Tolani shipping has probably a set of trend of delisting in the industry by the small and medium shipping companies. The industry has been in dire straits with around 20 players and a market cap of hardly Rs. 15,000 million. The delisting will probably help the small companies with under valued stock to save money and avoid the procedure related costs.

Parry Agro of the Murugappa group is among the recent companies, which has decided to delist from all stock exchanges. The Chennai based Rs.40,000 Million Murugappa Group is buying back the floating stock in the market which is currently quoted around Rs. 49/-. The company, which will be acquiring the stock at Rs.70/-, has dramatically improved its current performance (Year-to-Month) compared to the last year.

Several MNC's are reportedly delisting from the stock exchanges and more and more of these are on the buy back mode. Philips, Carrier, OTIS, Hoganas, CABOT and Sandvik will be hard to acquire in the market. Several others are increasing their stakes to over 90%.

A few companies such as Procter & Gamble are reportedly starting separate subsidiaries; some companies are transferring their new brands from their listed subsidiaries to 100% owned companies.

It is believed that the reasons could be both the currently low share prices and the promise of higher returns on investments in the medium term. Companies can acquire their stock cheap at this point, derive better returns and keep the option of dilutig / listing at a huge premium at a subsequent point. Are the conditions, such as the low market capital for the traditional companies, negligible growth in manufacturing, the transaction costs of good corporate governance making delisting fashionable ? (YRK Reddy with online sources)

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Asia-Pacific TNT-CNBC Award MR K.V Kamath, MD & CEO, ICICI Ltd, has been awarded the TNT-CNBC Asian Business Leaders Award 2001.

The award seeks to recognize the achievements of business leaders based in the Asia Pacific region and identify and honour men and women who have the vision, management skills and leadership qualities to prepare their companies for the challenges of globalization and market volatility, according to a statement. Mr Kamath was conferred the award at a function held in Singapore on Thursday.

Over a 1,000 businessmen across the Asia Pacific region were nominated for the award, from amongst whom ten were shortlisted. Of the ten, four were Indians, including Mr Azim Premji, Mr B Ramalinga Raju and Mr N.R. Narayana Murthy.

The winners were selected by a panel of judges representing a broad array of experience in senior management and the academy, led by author and former dean of the MIT Sloan School of Management, Mr Lester Thurow, said the statement. (Vasu and Business Line)

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Executive Summary

Corporate governance mechanisms differ as between countries. The governance mechanism of each country is shaped by its political, economic and social history as also by its legal framework. Despite the differences in shareholder philosophies across countries, good governance mechanisms need to be encouraged among all corporate and non-corporate entities. While multilateral organisations like the World Bank and the Asian Development Bank have evinced keen interest in the subject of corporate governance an effective lead has been given by the OECD in evolving a set of cogent principles of corporate governance which are internationally recognised to serve as good benchmarks. There have also been some welcome initiatives by the stock exchanges in the UK and the US in prescribing good governance practices to their listed companies. These initiatives have been especially in the area of audit committee of the board and appointment of truly independent directors to tone up the quality of board deliberations and performance. The Advisory Group on Corporate Governance has attempted to compare the status of corporate governance in India vis-ŕ-vis the internationally recognised best standards and has suggested a course of action to improve corporate governance standards in India.

Globally, the process of convergence in corporate governance is gathering momentum due to growing international integration of financial and product markets. Foreign investors and creditors are more comfortable in dealing with economic entities that adopt transparent and globally acceptable accounting and governance standards. Companies that embrace high disclosure and governance standards invariably command better premium in the market and are thus able to raise capital at lower costs.

The predominant form of corporate governance in India is much closer to the East Asian 'insider' model where the promoters dominate governance in every possible way. Indian corporates, which reflect the pure 'outsider' model with widely dispersed shareholdings and professional management control, are relatively small in number. A distinguishing feature of the Indian Diaspora is the implicit acceptance that corporate entities belong to the 'founding families' though they are not necessarily considered to be their private properties. Even today, the concept of industrial house popularised some time ago by the Dutt Committee and the MRTP Act continues to be the commonly accepted reference points in most of the discussions on ownership patterns of industrial/business units.

