Corporate Governance, Corporate Disasters and Ethics:

Amidst the expectations created by the recommendations of the Cadbury Committee and the international wave of changes in stock exchange rules, listing agreements, company law, codes, and accounting, reporting and disclosure standards, there were apprehensions whether the “good housekeeping” efforts would bring about proper corporate governance at all. The worry was that improvements in the board structures, practices, reporting, and disclosures may enhance the quality of the existing practices and yet they may lead only to an incremental improvement over the assurances given by audited accounts and reports (Reddy, 1997). Such good housekeeping measures may yet provide scope for unethical actions and frauds. However, these noises were muted swiftly by the rising tides of fashion for symbolism, passed away as good corporate governance.

The current spate of corporate collapses and accounting frauds has thankfully resurrected what could have been a closed case. It is becoming clearer that mere housekeeping will not improve the standards of corporate governance but may even create a new market for manipulations and management of auditors, rating agencies, media, and other intermediaries and reputation agents. Good housekeeping is a necessary measure without doubt and yet will not be sufficient (Reddy, 1998). The sufficiency criterion can only be fulfilled by values, ethics, and the attendant processes. The problem, of course, is that the soft approach or values and ethics suffers from great fuzziness and definitional issues unlike the categorical nature implicit in the structural approach advocated through corporate governance principles, accounting standards, listing agreements, reporting and disclosure criteria.

The dramatic problems during the last few months underscore that the inadequacy of informational transparency and standards is as daunting as the challenge posed by the fuzziness of ethics. We have noted a string of confidence-shattered episodes such as those of Enron, Global Proxy, Xerox, WorldCom, and worse still, even Johnson & Johnson that was revered for its ethical stand during the Tylenol crises of the 80s. The new debate about the shortcomings in the corporate governance has been led by the Enron collapse. McLean (December 2001) gave the recipe for corporate governance failure: “start with arrogance. Add greed, deceit, and financial chicanery. What do you get? A company that wasn’t what it was cracked up to be”.

For years at a stretch, Enron was ranked among the most admired, most innovative, fastest growing and one that will topple the old behemoths that were too heavy and slow. Grow it did, into vaguer and vaguer businesses. It kept everyone guessing and in the dark, fooling even the employees to hold their options and buy more shares even as the top bosses off-loaded theirs. Auditors, research analysts, bankers were all party to this collapse of the seventh largest corporation in America, the country that the world believed to be the Mecca of corporate governance, share-holder activism, fiduciary capitalism of the institutions and watchful regulators.

WorldCom Inc followed closely in murky affairs trying to pass off $3.8 billion dollars as capital expenditure to be able to show more profits. Xerox Corporation overstated its profits by about $2 billion and dragged its Indian arm into the scam for having paid bribes till 2000. The list seems to enlarge by the day with our own NBFCs, Urban Cooperative Banks, new private sector banks, stockbrokers, Government sponsored/ owned financial institutions contributing to the loss of credibility and capital market distress. The Time magazine has aptly described this as a “Season of Mistrust”. (Gibbs, Nancy, 2002).

A Time-CNN poll in the USA has shown that 72% of the respondents believed that these were not isolated cases but may indicate a pattern of deception on the part of large corporates. 69% of them repose lesser faith now in the CEOs. 59% have lesser faith now in the major corporations; 53% have expressed lesser trust of stock markets and 36% even in the federal Government. 71% of the respondents think that compared to the average person, the typical CEO is less honest and ethical. (Gibbs Nancy, 2002).

George Bush`s well-rhymed statement - There is no capitalism without conscience; there is no wealth without character - sounded hollow as he himself has been party to the infectious greed that Alan Greenspan talked of. George Bush “merged his failing oil company, Arbusto, with another firm, Spectrum-7 Energy Corp., which was bought in 1986 by Harken Energy Corp and Mr. Bush gained a seat on Harken`s Board” (Gopinath C, 2002) He was given huge stock and concessive loans as also hefty consulting fee. He sold his stock eight days before a merger halved the prices and reported to the Stock Exchange 34 weeks late. He defended himself against the criticism for failing to properly disclose the stock sale by saying that sometimes things are not exactly black and white when it comes to accounting procedures!

Ethics is exactly about this grey area where things are not black and white. Box ticking compliance is not necessarily good corporate governance unless they pass the scrutiny of professional standards and ethical judgment. Unfortunately, ethics has not been sufficiently integrated with corporate governance and has been treated as a separate subject. In fact, successful managers seem to believe deep inside that ethics probably impedes performance. Temperance, values and ethics are used as tactics of symbolism that may help quick growth and performance. It is interesting to note that a survey in USA of 2000 MBA students revealed that after the course, they actually rated share-holder value higher and customer and quality lower than they did before the course. Obviously, the language of Sun Tzu, competitive strategy, benchmarking, and the case studies of corporate wars have all crowded out the relevance of ethics and values. There is no corporate folklore that evokes moral behaviour. (Economist, 2002).

Corporate Social Responsibility, Stakeholders and Ethics:

To make matters worse, Corporate Social Responsibility has been manipulated to suit ones disposition and ideology. Thus, Milton Friedman`s (1983) famous saying that “the business of business is business” has been used to hint at the needlessness of ethical concerns, whereas the Friedman argument was entirely different and for fear of adverse trade-off with shareholder returns and the potential for fascist tendencies among Corporates. Even among several multi-lateral organizations, aspects of CSR, stakeholders, values and ethics have been noticeably underplayed. Take the OECD principles of Corporate Governance for example. The relevant principle states, “The corporate governance framework should recognize the rights of stake-holders as established by law and encourage active cooperation between corporations and stake-holders in creating wealth, jobs, and the sustainability of financially sound enterprises”. (OECD, 1998)

There is no mention of values, professionalism, or ethics in the principles. Both the OECD and the Global Corporate Governance Forum at the World Bank reflect the dominant perspective of free markets and capital markets as an answer to problems of economic growth. Consequently, the OECD principle suggests that corporations comply with the law in protecting the interests of stake-holders and provide them with an opportunity to redress violations of their rights. The principles see stakeholder engagement as a process of performance enhancing strategy.

Similarly the Business Roundtable Report (1997) is categorical that “the principal objective of a business enterprise is to generate economic returns to its owners …….. the notion that the Board must some how balance the interest of stockholders against the interest of the stake-holders fundamentally misconstrues the role of directors”.

