Insider trading, board independence and transparency are among the areas of improvement in corporate governance highlighted by Sanjiv Mehta, former chairman and managing director of Hindustan Unilever, who is currently executive chairman of global investment firm L Catterton India.
While speaking at IIAS’ Corporate Governance Scores 2024, he said insider trading undermines investor confidence and market integrity. “Despite regulations, enforcement is often insufficient, resulting in a culture where very often, this practice will go unchecked,” Mehta said.
In addition, the effectiveness of independent directors is frequently questioned due to insufficient autonomy. “Many boards remain dominated by promoters or majority shareholders, impacting the independence and objectivity of board decisions,” he said. Although regulatory changes have tried to improve board independence, issues remain with the selection process and the actual influence that independent directors have in the decision making.”
On disclosures, he said that many companies still exhibit inadequate practices, not fully meeting the expectations outlined by the frameworks. This includes delayed financial reporting, incomplete disclosures regarding related party transactions, and a lack of clarity regarding executive compensation. “While India has made strides through the Companies Act and CME regulations, very often, implementations of these regulations fall short. Regulatory bodies often lack the resources to enforce compliance effectively.
“There is much more work to be done,” he said, like improving board independence, enhancing the role of the audit committee, promoting diversity in corporate boards, and also splitting the responsibility between the chairman of the board and the CEO and managing director.
“Though the Companies Act mandates certain companies to undertake CSR activities, genuine commitment to CSR often appears lacking,” he said. Some companies treat CSR as a box-ticking exercise rather than integrating it into their core strategy.”
He also highlighted the need to constantly elevate our standards so that we can compete on the global stage. According to him, this is important for attracting foreign investment, promoting responsible business practices, and fostering economic growth.
With AI technology becoming increasingly integrated into strategies and operations, he said that corporate governance must also adapt to address the unique challenges and opportunities presented by this transformation.
Besides, he also harped on the phenomena of woke culture in sustainability. “While the intent behind fostering social consciousness is admirable, it has in some contexts become counterproductive. A focus on performance and sustainability, driven by social media pressures or trends, can lead to actions that may not yield meaningful results,” he said.
“Addressing these issues will require a multi-faceted approach involving regulatory enhancements, greater awareness and education about governance principles and a commitment by companies to uphold ethical standards in their operations,” he said.