Strengthen Companies Act

As is generally the case in most of the well governed economies, in India too a detailed statutory framework of corporate governance has been defined primarily by the Companies Act. Most of the important requirements set out by the OECD principles in regard to good corporate governance are very well defined in the Companies Act in India. These provisions have been further supplemented by SEBI recently which has directed all the stock exchanges to amend their listing agreement to incorporate new clauses to make it binding on the listed companies to improve their governance practices. However, the main instrumentality, viz. the listing agreement, through which SEBI seeks to ensure implementation of its measures is a weak instrument, as its penal provisions are not hurting enough. Secondly, several regional stock exchanges where a large number of companies are listed lack effective organisations and skills to monitor effective compliance with corporate governance requirements as stipulated by SEBI. Moreover, a vast majority of companies which are not listed on any of the stock exchanges will remain outside the purview of SEBI's measures. It is therefore desirable that the Companies Act needs to be amended suitably for enforcing good governance practices in India.

Most of the important rights of shareholders like right to ownership and conveyance of transfer, obtaining relevant information regularly, elect members of the board, etc. are reasonably well covered by the Companies Act. However, the rights of shareholders of banks and public sector undertakings stand considerably abridged. The quality of disclosures by most of the Indian companies in regard to several key areas is rather poor. There is scanty disclosure regarding structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their known equity ownership. Similarly, disclosures regarding intra-group company dealings, division-wise accounts, consolidated accounts, etc. are all rather very poor. Companies need to share their business goals and plans with the shareholders adequately. The risk factors and off-balance sheet items affecting company's future performance should all be disclosed to the shareholders. In short the quality of financial reporting adopted by the companies in India needs to be substantially improved.

Role of Independent Directors

India has adopted a unitary board structure. For unitary board structure to function efficiently there should be a strong representation of non-executive independent directors who are capable of taking independent stand and are not cowed down by the full time directors or the promoters of the company. The board should be able to perform its task of monitoring performance of the full time directors satisfactorily. It should ensure that returns to the shareholders on their investments are maximised while not making any compromises with the provisions of law and the rightful interests of all the stakeholders. Since most of the Indian companies belong to the 'insider' model, the most important reform that should be quickly brought about is to make boards more professional and truly autonomous. They need to be restructured in such a way that majority of the directors are truly independent. An independent director is one who does not have any family relationship with any of the executive directors/promoters, does not have currently or during the last five years any material financial dealings with the company and is/was not, during the last five years, an employee of the company or other companies that have/had material financial dealings with the company.

It should be made mandatory that 50% or more of the board members are really independent (not merely non-executive) and are under no obligations whatsoever either of the executive directors or the promoters. Unless there is a clear and unambiguous definition as to who really is an independent director, the term is likely to be misinterpreted conveniently by the promoter groups. The independent directors would be in a position to play their fiduciary role more effectively especially if they possess experience and expertise in the areas related to the activities of the company. In some ways, the independent directors may be considered as the trustees for protecting interests of the common shareholders and the stakeholders. In view of the complexity of the tasks of governance, the boards of companies should appoint at least four committees of independent directors for monitoring and direction of the affairs of the company, viz. audit committee, remuneration committee, appointment committee, and investment committee. While remuneration committee is expected to play a key role in the determination of compensation package of executive directors and senior employees, the appointment committee should be the focal point in the induction of new and independent directors in the place of retiring directors.The appointment committee has a crucial role to play in ensuring that the boards do not continue to be the cosy places towing the lines of promoters.

Public Sectors Units & Banks

Given the important place occupied by the public sector entities in the fields of industry and financial sector, any steps to improve corporate governance in the Indian economy would remain incomplete and half-hearted unless public sector units are also covered in this exercise. Multiple layering of 'principal-agent' chains in the case of government owned entities has important consequences for the corporate governance mechanisms that will be adopted in them. Often the accountability chain is very weak in public sector units. The first important step to improve governance mechanism in these units is to transfer the actual governance functions from the concerned administrative ministries to the boards and also strengthen them by streamlining the appointment process of directors. The process of selecting directors should be made highly credible by entrusting the task to a specially constituted body of eminent experts with an independent and high status like the Union Public Service Commission.

