Tech Companies to Drive Hard on Corp Governance

Shelley Singh, ET Bureau 1 Jan 2009

This is strongly recommended reading for 2009: ‘Code Of Conduct and Ethics Policy.’ The carefully-crafted handbook often gathers dust as companies grow bigger. Just look at Satyam Computer Services.

It grew from under $1 million to a multi-billion dollar enterprise in less than two decades, and was hauled over the coals for governance issues. The Satyam denouement is yet to unfold. Yet, increasingly, the $50-billion IT-BPO sector, so used to executing processes, will find the process of corporate governance being closely watched by global customers.

Asked by ET whether global clients will closely look at corporate governance in IT-BPO companies, NR Narayana Murthy, chief mentor, Infosys Technologies, said, “Definitely and rightly so.”

Post-Enron, companies in the US strengthened their audit and corporate governance practices, and 40% of Fortune 500 corporations appointed a chief ethics officer. Closer home, companies will strengthen their own governance practices, say IT-BPO honchos.

“Strong corporate governance is an important criterion for clients influencing their choice of partners. If a management team is going to be unethical with the use of shareholder funds, then they will also be unethical in managing client operations.

BPO and IT services companies should have a formal system of escalation of issues related to ethics, as our clients entrust us with very confidential and personal data. Most companies today have combined the role of a chief compliance officer along with a chief ethics officer,” said Rohit Kapoor, president and CEO, EXL Service.
While the Satyam incident has focused attention on the issue, experts feel companies in India have corporate governance practices in place. “Corporate governance in India has been very strong and companies don’t really have an ethics officer. It’s a kind of laissez faire compliance model rather than having a formal ethics officer appointed for the role,” said Sid Pai, MD of TPI (India), a global sourcing company.
“Having codes and guidelines is one aspect. The spirit in which corporate governance is taken matters a lot. Companies should strengthen boards and the role that boards play,” said Gita Dang, founder-director, Talent Advisory Services, a Delhi-based C-level search firm.

In India, there are already enough codes and compliance officers. However, the issue “is about a mindset that ensures fairness, transparency and accountability to every stakeholder of a corporation, customers, investors, employees, vendor-partners, the government and society. In the end, such a mindset comes from your culture: your parentage, your teachers, your company of friends and what you see as success in life, money or power or respect. It’s the fundamental and the first duty of independent directors to ensure that governance is proper in the company,” said Mr Murthy.
In the US, after a string of corporate scandals (involving Enron, WorldCom, ArthurAndersen and Tyco), even small- and mid-sized companies began appointing ethics officers. They report to the CEO and are responsible for assessing the ethical implications of the company’s activities, making recommendations regarding the company’s ethical policies and disseminating information to employees.
In India, experts point out that the Tata Group has had an ethics councillor for a long time and even newer companies like Wipro BPO have had an ombudsman to look into corporate governance issues.
“In services companies, it’s a critical issue. Every customer, who does business with an IT-BPO company, wants to know the process of governance first. It has to be in the DNA of the company and not merely a set of guidelines,” said S Varadarajan, EVP & HR officer, Quatrro BPO Solutions.
Eventually, what matters is not just written guidelines in a corporate governance manual, but the spirit in which ethical practices are followed. The Satyam episode shows serious lapses in the process of governance. As Indian companies seek a bigger global play, lack of governance could seriously dent their credibility.