The CACG has adopted a more inclusive approach and refers explicitly to values, ethics, and professions. The CACG guidelines appear to promote better stakeholder engagement and that strategies should be supported by values. The principles also recognize that “while the Board is accountable to the shareholders of the corporation as the owners of its capital, society expects a corporation to act responsibly in regard to aspects concerning its broader constituency such as the environment, health, and safety, employee relationship, equal opportunity for all employees, the effect of anti-competitive practices, ethical consumer conduct, etc”. (CACG, 1999). The principles expect that the Board monitors on a regular basis to determine that the corporate governance framework in the organization remains valid and consistent with its strategy and values. In the principle relating to communications, the CACG guidelines reiterate the need for the corporation to go beyond the statutory minimum and assume responsibility to ensure that the communication is in the spirit outlined, which actually is good corporate citizenship.

Amongst various reports principles and codes, the King Report on Corporate Governance of South Africa has integrated the ethical content of Corporate Governance with those of the structures, systems, and processes. (King Report 1994 and 2002). The Code, which is a part of the report, is an outstanding document that covers the obligations not only of the Board and owners but also those of the managers, employees, suppliers, and vendors, customers, and the society at large.

Ethics, Managers and Professionalism:

Amongst the actors in the corporate theatre, managers probably have a singular responsibility to integrate ethics into their conduct for two interrelated reasons. Firstly, most unethical actions are at the individual level than as a collective formal decision of the Board or the Management Committee. Thus, operational decisions that attract risk or expose the companies to a risk are often taken at the managers level. It is the individual sensitivity to aspects of ethics that will contribute eventually to an active stand by the company while taking even strategy decisions. When managers and directors learn to speak the language of ethics, they will tend to recognize ethical dilemmas. Once these are recognized, the sieving process begins of those which can be averted and those where the answers are not so easy. Sensitivity to ethics will not only enable employees to reduce transactions such as those of misusing expenses account, misusing leave provisions, window dressing the financial statements, cronyism in employment and selection of suppliers, actions leading to environmental degradation, sexual harassment at work, violation of minority rights, etc. but also will help in corporate strategic decisions such as whether to enter into a questionable product line, enter into a joint venture with a known corporate criminal, use auditor clout to earn more income through consulting and the like.

Overstating the profits and making things look smarter than they are is a classic case, which often begins with a small judgment, exercised to look better in the eyes of the boss, the public or the share-holders. It leads to gradual enlisting of others to cover up more and more till the bubble bursts like that of Anderson. In many cases it all begins with technical / professional mismanagement leading to cosmetic management at the individual level and then to enlisting others by creating illegal / unethical incentives. The “group think” takes over from then on and a tide-wave of desperation begins eventually leading to frauds. Anderson’s actions possibly fall into this pattern. There are of course, less iterative progressions to fraud when the individual owner, employee or a group is motivated to commit fraud straightaway for audacious greed and adventurism.

The potential for corporate risks will obviously mitigate if an ethical compass is implanted in the conscience of all directors and employees. Such a compass will ensure that the company does not suffer from ethical complacency. Driscoll and Hoffman (1998) warn sternly of the ubiquitous problem of ethical complacency and say, “This is one of the most difficult warnings to see since complacency diverts people’s attention. In the case of ethical complacency, directors, managers and other employees think that an ethical problem can’t happen to them because ‘we are good people’ or ‘we just wrote a new code of ethics’ or ‘we have never had a problem’ or some other rationalization”.

The second reason that should compel managers and directors to study the ethical component of Corporate Governance is related to professionalism. Several managers belong to strong professions such as those of accountants, company secretaries, and lawyers. There are others, which are fledgling to become true professionals like those of human resources, advertising, and marketing. These functions must recognize that a profession has an intimate connection with welfare, and is strongly based on aspects of ethics, and values. The standards, principles, codes and best practices evolved in these professions are founded on assumptions of human welfare. The professional is thus expected to owe an allegiance to his calling, which expects him to put his personal interests or that of the company behind those of the professional standards. A professional is expected to have five distinctive attributes (Reddy, 1990):

a. A commitment to a calling which has a set of normative and behavioural expectations
b. A specialized education and training of substantial duration
c. Membership of an association comprising of similarly trained and practicing individuals for the purpose of protecting and enhancing the interest of the calling.
d. A service orientation keeping in view the requirements of the client and the society
e. A relative degree of autonomy in the use of his/her knowledge and skills.

It is obvious that training and sensitization may not be an insulation against fraud. Yet, an integration of ethics into corporate governance frame makes the proposition more robust, than a stultified view of corporate governance as a box-ticking process. Ethics as a professional compulsion will help progress on this integration. Despite the fact that we do not have templates for such integration, Lacznaikk’s (1983) ethical propositions could be of some help. The 14 propositions are as below:

1. Ethical conflicts and choices are inherent in business decision-making.
2. Proper ethical behaviour exists on a plane above the law. The law merely specifies the lowest common denominator of acceptable behaviour.
3. There is no single satisfactory standard of ethical action agreeable to everyone that a manager can use to make specific operational decisions.
4. Managers should be familiar with a wide variety of ethical standards.
5. The discussion of business cases or of situations having ethical implications can make managers more ethically sensitive.
6. There are diverse and sometimes conflicting determinants of ethical action. These stem primarily from the individual, from the organization, from professional norms, and from the values of the society.
7. Individual values are the final standard, although not necessarily the determining reason for ethical behaviour.
8. Consensus regarding what constitutes proper ethical behaviour in a decision –making situation diminishes as the level of analysis proceeds from abstract to specific.
9. The moral tone of an organization is set by top management.
10. The lower the organizational level of a manager, the greater the perceived pressure to act unethically.
11. Individual managers perceive themselves as more ethical than their colleagues.
12. Effective codes of ethics should contain meaningful and clearly stated provisions, along with enforced sanctions for non-compliance.
13. Employee must have a non-punitive, fail-safe mechanism for reporting ethical abuses in the organization.
14. Every organization should appoint a top-level manager or director to be responsible for acting as an ethical advocate in the organization.

Ethics, Governance and The State

In a limited sense, corporate governance applies only to publicly listed and traded companies. Their number, especially in the case of developing countries, is fairly small though they may account for a large portion of value addition and manufacturing assets. In most countries, such companies account for less than 3 per cent of the total number of registered firms. The convergence of ethics with corporate governance will ensure higher productivity, greater investor confidence, better development of capital markets, and contribution to economic growth apart from reduction in potential systemic risks and social costs. Yet its impact can be limited especially if the macro-policy environment itself is unsporting. Corporate governance and ethics will thrive only if the environment is made conducive by the State. Since the State is not expected to be selective in its responsibility to the corporates, it must be in a position to create an environment, which will, ideally enable pursuit of welfare by all institutions, and individuals concerned.