The role and relationship of the administrative ministries should be limited to issuing of written guidelines/directives to units under their jurisdiction in so far as these instructions are expected to reflect the will of the ultimate owners viz. the voters as perceived by the concerned ministries. It is necessary that the rights of common shareholders should be recognised in the corporate governance mechanisms adopted by all the public sector entities. They should also adopt the system of setting up of the three important board committees viz. the audit committee, remuneration committee, appointment committee, and investment committee. While the body of the eminent experts prepares a panel of names, the appointment committees of the public sector entities should recommend to their boards the persons from such panels that could be considered for induction on their boards.

Both government and RBI need to bring about significant changes in the corporate governance mechanism adopted by banks and other financial intermediaries. As a matter of principle, RBI should not appoint its nominees on the boards of banks to avoid conflict of interests. Although it is not feasible to have a free market for take-overs in respect banks there is a strong case for recognising the rights of the shareholders, especially of public sector banks and financial institutions. Today the common shareholders are denied such basic rights as adopting annual accounts or approving dividends. They cannot also influence composition of the boards in any way. As per the Bank Nationalisation Act, the general superintendence, direction, and management of the PSBs vest with their boards. At the same time, the Act also empowers government to issue directions/guidelines in matters of policy involving public interest. Over the years, however, the nature of government directions has often exceeded the 'matters involving public interest' and includes the whole gamut of administrative and corporate activities of the PSBs.

As a part of strengthening the functioning of their boards, banks should appoint a risk management committee of the board in addition to the three other board committees viz. audit, remuneration and appointment committees. Since banks and institutions are highly leveraged entities their failure would pose large risks to the entire economic system. Their corporate governance mechanisms should, therefore, be relatively much tighter. Current governance practices adopted by the PSBs have created an inequality among different types of directors. Special status amounting to veto powers given to government directors, is not in the interest good corporate governance. Banks should have clear strategies for guiding their operations and establishing accountability for executing them. Banks should maintain high degree of transparency in regard to disclosure of information.

(For Full Report see www.rbi.org.in)

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Social Responsibility With A Business-Sense ? Several big names such as Godrej, Birla's, Infosys, have come together to launch a Rs. 500 crore programme spread over the next 5 years under the title "Siksha India" following the pattern of the US based NGO, School Online, which has covered 5600 schools in the US and 200 schools in 19 other countries. Siksha India aims to provide connectivity, content and coaching for a network of 50,000 schools. The project will increase internet penetration and help people as a tool for education and earning. The non profit initiative has initial commitments from IT majors like Intel, Micro Soft, HP, NIIT, HUGES and Bharti Telecom besides the government. Several corporates in the hardware, software, Telecom, E-Training and retailing appear to be sensing a win-win situation of carrying out social responsibility along with improving long term business prospects. The programme with a detailed plan from Boston Consulting Group will be rolled out across 321 Navodaya Vidyalaya Sangathan schools. (Vasu & YRK Reddy)

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The RBI has set up a group to study the role of bank boards following the statements in the recent busy season credit policy announced by governor Bimal Jalan. The RBI has set up a 12 member consultative group to strengthen the supervisory role of bank board. This follows a slew of statements and reports from the central bank, generating the climate for improved corporate governance even as several logical recommendations from the Narsimham Committee and the subsequent ones languish, for what is seen as a lack of will in the Government. The new group is likely to address, unlike the other committees, the Board level issues than the macro policy dynamics of the "Governement - Regulator - Bank" roles and responsibilities. The group will have the following terms of reference under the chairmanship of Dr. A. S. Ganguly an eminent Director and former Chairman of Hindustan Levers - he is currently a director on the Central Board of the RBI.

The terms of reference of the group are: (a) Review the supervisory role of the boards of banks and financial institutions and to obtain feedback on their functioning vis-ŕ-vis compliance, transparency, disclosures, audit committees, etc. (b) Study the system prevalent in banks and FIs for monitoring by the board, and the implementation of the policies laid down by it. (c) Make recommendations for more effective role of board of directors with a view to minimizing risks and over-exposure. (YRK Reddy)

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Mr. Laurence Cockcroft, chairman of the London-based Transparency International (UK), visited India recently and he referred to the low standing India has. This is no more news, of course. "India figures deep down at the 71 st spot in the Global Corruption Perceptions Index-2001, typifying international perception of India as one of the more corrupt economies, in turn, provoking questions on the risks to large MNC investors", Mr Cockcroft said.

