The former Hewlett Packard (HP) CEO Mark Hurd’s travails over the past week got me thinking. (In case you haven’t heard, Mr.Hurd has resigned from his post following a statement from HP saying that he had run afoul of the company’s business conduct rules. Following an investigation into sexual harassment allegations, HP exonerated Mr.Hurd of these allegations but said that he had claimed personal expenses as being professional.)
I thought about the Media tycoon who swans around from one part of India to another in his corporate jets. I also thought about the FMCG billionaire who has a palatial villa which has been bought using shareholders’ money. I then spared a thought for the steel magnate who seeded his power venture using shareholders’ capital but then transferred half of the venture to his family before the IPO of the power venture.
More to the point, I asked myself whether any Indian CEO has ever been dismissed for fiddling his expenses. The answer I think is “no”. Then I asked whether any Indian CEO has been dismissed for sexual harassment. The answer again is I think “no”.
So, to the extent that at least some of our CEOs are guilty of expense fiddles, sexual harassment and other abuses of power, why is it that our corporate machinery can’t take appropriate action? The few straightforward reasons come to mind.
Firstly, in our country the CEO (or all too often the Chairman-cum-Managing Director) is often the founder, the promoter and the defacto Board i.e. everything rolled into one. Usually there is no one else in the corporate hierarchy to question such a demigod or to discipline him.
Secondly, by and large the Indian business community is “conservative” (in both the political and social sense of the word). In such a community, it is not the done thing to air your dirty laundry in the public. So even if the CEO is skimming a bit of cash from the P&L, the other Directors’ view would either let him do it or, if the cash pilferage is getting out of hand, deal with it behind closed doors.
Thirdly, our media and analyst community is lousy at investigative journalism. The few investigative journalists that are there are usually told by their editors not to publish exposes of corrupt CEOs since it will lead to a drop in advertising revenues. Hence reading a typical financial newspaper in India basically involves reading a collection of press releases by large corporates.
“So what?” I hear you asking. What if our CEOs are doing dodgy things and getting away with it? Why does it matter? It matters for a range of reasons methinks.
Firstly, some of us harbour this notion that corporate India is by and large clean and progressive whereas the Government and the polity is where the corruption lies. In fact, a close relative of mine who was until recently one of the most senior bankers in the country, upbraided me last week for even suggesting that certain industrialists are dodgy. The reality is at least slightly different and the well put together Bollywood hit movie “Corporate” is a good place to start if you want to get a flavour of what’s going on.
Secondly, in a free market economy CEOs embody a potent combination of wealth, fame and power. This is enough to make them the icons of for a country looking for new heroes to replace the outdated ones from the dark days of the license Raj. However, if these heroes turn out to be false gods, it will wreck the credibility of the free market project at a time when Left-wing extremists have taken control of the geographical heart of India.
Thirdly, they say that power corrupts and absolute power corrupts absolutely. The scale of wealth pilferage by promoters that I see in a range of companies (large & small) suggests that “absolute corruption” exists in certain pockets of India. Unless our corporate machinery finds a way of checking this, shareholders’ returns will be eroded by the scale of CEO-excesses. This could jeopardize broad based retail investor participation in the stockmarket, something which has been notably missing in this bull market.
That really is what is at stake – our ability to confer legitimacy upon corporate India is directly related to its current scale of corruption which in turn is a function of society’s ability to check the excesses of our Boardroom titans.