This is the area of good governance where those in power have the motivation and conscientiousness to build institutions and administer them in a manner that promotes welfare. The State has the responsibility to establish institutional mechanisms that include creation, protection, and enforcement of rights; provision of a responsive regulatory system; active curtailment of corruption and promotion of poverty alleviation.

It is obvious that India has relatively weak institutional mechanisms and an environment that does not support good governance, and ethical conduct. Over the years, a structure of entrenched interests has been created that agitates against any action that is not aligned to sectional interest. A system of disincentives for ethical conduct and a demonstration that shows the success of criminality and illegitimacy has been thriving. Consequently, the worldview about India is fairly distressing. The findings of Transparency International are well known with India ranked in the last quartile amongst countries. Concomitantly, is the finding that India ranks fairly high in payments of bribes. These bribes appear to be highest in public works, construction, arms, and defense. (Business Line, 9th June, 2002) Another study on Asian countries carried out by the Political and Economic Risk Consultancy (Economic Times,2nd, June 2002) finds a relatively high degree of corruption in the Indian judiciary attributable to low levels of pay for the judiciary and police.

Obviously, ethics is beyond mere compliance with law. Ethics deals with the gray area of deciding what is right and good in pursuit of welfare in every action and decision taken. In the case of the State, ethical policymakers should be dealing with the host of omissions by which institutions have remained weak, the soft State has worsened to become fluid, laws remain ineffective and unresponsive and reforms are slow with poor sequencing and wrong priorities. The ethics agenda for the policy makers in the State should contain a war against the enemy – the enemy is within having contributed through mountains of omissions if not commissions. Ethical complacency has been eroding the foundations of democracy, human rights, and welfare. Ethical complacency has led to a system where the State is no longer independent but has been captured by a plutocratic set of families, corporates, and well-oiled networks of interest groups that transcend ideologies. The State is not truly in control of itself. The challenge in a democracy, as James Madison said in 1788, is “in framing a government to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself”. (World Bank: World Development Report, 2002). This remains a challenge for us in India.

Policymaking is on the basis of value judgments and a system of assumptions. Aspects of distribution of income and wealth, the role of the public sector and the private sector, the importance to be given to capital markets, property rights, subsidies, licensing and control, taxation and concessions etc. will all be based on a host of assumptions. It is obvious that policy makers will differ on the assumptions, the extent of their trades-off, and the nature of outcome of various choices. There is no ethical certitude at this stage. However, ethics will play an important part in choosing a path of inaction and a path of selective action. For the ethically complacent and the unethical, both action and inaction will be driven by self-interest and preservation of power, prestige and wealth than an objective view of welfare. What exactly is welfare has been and will remain uncertain and debatable at all points of human action. Yet, action cannot be sacrificed at the altar of such a definitional problem. Ethics requires an application of skills, and judgment driven by the profession and the absence of personal interest and gain. It calls for breaking away from ethical complacency and adopting a degree of activist stand in creating institutions and reforming them on a continuous basis to enable a conducive environment to be created.

Conclusion:

Only when an enabling policy environment is created with appropriate institutional building and reform can we hope for corporate governance to thrive. Thus ethics, corporate governance, and governance by the State need to converge and synergise. Ethics should not be considered as an abstraction flying in the sky. Nor should corporate governance be a symbolism of box ticking to bring temporary comfort to the greedy investors. Neither should the State be a feudal arbiter and judge that will occasionally act at the wrong time in the wrong place. Ethics must in fact be the fountainhead of action both in the corporate as well as in the policy arena. The task before professionals, officials, and ethicists is to work harder in establishing the connections among the three more deliberately, and demonstrably.

References:

Business Line, (2002, June 9) “Honours in The Hall of Infamy: Russian, Chinese Cos Lead in Paying Bribes”

CACG, (1999). CACG Guidelines: Principles for Corporate Governance in the Commonwealth. Commonwealth Association of Corporate Governance, New Zealand.

Driscoll, Dawn-Marie and Hoffman, W. Michael (1998, March), “Ethics and Corporate Governance: Leadership from the Top” ASCI Journal of Management, Vol. 27.

Economic Times (2002, June,3) Study Finds Corruption Rife in Asian Judiciary.

Economist, (2002, July, 27).

Friedman, Milton (1983). "The social responsibility of business", in Tom L. Beauchamp and Norman E. Bowie, eds., Ethical Theory and Business (New Jersey: Prentice-Hall)

Gopinath C (2002). “Turmoil in Corporate Capitalism”. Business Line, July 29, 2002.

King, Mervyn E et al., (1994 and 2002) The King Report on Corporate Governance, Institute of Directors of Southern Africa, Johannesburg.

Lacznaik, Gene (1983, Jan-March) “Business Ethics – A Managers Primer” Business

McLean Bethany (2001, December) “Why Enron Went Bust”. Fortune

OECD (1998) Principles of Corporate Governance. OECD, Paris

Reddy, Y.R.K. (1997). Corporate Governance & Public Sector Units. Standing Committee for Public Enterprises, New Delhi.

Reddy, Y.R.K. (1998). Foreword. Special Issue on Corporate Governance, ASCI Journal of Management, Vol. 27 (1&2); March, 1998

Reddy Y.R.K. (1990). Strategic Approach to Human Resource Management. Wiley Eastern Ltd., New Delhi

The Business Roundtable Report (1997), Statement on Corporate Governance

World Bank (2002), World Development Report, Building Institutions for Markets, p-99.

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I deem it a privilege to have been invited to address this gathering on a topic of tremendous relevance, focus and significance in today’s context. Needless to say, for the co-operative banks in India these are transitional times. Never before has the need for restoring customer confidence in the co-operative sector been felt so much. Never before has the issue of good governance in the co-operative banks assumed such criticality. The literature on corporate governance in its wider connotation covers a range of issues such as protection of shareholders’ rights, enhancing shareholders’ value, Board issues including its composition and role, disclosure requirements, integrity of accounting practices, the control systems, in particular internal control systems. Corporate governance especially in the co-operative sector has come into sharp focus because more and more co-operative banks in India, both in urban and rural areas, have experienced grave problems in recent times which has in a way threatened the profile and identity of the entire co-operative system. These problems include mismanagement, financial impropriety, poor investment decisions and the growing distance between members and their co-operative society.