Even as several of Indian corporates wish to question the methodology and weights, there is another piece of information that may help in the sequence of "corruption first or FDI first" a la egg and the chicken or population control or development. China gives us hope that at times FDI is non-sensitive to Corruption perceptions. With near equivalent levels of corruption China still manages to annually attract some $40-billion as FDI inflows, compared to India's modest $4- billion. China was, reportedly, right on top of TI.s more recent Bribery Payers Index', which surveyed the propensity of 23 leading exporting countries to shell out bribes in year 2000.

The conclusion appears to be that "promise of profit" overcomes corruption perceptions and keep the channels for FDI unrestricted.

Mr. Cockcroft appears to acknowledge this. "We believe corruption is the key issue in small markets without natural resources, but in countries like China and even India where resources are large and market potential is huge, corruption may not always be the critical factor" said TI's global chief.

Notably, the 'TI Global Corruption Perceptions Index' rankings depict a 3-year moving average, and are determined by averaging three of seven international polls by competent rating agencies like the Economist Intelligence Unit and the World Competitive Index. Rightly, the index is that of "perceptions" - does speed of action distort such perceptions? Hygro-Marketing Services - Hyderabad, which undertakes market research studies, believes that the proportion of speed money / grease is probably not as much in India as those of several other better ranked nations, including Japan. The problem could be "the grease to effectiveness / efficiency ratios". (YRK.Reddy)

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The Corporate Board Member has recently established an academic council to research emerging trends in corporate governance. (PwC-LLP.See: www.boardmember.com/network/cbm_assupp.pdf) A Round-table of top academicians gives important insights into board room practices and issues that could be of academic and practical value, as precursor, to the proximate Indian firms. Some points of interest are:

Espen Eckbo of Tuck School of Business estimates that institutional investors polled world wide were willing to place on average, 25% premium on a company with good corporate governance. The premium in the USA was 18%.

Charles Elson of the University of Delaware felt that the new trend of turning over Director recruitment to independent governance and nominating committees as also the use of third party search firms has led to a decline in the "old boy network".

An interesting dimension to Director evaluation by Charles Elson was - "if you evaluate a director on paper, write up a negative evaluation and don't do anything about it, then you have left a trail which is very unfortunate for you as a director". Thus formal director evaluation could possibly be promising more than what it can practically deliver.

The debate recognizes the increasing complexity of board functioning and introduces an apprehension if the suggestions from the new Blue Ribbon panel could be as promising in practice. Jay Lorsch of Harvard Business School wishes that the people trying to improve corporate governance would step back, think and understand the problems of boards before they make these recommendations.

Lapides, Coles College of Business, points to the tremendous lack of knowledge among Board members even in the US - he estimates that probably only 5 to 10% of the directors of the public companies have taken a course on being a board member. (It may be good idea to survey in India, Board member motivations for getting trained and as to what will get them "back to school"). (YRK Reddy from online sources)

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When EXXON had an oil spill causing enormous damage to the environment, researchers commented that its Value and Mission have scant reference to environment and ethics and that they were overly concerned with productivity and efficiency, treating their business as "moving oil from one place to the other". Is there validation from the Enron episode? Enrons`too reflects a great amount of self-belief in being "innovative" and being big business in different commodity / infrastructure fields. There is little reference to corporate governance efforts, ethics and corporate social responsibilities in their statements. (See excerpts from the website below on its mission and values). The letter to the shareholders from the annual report 2000, for the AGM in May, 2001 makes an interesting reading - there has been no scent of the coming events. (YRK Reddy with online sources)

ENRON "who we are?"

Enron's business is to create value and opportunity for your business. We do this by combining our financial resources, access to physical commodities, and market knowledge to create innovative solutions to challenging industrial problems. We are best known for our natural gas and electricity products, but today we also offer retail energy and bandwidth products. These products give customers the flexibility they need to compete today.

