressed by getting in new expertise. However, they kept control over their levers of power – board composition, appointments of KMP’s, capital allocation including dividend – all falling under the ambit of governance. If we focus on just one area within corporate governance – transparency – it is easy to understand why the Indian promoters were tardy in adopting this global practice.
The meaning of the word transparency is clear - no puns intended. It means nothing to hide. For a promoter it means that processes and transactions within his company have to be available for ‘outsiders’ to see. For a promoter an ‘outsider’ is anyone who is not part of his close group. Further, all legal requirements are to be followed and certified so. Disclosures, as mandated by the various bodies, need to be made and within time.
Imagine what a shift this would have been for the promoters. They were used to running their family businesses as personal fiefdoms with their own set of rules. Only a very few close confidantes were party to the decisions and the workings of the business. The board of directors, if any, was a collection of friends and family. The auditors were people who ‘understood the requirements’ of the business. The employees were part of the promoters’ extended family, who ruled over all of them like a benevolent patriarch.
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