2. The purpose and objectives of co-operatives provide the framework for co-operative corporate governance. Co-operatives are organized groups of people and jointly managed and democratically controlled enterprises. They exist to serve their members and depositors and produce benefits for them. Co-operative corporate governance is therefore about ensuring co-operative relevance and performance by connecting members, management and the employees to the policy, strategy and decision-making processes.

3. In fact, the very definition of corporate governance stems from its organic link with the entire gamut of activities having direct or indirect influence on the financial health of corporate entities. For the Nobel Prize-winning economist Milton Friedman, who was one of the first to attempt a definition, corporate governance is to conduct business in accordance with owner or shareholders’ desires which generally will be to make as much money as possible while conforming to the basic rules of the society embodied in law and local customs. In subsequent definitions, the scope of corporate governance has got expanded. While some experts say corporate governance means doing everything better, to improve relations between companies and their shareholders, to encourage people to think long-term, to ensure that information needs of all shareholders are met and to ensure that executive management is monitored properly in the interest of shareholders, the Former President of World Bank, Mr. James Wolfensohn had said that corporate governance is about promoting corporate fairness, transparency and accountability. A more comprehensive definition has come from the Organisation of Economic Co-operation & Development <OECD> which identifies corporate governance as the system by which business corporations are directed and controlled. Here the corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the Board, managers, shareholders and other stakeholders and spells out the rules and procedures for making decisions on corporate affairs. By doing this, not only does it provide the structure through which the company objectives are set, it also provides the means of attaining these objectives and monitoring performance.

4. It will certainly not be out of place here to recount how issues relating to corporate governance and corporate control have come to the fore the world over in the recent past. The seeds of modern corporate governance were probably sown by the Watergate scandal in the USA. Subsequent investigations by US regulatory and legislative bodies highlighted control failures that had allowed several major corporations to make illegal political contributions and bribe government officials. While these developments in the US stimulated debate in the UK, a spate of scandals and collapses in that country in the late 1980s and early 1990s led shareholders and banks to worry about their investments. Several companies in UK which saw explosive growth in earnings in the ’80s ended the decade in a memorably disastrous manner. Importantly, such spectacular corporate failures arose primarily out of poorly managed business practices.

5. This debate was driven partly by the subsequent enquiries into corporate governance (most notably the Cadbury Report) and partly by extensive changes in corporate structure. In May 1991, the London Stock Exchange set up a Committee under the chairmanship of Sir Arian Cadbury to help raise the standards of corporate governance and the level of confidence in financial reporting and auditing by setting out clearly what it sees as the respective responsibilities of those involved and what it believes is expected of them. The Committee investigated accountability of the Board of Directors to shareholders and to the society. It submitted its report and associated ‘code of best practices’ in December 1992 wherein it spelt out the methods of governance needed to achieve a balance between the essential powers of the Board of Directors and their proper accountability. Being a pioneering report on corporate governance, it would perhaps be in order to make a brief reference to its recommendations which are in the nature of guidelines relating to, among other things, the Board of Directors and Reporting & Control.

6. The Cadbury Report stipulated that the Board of Directors should meet regularly, retain full and effective control over the company and monitor the executive management. There should be a clearly accepted division of responsibilities at the head of the company which will ensure balance of power and authority so that no individual has unfettered powers of decision. The Board should have a formal schedule of matters specifically reserved to it for decisions to ensure that the direction and control of the company is firmly in its hands. There should also be an agreed procedure for Directors in the furtherance of their duties to take independent professional advice.

7. On Reporting & Control, the Cadbury Report recommended that the Board should ensure that an objective and professional relationship is maintained with the auditors. It is the Board’s duty to present a balanced and understandable assessment of the company’s position, the report said. The Board should establish an Audit Committee with written terms of reference which deal clearly with its authority and duties. The Directors should explain their responsibility for preparing the accounts next to a statement by the auditors about their reporting responsibilities. The Directors should also report on the effectiveness of the company’s system of internal control. The report also stipulated that the Directors should report that the business is a going concern with supporting assumptions or qualifications as necessary.

8. The Cadbury Report generated a lot of interest in India. The issue of corporate governance was studied in depth and dealt with by the Confederation of Indian Industries (CII), Associated Chamber of Commerce and Industry (ASSOCHAM) and Securities and Exchange Board of India (SEBI). These studies reinforced the Cadbury Report’s focus on the crucial role of the Board and the need for it to observe a Code of Best Practices. Co-operative banks as corporate entities possess certain unique characteristics. Paradoxical as it may sound, evolution of co-operatives in India as peoples’ organizations rather than business enterprises adopting professional managerial systems has hindered growth of professionalism in co-operatives and proved to be a neglected area in their evolution.

9. Professionalism reflects the co-existence of high level of skills and standards in performing duties entrusted to an individual. The absence of a proper system of placement and skill upgradation inputs constrain professional management in co-operative banks. Though there is a system of training in place in many co-operative banks, attempts are seldom made to match them with the current and future staff requirements. It is desirable that the training programmes encompass skill upgradation and aptitude development in full measure. It is also necessary to keep the staff sufficiently motivated through periodic job rotation, job enrichment and recognition of performance. The co-operative banks should indeed work like professional organizations on sound managerial systems in tune with the needs of the time taking care of future projections of requirements to retain and improve their market share and identity in the long run. It is in this context that professionalism and accountability of the banks’ boards assume such critical significance.

10. Regulators are external pressure points for good corporate governance. Mere compliance with regulatory requirements is not however an ideal situation in itself. In fact, mere compliance with regulatory pressures is a minimum requirement of good corporate governance and what are required are internal pressures, peer pressures and market pressures to reach higher than minimum standards prescribed by regulatory agencies. RBI’s approach to regulation in recent times has some features that would enhance the need for and usefulness of good corporate governance in the co-operative sector. The transparency aspect has been emphasized by expanding the coverage of information and timeliness of such information and analytical content. Importantly, deregulation and operational freedom must go hand in hand with operational transparency. In fact, the RBI Governor’s April 2002 Monetary & Credit Policy announcements have made it clear that with the abolition of minimum lending rates for co-operative banks, it will be incumbent on these banks to make the interest rates charged by them transparent and known to all customers. Banks have therefore been asked to publish the minimum and maximum interest rates charged by them and display this information in every branch. Disclosure and transparency are thus key pillars of a corporate governance framework because they provide all the stakeholders with the information necessary to judge whether their interests are being taken care of. We in RBI see transparency and disclosure as an important adjunct to the supervisory process as they facilitate market discipline of banks.