It's difficult to define Enron in a sentence, but the closest we come is this: we make commodity markets so that we can deliver physical commodities to our customers at a predictable price. It's difficult, too, to talk about Enron without using the word "innovative." Most of the things we do have never been done before. We believe in the economic benefits of open, competitive wholesale markets, and we play a leading role in creating them. We initiated the wholesale natural gas and electricity markets in the United States, and we are helping to build similar markets in Europe and elsewhere.

Every day we strive to make markets in other industries that need a more efficient way to deliver commodities and manage risk, such as metals, forest products, bandwidth capacity and steel. Our passion has enabled us to manage weather risk. No wonder Fortune surveys have named Enron the most innovative company in America for six years in a row.

Enron's four business units -- Wholesale Services, Energy Services, Broadband Services and Transportation Services -- offer a wide range of physical, transportation, financial and technical solutions to thousands of customers around the world.

ENRON "Values:

Communication

We have an obligation to communicate. Here, we take the time to talk with one another… and to listen. We believe that information is meant to move and that information moves people.

Respect

We treat others, as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment.

Integrity

We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won't do it.

Excellence

We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

ENRON "Letter to Shareholders"

Enron's performance in 2000 was a success by any measure, as we continued to outdistance the competition and solidify our leadership in each of our major businesses. In our largest business, wholesale services, we experienced an enormous increase of 59 percent in physical energy deliveries. Our retail energy business achieved its highest level ever of total contract value. Our newest business, broadband services, significantly accelerated transaction activity, and our oldest business, the interstate pipelines, registered increased earnings. The company's net income reached a record $1.3 billion in 2000.

Enron has built unique and strong businesses that have tremendous opportunities for growth. These businesses - wholesale services, retail energy services, broadband services and transportation services - can be significantly expanded within their very large existing markets and extended to new markets with enormous growth potential. At a minimum, we see our market opportunities company-wide tripling over the next five years.

Enron is laser-focused on earnings per share, and we expect to continue strong earnings performance. We will leverage our extensive business networks, market knowledge and logistical expertise to produce high-value bundled products for an increasing number of global customers.

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At the instance of the Confederation of Indian Industries and the Securities Exchange Board of India, Joint Stock Companies, which are registered under the Companies Act, have evolved a set of procedures for corporate governance. In the light of the recent developments in the world of co-operative banking, particularly in the case of Madhavpura Mercantile Co-operative Bank Ltd, such guidelines have become absolutely imperative.

The dictionary meanings of 'governance' include both "the action or manner of governing" and "a mode of living, behaviour, demeanour". But what is sought to be done by the CII and the SEBI is bringing about complete transparency, integrity and accountability of the management.

When the co-operative movement, which is based on the Friendly Societies Act of England, got recognition in India with the enactment of the Co-operative Societies Act of 1904, the possibilities of the movement embracing all types of activities had not been visualised. The basic objective at that time was giving a boost to self-help and mutual trust. People hailing from a particular community, class or region came together and registered co-operative societies. Urban Co-operative Banks belong to one such breed.

Over the years and more particularly during the '60s, open membership started replacing community membership. March 1, 1966, saw an extension of the provisions of the Banking Regulation Act to Urban Co-operative Banks. Ever since these banks have grown rapidly, spreading their branches not only within a State, but also outside the home States.

The proliferation of Co-operative Banks all over India over the century has been quite impressive. They have been able to mobilise over Rs750bn in terms of deposits and over Rs400bn in terms of advances. Out of the 2,050 Urban Co-operative Banks in existence today, 51 have attained the 'Scheduled Bank' status— i.e. each of them has demand and time liabilities exceeding Rs1bn. So long as Urban Co-operative Banks were confined to and serving a particular area or community, there was no need for stringent regulations. In fact, when their deposits were brought on par with those of Commercial Banks with the extension of the Banking Regulation Act in 1966 and Deposit Insurance in 1971, people's confidence in them took a big leap forward. This is crystal clear from a simple fact: the non-member deposits in Urban Banks far exceed the member deposits.

However, in the wake of the Madhavpura episode, the confidence of Urban Banks has received a severe jolt. With more and more of them finding themselves at the receiving end, their image has been sullied like never before. It is to refurbish this soiled image and to restore customer confidence in Urban Banks that the concept of corporate governance is being bandied about.

