NEW YORK CITY (TIP): “The Chamber of Commerce tries to make the right things happen. What needs to happen in India is the growth of corporations that take their corporate governance seriously, so that the shareholder value is unlocked. It’s our duty to push for better corporate governance in India,” said Rajiv Khanna, President of the Chamber and Equity Partner of Seyfarth Shaw, in his opening remarks to the members of the Chamber.

“The Indian government has introduced several measures to improve the corporate governance environment in India, including a completely revamped Companies Act and revised corporate governance guidelines. Several other bills are under various stages of consideration which would bring corporate governance norms in India at par with any developed economy. The government of Prime Minister Modi has clearly emphasized its resolve towards improving the corporate governance practices in India,” said Rajiv Khanna, as he welcomed the guest speaker. Sandeep Baldava, partner at Ernst & Young, India, started by thanking the Chamber for hosting a very important discussion, and spelled out the latest changes in corporate governance standards in India.

India-America Chamber of Commerce hosted a roundtable on corporate governance development in India. President of the Chamber and Equity Partner of Seyfarth Shaw, Rajiv Khanna made the opening remarks . “The Chamber of Commerce tries to make the right things happen. What needs to happen in India is the growth of corporations that take their corporate governance seriously, so that the shareholder value is unlocked. It’s our duty to push for better corporate governance in India”. Seen in the picture, from L to R: Sherry Wang who moderated, Rajiv Khanna who presided and Sandeep Baldava, the guest speaker

Sandeep addressed, among others, the following issues during the Q&A:

1. What will the Indian government do to change the problem of concentrated ownership and family rule in India?
In the new Act, if a single promoter, including the government, has more than 75% of the shares, it needs to offload such access. It helps bring transparency and promote public participation. It also specifies more responsibility for independent directors, which needs to beat least 50% of the board.

2. What are the major changes of the new Act?
On the governance side, more responsibilities and clearer management; on the auditor side, monitoring of auditor rotation, more detailed fraud reports, more standardized procedures and budget. In all, 262 sections have been modified.

A view of the participants

3. What will the government do to improve the implementation of the reform?
The reform on paper is the first step in the right direction. For implementation, the new government wants to improve the legal system. It needs further steps, but the first step hasbeen taken.

4. What does law say about insider trading in India?
There is no adequate process to deal with it effectively.

5. What are the differences between India and other major economies? What are the gaps and can they lead to future problems?
On paper, India is on par with developed economies. Problems may come from implementation. The new government needs to strengthen the enforcement.

6. What are the new government’s resolves to strengthen implementation?
Different departments of India have made it clear that they are going to improve the transparency in India. The public has more access to the regulation system. The process has already started in India.

7. India does not have forensic audits?
We do not have a system to find out what goes wrong, only the balance sheets and signoffs.

8. What has been implemented to let the stakeholders know what goes wrong beyond the balance sheets?
We just launched a security center to welcome investigations from global organizations. Most of the Indian enforcement agencies are trained by the FBI and are equivalent to the FBI. The government has made an effort to introduce skill sets from their resources to detect fraud of the new age. Auditors’ responsibility has been enhanced: they are required to report all fraud.

9. Between the Second World War and 1991, the U.S. was doing well without India. Why did you make the bold statement that no company could ignore India? Could you give five names of U.S. companies making profit after 1991?
Microsoft, HP, IBM, Apple, Dell. To this response, Rajiv commented by saying – “It is very sad when a partner of Ernst & Young struggles to give five names of U.S. companies making money in India after 1991. You could easily name five U.S. companies that lost money in the Indian market. My point is that there are problems; the policy has gone way wrong. India overrates itself. It is all about profit.

You cannot assume companies will come because India makes up 20% of the world population; losses from 20% of the world population can be huge losses. I hope the Modi government will change this.” Sandeep responded by saying, “we often see the negatives. There are positives, like the pharma sector and tech sector I mentioned earlier.What is happening in 10 years in India would take 30 years for markets like the U.S. . You cannot ignore India for its skill sets and man power.”

10. The auditing process is very costly, and it may hurt the growth of small or medium size companies. Does India have a new approach in the Act to deal with this problem?
There are mid-sized audit companies that do not cost that much. It is a question of whether the additional cost is worthwhile for a safer and more transparent business environment.

11. What are the roles and responsibilities of the board and the independent directors?
The new Act requires 50% of the board to be independent directors on the board. It defines who are the independent directors and the process to fulfill their responsibilities. On paper, the process is clear and at par with other major economies. Today, the challenge is how to find independent directors who are willing to come on board and serve.

12. How does social media help the prosecution process?
If people are coming together on social media, they can force the government to take actions.

13. There are reports that many independent directors are ex-bureaucrats who mainly function as facilitators between government and companies, instead of monitors. So are the independent directors now really acting independently?
The new government has made an announcement that there should be a coolingoff period between being a bureaucrat and working in a private sector. It has not been formally announced, but it would be 3 to 5 years. Today, there is no cooling-off period.

14. The independent directors are only getting sitting fees and transportation fees. There is mismatch between the best brains and people willing to spend the time to be independent directors. Is anything being done to remove this problem?
The Act requires significant improvement of the sitting fee. Now it is 10-15 times the fee that was paid earlier. In terms of involvement, the process is different. There are pre-board meetings and pre-audit committee meetings. They need to go through training to understand the business. They now have rights to appoint consultants and independent agencies, and the payment is supposed to be made by the company. So the power, the payment, and also the expectation from independent directors are significantly enhanced.

15. If you had the power, what is the first thing you would do to help corporate governance?
Align the multiple acts that companies need to comply with and implement them in spirit.

16. Are there any indications that the new Act will be faithfully implemented or will it be just another paper tiger?
The desire to implement is very strong in the new government. The bureaucrats are more empowered.We strongly believe it will be implemented in a very different manner, on different levels, as it goes forward. The India- America Chamber of Commerce has recorded this discussion and will be sharing it with members of the Chamber and press. The Chamber is now open for new members. For additional details on the membership applications, please contact Rajiv Khanna – rkhanna@seyfarth.com or 212.801.9268 Poonam Jain – nypoonam@gmail.com or 917 453 0953 17598419v.

About India-America Chamber of Commerce
The India-America Chamber of Commerce works to promotes business-to-business dialog between the business and policy leaders of India and the U.S. – the two largest democracies in the free world. The Chamber serves as a platform for open and spirited interaction among U.S. and Indian business leaders from the private and public sectors. The Chambers’ monthly meetings include keynote presentations by visiting cabinet ministers, ambassadors and other prominent business leaders from the U.S. as well as India. For additional information check www.indiaamericachamber.com