11. Another area which requires focused attention is greater transparency in the balance sheets of co-operative banks. The commercial banks in India are now required to disclose accounting ratios relating to operating profit, return on assets, business per employee, NPAs, etc. as also maturity profile of loans, advances, investments, borrowings and deposits. The issue before us now is how to adapt similar disclosures suitably to be captured in the audit reports of co-operative banks. RBI had advised Registrars of Co-operative Societies of the State Governments in 1996 that the balance sheet and profit & loss account should be prepared based on prudential norms introduced as a sequel to Financial Sector Reforms and that the statutory/departmental auditors of co-operative banks should look into the compliance with these norms. Auditors are therefore expected to be well-versed with all aspects of the new guidelines issued by RBI and ensure that the profit & loss account and balance sheet of co-operative banks are prepared in a transparent manner and reflect the true state of affairs. Auditors should also ensure that other necessary statutory provisions and appropriations out of profits are made as required in terms of Co-operative Societies Act / Rules of the state concerned and the bye-laws of the respective institutions.

12. Appropriate internal control systems become even more critical in the context of the growing emphasis on diversification of business products as the prime need at all levels in co-operative credit institutions. It is indeed necessary for co-operative banks to devote adequate attention to maximizing their returns on every unit of resources through an effective funds management strategy and mechanism. One prime component of the investment portfolio of the co-operative banks which has attracted a lot of attention - unfortunately for all the wrong reasons - is their transaction in government securities. So much so that it has even triggered the holding of today’s Convention.

13. The financial sector reforms in India have sought to achieve, among other things, improvement in the financial health and competitive capabilities by means of prescription of prudential norms. The co-operative banks have also thus been put under the prudential norms regime to bring about the desirable level of transparency in their balance sheets. While urban co-operative banks have been subjected to income recognition, asset classification, provisioning and other related norms in a phased manner beginning April 1992, these prudential norms including asset classification and provisioning (excluding the capital adequacy ratio) were made applicable to the SCBs and DCCBs from the year 1996-97 and extended to ARDBs from 1997-98.

14. RBI had also issued comprehensive guidelines transactions in securities to all co-operative banks - both urban and rural - as early as in September 1992. Detailed guidelines have been given therein on transactions through brokers, Subsidiary General Ledger (SGL) facility, issue of Bank Receipts, internal control systems, audit and review systems, etc. As per the guidelines in force, each bank is required to formulate an investment policy, with the approval of its Board. Banks have been advised that all transactions in Government Securities for which SGL facility is available should be put through SGL accounts only. Certain discipline has also been introduced for transactions through SGL accounts for minimizing settlement risks through a framework for penal action against bouncing of SGL transfer forms for want of sufficient balance in the SGL account or current account.

15. Banks were advised that only brokers registered with NSE or BSE or OTCEI should be utilized for acting as intermediary. If the deal is put through a broker, the role of the broker should be restricted to that of bringing the two parties to the transaction together. The settlement of the transaction, namely, both funds settlement and security settlement should be made directly between the counter parties. With a view to ensuring that a disproportionate volume of transactions is not routed through one or a few broker, a prudential ceiling of 5% of the total transactions (both purchases and sales) has been prescribed for routing transactions through an individual broker. In case any bank is required to exceed the prudential ceiling of 5% for any broker, the bank is required to inform the Board indicating the reasons therefor post-facto. Banks have also been advised to have proper internal control measures for monitoring the transactions in government securities.

16. Regulatory policy can however only set the broad contours of an appropriate investment strategy. It is no guarantee for articulation and implementation of commercially sound investment decisions by lending institution(s). Even the most comprehensive regulatory framework and effective supervisory system need not be a foolproof mechanism against a pliant management acting in collusion with unscrupulous clients. Supervision is only periodic and therefore it cannot be a substitute for effective and continuous internal control backed by an independent and efficacious audit system. Towards this, it is imperative to have in place Audit Committees of the Board independent of the management in co-operative banks. It may well be recalled that with the extension of the Banking Regulations Act to the urban co-operative banks in 1966 and deposit insurance in 1971, people’s confidence in the co-operative sector had taken a big leap forward. So much so that today the non-member deposits in urban banks far exceed member deposits. Nothing would be more tragic if we fritter away these advantages and allow indiscipline and lack of commitment in these banks make people’s trust in the co-operative sector a casualty.

17. One important issue that has engaged much attention in the recent past is the duality of control over co-operative banks. In terms of the Co-operative Societies Acts of respective States, the Registrar of Co-operative Societies was the sole regulator and supervisor of all the societies registered in his State including societies carrying on banking business. With the application of BR Act, 1949 (AACS) to co-operative banks, this position has since changed. While RBI now regulates and supervises banking activities carried on by urban co-operative societies, supervision of State Co-operative Banks and District Central Co-operative Banks is carried out by NABARD. The core principles of supervision in relation to co-operative banks have thus to be formulated and implemented by RBI in respect of UCBs and by NABARD in respect of SCBs & DCCBs and there is an emergent need to constantly beef up the supervisory system through proper on-site monitoring and adequate off-site surveillance. We also need to analyse and pick up early warning signals, if any, in respect of any such irregularities in the investment portfolio of these banks from the periodic review reports on such transactions which are received from them. There is also an urgent need for clarity in defining the roles of various control institutions by streamlining processes, procedures, etc. for removing overlapping of controls over cooperative banks presently vested with State Govts., RBI and NABARD, as the may be. It is in this context that the Governor’s Monetary & Credit Policy announcement in April 2001 had stressed the need for a separate regulatory agency for the co-operative banks. This issue is being debated in various quarters.

18. Credit institutions are linked to each other through a complex chain of inter-bank relationships which - as recent instances have showed - in any event of difficulty become mechanisms for spread of the contagion effect. Signs of financial mismanagement in an institution or a group of institutions regardless of the reasons is liable to set off similar problems in other institutions and open serious risks in the financial system. It is in this context that good corporate governance assumes critical importance. Power and decision-making in co-operative banks are all too often concentrated at the top in too few hands. Co-operative performance has therefore been for a long time characterized by lack of participation and sense of involvement. Active members who feel that they are part of an organization that has goals in harmony with their own and clear roles for constructively engaged, competent governing bodies and management would be a powerful force to build co-operative identity and excellence. It is perhaps time that the State Governments refashioned management in co-operative banks by picking up threads of good corporate governance.