Much can be said in favour of the concept of corporate governance, on the lines of the system prevailing in private sector companies. But, before bringing it into effect, a proper debate on its pros and cons is a must. The RBI could appoint a small committee, containing representatives from all the concerned sectors, to pave the for this change-over. And the committee could come up with a time-bound programme and evolve the necessary guidelines.

If every bank, alongwith its annual report, publishes a report on its corporate governance, it would go a long way in helping the authorities to monitor the functioning of Urban Banks effectively. Not only can they keep a watch on the working of these banks, they could take timely action wherever necessary. Transparency/accountability is the order of the day. Since banking is based on trust, shareholders and depositors would feel relieved if these two factors are made palpably visible.

The report on corporate governance submitted by a bank every year should include:

Shareholders: Number of shareholders and nominal members enrolled during the year for loan, investment or other purposes.

1) Board of Directors:

a) Their age, qualification, background.

b) The Directors' attendance at each meeting.

c) Particulars of sub-committees, attendance at each meeting.

d) Particulars of the payments— such as sitting fee, conveyance, other allowances, if any —made to each Director; particulars of the facilities provided to the Chairman and Vice-Chairman and its cost.

2) Annual General Meeting: Attendance at the last three AGMs, date of meeting, dividend declared, rate of dividend, date of mailing the dividend.

3) Elections:

a) When was the last election held, who conducted it, names of the persons who contested and the votes polled by each.

b) It is observed that a majority of shareholders do not exercise their voting rights for various reasons. It is advisable to introduce postal ballot with the postage paid or hold elections at each branch.

4) Donations/Contributions: Particulars.

5) Furniture & Fixtures: Procedures for awarding contracts for interior decoration, purchase of furniture, fixtures, renovation, etc.

6) Staff: Position of the staff, recruitment done during the year, procedure of recruitment, promotions, segment of Directors' relatives, expenses on staff such as salary, bonus, perks, etc. The educational qualifications, salary and perks of the Chief Executive and other senior staff.

7) Productivity: Productivity per employee in terms of deposits and advances.

8) Frauds & Misappropriations: Particulars of frauds, misappropriations, particulars of the disciplinary action taken against the staff.

9) Sanction of loan: Method of scrutiny/sanction, delegation of powers, documentation, etc. Security-wise and purpose-wise classification of loans.

10) Defaults: Particulars of default or a declaration saying there were no defaults in respect of maintaining SLR/CLR, payment of premium on deposit insurance to the Credit Guarantee Corporation, submission of statutory returns to the RBI and other authorities.

11) Recovery: Particulars of non-performing assets, procedure followed for speedy recovery, names of defaulters, cases filed.

12) Premises: Particulars of premises, mode of purchase (ownership or otherwise), built, its cost, expenses on its upkeep, etc.

13) Vehicles: Vehicles owned by the bank and its use by the staff, including Directors, its cost and cost of maintenance.

14) Investment: Particulars of investments in Government securities, bonds/shares of Public Sector Undertakings, for SLR and other purpose.

15) Computerisation: Cost of computerisation— hardware, software, annual maintenance contract, etc.

16) Printing & Stationary: Procedure of getting the printing done and purchase of stationary.

17) Tour expenses: Expenses incurred on tours/travels by Directors/officers.

The above is not an exhaustive and comprehensive list. Some items can be deleted, some more added. Yet it can go a long way in ushering in corporate governance in the banks that opt for it.

If banks want to open new branches or to extend their area of operation, etc, they are not allowed the liberty without complying with the various stipulations prescribed by the RBI. These include adherence to the capital adequacy norms, the net NPA being not more than 10 %, achieving the prescribed targets for priority sector lending, showing profits for the previous two consecutive years, maintenance of adequate CRR/SLR, timely submission of returns, etc. Similarly, a corporate governance report could be made an additional criterion, making it obligatory for Urban Banks to comply with it.

Urban Banks have been subjected to prudential exposure norms since January 1996. Beginning April 1992, they are also subjected to income recognition, assets classification, provisioning and other related matters in a phased out manner. They are now required to make full provision for all overdues and on standard assets. With effect from March 31, 2002, they are also expected to adhere to the capital adequacy norms in a phased out manner. In view of all these, there should be no hesitation in going ahead with the introduction of corporate governance in these banks.

Even before SEBI set up a committee to formulate the guidelines on corporate governance, the CII has evinced keen interest in pushing through the concept vis-a-vis joint stock companies. Even if the RBI is reluctant to go ahead with it or delays evolution of the methodology, there is no reason why the National Federation and the State Federation of Urban Co-operative Banks should not proceed with it on their own.

It may be mentioned here that, unlike the Directors of Joint Stock Companies, most of whom have big stakes in the company by way of their investment in its shares, the Directors of Co-operative Banks have no stakes in the bank. They hold only nominal shares and, in most cases, they do not have any deposits in the bank.

The relevance as well as importance of corporate governance can be conveyed best with the following quotation of Benjamin Franklin: "A little neglect may breed great mischief. For want of a nail, the shoe was lost; for want of a shoe, the horse was lost; for want of a horse, the rider was lost; and, for want of a rider, the battle was lost."

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There has been a history of jobs being traded amongst workers. So much so that a Union office bearer reportedly told a personnel officer who pleaded that there was no work available in the factory for the formers` friend - "Saab, hum nowkri pooccha, kaam nahi" ("Sir, I have asked for a job, not work"!).

Some would absent themselves so that others would earn over-time wage. Some contrive to get a job contracted out by going on sick leave. In the rural areas, some teachers and para-medical staff are known to appoint someone else in their place while they prosecute other vocations elsewhere in towns and cities. There have been reports of those who have got themselves discharged on medical grounds on selling the job to the next prospective. These instances reflect a notable impression in the minds of people that a job is, in fact, a property and to work in it is a matter of choice to keep the property adequately "maintained". It will take a while for this mind-set to change among workers despite the induced insecurity due to large-scale downsizing, sickness, closures, retrenchment and lay-offs in all sectors.

Fortunately, managerial jobs are too visible for such crude trading. But, do managers and officials suffer from the same mindset, even if their jobs cannot be traded? A senior official once remarked that he was gifted the police service by God, promotions by the rulebook and good postings by patrons in the system. Having acquired the position, he said, it is left to the individual to "use" the power and authority (or "misuse", if you wish to be puritanical) to the fullest advantage. He said, that using positional power is an art and it must be periodically practiced - like a knife, it gets rusted if you don't use and gets blunted or broken, if used too often!

In the days of kings and Nizams, people were assigned some positions with a tacit understanding that they can use them for purposes other than those explicitly required by the State. Thus, officials would derive benefits and give some part of it to the King as "Nazrana". Some of this went to the King, not to the exchequer. A respectable and eulogized episode is that of "Bhakth Ramdas" who used his position of Tehsildar to collect revenue but constructed a Temple instead - folklore chose to get God into the Nizam`s dreams and save him from the gallows! It is obvious that in those days of monarchy, positions acquired the characteristics of a property. And those who occupied them had to extract rents to the best of their ability for personal goals - selfish or altruist - as also for the King or the State.

The famous quote that "power corrupts and absolute power corrupts absolutely" was made mainly keeping in mind the misuse of "Positional Power". It was not an indictment of the power of a professional doctor over that of a patient nor that of the power of love, Bhakthi, knowledge or ethical conduct. Positional power tends to be misused because each position is essentially a "monopoly", as long as it lasts. There is no competition so long as someone is occupying it, though competitive conditions may be applied by making others aspire for it or by threats. The clever can collectively use their individual monopoly status to bring in a group-think of using the positional power to promote each others interests. Subordinates, suppliers, retailers would like to fuel this by appropriate reciprocation in the hope of getting a favour or at least, not to fall foul. This has been commented upon in literature and terms such as the "old boys club" and "cronyism" have arisen to depict the safe and yet unsound conduct of those misusing positional power.