19. Success of economic decisions depends after all on the human resources at the disposal of any organization. A change is needed today in the co-operative banks which is built on confidence in human capital - the most important of all resources - in commitment, creativity and innovation brought about by proactive management, membership and employees. Strong corporate governance that takes its obligations seriously can truly be a source of strength to the management. The ability to capture knowledge and wisdom gives co-operative banks their competitive advantage. A prerequisite is that participants from all parts of a co-operative organization know and understand its purpose, core values and visions.

20. In the years to come, the Indian financial system will grow not only in size but also in complexity as the forces of competition gain further momentum and financial markets acquire greater depth. I can assure you that the policy environment will remain supportive of healthy growth and development with accent on more operational flexibility as well as greater prudential regulation and supervision. The real success of our financial sector reforms will however depend primarily on the organizational effectiveness of the banks, including co-operative banks, for which initiatives will have to come from the banks themselves. It is for the co-operative banks themselves to build on the synergy inherent in the co-operative structure and stand up for their unique qualities. With elements of good corporate governance, sound investment policy, appropriate internal control systems, better credit risk management, focus on newly-emerging business areas like micro finance, commitment to better customer service, adequate mechanisation and proactive policies on house-keeping issues, co-operative banks will definitely be able to grapple with these challenges and convert them into opportunities. I am sure all of you will bring your experience and knowledge to bear upon the afore-discussed issues in course of the deliberations in the next two days.

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Strengthening UCBs - Through Corporate Governance
by
Shri P R Gopala Rao
(Frmr Executive Director of Reserve Bank of India & Hon. Advisor-ACG)

(Theme Paper of the National Convention of
Urban Co-operative Banks : Strengthening through Corporate Governance
at Mumbai, organized by Academy of Corporate Governance, Hyderabad
held between July 5-6, 2002).

The recent financial distress of some of the Urban Cooperative Banks (UCBs), particularly in Gujarat and Andhra Pradesh, which have precipitated ‘runs’ on these banks, created a panic situation amongst the depositors and creditors, and caused anguish and serious concern to the various UCB Managements, UCB national and state level federations, and the public authorities-the State Governments (Finance and Co-operation departments/Directorates of Co-operation), RBI and also to the Government of India.

The episodes, which exposed the fraudulent intentions and transactions of the directors/controllers of the concerned institutions, resulted in the fleeing of the chairman and directors in some cases, police arrests of some of them, and the committing of suicide by one chairman of a bank in Hyderabad. These and the subsequent G-secs scam involving co-operative banks in the S-T structure posed challenges to the financial institutions in the co-operative sector and received a high degree of media attention, adverse publicity and severe public criticism.

The style of functioning of these institutions, the wrongful ways of attracting and deploying the deposits and other resources, the connivance of the bank functionaries at various levels with the banks’ top management, the laxity in picking up ‘early warning signals’ of the distress, and unwillingness of the executives/operating staff in exposing the insider dealings, the matters of licensing, regulation and supervision of such banks, all became a subject of much public debate.

There is a pressing imperative for analyzing the phenomena, diagnosing the maladies, and searching for proper remedies/preventative measures, which would result in an `Action Agenda’ to ensure the ‘safety and soundness’ of these institutions, with appropriate proposals and recommendations made to the public authorities. It is commended that as part of such an ‘Action programme’, initiate a process of evolving and developing proper “Principles of Corporate Governance/Code of Best Practices” as applicable to the UCB sector, which will, when followed assiduously and monitored with vigour and zeal, ensure the stability of each of the institutions concerned and of the system as a whole.

II. UCBs – A retrospective

The Urban Cooperative Banks occupy an important position in the country’s financial system. The UCBs had a phenomenal growth since 1966, after they were brought under the provisions of the Banking Regulation Act of 1949. The deposits, which had been a meagre Rs. 153 crore in 1967, rose substantially to over Rs. 80,000 crore with total working funds of over Rs. 1,00,000 crore by 2001. The credit expansion during this period was from Rs. 167 crore to Rs. 52,000 crore. The deposits of UCBs are equivalent to about 8 per cent of total scheduled banks’ deposits as at end of March 2001.

As a sequel to a liberalized regime of this sector, 537 new banks were licensed between 1993 and 1999. The branch network of the UCBs has expanded from 3,691 in 1993 to 7,368 in 2001. Banks with deposits over Rs. 50 crore and above were permitted to cross the borders of the states of their registration.

The distinguishing feature of the UCB structure is its heterogeneity. Of the 2,084 UCBs in 2000-2001, approximately half were of unitary nature (with single branch banking). Five states, i.e., Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu, accounted for over 80% of the total UCBs in the country.

In view of the expansion of the business of these banks in recent years and the need, therefore, of aligning this sector with the other segments of the banking system, in the context of developing a stronger regulatory framework, RBI felt the need for a stock-taking of the performance of UCBs. A High Power Committee (Chairman: Sri. K. Madhava Rao) was formed in May 1999.

III. High-Power Committee (HPC) – Review and Recommendations

The HPC came out with its report and recommendations for the UCB sector by end-November 1999.

The HPC made a review of the purpose, functions and performance of these banks, the licensing policy for entry of new UCBs, branch expansion, approach towards unlicensed and weak UCBs and application of certain prudential norms. The HPC also proposed certain legislative reforms in the relevant statutes in pursuance of its recommendations.

IV. Recent Failures – an Examination

00 Recent episodes of ‘runs’ on some UCBs, as stated earlier, created panic amongst depositors and creditors, caused a potential threat to the UCB system (Systemic Risk) and resulted in a severe public criticism of the manner in which these institutions are managed and supervised, and thus necessitated a deeper introspection. There was a public outcry about the way these institutions entered the system in large numbers in recent years. This has given the impression that at least some of them, like the NBFCs, are fly-by-night operators using these institutions more as avenues for large and quick private gain, and not with the mission of serving a community purpose/doing social good or ensuring mutual benefit which the “Co-operative Principles” envisage in setting up any institution in the co-operative sector. A ‘resume’ of the principles of co-operation as enunciated by the International Co-operative Alliance (ICA), Geneva, and accepted and adopted by the co-operators across the world are included in the Annex-III.

00 The RBI’s HPC in its report (para 1.8, page 4) states “enormous increase in the number of UCBs in the last six (6) years is something which requires a serious focus by the RBI…if the new entrants are not genuine co-operators and if some of them are promoted by people who had to quit the NBFC sector because of stringent regulatory framework put in place by RBI, then we have a lot to worry about” (emphasis added).

The report, while discussing the subject of a large number of weak banks, sets out that “if the sickness is due to some genuine commercial decisions going wrong, the problem is less serious…but if a large number of banks become weak due to motivated actions of the Managing Committees, then there is greater cause for concern.”

00 Depositors demands for ‘bail-outs’

There were demands by depositors and other stakeholders for ‘bail-outs’/rehabilitations of the banks that had failed as well as demands for full repayment of deposit amounts by Government/public agencies. In the case of one bank, it was proposed that it should be ‘bailed-out’ by the Government of India for the reason that the closure of the bank would result in systemic instability (i.e., several other co-operatives who have kept their monies with this bank would also fail). For another bank in Hyderabad, it was decided that it should be placed under liquidation and it was arranged to get amounts upto Rs. 100,000/- paid by the DICGC (the public corporation which insures banks’ deposits) and in the case of yet another bank, the state government is talking of GoI’s rehabilitation instead of placing it under liquidation. Some two or three other banks have come out with public announcements of their solvency status and their willingness to repay the deposit amounts if demanded (the banks can wait until the date of maturity in case of ‘fixed deposits’ as per RBI’s guidelines, although there is a general public perception that even a fixed/ term deposit is repaid on demand with a penalty/loss of a portion of interest). The Chairman of one of the banks committed suicide (apprehending physical assaults/loss of reputation), while directors of many of these banks were arrested by the Police authorities on charges of criminality/defrauding the public.

All these phenomena call for ‘soul-searching’ and an ‘in-depth’ review by the UCB managements, their federations/associations, public authorities (State Governments and RBI), financial analysts and other agencies concerned with public welfare and interested in the proper functioning of our financial institutions and markets. The issues arising and calling for a detailed deliberation are set out in this Agenda Note.

V. Aftermath – Perceptions and Perspectives

The questions raised, the comments made by the public and in the media and perceptions of the informed intelligentsia, the damage-containing initiatives of the public authorities in the aftermath of the crisis, need a mention. Also called for, in this Forum, is a reference to the general principles of co-operation, the International Best models in the co-operative banking sector and the urgent need for establishing a sound system of ‘Corporate Governance’ and a serious affirmation to a ‘Code of Best Practices’ with the object of ensuring sound operations, a holistic strengthening of each institution, and formidable stability of the sector/system as a whole.

A. RBI’s Comments and Initiatives

00 Governor Dr. Jalan in his address on the subject of ‘Indian Banking and Finance: Managing new challenges’ made the following comments on the regulatory overlap: “In the urban cooperative banking segment, the regulatory requirements leave considerable scope for regulatory arbitrage and even circumvention. The problem is rendered more complex by the existence of regulatory overlap between the Central Government, the State Governments and the Reserve Bank. Regulatory overlap has impeded the speed of regulatory response to emerging problems. The need for removing multiple regulatory jurisdiction over the cooperative banking sector has been reiterated on several occasions. In this regard, the Reserve Bank has proposed the setting up of an apex supervisory body for urban cooperative banks under the control of a high-level supervisory board consisting of representatives of the Central Governments, the State Governments, the Reserve Bank and experts. The apex body is expected to ensure compliance with prudential requirements and also undertake on-site inspections and off-site surveillance”.

00. Commenting on the UCBs, RBI has said that: “this segment has been exposed to certain weaknesses that need to be remedied on an urgent basis. Apart from the multiple regulatory authorities involved in their supervision and inspection, the sheer numbers and their dispersed and local character, with a different ‘niche’ clientele can affect the regular programming of inspections by supervisors. In view of the above, supervision of UCBs often proves to be a challenging proposition for the Reserve Bank. In this context, the Monetary and Credit Policy of April 2001 has emphasized the creation of a separate apex supervisory authority which can take over the entire inspection/supervisory functions (emphasis added) in relation to the scheduled and non-scheduled UCBs with manpower and other assistance to the new supervisory body, when created.”

VI. Co-operative Principles and Values – Relevance to banks in the Coop Sector

Co-ops are based on certain values such as self-help, self-responsibility, democracy, equality, equity and solidarity. Certain principles have been enunciated by the International Co-op Alliance, Geneva in February 1996 to put these values into practice. These have been accepted worldwide. These principles, which need to guide the entities working in the cooperative sector, whether they are credit cooperatives or engaged in other activities, are given in the Annex-III and a discussion of these principles, values & cooperative identity is worthwhile while considering UCBs structure, activities, operations & future reforms.

VII. International Models

A. Community banks in the USA:

In the USA, the savings and credit institutions which are categorized as ‘community banks’ have evolved as different and alternative models for large commercial banks. The mission, purpose and objectives of these banks are to cater to local needs, lend support to small businesses, encourage local savings and deploy such savings in the ‘local area’ and participate in a significant manner in the ‘community activities’. Also, in Canada, credit unions (Cooperatives) have strong presence and work as ‘community’ institutions. A study of these banks’ charters, activities, functions, and operations and management styles may be worthwhile to find out whether there are any features of these models that could be a value-addition to our own urban co-operative banks.

B. Major Credit Cooperatives in Europe

In the U.K., France, Switzerland, Netherlands & Finland, successful models of cooperative organizations in the credit/banking sector have emerged. In France, Credit Agricole, which started as a Farmers’ Co-op, has emerged as a major player in the banking market. The same is the case with Rabo Bank in Netherlands. The “Cooperative Bank” in the U.K. is considered a strong national-level bank and with a very open, transparent and serious ‘ethical code’ in Europe.

It is suggested that the Academy of Corporate Governance may be mandated to study these international best models and circulate their mission and vision statements, specific profiles, details of management structures & styles, systems, procedures, and practices for circulation amongst the UCBs and other Credit Co-ops in India.

VIII. Corporate Governance-UCB sector-Need for a major initiative

There is a pressing need for upgrading the quality of corporate governance not only in the corporates engaged in manufacturing, trading and other (non-financial) activities, but also in the banking organizations - whether they are set up in the public, private or cooperative sectors. The government, regulatory bodies, trade promotion organisations, corporate managements, academia and opinion leaders in India - all need to, not only consider establishing good governance systems, but also ensure that they are subjected to an ongoing review and constant revision of standards to meet the changing needs and expectations of all the stake holders in an institution.