Managers may want to control resources such as Jobs, Franchises, Purchase Orders, Consulting Assignments, Advertisements, Sponsorships and the like by limiting competition and the flow of information. They may wish to expand the zones of discretion as much as possible to give them the scope for using the position to their advantage. Such advantage may be only to help some one, promote professional interests and may not be corruption as such. Thus, in the decades of commodity scarcity, selection of distributors, retailers, transport contractors and suppliers, had been by nomination and vastly subjective criteria. Even now, managers tend to indulge in cronyism - promoting their reputational interests, if not material ones. These have a cost that is borne by the shareholders and not reckoned as part of employment. Most companies do not have a "disclosure" mechanism for their managers that can be certified and placed before the share-holders. Consequently, the CEO may permit such behaviours among managers to buy personal loyalty.

Using positions for results other than that for the corporation leads to organizational entropy and eventually, loss of shareholder value. If managers look upon their positions as property - even without being corrupt as such - companies will bleed with leakages, higher costs, idle assets and mounting risks. Obviously, shareholders lose value, as the attendant managerial omissions and commissions would have affected their residual income, adversely.

The phenomenon has been recognized at the macro level and debated for the possible loss of welfare to society. Anne Kreuger, who is currently a Deputy Managing Director at the International Monetary Fund, had coined the term "rent seeking" behaviours in 1974. The move to "roll back" governments through aggressive privatization in many countries can be associated with this recognition. The problem identified was that officials and politicians by their actions create competition among parties to derive an unfair concession / benefit. This action leads to people expending their resources for the special dispensations that eventually result in loss to society. A related phenomenon was discussed by the well-known economist, Jagdish Bhagwati in 1994 and termed as "Directly Unproductive Profit Seeking" which the economictionary recognizes. There are policy solutions to address this macro-problem. Is there a way at the corporate level?

May be, if all - repeat all - actions and communications arising from managerial positions are tightly recorded, as per a manual and have a close fit with strategy. The scope for discretions can be controlled with the prospect of a post-mortem by independent authorities such as the internal auditors - there will no space for the "art" of using the "knife". But there are two obstacles that need to be tackled in the process.

One is the tendency of perpetuate the scope for using the "art" by resisting all change. Everyone wants to buffet positions with discretionary powers and collective interests will demand a death to controls. For instance, politicians and bureaucrats thrive on the case-by-case approach and multi-stage controls to create competition for the service they will provide. If this situation has to be rectified, it becomes a virtual war against vested interests - a war no one wants to be engaged in India.

The second arises from is the very nature of managerial positions. Managerial positions are those, which require judgements that have no precedents to go by in some of the decisions. Such decisions also may have costly and complex implications. If judgment elements are not in the job, the principles of job worth will demand that it be construed as clerical or mechanical - best done by computers than human beings.

Notwithstanding this, the scope for the discretionary judgemental decision-making appears to be vastly reduced if:

(a) The structure is flat instead of a pyramid and there are self-managed and high performance teams instead of "cubby-holes' of individual slots. Ricardo Semler ("Maverick", Century, London, 1993) should tell us if this works. The future corporation (see Economist of 3-9th November 2001) any case ends up as a flat and networked construct, and

(b) There is better documentation of all predictable, tractable processes than now, so that judgmental areas are minimized and the reasoning becomes transparent. Documented manuals, especially with IT support, will ensure that transparency, equal opportunity and competition prevail and crowd out cronyism. The software industry appears to indicate this possibility.

But are the documents, manuals and IT control sufficient? Obviously, these are necessary but not sufficient as some can find ingenious ways of subverting the system. Managers will refrain from viewing their positions as property only when they realize that they are "trustees".

The great challenge, especially to the HR function, is to make each manager accept that he is a custodian and a trustee to the shareowner first and that he must do all that is possible to enhance the shareholder value or the EVA, as the case be. All actions must be justifiable from that perspective.

Managers must take a cue from the teachings of Gandhiji lest they are accused soon, by shareholders and the profession, of profligacy and self-dealing. Gandhiji approached the issue of property rights from a deeply philosophical perspective which is a middle ground between Marxism and the Western capitalist. Trusteeship meant that the wealth eventually belongs to the society and each individual will have a common right to livelihood. Managers must be reminded constantly that the position one occupies is a trusteeship contract not a property on lease. May be we need to have display boards invoking an attitude of trusteeship in companies a la 5-S or Quality Policy.

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