00 The Cadbury Committee report on Corporate Governance along with the “Code of Best Practices” published in 1992 in the U.K., was well received all over the world and generated considerable interest and discussion in all countries including India.

00 The OECD in 1999 came out with the “Principles of Corporate Governance” and the OECD governments and the World Bank endorsed these principles.

00. Cadbury Committee and OECD defined Corporate Governance as “the system by which business corporations are directed and controlled. The Corporate Governance structure specifies the distribution of rights and responsibilities amongst different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs”.

01 Governor Dr. Bimal Jalan, Dy. Governors Dr. Y.V. Reddy, Shri Vepa Kamesam and former Dy. Governor, Sri. S.P. Talwar all emphasised on the need for developing appropriate guidelines for corporate governance in the banking system in India, and provided some guidance on the subject. The relevant discussions were sponsored by the Administrative College of India which has also brought out a special issue of its journal devoting it to corporate governance.

00 RBI constituted an Advisory Group on Corporate Governance (Chairman: Dr. R.H. Patil) which made a detailed assessment and gave recommendations for public sector banks.

00 Another consultative group of Directors (Chairman: Dr. A.S. Ganguly) made a review of the role of Boards of Banks and Financial Institutions and RBI advised the banks and financial institutions to follow the recommendations.

00 There is now a need for similar assessments of various segments/sectors of the banking system, and the governance issues relating to the Urban Banking Sector call for urgent attention.

00 The Academy of Corporate Governance set up in 2001, as a national level organization, is well poised for designing the codes, developing appropriate systems and guidelines in the Corporate Governance areas for corporates, banks and financial institutions.

IX. UCBs – Future Agenda

In sum, it needs to be mentioned that urgent attention is called for in respect of UCB issues relating to their sound management, methods of operation, their interest in expansion in terms of geographical area and widening their range of activities and the concomitant need for establishment of effective risk management & the internal governance and control systems, a re-look at the entry criteria for new banks, the role of self-regulation & creation of new self-regulatory organizations, the bail-out systems & moral hazards, further strengthening of regulation & supervision systems including resolution of the nagging problem of “regulatory overlap”, the adoption of features of the best international models of credit cooperatives/community banks and the need for setting up a strong corporate governance system. The future action agenda for UCBs needs to be based on a discussion & deliberation of all these relevant issues.

X. Issues for Deliberation

i) In the light of the experience, should there be ‘highly selective’ entry of new banks in this sector?
ii) a. Can there be greater emphasis on the promoters’/controllers’ track record – their integrity, past business dealings, their intentions in getting into the financial intermediation business rather than engaging themselves in other lines of activity; if they have commercial objectives of private gain (creation of personal wealth/shareholder value), how do they achieve this objective by managing a bank in the cooperative sector?
b. The promoters’ capacity to raise resources in the market in the fastest possible time in case of a ‘run’ or liquidity crunch is another important parameter to be considered in issuing a license.
c. Should there not be adequate evidence, before registration and issue of a license that they are ‘fit and proper’ persons?
iii) If the avowed purpose and objectives of setting up UCBs are to be in line with the well established principles of ‘serving the local community’, ‘small businesses’ and ‘micro-credit’ in a particular center, why not confine to a well-defined compact ‘command area’ and be selective in operations like ‘community banks’ elsewhere by:

• Concentrating in local area in catering to local community
• Entering into such activities which are more suitable to a cooperative sector institution rather than those of a bank with a commercial character, where maximizing profitability and enhancing shareholder wealth take predominance over other factors & parameters.
• Is it necessary to enter into high-risk areas such as engaging in capital markets and in financing share brokers in a big way (e.g. Nagpur Co-Op Bank, which is a short term structure institution)?

iv) Why totally new business activities are taken up without proper professional expertise and sound internal controls?
v) How do we ensure that there are adequate checks and balances that will pre-empt the scope for ‘insider dealings’ and ‘fraudulent transactions’ by the directors/controllers/officers/employees?
vi) Will the ‘bail-outs’ result in ‘moral hazards’, (creating indifference amongst the bank depositors/creditors as to the proper functioning and management of the UCBs without any concern whether they are prudentially managed, whether the promoters are people of integrity, and whether their methods of operation are sound?)
vii) Will not a ‘bail-out’ result in an overall permissive banking culture/environment and imprudence encouraged?
viii) Is it right that all taxpayers meet the costs of ‘bail-outs’, although they are not in any way users/beneficiaries of the particular distressed institution?
ix) If the UCBs want to conduct themselves as ‘commercial banks’, why not they move to the commercial banking sector and obtain a license as a commercial bank in the private sector? Why camouflage them as co-operative institutions?
x) If bail-outs/rehabilitations have to be done, can the other UCBs undertake these (instead of taxpayers) in order to ensure ‘stability and credibility’ of their system? Can an ‘Insurance Fund’ be created by the national /State federations themselves out of premiums/funds collected from the member-banks?
xi) What is expected of State Governments/RBI’s oversight? Is it expected to ensure that each institution –small or big—and each depositor is fully protected? If so, what are the mechanics for such a ‘fail-proof’ supervision system?
xii) Can the depositors, who are attracted by greater incentives, be considered as ‘innocent’ needing protection or are they to be classified as ‘intelligent’ (acting on ‘risk-reward’ perceptions like an investor in the capital market)?
xiii) How can depositors know that premiums are paid by his/her bank to the DICGC? Is it possible at all for them to ensure such payment? (Default in payment can result in denial of protection to them). Can RBI, as the parent institution of DICGC, ensure debiting the banks’ accounts (directly with a mandate taken from them) and pass on such amounts to DICGC in advance?
xiv) Can the UCB federations at the State level become self-regulating organisations (SROs) instead of depending on outside regulation or supervision, or at least supplement the efforts of the public authorities, in order to bring about requisite discipline?
xv) Can a study be commissioned for developing principles of ‘Corporate Governance’ as applicable to UCBs?
xvi) What are the reactions to the proposal to bring in a new and exclusive Supervisory Board for regulating and supervising UCBs? What suggestions can be made with regard to the powers, functions, and composition of the Board, and its regulatory and supervisory mechanisms, systems and procedures?
xvii) What are all the radical measures called for from the managements, their federations and public authorities to restore confidence and credibility of the UCB sector – what kind of ‘Action Agenda’ can be formulated, which needs to be acted upon with a great sense of urgency and without any loss of time?

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